Pension pots not safe in Bankruptcies

IF

http://www.credittoday.co.uk/article/13788/online-news/pension-pots-not-safe-in-bankruptcies

A High Court ruling means untouched pension pots of undischarged bankrupts could now be used to pay of creditors.
The ruling handed down today (April 4) potentially changes the previously position which considered pensions out of reach as it was not considered as “income”.
Today’s judgment in Raithatha v Williamson states a bankrupt does have an entitlement to a payment under a pension scheme not merely where the scheme is in payment of benefit but also where, under the rules of the scheme, he would be entitled to payment merely by asking for it.

The ruling was made in the case of Situl Raithatha, of Springfields Business Recovery & Insolvency, who was acting as trustee in bankruptcy and brought the application to make Michael Williamson, 59, access his pension.
Commercial law firm EMW principal Damon Watt, who acted for Mr Williamson says the decision affects anyone of pensionable age under their pension scheme, even where they might not have reached the current “state” retirement age of 65, who becomes bankrupt.
He said: “Up until now those who had reached retirement age were perceived to have some limited protection over their pension but this decision strips away that protection.
“The judgment will have a disproportionately adverse impact on more senior citizens who have private pensions whereas younger bankrupts who have not yet reached pensionable age under the scheme will not be subject to such an order depriving them of an element of their pension pot.”

debtinfo

basically for the unitiated what this rulling is saying is as follows,

Normally if you the bankrupt has a right to receive money (an example may be where you are owed money that you loaned someone) then when you go bankrupt the trustee takes over that right and can claim the money instead of you.

Now in pensions the situation has been that you the pension itself is protected and that the right to receive money from it arrises when you the bankrupt choses to have the pension start making payments, understandably most bankrupts would simply choose not to ask whikst in bankruptcy.

this rulling is changing that assumption by saying that if it is possible that the pension could start to pay out (ie if you are over 50) then that right to receive money has already arrisen as all you need to do is ask for the payments, Therefore if the right to receive the money exists at the date of bankruptcy that right transfers to the trustee

debtinfo

also i understand that permission to appeal has been granted so watch this space

IF

Thanks for clarifying DI :A

jayk

This has stressed me out. Am on benefits and £15 of my pension ( was serps) is used to make up my day to day living. I will get a works pension but not till 60- few years away. If they take that pension of me current or future, although hoping to get better am on ESA and find work again will never be able to build up a pension again. Even though mine will be a very small payout.

Am born worrier and not discharged til 2013.

IF

Hi jayk, hopefully DI can confirm that it won't affect you and it is all early days all this.

If...x

debtinfo

what is the first possible date that you can draw the works pension, if it not until you are 60 then this does not affect you, ie if you dont have the choice to take it then neither will the trustee

jayk

Thank you DI. It would be 60. It is a 'frozen pension' That is reassuring.

jamesd

jayk, you're perhaps not certain to be safe if the works pension offers you the ability to take a smaller amount than usual at an earlier age. That possibility is quite common.

It's also possible to transfer a work final salary pension to get a lump sum that can be paid into a personal pension from age 55. Trying to compel someone to do that is an option that might be tried and this would also apply to your situation. An independent financial advisor would be unlikely to advise that this would be a good decision just as a pension option but that would not necessarily restrain a court from ordering it anyway.

However, having to take a lower income for the rest of your life if you take it before the normal date may be the legislative reason that the court could not think of for being unable to take a new pension from a person in bankruptcy. Bankruptcy is supposed to discharge debts and making someone take a lower income for the rest of their life even after discharge would be inconsistent with that purpose. While in the case of a pension already in payment, any decisions relating to that have already been taken and there is no scope for additional reduction. Not that this reasoning of mine matters at all until some court decides on the matter.

Best not to worry at the moment, until more of the dust settling has happened. It'll probably take years.

jayk

Thank you Jamesed good advice to wiait and see however I will take a look at my pension info is an NHS pension. I do hope it does not happen. Thank you for taking time to post re this appreciated.