High Court rules bankrupts must hand over pensions

thenudeone

Bankrupts over their scheme pension age may be forced to draw their pensions and hand the income to creditors:

http://www.accountancyage.com/aa/news/2166157/court-rules-bankrupts-hand-pensions

System

"Hand over pensions" is not the same as being made to draw an income from the pension and hand over the income.

It doesn't mean the bankruptcy trustee can order the pension provider to hand over the pension pot.
It doesn't mean the pensioner is forced to amend the eventual beneficiary in favour of the creditors.
It doesn't appear to mean the pensioner is forced to use his entire pot to buy an annuity and pay the income for his lifetime to the creditors.

thenudeone

Clifford_Pope wrote: »

"Hand over pensions" is not the same as being made to draw an income from the pension and hand over the income.

Agreed, but it's not nearly as interesting a headline as the one the article actually used (and which I copied):D

jamesd

The court also ruled that the pension commencement lump sum was income and had to be handed over. So that's 25% of the capital plus the ongoing income.

Not addressed in this case is whether the appropriate age for a workplace defined contribution scheme is the earliest date at which it can be taken with an actuarial reduction, nor whether a pension transfer from defined benefit to defined contribution can be ordered to make a lump sum and income available before or at larger amounts than in the defined contribution scheme. Also doesn't cover whether ordering taking a lump sum at a poor commutation rate to move the money into the period of bankruptcy at long term future cost is acceptable.

The reduction of income for life during bankruptcy which is supposed to be for a defined short period may be the legislative purpose that the court couldn't think of for a reason to distinguish between a pension in payment and one not yet in payment. This argument applies much more strongly to a defined benefit pension where the payment is actuarially reduced for life than to a defined contribution one where the 75% after taking the lump sum can stay in income drawdown with no income and growing again after the end of the period of bankruptcy payments.

Until a decade or so ago pensions were included, then the law was changed. For another form of insolvency, the Debt Relief Order, pensions were originally to be counted as assets but the rules were changed to exclude them for DROs.

I expect that the government will clarify the law to exclude pensions not in payment again, at least for the defined benefit with actuarial reduction case.