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The issue: to what extent, if any, is a pension not yet in payment available to be taken into account on an application by a trustee in bankruptcy for an income payments order?
The factors considered by the profession to be relevant prior to the Court of Appeal decision:
- What does “entitled” mean in section 310 Insolvency Act 1986? Does it mean only that money which the bankrupt has elected to take from the pension pot or does it include the funds for which the bankrupt could elect to take but has not yet done so?
- Is it possible for the court to make an order requiring the bankrupt to take certain steps in relation to the pension pot?
- What are the true effects of the amendments made to section 310 Insolvency Act 1986 by, progressively, the Pensions Act 1995 and the Welfare Reform and Pensions Act 1999? Do they allow only actual payments to be taken into account for Income Payment purposes or is the cumulative effect of those amendments to make the entire pot available?
The Court of Appeal has decided that:
The pension pot remains an asset excluded from the estate and income to which the bankrupt is entitled only applies to a pension fund that is actually in payment. There is no right on the part of a trustee in bankruptcy to compel a bankrupt to take any particular election in relation to a pension scheme.
The reasons:
- The clear rationale from the 1995 and 1999 Acts was to exclude pensions from the bankruptcy estate;
- A trustee in bankruptcy cannot have rights to compel a bankrupt to take an action in relation to an asset that is not part of the estate;
- It would drive a coach and horses through bankruptcy legislation if this were so;
- The bundle of rights that the bankrupt has in connection with a pension fund do not naturally fit within the definition of “income” under section 310 Insolvency Act 1986;
- The bankrupt was only “entitled” to the income that was actually in payment.
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