The Welfare Reform and Pensions Act 1999 largely protected pensions from claims against individuals in the event of bankruptcy. The High Court has now ruled that, where an individual holds an entitlement to draw on their tax free lump sum and pension but has chosen not to do so, the Trustee in Bankruptcy can make a claim on the tax free lump sum and pension. However, in circumstances where entitlement to the benefits is dependent on another party, the ruling is less likely to have an impact.
Gareth James, Technical Marketing Manager at A J Bell said “This ruling will have an impact where the entitlement to take benefits is not limited by the discretion of other parties but where the member is simply entitled to draw their lump sum and pension once they reach 55. However with many schemes, and in particular SIPPs and SSASs, the member’s ability to draw benefits can be subject to the discretion of parties such as the scheme trustee or administrator, or their employer. In those circumstances the Court is less likely to consider the member to be entitled to the benefits in a way that would make a claim under an income payments order possible.
James continued “Savers with significant pension assets will be looking for advice regarding the protection offered by their scheme once the effect of this ruling becomes clear. SIPP and SSAS providers will also be working closely with their lawyers to make sure their trust documentation offers as much protection as possible for clients in the event they are made bankrupt. This should be fairly straightforward to achieve for most SIPP and SSAS providers.”