I must also admit that some of the questions and scenarios that can arise leave me pondering a technical answer. In this article, I want to look at a couple of issues that have made me think over the last few months.
I have written a number of times about the case of Raithatha v Williamson and the verdict that seems to mean that trustees in bankruptcy who are dealing with bankrupt individuals over the age of 55 with pension plans can potentially access the money with there being no need for the pension to have commenced.
In the past, and before WRPA 1999, it was possible in some circumstances for a trustee in bankruptcy to access pension funds. In the examples that I experienced, the principle was that the trustee would take the tax-free lump sum, opt for income drawdown, take the maximum first year’s income and then, quite soon afterwards, buy an annuity annually in advance, before handing the remaining annuity back to the individual.
It is important to note that money is accessed via an Income Payments Order (IPO) on the income being received after an assessment of the reasonable domestic needs of a bankrupt, and such needs are determined by reference to the circumstances of each case.
But where does this leave us with regard to flexible drawdown? Could a trustee in bankruptcy force the purchase of the minimum income and then access the rest of the fund? (Surely, following the previous procedure, the trustee could step into the bankrupt’s shoes and do so?) If so, this could be an important tool for the trustee in such a situation.
(In the case of Blight and others v Brewster from February 2012, the judge ruled that the defendant should be ordered to delegate to the claimants’ solicitor the power to make the election to receive the tax-free lump sum from his pension in the defendant’s name.)
For a bankrupt already in flexible drawdown, I am assuming that any fund left could be accessible.
Flexible drawdown is quite a radical departure from some of the options that we have had previously – as long as the MIR condition is met, there is access to the rest of the pension fund. By analogy, the £20,000 MIR p.a. must be the amount that the legislator regards as the minimum income needed to avoid falling back on the State. As such, it will be interesting to see if/by how much it is reviewed in the future.
An interesting scenario, then, in a divorce case when there is the consideration of pension sharing/offset/earmarking. I am sure that the MIR will be able to be subject to one of these orders but, assuming it was shared, this could leave the divorcee in receipt of less than he/she was anticipating.
Pensions and divorce has been back on the agenda recently, with research suggesting that some of the settlements previously reached would not stand too much scrutiny from a pensions perspective. The argument is that a lack of understanding of the pension sharing rules meant lawyers going down the offset route and that, in reality, there could well have been some larger numbers to take into account.
This is particularly relevant at the moment, as the continuing fall in gilt rates has meant an increase to the CETVs offered from DB schemes. So, to revisit a divorce settlement and calculate on a revised basis could well mean more money to share!
My final thought was around the recent debate and vote on same sex marriage – for advisers who specialise in the pension and divorce arena there could really be a new opportunity here for a demographic that often in the past has had a high level of assets or a good disposable income.
Who said pensions are boring?
Mike Morrison
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AJ Bell