Can Trustees in Bankruptcy obtain Income Payment Orders against Bankrupts pensions?

Since s.11 of the Welfare Reform and Pensions Act 1999 came into force, undrawn pensions were seen as protected against a Trustee in Bankruptcy (Trustee). However, cases in 2012 and 2014 have changed this position.

Raithatha v Williamson 2012 opened the door for potential Income Payment Orders (IPO) against the pension of an individual who has become bankrupt. The recent decision in Re X [2014] B.P.I.R. 1081. has provided further guidance on the matter and, along with the anticipated changes to a Trustee’s entitlement to a Bankrupt’s pension borne out of the Budget 2014, trustees across the country await with anticipation how the question of entitlement to a bankrupt’s pension will be determined.


When an individual becomes bankrupt, all of his assets (with some exceptions) vest in his Trustee upon the Trustee’s appointment (s.306 Insolvency Act 1986). If a Bankrupt receives an income, the Trustee may make an application for an IPO to receive a proportion of such income.

S.11 of the Welfare Reform and Pensions Act 1999 excluded a bankrupt’s rights under an approved pension arrangement from vesting in his Trustee. However, when a Bankrupt was receiving an income from a pension, his Trustee might seek an IPO over this.

Raithatha v Williamson [2012] EWHC 909 (Ch)

In this High Court case, the Bankrupt was 59 and had not yet elected to draw down his pension. The Bankrupt argued that his undrawn pension was not income (and therefore not available as the subject of an IPO) as he had not drawn it. The Court held, in a departure from the norm, that the Bankrupt’s right to draw his pension represented income. The case seemingly gave Trustees the ability to compel a bankrupt to draw their pension, where the bankrupt is over 55 and yet to commence payment from their personal pension.  

The Court determined that it was not justifiable to distinguish between pensions that could be drawn but hadn’t, and pensions that were already being drawn down by the bankrupt individual.

Re X [2014] B.P.I.R. 1081

In the recent case of Re X, the Judge revisited the issue of pensions and IPO’s, yet did not apply the decision in Raithatha.  District Judge Smith distinguished Re X from Raithatha as on the facts, to include the pension in an IPO would reduce the Bankrupt’s income to below a figure which they could be expected to live on.

The Judge held that the IPO application ignored the nature of a pension scheme as an asset. As the Bankrupt’s current income already fell below her domestic needs, this would likely only increase in future. 

The future – dependant on the facts

Re X is significant because it didn’t strictly follow or overrule Raithatha, and as a result the perceived floodgates for claims by trustees in relation to a bankrupt’s pension may not be open as far as some had expected. In Re X, the Judge highlighted that Raithatha failed to show how the decision would be applied in specific cases. This means that a trustee cannot simply assume that, where a Bankrupt is over 55 an IPO will be granted over a pension not yet drawn down. The granting of an IPO in relation to a pension will depend on the facts of that case.

The timing of the decision in Re X is significant. In the 2014 Budget, the Chancellor announced pension reforms that would allow holders of a defined contribution scheme to draw down the entire pension pot as a lump sum from April 2015. This could be an attractive prospect for trustees. The decision in Re X brings back some level of protection to Bankrupts who may rely on their pension to provide for their personal needs, as Trustees will need to put forward a strong case as to why an IPO against an undrawn pension is appropriate. 

If you require any further information or advice on the implications of the recent case law on Income Payment Orders being made against a Bankrupts’ pension right, please contact Elizabeth Boyes.

Authors: Velida Pudic and Amy Crighton

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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