07 October 2016
Consideration as to whether a pension entitlement in respect of which a bankrupt has a present right to elect to draw down payment falls to be included in the assessment of his income
Facts:
- The respondent was made bankrupt; the appellant was appointed as trustee. The respondent had the right to compel his pension provider to make payments under his policy, but because of support from his family, he had no need to compel these payments and chose not to.
- Under section 310 of the Insolvency Act 1986, the appellant applied for the respondent to pay the tax free lump sum that was available to be drawn down to him, and such further periodic income as might be derived from the pensions.
- The respondent opposed the making of an IPO on the grounds that the benefits he was entitled to draw from his pensions did not constitute “income” to which he had “become entitled”, and it was unreasonable in all the circumstances of the case to require the respondent to elect to draw any benefits from his pensions because he wanted to preserve the maximum capital value of the pensions for as long as possible.
- The judge held that the respondent’s uncrystallised pension rights did not fall to be assessed as part of his income for the purposes of section 310.
Held:
- The Insolvency Act 1986 and pension legislation explicitly excluded pension rights from the bankrupt’s estate. A clear distinction is drawn between payments made under a pension scheme and pension rights under a scheme.
- A trustee could not require a bankrupt to take steps to obtain property excluded from the estate and convert it into income, or to work so as to receive a salary, so that it could be subject to an income payments order (IPO).
- Income comprises every payment in the nature of income which is from time to time made to him or to which he from time to time becomes entitled. There is no basis, as a matter of construction, for concluding that a bankrupt’s contractual rights to crystallise his pension comes within the definition of “income of the bankrupt”. These rights include the choice as to when to draw the pension, how much to draw and the manner of drawdown, which does not fit into the definition of “payment”. Furthermore, rights under a pension which are not yet in payment have been held before and throughout bankruptcy, and therefore the bankrupt has not “become entitled” to the payment.
- Parliament has balanced the interests of the State in encouraging people to save through the medium of private pensions and the interests of creditors in receiving payment of their debts by clawing back excessive pension contributions that have prejudiced the bankrupt’s creditors through section 342A-C of the Insolvency Act. Allowing creditors to seek an IPO under section 310 would side-step the hurdles in section 342A.
- Allowing creditors to seek an IPO would involve the court determining the amount and manner in which it should be paid. However, there is an absence of statutory criteria which could inform the court as to how to direct the bankrupt to exercise his options.
