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Undrawn pension entitlements in insolvency: summary of new guidance

This news item gives a summary of guidance which has been issued to official receivers and DRO intermediaries on how to deal with undrawn pension entitlements in the light of the decision in Horton v Henry [2014] EWHC 4209 (Ch).

The following is a summary of the guidance issued to official receivers and Debt Relief Order (DRO) intermediaries on how to deal with undrawn pension entitlements in the light of the decision in Horton v Henry [2014] EWHC 4209 (Ch), pending the consideration of that decision by the Court of Appeal.

The information below will enable insolvency practitioners and debt advice agencies to update their policies, particularly when giving advice to debtors in regard to how the Official Receiver or DRO Intermediary will deal with undrawn pension entitlements.

  1. Official receivers must not include an undrawn pension fund in any calculation for an Income Payments Order/Income Payments Agreement (IPO/IPA). Only pensions which are in payment at the date of the bankruptcy order may be considered in this calculation. Where an election is made to draw a pension before discharge then the income, including any lump sum, may be included in any calculation or revision of the IPO/IPA. The official receiver may not influence the bankrupt individual in making the election.

  2. Similarly, intermediaries in DRO proceedings should not consider an undrawn pension fund, which might be drawn as the debtor is 55 or over, in the calculation of income. Only funds which are in payment as income should be included when considering surplus income.

  3. Where the debtor is over 55 and has access to an undrawn personal pension fund both the official receivers and intermediaries are asked to consider whether the insolvency test has been met and, at the date of the application or petition the debtor is unable to meet their debts.

  4. In bankruptcy the official receiver will consider whether it would be appropriate to seek an annulment of the order. In a DRO, an intermediary who is concerned that the available fund is considerably higher than the outstanding debt is asked to contact the DRO Team to establish whether the official receiver will in the circumstances grant the application.

  5. Official receivers should continue to challenge payments made into a pension scheme where such payments were to the detriment of creditors. This is particularly important where the bankrupt individual holds a Self-Invested Personal Pension (SIPP) and the main asset of the SIPP is property.

  6. Where a bankruptcy order was made on a petition presented before 29 May 2000, pension arrangements continue to vest in the trustee of the bankruptcy estate. All such cases where the official receiver is trustee are dealt with by the Insolvency Service’s Long Term Asset and Distribution Team pensions unit. Steps will be taken to realise the maximum amounts available for creditors in these cases, applying the changes in pension rules which will come into effect on 1 April 2015.