Piggy Bank Savings Toddler Half Filled

One of the key themes to emerge from George Osborne’s 2014 budget announcement was the radical overhaul of the current pensions system. In particular, there is an increased emphasis on flexibility for savers, with increased scope for taking a lump sum and the removal of the requirement to buy an annuity.

This has particular relevance following the decision in a recent case[1]. The Court decided that where a bankrupt could exercise the rights to a payment under a pension scheme,  such as drawing a lump sum, but had chosen not to do, those payments could be subject to an ‘Income Payment Order’ (under s.310 Insolvency Act 1986).  Trustees who make successful  Income Payment Order applications can elect to draw lump sums from the bankrupt’s pension schemes; with the result of a decreased annuity down the line.

This decision was tempered by the controls currently in place which require a pensioner to buy an annuity, restricting the lump sum payment available to a bankrupt’s trustee and ensuring he would still be able to fund his or her retirement. With the 2014 budget stripping away this requirement, does this now mean that trustees may apply for increased amounts to be taken in a lump sum format (under s.310 applications)? Could they take all of a bankrupt’s pension pot? Is this the case despite the proportionately negative impact this has on future payments under the pension scheme? These questions need to be addressed by the Government when drafting legislation to set up this aspect of the 2014 budget.

A consultation on this topic, under the heading ‘Freedom and choice in pensions’ [2], closes on the 11 June 2014. We hope the ‘summary of responses’ to be published following this period will provide greater clarity on how the Government proposes to proceed.

For more information, email blogs@gateleyuk.com.

[1] Raithatha (as Trustee in Bankruptcy of Michael Roy Williamson) v Williamson [2012] EWCH 909 (Ch)

[2] https://www.gov.uk/government/consultations/freedom-and-choice-in-pensions 

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.