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To what extent is a pension payment, not yet in payment, available to be taken into account on an application by a trustee in bankruptcy for an income payments order?

The factors considered by the profession to be relevant prior to the Court of Appeal decision:

  1. What does “entitled” mean in section 310 Insolvency Act 1986? Does it mean only that money which the bankrupt has elected to take from the pension pot or does it include the funds for which the bankrupt could elect to take but has not yet done so?
  2. Is it possible for the court to make an order requiring the bankrupt to take certain steps in relation to the pension pot?
  3. What are the true effects of the amendments made to section 310 Insolvency Act 1986 by, progressively, the Pensions Act 1995 and the Welfare Reform and Pensions Act 1999? Do they allow only actual payments to be taken into account for Income Payment purposes or is the cumulative effect of those amendments to make the entire pot available?

The Court of Appeal has decided that:
The pension pot remains an asset excluded from the estate and income to which the bankrupt is entitled only applies to a pension fund that is actually in payment. There is no right on the part of a trustee in bankruptcy to compel a bankrupt to take any particular election in relation to a pension scheme.

The reasons:

  1. 1. The clear rationale from the 1995 and 1999 Acts was to exclude pensions from the bankruptcy estate.
  2. A trustee in bankruptcy cannot have rights to compel a bankrupt to take an action in relation to an asset that is not part of the estate;
  3. It would drive a coach and horses through bankruptcy legislation if this were so;
  4. The bundle of rights that the bankrupt has in connection with a pension fund do not naturally fit within the definition of “income” under section 310 Insolvency Act 1986;
  5. The bankrupt was only “entitled” to the income that was actually in payment.


The decision at least has now settled the issue of the position of pensions and their interaction with the income payment regime of the Insolvency Act. There has always been a balancing act to ensure that pension pots have a measure of protection but creditors are not prejudiced in that either the income from the pension is to be taken into account for income payment purposes or excessive contributions to a pension can be recouped in certain defined circumstances.

The earlier decision in Raithatha v Williamson had cast doubt on this. That doubt has now firmly been quashed.

The Court of Appeal has restored the position to that which many considered it should be, ie pension pots are protected and that was the legislative intention. The court used statutory explanatory notes as an aid to interpretation which made it plain that the intention was for a trustee to be in a position to seek an income payments order on pension plans which were in payment and not otherwise. These notes had not been referred to in Raithatha.

Ultimately, the court agreed that the aim of the exclusion of pensions from a bankruptcy estate and the income payments regime was that only pensions in payment were susceptible to an income payments order. The trustee has no right to force an election on a non-bankruptcy estate asset in much the same way that there was no right to force a bankrupt to work nor to request a payment from a discretionary trust.

Graham McPhie

If you wish to discuss this issue, please contact Graham McPhie ( or Frances Coulson (

This is intended for general information only and should not be considered as giving advice in relation to any individual case nor be taken as applying to any particular case. No liability is accepted for any such use of the information contained here


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