The Rhaithata v Williamson decision entitles the trustee to include within the income considered for IPO/A purposes a bankrupt’s income entitlement from a personal pension, where that pension is capable of being drawn but, is the trustee in a position to influence the decision of the client as to how the fund is drawn?
I can envisage that there are many cases where the trustee estimates entitlement based upon the client drawing the maximum available lump sum and the resultant annual pension, and the client cooperates with this, perhaps having been persuaded that this is the appropriate thing to do.
The above would maximise the return to the estate but, what are the trustee’s options should, for example, the client decide to minimise the lump sum and maximise the annual pension?
If this were done before the order were made the trustee would have no control but can the decision properly be influenced by the trustee or the court if the decision has not been made by the commencement of the bankruptcy?
If the pension fund were so small as to entitle the client to claim the whole fund as a trivial commutation lump sum. Does this entitle the trustee to force that claim and take the fund? Such is now suggested by The Insolvency Service, subject, of course to a proper assessment of income and expenditure.
Following the March 2014 budget the position is now that small pension funds may be drawn by savers – funds up to an aggregate of £30,000, it appears, subject to certain conditions.
The budget statement also announced that from April 2015 pension savers will be allowed to access the entirety of their fund regardless of its size?
As the law appears to now stand; if a bankrupt client can draw the fund it may be capable of being realised for the benefit of the creditors if regarded as income during the IPO/A period.
It has also been suggested that a decision and action in respect of the pension before the bankruptcy order may be seen as open to challenge if it is disadvantageous to creditors.
This might be a good time to seek clarity and lobby for some protection in advance of the pension changes