In association with Tilney: uncrystallised pension funds are safe from creditors if bankruptcy occurs

Fears that creditors could force someone in bankruptcy to hand over their entire pension pot under pension freedoms have reduced.

The Court of Appeal has agreed with a ruling by the High Court that an income payments order (IPO) couldn’t be placed on uncrystallised funds, giving confidence that uncrystallised pension funds remain safe from creditors if bankruptcy occurs.

It is possible for a trustee in bankruptcy (TIB) to place an IPO on pension incomes in payment, allowing them to claim income in excess of that required for ‘reasonable domestic needs’ for up to three years.

The recent court case centred around whether the TIB could force someone to access their benefits so that an IPO could be lodged against it.

The case hinged on the right to pension income. The ruling stated that although there were uncrystallised funds and the recipient was over the minimum pension age, there was no entitlement to income as there was no compulsion to take it.

Had the decision gone the other way, there were concerns that the whole of an individual’s pension savings could have been exposed to an IPO, as under the new pension freedoms there’s no longer a need to buy an annuity.

A second case involved the bankruptcy of an individual who had crystallised their pension and was in drawdown. The decision in this case was to allow an IPO against the income.

Uncertainty remains around defined benefit schemes and occupational money purchase plans. Will the deferral of benefits past the scheme’s normal retirement age avoid an IPO on income, or will they still be considered to have a right to income at normal retirement age and therefore be forced to take it?

The Author
Stephen Parker is a chartered financial planner with Tilney in Scotland. He can be contacted on 0333 014 5429 or
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