People facing bankruptcy proceedings may not have to hand over undrawn pension funds after a recent ruling in the High Court.

In Hinton v Wotherspoon, a case was heard last month, it was ruled that creditors could not access pension benefits belonging to anyone bankrupt who was over the age of 55 if they had not already elected to access their savings.

The High Court decided that the existence of a drawdown fund was not sufficient to establish an “entitlement” for an Income Payments Order (IPO) by the trustee of a bankruptcy. This is because there are still decisions to be made over whether to take a lump sum, a drawdown income, buy an annuity, or to leave the funds untouched.

Hinton v Wotherspoon takes the same line as another High Court decision, made in Horton v Henry, which is currently being appealed.

The law has been somewhat confused in this area since the advent of Pension Freedoms, due to another case, Raithatha v Williamson, which was heard in 2012. Then, the High Court held that an undrawn pension could be included in an IPO.

AJ Bell head of platform technical Mike Morrison said that if the Raithatha ruling became a legal precedent or the Horton judgment were reversed, then it could cause serious issues for those facing bankruptcy.

“When the Raithatha judgment was passed the maximum that could be drawn from a pension fund was restricted. After 6 April 2015 this was no longer the case. The whole fund could be taken using the pension freedoms and therefore the whole fund value could have been included in the IPO.

“Horton v Henry made more sense as it restricts the amount that can be included in the IPO, and this latest case also better reflects the original aim of the law.”

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