Well, the wait is finally over. Horton v Henry has been decided. After hearing arguments in April and deliberating over this important decision for 6 months, the Court of Appeal released their much anticipated judgment on 7th October 2016. Unfortunately for me, this came a week after my summary of the case history was published in PMI News with a “wait and see” conclusion on the Horton decision. The Lord Justices clearly forgot to give me a heads-up… so rude!
Anyway, as mentioned in my article and earlier blog this decision has been a long time coming. A controversial and potentially devastating judgment for bankrupts (Raithatha in 2012) has been put to bed, meaning bankrupts can now breathe a sigh of relief that their entire pension pots post Pension Freedoms are not at risk of an Income Payment Order.
On the flip side – there are always winners and losers in law – creditors, who held out hope that the High Court decisions of Hinton v Wotherspoon and the first instance of Horton itself would be overturned, have been left with a bad taste. Those owing them money can protect their pensions in full by simply not electing to drawdown their funds.
The only uncontroversial winners then are trustees in bankruptcy (“TiB”) and pension scheme trustees, in that they now have total clarity as to whether an IPO can be imposed on a bankrupt’s unelected pension.
For this writer, the decision is entirely sensible in light of the Pension Freedom implications, as well as in keeping with the intention of Parliament in section 310(7) of the Insolvency Act 1986 and the subsequent amendments from the Welfare Reform and Pensions Act 1999. In fact, speaking of the legislative intention, Lady Justice Gloster in her comprehensive decision stated, “It would drive a coach and horses through the protection afforded to a bankrupt’s pension rights by the Insolvency Act and pension legislation if a trustee were able, in effect, to require a bankrupt to make the entirety of his pension available for satisfaction of his creditors’ claims.”
I do have sympathy for creditors who will feel bankrupts have taken advantage of a loophole. Whilst I also have empathy for those bankrupts who have seen their pension pots raided on foot of the Raithatha judgment. Yet, as the learned Lady Justice commented on this juxtaposition, “it is a matter for Parliament to decide where the line should be drawn between protecting the interests of creditors on the one hand and safeguarding the savings of private pension holders on the other.”
However, as mentioned in my earlier articles, the impact of the Court of Appeal’s decision in Horton may have implications beyond the pension-bankruptcy-IPO landscape. This saga of case law has really focused on the interpretation of when an individual is “entitled” to their pension funds. With members now appearing not to have a strict “entitlement” to their uncrystallised funds for income assessments, could this impact other areas, such as taxable income, inheritance tax, or even means-tested assessments in divorce or maintenance cases? The Lord Justices may have created a powerful precedent here that could have wide ranging applications.
I for one will be keeping an eye out for how this decision will be applied in the future. Yet, for now (assuming the Supreme Court isn’t dragged into the saga!) bankrupts, TiBs, pension scheme trustees and the H on my keyboard, can rest easy. Creditors, less so, but at least they have clarity, if not a slice of their debtor’s pension.