The Court of Appeal has dismissed an appeal in the case of Bacci v Green, in which the High Court judge had made an order which would enable the member's creditors to enforce their debts against a member's pension fund.  

The High Court judge had ordered the member to delegate to his creditors the power to revoke the member's enhanced protection and to request payment of a pension commencement lump sum and lifetime allowance excess lump sum.  The member had been made bankrupt after fraudulently obtaining loans.  Under section 11 of the Welfare Reform and Pensions Act 1999, his pension rights did not form part of his estate on bankruptcy.  Because the member's debts had been incurred in respect of fraud, his bankruptcy did not extinguish them.

The Court of Appeal rejected the member's argument that the court did not have power to require the member to revoke his enhanced protection (a key step in enabling the member to take a lifetime allowance excess lump sum).  It also rejected the argument that it was contrary to public policy to make an order allowing creditors to enforce their debts against the pension rights of a member who had been made bankrupt.  It endorsed the comment made by the judge in Blight v Brewster that the  "[the] idea that the fraudster and forgerer can enjoy an enhanced standard of living at his retirement instead of paying the judgment debt would be a very unattractive conclusion".  Finally, the Court of Appeal rejected the argument that it had been inappropriate for the judge to make the order given the large tax liabilities which would result from the loss of enhanced protection.  Approving the judgment in Brake v Guy on this point, the Court of Appeal said that the mere fact that execution of a court order would incur a tax charge was not a bar to making it. 

Our thoughts

The introduction of the "pension freedoms" in 2015 has meant that a defendant's pension fund may now provide richer pickings for a creditor looking to enforce a judgment debt, at least in cases where the debtor has reached age 55 and can therefore lawfully draw down the entire pension fund.  A court order requiring a debtor to draw down the whole of the pension fund in one go has the potential to result in particularly harsh tax consequences, with income tax being payable on a large proportion of the fund at a much higher marginal rate than would have applied had funds been drawn down over a number of years.  However, the case law now tells us that harsh tax consequences are largely irrelevant to whether the courts will force a member to draw down a pension fund to pay a creditor.

Jade Murray

Jade Murray

Partner, Pensions
United Kingdom

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