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Court rules pensions are protected in bankruptcy

The Court of Appeal has ruled savers facing bankruptcy will not be forced to cash in their pensions to pay off outstanding debts.

The law (section 310A of the Insolvency Act 1986) allows the Official Receiver or trustee in bankruptcy to issue an income payments order that asks a bankrupt individual to agree to make regular payments from their income into the bankruptcy estate for a specific period of time (usually three years).

In June this year, it was ruled people facing bankruptcy proceedings do not have to hand over undrawn pension funds by the High Court but this ruling was then challenged. However, on Friday (7 October) the Court of Appeal dismissed an appeal against the earlier Horton versus Henry ruling.

Ben Allen, Managing Director of Allen Tomas & Co comments that anyone in this position should relax with the knowledge that the UK legal system appears to acknowledge pensions to be out of the reach of a bankruptcy trustee and agrees with fellow industry professionals, that the exception may be where substantial pension contributions are made immediately prior to bankruptcy.

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