Debtors could be forced to dip into their pension pot to pay off their creditors, according to a leading lawyer.
The warning, from Sonia Mangat, a solicitor in the Dispute Resolution Department at Stratford-upon-Avon-based Lodders, follows a four year court battle which is still not over.
The case dates back to a legal judgment in 2008 in favour of victims of fraud and forgery by a person they had considered a friend. The individual concerned, who had no investment qualifications, had persuaded them to part with money for him to invest on their behalf.
Sonia Mangat said: “Needless to say no one saw a return on their investments, and proceedings were issued against the individual in question. After successfully obtaining a judgment, the creditors proceeded with enforcement of the judgment.
“There were shares which could be sold to pay off some of the judgment debt, but the value of the shares had significantly reduced leaving somewhat of a deficit owing to the creditors.
“Accordingly, the creditors then turned to look at the only other main asset, the man’s pension fund, to meet the rest of the debt. The man’s pension policy allowed the holder to draw down a lump sum of 25 per cent.”
A district judge ruled that the court could not force the debtor to elect to take this, as it would be against his financial interests.
Mrs Mangat said: “It has been the position that pensions are out of reach as they are not considered to be ‘income’. However, a High Court judge disagreed on this occasion as he felt it created a substantial injustice against the creditors.”
The judge also stated that, while the pension would be protected under bankruptcy legislation, the debtor could not claim that protection if he were not bankrupt – if he wanted the benefits, he would also have to take the burdens of bankruptcy.
Mrs Mangat noted: “The case continues to attract attention as the debtor has been given leave to appeal the decision.
“Obviously it requires the debtor to have saved for a pension, and the pension has to have reached a stage where a lump sum payout can be obtained, so we are talking fairly particular circumstances.
“This is a undoubtedly a controversial move and is likely to be a method of last resort as court proceedings work their way through. That said, this is an important ruling as it offers another way of obtaining money due to creditors especially when the debtor has resisted all other methods of enforcement and has no other accessible assets.
“And, to that extent, it means fraudsters cannot so easily get out of their obligations.”
