Bankrupts warned pension may count as income

Bankrupts could face losing their private pension income, according to a High Court judgment handed down last week.

The ruling in the case of Raithatha v Williamson means that once a pension can be drawn down the sums received from annuities are considered income (whether the bankrupt has actually received or is merely entitled to them) and are, therefore, susceptible to an income payment order. In essence, this order is a standard part of the bankruptcy process by which the insolvent person has to hand over a proportion of their income to make good their debts.

"Up until now those who had reached retirement age were perceived to have some limited protection over their pension, but this decision strips away that protection," said Damon Watt, a principal of EMW, the commercial law firm who represented Mr Williamson.

Mr Watt added that the judgment will only apply to those of a pensionable age. "The judgment will have a disproportionately adverse impact on more senior citizens who have private pensions. Younger bankrupts, not of pensionable age, will not be subject to such an order depriving them of an element of their pension pot," he said.