In Horton, the facts of the case were virtually identical to Raithatha. Unusually, however, the judge declined to follow Raithatha on the basis simply that it was wrongly decided.
Here, the judge held that the debtor only became entitled to pension income once the pension had been crystalised.
This left TIBs, debtors and their legal advisers in a somewhat awkward position given they were faced with two conflicting cases from courts of the same standing.
Thankfully, this was cleared up in 2016 when Horton was taken to the Court of Appeal.
Here, the appeal was dismissed on the basis that the right to elect how to receive a pension is part of a bundle of contractual rights that remain vested in the debtor (and not the TIB).
At age 55, the debtor only becomes entitled to a ‘right to elect’ not a ‘right to payment’.
Under section 333 of the Insolvency Act 1986, the debtor has a general duty to cooperate with the TIB.
The judge also noted that this section could not be used to compel the debtor to crystalise.
The end result is that Raithatha has been rolled back, and an uncrystalised pension fund is beyond the reach of an income payments order.
A TIB cannot force a debtor to crystalise their pension.
Life after Horton
There is another court case of note – this being Hinton v Wotherspoon, which was heard in the High Court in 2016.
Strictly speaking, Hinton was heard before the Horton appeal, but it still followed the Horton first instance decision, which was later upheld.
It was interesting as it provided some insight into how an income payments order might work in practice in a defined contribution pension scheme.
In this case, the judge commented that the mere presence of a drawdown fund was not sufficient on its own to create an ‘entitlement’ to income.
It was only once the debtor had actually elected to draw an income that an income payments order could be granted against it.
It is worth noting that these comments were outside of the main judgment, so they are not technically binding, although another court would certainly take them into account if the same scenario arose again.
Insolvency Service guidelines – a sting in the tail
This was not the end of the matter, however.
While Horton was waiting to go to the Court of Appeal, there was a further twist in March 2015.
This came not from a court case but from the Insolvency Service, and it centred on the publication of their updated guidance to insolvency practitioners.
In a move clearly anticipating the pension freedoms that were due to take effect in April 2015, the updated guidance said that if a debtor is aged 55 or over and has uncrystalised funds, the debtor has the accessible wherewithal to meet their debts.
