The Court of Appeal found that a judgment creditor could not require a judgment debtor to draw down a lump sum from their occupational pension scheme to pay their debt.
Broadly, section 91 of the Pensions Act 1995 restricts the surrender, commutation or assignment of entitlements or future rights to a pension under an occupational pension scheme, subject to certain exceptions. Where the restriction applies, section 91(2) prevents a court from making an order “the effect of which would be that [the member] would be restrained from receiving” the pension unless the order is an attachment of earnings order under the Attachment of Earnings Act 1971, or an income payments order under the Insolvency Act 1986.
Mr W was the owner and controller of a company, Manolete, and the only member of a small self-administered occupational pension scheme (the “Scheme”). On reaching normal retirement age, he designated £1 million of his pension fund to drawdown, and took out a lump sum of £250,000 leaving £750,000 in the drawdown fund.
Mr W had not sought to take any other benefits from the Scheme, but under the Scheme rules he could seek to agree with the trustees that he should receive payments from the drawdown fund, or require the trustees to use the drawdown fund to purchase a lifetime annuity. Mr W could also ask the trustees to designate further assets to drawdown.
The company went into insolvent liquidation in 2017. In August 2020, Manolete took an assignment from the liquidators of claims that Mr W had breached his fiduciary duties to the company. Having obtained a judgment against Mr W in respect of the breaches, the judge directed Mr W to pay Manolete c. £1 million (“the Judgment Debt”).
As the Judgment Debt was not paid, Manolete applied to the High Court for an order requiring Mr W to exercise his rights under the Scheme and instruct payment of his pension to be made directly to Manolete.
The High Court decided that section 91 did not prevent it making an order requiring Mr W to draw down monies into an account in his own name, so that the pension pot could be used to satisfy the Judgment Debt (“the Order”). Mr W appealed to the Court of Appeal, contending that the Order was prohibited by section 91(2).
Lord Justice Snowden considered the intention behind the legislation is that “a member’s entitlement or right to future benefits under an occupational pension scheme should remain available to provide support to that member in retirement”. This meant that, subject to specific exemptions, such rights should be “immune from attachment to pay the claims of creditors”.
In addition, the Court noted that section 91(2) prohibits the making of an order “the effect of which” would be that a member would be restrained from receiving their pension. It does not simply prohibit the making of an order restraining the member from receiving their pension. In the judge’s view, the reference to the member “receiving” their pension had to be to a member receiving the pension “for their own benefit”. Specifically, that would not be the case where the debt giving rise to a pension payment was attached or charged in favour of a judgment creditor, or where the effect of the order would be that, upon receipt, the member would be prohibited from using the pension monies except to pay a judgment debt.
As Mr W had no present entitlement or right to any immediate pension payment from the Scheme, he “[fell] squarely within the scope of sections 91(1) and (2)”. It was similarly clear that the Order (and alternative versions of it which had been put forward) would contravene section 91(2) as they would have operated to prevent Mr W receiving any of his pension monies.
Appeal allowed.
This is a useful confirmation of the scope of the restriction in section 91.
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