Court of Appeal Confirms Occupational Pensions Are Shielded from Creditor Claims

The Court of Appeal has recently held that occupational pensions are protected from injunctions requiring them to be made available to creditors for enforcement purposes in the judgment of Manolete v White [2024] EWCA Civ 1418.

The appeal raised the question of whether a judgment creditor can obtain a mandatory injunction requiring a judgment debtor to draw down a lump sum from their occupational pension fund, and if so, in what circumstances.  

The Appellant ("Mr White") was the owner of Lloyds British Testing Limited (the "Company"). He was the only member of an occupational pension scheme which was established by the Company twenty years prior ("the Scheme"). The Company went into administration in 2016 and then into insolvent liquidation in 2017. The Respondent ("Manolete"), which is a litigation funder, took an assignment from the liquidators of claims for breach of fiduciary duty owed by Mr White to the Company. 

Manolete alleged that Mr White had breached his fiduciary duties to the Company by causing it to make a series of substantial payments in the period of 20 months before it went into administration. The payments included payments towards a number of luxury cars, a helicopter, foreign holidays for Mr White, payments towards his home, and rent on his son's flat. Manolete obtained a judgment against Mr White for circa £1 million (inclusive of interest and costs).

After the judgment remained unsatisfied, HHJ Hodge KC (the "Judge") made the order which has since been appealed. The Judge ordered Mr White to give notice to the Scheme trustees, exercising rights to draw down his entire pension fund and direct payment into a UK bank account into his own name which would then be paid to Manolete.

Mr White appealed this decision and contended that when viewed against the background of the application by Manolete, the effect of the Judge's Order was that he would not receive his pension from the Scheme, but that it would be used by Manolete to discharge the Judgment Debt, and that this was prohibited by section 91(2) of the Pensions Act 1995 (the "Act"). He contended that in making the Order, the Judge adopted an artificial approach that was contrary to the clear meaning and statutory purpose of sections 91(1) and (2) of the Act that entitlements and rights to future benefits under occupational pension schemes should be immune from the claims of creditors.

The Court of Appeal subsequently reviewed the purpose of the legislation and considered why the Act was introduced. The Court noted that at the time the Act was introduced there was an understanding that entitlements or rights to future benefits under occupational pension schemes should be immune from attachment by judgment creditors, and should not form part of the estate which would vest in a trustee in bankruptcy for the benefit of the general body of creditors of the scheme member. The Judge held that "There is no indication in any of the legislative materials that Parliament intended to alter or diminish the general immunity from attack by creditors which was given to entitlements and rights to future pensions under occupational pension schemes by the remaining provisions of section 91."

The Court of Appeal concluded that the Order Manolete had previously sought would have contravened section 91(2) of the Act. Therefore, the appeal was allowed, meaning that Mr White was not required to draw down money from his occupational pension fund. 

This judgment has confirmed that occupational pension funds are protected from being drawn down to satisfy judgments. This decision may be welcomed by those D&Os who have the benefit of a final salary pension given it is ringfenced from enforcement actions.  This decision is set against a backdrop of high levels of corporate insolvencies and an active litigation funder market seeking assignment of potential claims against former D&Os of insolvent companies.