A creditor can apply for a third-party debt order to enforce a judgment debt against a debtor's personal pension entitlement.
Summary
The judgment creditor (Guy parties) was granted an injunction ordering the debtor (Brake parties) to exercise their right to draw down their pension entitlement under a third-party debt order (TPDO).
Background
On 14th September 2021, Mr Brake moved his pension to a 'Flexi-access drawdown' pension with James Hay Partnership (JHP), a third-party pension provider, and withdrew 25% of the pension as a tax-free lump sum. The remaining pension fund amounted to just over £89,000.
The Guy parties had a judgment against the Brake parties for appeal costs in the sum of approximately £70,000. They sought to enforce the judgment using a TDPO.
Arguments against a third-party debt order
The Brake parties argued that no debt had accrued at all. Rule 72.2(1) Civil Procedure Rules state that for a TPDO to be made, there must be a debt due.
JHP said it had a fiduciary duty towards Mr Brake to act in his best interests so the interim TPDO should not be made final.
The court’s decision
The court was asked to decide if a debt existed, and whether the pension company had a duty to the Brake parties that prevented it paying the TPDO.
Existence of the debt
Under Rule 72.2 Civil Procedure Rules, for a TPDO to be made final there must be a debt due. To create a debt, the Brake parties would have had to exercise their right to draw down the pension funds. Otherwise, JHP had no obligation to pay a debt to the Guy parties.
The court decided it would be just and convenient for them to make an injunction ordering Mr Brake to exercise his right to draw down his remaining pension entitlement from the third party. Upon this instruction, the debt would be created, which would permit the TPDO.
Third-party debt order against the pension fund
The court held that the fiduciary considerations would only be relevant to the exercise of discretion, which was not relevant in this case.
The judge concluded that if Mr Brake, or someone authorised to act on his behalf, were to exercise their right to draw down the pension fund, the pension provider would not have any relevant discretion to exercise. Financial Conduct Authority Principles and Rules would have no role to play once an instruction had been given.
Comments
In Blight v Brewster [2012] EWHC 165 (Ch) the court restored a TPDO to access a 25% lump sum from a judgment debtor, where the judge commented that “debtors should not be allowed to hide their assets in pension funds when they had a right to withdraw monies needed to pay their creditors”.
Following Lindsay v O'Loughnane, this case is another example of the circumstances where a creditor might be able to enforce a judgment debt against a debtor's personal pension.