Bankruptcy and Pensions

In bankruptcy, you may lose some of your pension capital and have to make payments from pension income towards your debts.

There are four types of pension you may have already or could receive in the future:

  • State Pension
  • Occupational Pension
    – Contributions may have been made by the employer, the employee, or both.
  • Personal Pension.
  • Group Personal Pension – Payments are made to a pension provider, often on favourable terms negotiated by a employer/ trade association or union. In bankruptcy these are treated in the same way as other personal pensions.

Will I loose some of my pension?

State pensions or any payments from the State Second Pension (S2P) scheme are never impacted by Bankruptcy proceedings.

The Welfare Reform and Pensions Act 1999 states that where a bankruptcy order was made on a bankruptcy petition which was presented on or after 29th May 2000, all pension schemes (Occupational or Private) which have been approved by HM Revenue and Customs do not form part of a bankrupt’s estate and therefore cannot be claimed by the Trustee in bankruptcy. 
This refers to the pension as an asset, not income from the pension.

Approved pension schemes defined as:

  • Those registered under section 153 of the Finance Act 2004 (meaning, schemes registered by HM Revenue and Customs plus annuity contracts used to secure benefits under a registered pension scheme which do not provide for immediate payment of benefits)
  • Retirement annuity contracts.
  • Those approved by the HM Revenue and Customs for tax purposes;
  • Stakeholder pensions.

Unapproved pension schemes
Unapproved pension scheme can possibly be excluded from a bankruptcy estate by applying to court for an exclusion order or by making a qualifying agreement with the Official Receiver.

Pensions included in a Bankruptcy estate.
When a pension policy is included in a bankruptcy estate, the official receiver can claim the lump sum and the regular payments. This can also be after discharge from bankruptcy. It may be possible to buy back part or all of the pension policy at a later time.

Income from Pensions during Bankruptcy

If you receive a regular income from a pension and/or a lump sum during bankruptcy, then this may be subject to an income payment order or income payment agreement.

You may apply to the court to for an exclusion order or make an qualifying agreement with the Trustee that this should be excluded. As in the case of unapproved pension schemes, your current and future needs and that of your family/dependants are considered.

The qualifying agreement can be revoked by the Trustee if you are found to fail to disclose relevant details that would have altered the decision made on the agreement.

You make apply to the court for an exclusion order:-

  • Within 13 weeks of the appointment of the Trustee
  • within 30 day of the revoke of a qualifying agreement.

IVAs & Your Pension.

The asset that is your personal pension is not at risk on an IVA. However, you may be required to reduce or suspend payments into it for the duration of the IVA with the intention of using this money towards the IVA.

Income received from either a state or other pension schemes are considered as income when calculating how much you can afford to pay into an IVA.

If you have made excessive contributes into a personal pension plan, just before applying for personal involvency, which is what an IVA is, then this may be considered to be an attempt to hide money from your creditors. In the case of bankruptcy, this transaction could be reversed by court order and the money taken to paid towards your debts. Your creditors would require the same in order to approve the IVA propsal, after all an IVA is intended to produce more for the creditors than bankruptcy.