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Bankruptcy And Pensions

Updated for 2026

If you are considering bankruptcy, one of the biggest concerns you might have is how it could affect your pension. The good news is that most pensions are protected, but it depends on the type of pension you have and your individual circumstances.

This guide explains how different pension types are treated during bankruptcy in England and Wales.

Types of Pension

There are four main types of pension you may have:

  • State Pension – provided by the government based on your National Insurance contributions.
  • Occupational Pension – provided through your employer. Contributions may come from the employer, the employee, or both.
  • Personal Pension – a private pension you arrange and pay into yourself, including SIPPs (Self-Invested Personal Pensions).
  • Group Personal Pension – payments are made to a pension provider, often on favourable terms negotiated by an employer, trade association, or union. In bankruptcy, these are treated the same as other personal pensions.

Will I Lose My Pension If I Go Bankrupt?

Your State Pension (including the State Second Pension, or S2P) is never affected by bankruptcy. It cannot be claimed by the Official Receiver or a Trustee in Bankruptcy.

Pension schemes (occupational or personal) that are approved by HMRC do not form part of your bankruptcy estate. This means the Trustee in Bankruptcy cannot claim them as an asset.

This protection applies to the pension as an asset. Income you receive from a pension is treated differently (see below).

What Counts as an Approved Pension Scheme?

The following pension schemes are protected under the Welfare Reform and Pensions Act 1999 and the Finance Act 2004:

  • Schemes registered with HMRC under section 153 of the Finance Act 2004
  • Retirement annuity contracts
  • Schemes approved by HMRC for tax purposes
  • Stakeholder pensions
  • Workplace auto-enrolment pensions

If your pension falls into any of these categories, it is protected and the Trustee cannot claim it.

Can I Be Forced to Access My Pension Early?

There has been debate about whether a Trustee can force someone aged 55 or over to access their pension. The normal minimum pension age is currently 55, rising to 57 from 6 April 2028.

Case law (including the Horton v Henry Court of Appeal decision) has clarified that a Trustee in Bankruptcy cannot compel you to draw your pension early. Your approved pension remains protected regardless of your age.

That said, if you voluntarily access your pension during bankruptcy, the funds you withdraw could be treated as income or assets within your estate.

Unapproved Pension Schemes

If your pension is not approved by HMRC, it may not be automatically protected. However, it could still be excluded from your bankruptcy estate by:

  • Applying to the court for an exclusion order
  • Making a qualifying agreement with the Official Receiver

The court will consider your current and future financial needs, as well as those of your family and dependants.

Pension Income During Bankruptcy

While your pension pot is usually protected, any income you receive from a pension during bankruptcy is treated differently. If your pension income (combined with other earnings) exceeds what the Official Receiver considers necessary for your reasonable living expenses, you could be asked to make contributions through an Income Payment Agreement (IPA) or Income Payment Order (IPO).

An IPA or IPO can last for up to three years, even continuing after your discharge from bankruptcy (which typically happens after 12 months).

Pension Lump Sums During Bankruptcy

If a lump sum becomes payable from your pension during the course of your bankruptcy, the Trustee may be able to claim all or part of it. This applies to any tax-free lump sum or other withdrawals you choose to take.

If you are approaching the point where you could take a pension lump sum, it is important to get professional advice before applying for bankruptcy.

Excessive Pension Contributions

If the Official Receiver believes you have made excessive pension contributions to deliberately move money out of reach of creditors, they can apply to the court to have those contributions recovered. This is known as a “transaction at an undervalue” or a preference.

Contributions made in the normal course of your employment or at a reasonable level are unlikely to be challenged.

Could an Alternative to Bankruptcy Be Better for You?

If you are worried about the impact on your pension, it is worth considering whether an alternative to bankruptcy might be more suitable. Options include:

The current fee to apply for bankruptcy in England and Wales is £680.

Key Points to Remember

  • Most approved pensions are protected during bankruptcy and cannot be claimed by the Trustee
  • Your State Pension is always safe
  • Income from pensions may be subject to an IPA or IPO if it exceeds your reasonable needs
  • Lump sums taken during bankruptcy could be at risk
  • You cannot be forced to draw your pension early
  • Excessive contributions made to avoid creditors could be clawed back

This page provides general information only and should not be considered financial or legal advice. If you are unsure about how bankruptcy could affect your pension, seek independent professional advice before making any decisions.

For more information, browse our bankruptcy guides or get in touch for a free initial consultation.