Bankruptcy And Pensions
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 Lose Some Of My Pension?
State pensions or any payments from the State Second Pension (S2P) scheme are never impacted by bankruptcy proceedings.
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 are 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
There is uncertainty at present as to whether benefits under a pension could ‘forced’ to be taken if you’re 55 years old or older. A case in the court of appeal is pending.
Unapproved pension schemes
Unapproved schemes 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 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 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 have failed to disclose relevant details that would have altered the decision made on the agreement.
Lump Sum from a Pension
If, during the course of your bankruptcy, a lump sum becomes payable to you from your pension fund, the Trustee may be able to claim all or part of this. There is no definite answer on this and you should seek advice before entering into bankruptcy if you have a pension fund.