Bankruptcy
If you become bankrupt, the government's Official Receiver will take control of your assets and pass them over to a Trustee in Bankruptcy (TIB) to use to pay off your creditors. Pensions are an asset you are entitled to receive at some point and therefore are potentially property that can be passed over to the TIB.
The position of your pension may depend on:
- the date you were made bankrupt;
- whether you have been discharged from bankruptcy or not;
- whether your pension is an occupational pension or a personal pension.
The Welfare Reform and Pensions Act 1999 protects all pensions arising from tax-approved pension schemes against being part of a bankrupt's estate, for anyone made bankrupt after 29 May 2000. So, the TIB cannot control the pension to pay off creditors.
The TIB can apply to the Court, however, to receive a pension in payment for a period, under an Income Payments Order. But the Enterprise Act 2002 has reduced the automatic discharge period for people made bankrupt after 1 April 2004 to one year, so it is anticipated that a TIB will have little time to apply for an Income Payments Order. Also, the bankrupt can make an out-of-court agreement with the TIB to pay over a part of the pension for a specified period.
However, the discharge period can be extended if the bankrupt fails to comply with the obligations of the bankruptcy order. This can happen if the bankrupt for example had made what are deemed to be “excessive” contributions to a pension policy before bankruptcy.
- I was made bankrupt before May 2000, so what could happen to my pension?
For those made bankrupt before May 2000 automatic discharge only comes three years after the bankruptcy order being served. The Trustee in Bankruptcy (TIB) then takes possession of the bankrupt's estate and as pensions are part of the estate in bankruptcy, they become the possession of the TIB.
If you had an occupational pension, you might have avoided the TIB accessing your pension: the trustees of the scheme could simply apply the forfeiture rule (provided the scheme has one) to your benefits, removing your right to receive them and therefore the TIB could not take them over. The pension could therefore not be part of your estate. The downside, however, is that you can only eventually get any benefits at the pension trustees' discretion.
By contrast, if you had a personal pension plan or stakeholder pension scheme, the TIB could claim a right to it immediately.
For people made bankrupt after 29 May 2000, no approved pension will form part of their estate in bankruptcy, and from 6 April 2002, pension Trustees can no longer apply a forfeiture rule to bankrupt members' pensions.
- I have an Unapproved Pension Scheme, is that protected from the Trustee in Bankruptcy?
-
Pensions from unapproved pension schemes can still form part of a bankruptcy's estate. However, you can take steps either through the Court or by agreement with the TIB to protect all or part of your pension.
- My Trustee in Bankruptcy wants to control an annuity I received from my pension company as compensation under the personal pension mis-selling review. The compensation was agreed after I was discharged, so can he do that?
There are legal arguments to say that this is possible and arguments against it, so you would need to take legal advice.
Q & As
