When things change
Depending on when you were declared bankrupt, what happens to your pension may change.
Many people declare themselves bankrupt each year. Bankruptcy can help when have you large debts, that would normally take years to pay back. However, being bankrupt can have serious implications for your future, both personally and financially. It's a decision that needs careful consideration and we recommend you seek financial advice before making any decisions.
Below we have outlined the various circumstances where your pension benefits may change depending on when you were declared bankrupt.
Bankruptcy before 29 May 2000
If you became bankrupt before 29 May 2000, the Government's Official Receiver would have taken control of your assets and passed them over to something called a Trustee in Bankruptcy (TIB). The assets in the TIB will then be used to pay off your creditors. Retirement benefits are viewed as an asset and will be included within this.
Many workplace pensions include what is called a Forfeiture Clause in their scheme rules. This protects your pension benefits in the event of you being declared bankrupt, before you were entitled to receive your benefits.
A forfeiture clause is designed to pass the pension rights to the scheme trustees/administrators, rather than leave them as part of your estate.
If you’re declared bankrupt and your scheme has a forfeiture clause in it, while you would have no further rights under the pension scheme, your assets will come under the control of the scheme trustees. In this circumstance, your scheme trustees could use their discretion and pay the benefits when they came due to any beneficiary, including to you or a spouse.
Pensions already being paid
Where a pension is already in payment, a TIB can apply to the court for an income payments order under the terms of the Insolvency Act 1986.
This order would require you to contribute towards paying off your debts, from your pension payments. The order can require you to contribute in this way for a maximum of three years. This is subject to you and your family being left with sufficient income to live reasonably, after any deductions have been applied. This can continue to apply even when you have been discharged from bankruptcy.
Bankruptcy on or after 29 May 2000
If you have workplace pension scheme benefits, personal pension scheme benefits, stakeholder pension scheme benefits or Section 32 benefits, and are declared bankrupt on or after 29 May 2000, you are protected against any claim by the Trustee in Bankruptcy (TIB).
A TIB can however apply to the court to recover what they would consider “excessive contributions” paid to the pension scheme. You may be seen to have paid excessive contributions, especially if you’ve paid in unusually high levels of contributions and, they can prove that you have done this to deliberately deprive your creditors of money owed. This could cover any contributions paid up to five years prior to your bankruptcy.
It’s also possible for you to make an out-of-court agreement with the TIB, to pay over a part of your pension for a specified period.
Where can I find out more?
If you need more information, please contact us. A pension specialist from our team will be happy to help with whatever pensions-related question you have. Our help is always free.