Money you have already paid into your pension is protected if you go Bankrupt. However there are some implications you should be aware of.

Included in this article:

• Is your Pension Fund at risk
• Can you carry on paying into it?
• What happens to payments you already receive?
• What about Riathatha v Williamson?

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Is your Pension Fund at risk if you go Bankrupt?

Your pension fund is one of the assets that is protected if you go bankrupt. This means they can’t be touched by the Official Receiver (OR) and used to pay your debts,.

Pension funds have been exempt from Bankruptcy since 29th May 2000. This was as a result of the introduction of the Welfare Reform & Pensions Act.

If you reach the age of 55 while you are bankrupt, you now have the option to withdraw cash from your fund. You cannot be forced to do this.

However if you withdraw cash voluntarily, the money is then considered to be a windfall. It would then have to be handed to the Official Receiver.

If you are over 55 and can now draw from your pension fund, you may not qualify for bankruptcy. Where the value of your fund is greater than your debt as you may not be insolvent. In these circumstances, the Adjudicator is likely to refuse your application.

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Can you carry on paying into your Pension once you are Bankrupt?

Whether or not you will be allowed to continue making payments into your pension after you go bankrupt will be up to the Official Receiver.

If you are paying into a work scheme you will normally be allowed to continue to pay the minimum monthly contribution. However if you are making over payments it is likely that you will have to suspend these.

If you are paying into a private scheme your payments might have to be suspended until you are discharged. However the OR may allow you to continue making minimal payments if you are nearing retirement age.

What happens to Pension income you already receive?

Where Bankruptcy is concerned regular payments you receive from a pension are treated in the same way as any other income. They must be added to your monthly income calculation.

The fact that you receive this money does not necessarily mean that you will have to make ongoing payments towards your debts. You will only get an Income Payment Agreement (IPA) if you have disposable income.

After your pension income is taken into account if you still cannot afford to make payments towards your debt you will not be expected to do so.

If your only source of income is your state pension it is very unlikely that you will have to make ongoing payments towards your debt after you go bankrupt.

What about Raithatha v Williamson?

In 2012 there was a Court ruling known as Raithatha v Williamson. The Judge suggested that a bankrupt person could be forced to access their pension if they reached pensionable age during their bankruptcy.

However in November 2014 this was overturned in the case of Horton v Henry. This ruling went to the Court of Appeal and was upheld in October 2016.

Horton v Henry confirmed that the Official Receiver cannot force a bankrupt person to draw a lump sum from their pension to help pay their debts or be made to start receiving an income from the fund which would then make an IPA possible.