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.
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Hello
I have just reached the age of 65. As part of my future planning i thought i would cash in two pensions and take a third as an annuity. The total amount of these three is about £28000.
I went bankrupt in1992 and was discharged 1995. At the time the policies were frozen as i could not afford to keep paying into them.The officer of the court said they did not need to be included in the bankruptcy.
Now i have a letter from a company who works for the official receiver who now say they want to take over the pensions. This is very stressful after all this time, is it legal?
Your advice would be very welcome in the matter
Hi Dave
Unfortunately in your case the law is not on your side. Given you went bankrupt prior to May 2000 (when the Welfare Reform an Pensions Act was introduced) any pension policies (and the funds thereof) you had on the date you went bankrupt were assets of your bankruptcy. As such the Official Receiver is now quite within their rights to claim all benefits of these. The advise that you received from the court at the time of your bankruptcy was not correct. Those policies were very much included as part of your bankruptcy estate.
Sorry to be the bearer of bad news on this but I am afraid there is nothing you can do.
I was discharged from bankruptcy in July 2019. I am paying an IPA for 3 years until November 2021. I can retire in February 2020 aged 49 and draw a lump sum from my pension, can the OR claim this lump sum during the IPA period?
Hi Chris
You need to be careful of releasing money from a pension while in an IPA as I believe the same rule would be applied as if you had received a bonus from work. This states that if you receive a bonus during your IPA the official receiver can claim this from you as well as your ongoing IPA payments. I think the OR would act in the same way to claim a pension lump sum as it is income related. In order to be 100% safe I would recommend not drawing any sums from your pension until your IPA has ended.
Hi James
I would be grateful if you could provide me with any helpful advice please. I was bankrupt in 1997, discharged in 2000 ( I know about the law change).
I had a very small pension perhaps worth £2000 in 2000 that I started before the bankruptcy. I never paid in anything during or after the bankruptcy. I just cashed it in and noted it has no protected rights.I was paid some £17,000.
A week later I received an email from the Insolvency service asking for details of the policy as they may claim it. Is there any way to keep the money or a portion of the money that you are aware of? Seems to be a very unfair situation.
Grateful for any help you may be able to offer
Hi Mitchell
Unfortunately you went bankrupt in 1997 before the change where pensions started to be treated as exempt assets (which came into place in May 2000). As such the Insolvency Service are within their rights to demand that you hand over the full £17,000 I am afraid.
This is the law. There is nothing you can do about it.