What types of pension are there?
A pension is a saving or investment designed to provide you with an income once you reach retirement age. Unlike ordinary saving plans you are not able to take out any money or benefits until reach retirement age. There are a number of different pension options available and you may have more than one type of pension.
Occupational pensions are set up by employers for the benefit of their employees. Both you and your employer may make contributions to the scheme during the period of your employment. Since 2001 any business with five or more employees must offer access to a pension scheme but an employer can do this through a stakeholder pension or a group personal pension plan rather than an occupational pension scheme.
Stakeholder pensions are a low-cost and flexible private pension available from a range of financial services companies and other organisations such as trades unions.
A personal pension is a pension policy or plan which an individual arranges themselves with a pension provider, usually financial services or insurance companies. Some employers or trade associations will arrange for a pension provider to offer personal pensions under a group scheme to employees or association members rather than set up an occupational scheme.
A retirement annuity contract is similar to a personal pension.
The state pensions are a benefit paid to all eligible people over the statutory retirement age.
What happens to my pension if I am made bankrupt?
If you were made bankrupt on a petition presented to the court before 29 May 2000 your occupational or personal pension was an asset in your bankruptcy and you lost any rights to the pension to your trustee in bankruptcy. Some occupational pensions did have restrictions which stopped the trustee from claiming your benefits but for more information see “Pensions where the bankruptcy petition was presented before 29 May 2000”.
If the petition was presented on or after 29 May 2000, and the pension scheme has been approved by HM Revenue and Customs, your pension cannot be claimed as an asset in your bankruptcy, although the trustee in bankruptcy will be able to claim some of the payments from your pension if they are paid before you are discharged from bankruptcy. For more information see “Pensions where the bankruptcy petition was presented on or after 29 May 2000”.
I am already receiving my pension. Will the trustee in bankruptcy be able to claim any of it?
If you are receiving pension payments, this is your income and the trustee in bankruptcy will include the payments in assessing whether you can afford to pay something towards your bankruptcy debts. The trustee in bankruptcy can ask you to make payments if they consider you have more income than you need for the day-to-day expenses of yourself and your family. You can agree to make the payments under an income payments agreement (IPA) or the trustee can ask the court to make an income payments order (IPO).
If your only income is the state pension, or other state benefits such a pension credits, you will not be asked to pay anything. If you have an income from any other type of pension, or other source, you will be asked to make payments if you can afford to do so. For more information see the ‘IPO/IPA (Income Payments Orders and Income Payments Agreements (DOC, 2.1 Mb) )’ leaflet.
Pensions where the bankruptcy petition was presented on or after 29 May 2000
A state pension, any payments from the State Second Pension (S2P) (formerly known as SERPS) or payments under a stakeholder pension cannot be claimed by the trustee in bankruptcy. If you are already receiving any of these pensions or they come into payment before you are discharged from bankruptcy the payments can be included in any assessment for an income payments (IPA or IPO).
Most occupational and personal pensions are “approved” by HM Revenue and Customs (HMRC). Pensions under approved schemes cannot be claimed by your trustee in bankruptcy (as a result of the Welfare Reform & Pensions Act 1999) If you are already receiving any of these pensions or they come into payment before you are discharged from bankruptcy the payments can be included in any assessment for an income payments (IPA or IPO). This includes any payment made to you by way of a lump sum.
If HMRC has not approved the pension scheme (which may arise where the pension scheme is run by a small business or if your pension arrangements are organised in a country outside the United Kingdom) the rules for petitions presented before 29 May 2000 will apply. See the section below.
Pensions where the bankruptcy petition was presented before 29 May 2000
A state old-age pension or any payments from the State Second Pension (S2P) (formerly known as SERPS) cannot be claimed by the trustee in bankruptcy. If you are already receiving any of these pensions or they come into payment before you are discharged from bankruptcy the payments can be included in any assessment for an income payments (IPA or IPO).
Personal pension policies (including group personal pensions and retirement annuity contracts).
All rights and benefits under personal pension vested (passed to) the bankruptcy estate following the making of a bankruptcy order. The only exception is any rights (known as protected rights) which you hold if the pension was used to opt-out of SERPS, the State Earnings Related Pension Scheme. Your trustee in bankruptcy only has the same rights over an asset as you did. This means that the trustee cannot take any pension benefits until you reach the earliest retirement age under the terms of the policy This is between 50 and 60 depending on the type of policy.
Occupational pension schemes
The same rules apply to occupational pension schemes. Some occupational pension schemes have ‘forfeiture clauses’, the operation of the clause means that the pension is forfeit (lost) on the making of a bankruptcy order. In these cases the trustee is unable to collect the benefits but the scheme trustees might later use a ‘hardship clause’ to pay benefits to you or family members.
Should I continue making pension contributions after the bankruptcy order is made?
Pensions contributions can continue under your existing pension arrangements or under new pension arrangements made after the bankruptcy order. If your trustee claims all or part of your pension benefits, then it may not be in your interest to continue to make payments as you may not receive the full benefit of them. If you have any concerns about continuing to make payments, you should seek advice from your pension provider or an independent financial adviser.
What happens to my pension scheme death benefits if I die before my discharge from bankruptcy?
If your pension is an asset of your bankruptcy estate (that is where your bankruptcy petition was presented before 29 May 2000 or your pension arrangements are not approved by HMRC (see above)) your death benefit will be paid to the trustee in bankruptcy unless you have nominated another person to receive the benefit. Please note the trustee in bankruptcy can change this nomination before you die. If your pension is not an asset of your bankruptcy (even if you are making an income payments based on the pension benefits) the trustee in bankruptcy has no claim to your death benefit.
Further enquires about pensions
If you still have unanswered questions about pensions in bankruptcy, you can contact The Insolvency Enquiry Line on 0845 602 9848 – between 8.00am and 5.00pm Monday – Friday except bank holidays; or email:Insolvency.EnquiryLine@insolvency.gsi.gov.uk
If you have been contacted by The Insolvency Service National Pensions Unit regarding your pension you should direct any enquiries to the case officer named on the letter.