Pensions and bankruptcy

Trustee in bankruptcy

This is someone appointed or chosen to oversee the bankruptcy process. They will take responsibility for the financial affairs of a bankrupt and the distribution of assets to any creditors.

Official receiver

If no trustee is appointed, the official receiver will become the trustee. Official receivers are civil servants within the Government’s Insolvency Service.

Forfeiture clause – relevant if bankruptcy is between 5 June 1996 and 29 May 2000

If the pension scheme rules included a forfeiture clause, this means if the individual becomes bankrupt the benefits are forfeited and can’t be claimed by the trustee in bankruptcy/official receiver. The scheme administrator can then give the benefits to anyone, including the bankrupt individual.

Many occupational and personal pension schemes included forfeiture clauses. Section 32 buy out plans and retirement annuity contracts would not have forfeiture clauses as there are no trustees to exercise the discretion to forfeit the benefits.

Important dates

29 May 2000

If an individual is declared bankrupt on or after this date, all pension plans are protected from the bankruptcy process and will therefore not transfer to the trustee in bankruptcy/official receiver.

5 June 1996

If an individual is declared bankrupt on or after this date but before 29 May 2000, the pension plan could transfer to the trustee in bankruptcy/official receiver. It will depend on whether the rules of the plan included a forfeiture clause or not. If a forfeiture clause is included in the rules, the pension plan will be protected.

Pre 5 June 1996

If an individual is declared bankrupt before 5 June 1996, any pension benefits (excluding protected rights) can transfer to the trustee in bankruptcy/official receiver.

Pensions and bankruptcy

During the bankruptcy process, an individual’s assets are transferred to a trustee for the benefit of any creditors. Similar processes exist in Scotland, Northern Ireland and England and Wales although the legislation is different.

Some assets are protected from the bankruptcy process such as furniture and clothes as these are considered essential for daily living. A pension will be protected depending on when the individual was made bankrupt and whether or not the pension plan rules include a forfeiture clause (for bankruptcies before 29 May 2000).

When a pension is to be claimed by the trustee, the actual claim would happen when the individual reaches the age they are entitled to the benefit. This would normally be age 55, but this is increasing to 57 on 6 April 2028. Since 6 April 2015, it is possible for the trustee in bankruptcy/official receiver to request an uncrystallised funds pension lump sum (UFPLS) when the individual reaches age 55/57.

It is possible for an individual to be discharged from the bankruptcy but the trustee in bankruptcy/official receiver still have a claim on the pension benefits to be paid in the future. So, there could be many years between an individual being discharged from bankruptcy and their benefits passing to the trustee in bankruptcy/official receiver. If the debts have been paid off prior to this point, the trustee in bankruptcy/official receiver would withdraw any interest in the pension plan.

It is also possible to reach an out of court agreement with the trustee in bankruptcy/official receiver to pass over some of the pension to pay off the debts.

Further information

• Guide to Bankruptcy - GOV.UK
• England and Wales – The Insolvency Service
• Scotland – Accountant in Bankruptcy 
• Northern Ireland – The Insolvency Service of Northern Ireland 

Note

The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.

All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.