Pensions and bankruptcy

This article explores how bankruptcy can affect pensions
Key Facts

Trustee in bankruptcy (TiB)

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 (OR)

If no trustee is appointed, the OR 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 TiB/OR. 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 a policyholder is declared bankrupt on or after this date, all pension plans are protected from the bankruptcy process and will therefore not transfer to the TiB/OR.

5 June 1996

If a policyholder is declared bankrupt on or after this date but before 29 May 2000, the pension plan could transfer to the TiB/OR. 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 a policyholder is declared bankrupt before 5 June 1996, any pension benefits (excluding protected rights) can transfer to the TiB/OR.

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, 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. Since 6 April 2015, it is possible for the TiB/OR to request an uncrystallised funds pension lump sum (UFPLS) when the individual reaches age 55.

It is possible for an individual to be discharged from the bankruptcy but the TiB/OR 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 TiB/OR. If the debts have been paid off prior to this point, the TiB/OR would withdraw any interest in the pension plan.

It is also possible to reach an out of court agreement with the TiB/OR to pass over some of your pension to pay off your debts.

Further information


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.

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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.