Bankruptcy And Your Pension
When it comes to bankruptcy and your pension your main concern will be – if you are declared bankrupt, will you lose your pension plans?
Your state pension is not eligible for inclusion in the bankruptcy estate. So long as the bankruptcy order is made on a petition presented on or after 29th May 2000 then other pension schemes approved by HM Revenue & Customs will not be included in the bankruptcy estate. As such, they will be protected against action from the trustee.
Approved schemes include:
- Pension plans registered under section 153 of the Finance Act 2004 (HM Revenue and Customs schemes, annuity contracts securing benefits under a registered scheme that do not pay immediately)
- Retirement annuity contracts
- Personal pension schemes approved by HMRC for tax purposes
- Stakeholder pensions
Other schemes are eligible, including those that are unapproved, which can be protected with a court exclusion order or qualifying agreement with the trustee.
If there are doubts as to whether your pension will be exempt or included in the bankruptcy proceedings the official receiver will contact your provider for details, and follow this with written confirmation as to what the exact situation is. In any instance, we recommend speaking to professional to discuss your pension and how it will be affected.
If your pension falls into the bankruptcy estate then the official receiver or trustee can claim both lump sum and regular payments, even after you are discharged from bankruptcy. In some situations the bankrupt may have an option to buy back interest in the policy from the trustee, a proposal that needs to be discussed with the trustee and officially agreed.
All future payments prior to discharge from bankruptcy will be eligible for the trustee to claim, even if the plan itself is excluded. This will usually be included within an Income Payments Order or Income Payments Agreement in a similar way to wages and salaries.
Should I keep up with my contributions to the pension? Well this is entirely up to you, in some cases continuing to pay into the scheme may not be in your best interests. However, depending on the terms of your plan, failing to continue paying money in may incur a forfeit.
If you die before being discharged from bankruptcy then for those with a death benefit policy, if the scheme does not nominate a beneficiary then the trustee can claim the death benefit.