How bankruptcy affects your pension

Understanding when your pension can be claimed to repay debts
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How bankruptcy affects your pension

During bankruptcy, you no longer have control over your financial assets, which can be sold or disposed of in order to pay your debts, and this includes your pension.

The ways in which bankruptcy affects your pension

A person known as a 'trustee' is appointed to manage your bankruptcy case. Because your pension may be seen as an asset, the lump sum or payments/benefits from it can be claimed by the trustee. Your trustee is entitled to ask questions about your pension and you are required to answer any questions and co-operate fully with them.

You may need to divulge the name of any pension schemes you or your employer have made contributions to on your behalf, and how much has been paid into it (especially within the previous two years). You may also be asked how much you are currently receiving as payments or as a lump sum. If you do not provide this information when required, it is likely that the date when your bankruptcy will be discharged will be adversely affected and you may have to return to court.

State pension

Your state pension cannot be claimed to help pay your bankruptcy debts, nor can any payments owed to you from a State Earnings Related Pension Scheme (SERPS). If you are contracted out of SERPS and you receive the equivalent protected rights instead, then these also cannot be claimed. All other types of pension can be claimed, though this depends on when a bankruptcy petition or application was made and if your particular pension scheme is approved by HM Revenue and Customs (HMRC). Your trustee or Official Receiver will be able to confirm whetehr your pension is HMRC-approved.

Is a pension an asset?

If your pension is approved by HMRC and your bankruptcy petition is dated on or after 29 of May 2000, then the pension is not considered to be an asset. If this is the case then your trustee will not be able to make any claims on or against your pension directly, but they will be able to claim against any benefits or lump sum you receive (or will receive) before your bankruptcy is discharged. Pensions not approved by HMRC or dated on or before 29 May 2000 are regarded as assets. Pensions can be claimed as soon as you reach the earliest retirement age on your policy, and can occur even if your pension is payable for some time after you were freed from bankruptcy.

Protecting your pension

You may be able to protect your pension by applying to the court for an exclusion order or by coming to an agreement with your trustee (which may mean buying back your interest in the pension policy from them). For further advice about protecting your pension, you should ask a qualified financial adviser or speak to your trustee or Official Receiver.

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