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How bankruptcy affects me

Bankruptcy and my pension

Before going bankrupt, it’s important to check whether your pension might be affected.

Savings in a pension fund are not classed as an asset in bankruptcy. This means in most cases, the official receiver dealing with your bankruptcy can’t take these savings away from you.

This is different to other savings, shares or investments, which would be treated as assets and would be taken from you when you go bankrupt.

If you’re aged 51 or above, have pension savings and are planning to go bankrupt soon, please contact our debt helpline for further information.

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Can money be taken from my pension during bankruptcy?

There are some exceptions where the official receiver can take money from your pension savings. This is a risk in the following cases:

  • Excessive contributions to your pension
    If you’ve paid very high contributions into your pension in the period just before you go bankrupt, the official receiver may ‘reverse’ these payments and take them back from your pension. This usually only applies if you've been paying more than 15% of your income into your pension and your creditors will be left at a disadvantage as a result
  • Non-approved pension schemes
    If your pension is not approved by HM Revenue & Customs, any savings you have in it won’t be protected.

Pension savings cancelling bankruptcy

If you go bankrupt in England and Wales, and at the point you go bankrupt you're able to draw down a lump sum from your pension which is enough to clear your debts, your application may be refused.

If you don’t declare your pension savings when you apply and the official receiver finds out later that you had enough to pay off all your debts, they may cancel or ‘annul’ your bankruptcy.

They can do this even if you don’t draw down the money from your pension.

If the bankruptcy application is rejected, you’ll have to deal with your debts again and you’ll lose your application fee. If it’s annulled later, you may also have to pay towards the official receiver’s costs.

Most people can begin drawing down money from their pensions from age 55. If this is the case and you have pension savings that are higher than your debts, you should contact us for further information.

Income from pensions after bankruptcy

If you’re retired and your only income is a state pension and pension credits, the official receiver won’t order you to pay anything after your bankruptcy.

If you get any other income on top of your state pension and pension credits, for example a private pension, you may have to make payments after your bankruptcy.

The official receiver will check your pension and other income and your living costs. If you have any money left over after you’ve paid your essential household costs, the official receiver will set up an income payment arrangement or IPA where you make monthly payments for three years. This happens in around 1 in 5 bankruptcies. (Source Insolvency Service figures 2012-14).

An IPA should be set at an affordable amount and you can ask for it to be changed if your circumstances change. The payments are made to the official receiver or a ‘trustee’ they appoint. If you don’t make the IPA payments, the official receiver can take court action.

Making pension fund payments after bankruptcy

If you're paying into a company pension, the official receiver will usually take these payments into account when working out if you need to pay anything after your bankruptcy. You may be asked to reduce the payments to the minimum amount until you’re discharged from bankruptcy.

The official receiver may not allow you to continue paying into a private pension while you’re bankrupt, but you can start your payments again once you’re discharged.

Drawing money from your pension after bankruptcy

If you turn 55 after you go bankrupt, you may decide to take money from your pension fund, either as a lump sum or as a regular income (an ‘annuity’). 

The official receiver can’t force you to take money from your pension savings if you don’t want to. But the official receiver could claim any lump sums of cash or extra income you receive after your bankruptcy. 

This means if you’re making any decisions about using your pension savings, you should get independent advice if you’ve not been discharged from your bankruptcy, or you’re still paying into an income payment agreement (IPA).

Get free bankruptcy advice

Going bankrupt is a big step to take and requires expert debt advice. If you’re considering bankruptcy, use our online Debt Remedy tool, which will provide you with the best solution to your debt problem in around 20 minutes. Or, if you’d prefer to speak to us, call our Helpline (free from all landlines and mobiles).