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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.

Update November 2015:

A court decision in December 2014 ruled that that an official receiver has no power to force someone to draw down money from their pension if they don’t want to. However this decision is being appealed, so this may change.

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 enough money from your pension to clear your debts, the official receiver 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 is annulled, you’ll have to deal with your debts again and it's likely you’ll also have to pay the official receiver’s costs, which can be very high.

Most people can begin drawing down money from their pensions as they approach 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 usually 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.

What happens to a pension pot after bankruptcy?

If you have money saved in a pension fund which is approved by HM Revenue & Customs, the way this will be treated depends on your age at the point you go bankrupt:

  • Aged under 51 The official receiver won’t touch your pension fund. This is different from other assets such as savings, shares, cars or houses which are usually taken from you and sold by the official receiver. But the official receiver may still remove money from your pension fund if before your bankruptcy, you were making very high payments into it instead of paying your debts.
  • If you're aged 51 and over and you're considering petitioning for bankruptcy, the legal position with your pensions savings is currently uncertain. At the moment, there shouldn't be any risk to your pension savings, but a court decision expected in the next few months may change this.

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).