Should creditors dip into bankrupts’ pension pots?

Should creditors dip into bankrupts’ pension pots?

Parliament has published an outline of pensions and bankruptcy issues to look at whether the pension pot of a bankrupt can be accessed by creditors.

A House of Commons Library briefing paper published last week, Bankruptcy and the Treatment of Pensions, listing a number of court cases, has opened up discussion on the area, and looked at the relevant laws and protection afforded to people with an approved pension in the Finance Act 2004.

Prior to reforms introduced by the Welfare Reform and Pensions Act 1999, property formed part of a bankrupt’s estate. With two exceptions, this was removed from assets available to creditors by the Act.

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However a high court challenge in 2012 threatened those exceptions.

A 2014 case then threw open the debate over the extent to which the pension pot can be included in the assets of a bankrupt, according to the author of the briefing.

The 13-page publication outlines the ramifications of the 1999 Act. When a bankruptcy order is made against someone presented after 29 May 2000, any rights of the bankrupt under an approved pension arrangement are excluded from their estate, according to the publication.

If an unapproved scheme formed part of a bankruptcy estate, the trustee can claim the lump sum and regular payments even after the bankrupt has been discharged.

The trustee may also apply to the court for an income payments order, requiring the bankrupt to make contributions towards debts from their income.

Following the introduction of the Taxation of Pensions Act 2014, the briefing highlighted that it was unclear as to how drawdown effects a bankrupt’s estate, with a decision from the court of appeal pending.

It came with the publication of briefing paper, also published last week, which looks at the status of a property under current insolvency legislation.

The 10-page publication, What will Happen to the Bankrupt’s Home?, has given a general insight into how the Enterprise Act 2002 and insolvency law impacts on a bankrupt’s home.

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Tim Cox, partner and pension law specialist at City law firm Linklaters, said: “It is interesting that it is a policy decision even if an insolvency is at the expense of the creditor who has provided a service and not been paid. This does not apply to Isas, a house or any other investment.

“It is odd that you can have a large pension and go bankrupt and get to keep it while creditors go begging. That is the anomaly, that company schemes are protected, particularly those big pots and where a person is unpaid and depends on it for his pension.”