How a pension is dealt with in bankruptcy

The position of a personal pension on bankruptcy

A bankrupt’s estate automatically vests in the official receiver (or an insolvency practitioner if instead appointed at the time) as first trustee in bankruptcy (trustee) on the making of a bankruptcy order. Various items are excluded in this respect, including tools and equipment required by the bankrupt for business purposes, and clothing etc necessary for satisfying the bankrupt’s basic domestic needs (IA 1986, s 283(2)).

This Practice Note addresses the issue of what happens to an individual’s pension rights on the making of a bankruptcy order. It considers the effect of bankruptcy on occupational, personal and state pension arrangements.

Bankruptcies predating 29 May 2000

This section applies to persons made bankrupt as a result of bankruptcy petitions presented before 29 May 2000.

Rights acquired in relation to both personal pension schemes and occupational pension schemes are ordinarily recoverable by the bankrupt’s trustee. A debtor’s contractual rights under such schemes are regarded as choses in action falling within the wide definition of property provided by section 436 of the Insolvency Act 1986 (IA 1986). Accordingly, contributions are considered to fall within the bankruptcy estate and are therefore available for the benefit of the bankruptcy creditors.

A pension will not, however, form part of the bankruptcy estate if it contains a forfeiture clause that does