Claiming pension despite forfeiture after bankruptcy

martinpar

Not sure if this should be pensions forum or bankruptcy forum.

I've found myself in an odd situation which no-one seems to be able to give a straight answer on. I've googled endlessly and found no similar cases. I'm sure my situation can't be unique but maybe it is.

I was made bankrupt in 1998 and as a result the forfeiture clause in my personal pension with Prudential (originally Scottish Amicable) kicked in. This just meant that they would hold my pension in trust while it carried on building as before. The only difference being that on redemption any lump sum would have to be paid to someone else. Now I want to take advantage of the new rules by taking small amounts as and when but the Pru are adamant I can only buy an annuity or have the whole amount paid out to someone else. They say they cannot transfer the pension to another provider and cannot pay it in installments, drawdown fashion.

The problem with this is:
The pot isn't big enough to make an annuity worthwhile.
They say that payment of a lump sum will not qualify for any tax free element per the new rules.

I have letters from both the OR and the TIB confirming they have no further interest in my pension and I am free to do as I please.

The fund is worth about 80k.

I am dealing with an independent financial advisor and he has been tearing his hair out from talking with the Pru. He feels the next step is to go to the Ombudsman. I've dealt with ombudsman services before and know how long it can take.

My question is basically are the Pru just being awkward or should it be possible to reinstate my pension and thus benefit from the recent changes in law, without having to lose half of the pot in tax? Will going to the ombudsman be likely to produce a result?

I would be really grateful to hear from someone who knows about this subject.

xylophone

The only difference being that on redemption any lump sum would have to be paid to someone else.

A pension isn't "redeemed"? Do you mean "vested"?

http://www.pruadviser.co.uk/content/nav/about/26674/pghome/49880/50450/50537/50540/50597/50606/

The rules for the new schemes set up from 1 October 1997 include a bankruptcy protection rule: if a member is subject to a bankruptcy order, the retirement benefit rights are forfeit, but instead the trustees will arrange for the benefit to be paid to the member's spouse / financial dependant.

The rules for schemes set up before 1 October 1997 can be altered to include the bankruptcy / forfeiture clause. Initially the Rules amendment (which is also a standard amendment agreed by the PSO) is available on request.

Is this what the Pru is proposing?

https://www.pensionsadvisoryservice.org.uk/about-pensions/when-things-change/bankruptcy

A forfeiture clause is designed to pass the pension rights to the scheme trustees/administrators, rather than leave them as part of your estate.

If you’re declared bankrupt and your scheme has a forfeiture clause in it, while you would have no further rights under the pension scheme, your assets will come under the control of the scheme trustees. In this circumstance, your scheme trustees could use their discretion and pay the benefits when they came due to any beneficiary, including to you or a spouse.

The Pru cannot use discretion to allow you to transfer to another provider?


You might try the Pensions Advisory Service?

jamesd

How many someone elses will they allow? How many someone elses do you know who would be prepared to lend you money to be repaid by a payment from Prudential? This appears to potentially be a way around the restrictions that they are imposing. The loans could be further protected by a fallback payment arrangement from you and security over any other assets that you may own.

The purpose of the loan arrangement is to protect you if they don't pay after you arrange for Prudential to pay them.

If you have sufficient earned income and annual allowance the loan money could be paid into a personal pension from which you receive tax relief and a tax free lump sum.

It would also need to be made clear whether the payments to the someone else's would be considered to be flexibly withdrawn money that would trigger the money purchase annual allowance for them. The income tax effect on them would need to be considered in working how much they would have to pay. This is why more than one person is desirable, it would cut the potential tax liability. If there is no MPAA issue, paying the money to many people within their personal allowance could make the whole payment free of income tax.

Some potentially interesting tax planning opportunities here.

martinpar

xylophone:
Redeemed may not be the right word, perhaps matured would be better.

Yes the Pru seem to be sticking to their line of only paying out to someone else. They seem to be treating it as a simple savings account which doesn't come under the pension rules.

It seems they don't wish to use any discretion in this matter. Maybe I am not talking to the right people at their end.

jamesd:
They will apparently only pay out once, to one person. I had thought about several payouts to different people but they won't go for that. I suppose that would be like paying in installments as far as they are concerned.

The idea of taking the money and paying it into another pension scheme is a non-starter since the problem of losing too much in tax is still there.

Perhaps it would be worthwhile talking to the pensions advisory service.

Thank you both. Any other suggestions gratefully received.

atush

My suggestion is pensionwise, then the ombudsman.

If you paid the debts of the bankruptcy, and the companies involved no longer want to take your pension, the Pru should allow you to take it, or transfer it.

So take the steps above, you may need a deadlock letter from the Pru before the ombudsman, stating all the facts, incl copies of the letters you mention. If they then still refuse, it is a deadlock and you can go to the ombudsman.

martinpar

atush

Thank you. The bankruptcy debts were not paid but the OR and Trustee in Bankruptcy have both confirmed in writing that they have no further interest in my pension.

I have just spoken to the Pru and they have confirmed that what my financial advisor says is correct: I can take the lot (although they have confirmed I will get 25% tax free), but it has to be paid to someone else.
Or I can buy an annuity, which doesn't work for me.

coyrls

martinpar wrote: »

atush

Thank you. The bankruptcy debts were not paid but the OR and Trustee in Bankruptcy have both confirmed in writing that they have no further interest in my pension.

I have just spoken to the Pru and they have confirmed that what my financial advisor says is correct: I can take the lot (although they have confirmed I will get 25% tax free), but it has to be paid to someone else.
Or I can buy an annuity, which doesn't work for me.

Do you mean "paid to someone else" or "transferred to another provider/platform"?

martinpar

If they would transfer to another provider I wouldn't have a problem. They will only pay to a person other than me.
Also, I have found out that they have told my financial advisor it won't qualify for the 25% tax free part.
I spoke with the Pensions Advisory Service who basically shrugged their shoulders and said 'well if that's the Pru's rules hard luck'.
So it's the Ombudsman next.