Bankruptcy and Pensions

Stressedout_3

In 1992 I went bankrupt and was discharged in 1995. In May 2007 I became a pensioner and in January 2007 2 pension companies contacted me and asked what I wanted to do with my pension. I completed the questionnaires - one asked me whether I had ever been bankrupt and I advised them accordingly. I also contacted the insolvency practice and asked them if they had any interest in my pensions on January 29th 2007. I heard nothing until March 29th when they wrote to me and asked me for my telephone number so they could speak direct. They advised me that 80% of pensions are protected but they had lost my files and would therefore have to contact the court where I was made bankrupt to seek details. On May 25th two days before my 60th birthday they rang me to say they had received the file and would be sending it to the rationalation department to find out the necessary action to be taken. Meanwhile one pension company paid me a lump sum and started a monthly pension payout. I heard nothing from the other pension company I spent the lump sum on a new boiler for the house and had a retirement party. I also arranged a small mortgage based on my state pension and my private pension to do up the rest of the house. On September 29th the rationalisation department contacted me asking for my National Insurance number and details of all my pensions as they wanted to take them all (one is not due to be paid out until 2017). I said to them that I had already spent the lump sum and could not give them it back - they said that I could apply to buy my pensions back - but what with? Now I am frightened that I will be made bankrupt again and lose my house because of their inefficiency. Can they go back 15 years to a frozen pension plus the interest accumulated in the years since then when you consider that the Inland Revenue can only go back 7 years to claim unpaid tax. Any advice would be appreciated because at the moment I do not know which way to turn and obviously do not want to lose my home now that I have become a pensioner.

EdInvestor

You raise very interesting questions.

It is widely believed that pension funds are protected in the event of bankruptcy.But does this apply to tax free cash?And what about the income from pensions in payment? And is it a requirement to take benefits from the pensions as soon as it is allowed (age 50) in a bankruptcy situation - as it is in a benefits context?

fermi

I can't be of much help, but the Insolvency Service's official factsheet on pensions and bankruptcy says:

From: What will happen to my pension? http://www.insolvency.gov.uk/guidanceleaflets/pension/pension.htm

What if I was made bankrupt on a bankruptcy petition presented before 29 May 2000?

If you were made bankrupt on a bankruptcy petition presented before 29 May 2000, your trustee in bankruptcy may claim part or all of your pension, whether you are receiving it now or it is due in the future.

If you have a personal pension policy:

From the date of the bankruptcy order all rights and benefits under a personal pension policy vest in the bankruptcy estate. This means that your trustee in bankruptcy has the same rights under the policy as you did before becoming bankrupt, and so cannot claim the pension benefits until you reach the earliest retirement age under the terms of the policy (e.g. your 50th birthday).

If you are a member of an occupational pension scheme:

Some occupational pensions have 'forfeiture clauses'. These mean that if you are made bankrupt, you automatically lose your pension rights so the trustee cannot claim them as an asset. Your trustee will inspect the rules of your pension scheme to see whether it has a valid forfeiture clause. If there is no valid forfeiture clause, then your trustee in bankruptcy will claim your pension rights for the benefit of the bankruptcy estate. If your trustee can claim your pension benefits under a personal pension or an occupational pension, this will include any lump sum as well as the regular payments.

If your trustee claims any part of your pension, they will collect it when you reach retirement age under your pension arrangements, even if this is after your discharge from bankruptcy.

The trustee cannot claim:

• your state pension or any payments from the State Second Pension (S2P)(Formerly known as SERPS);
• any protected rights - these rights arise in any pension you may have where you or your employer have contracted out of SERPS. They represent the equivalent of the SERPS benefits within your pension. In an occupational pension scheme, the protected rights may be known as 'a guaranteed minimum pension' or 'benefits under the reference scheme test'.

How can I find out more?

This leaflet is for general guidance only. If you have further questions about your pension and your bankruptcy, you should ask your
professional adviser, the trustee handling your bankruptcy or your pension provider.

Please note that The Insolvency Service and official receivers cannot give legal or financial advice. You should seek this from a solicitor, a qualified accountant, an authorised insolvency practitioner or a reputable financial adviser or advice centre.

As the last paragraph says, I would seek some formal legal/financial advice.

There is also another very good forum with a special section on bankruptcy issues here: http://www.debtquestions.co.uk/debt_forum/

Good luck.

Debt_Free_Chick

Stressedout wrote: »

In 1992 I went bankrupt and was discharged in 1995.

Can they go back 15 years to a frozen pension

Quite possibly, yes. It rather depends on what the Trustee (in Bankruptcy) decided back in 1992. Do you have any papers relating to this?

You can get free advice from The Pensions Advisory Service