Bankruptcy And Its Effect On Your Pension

The most powerful financial tsunami that could possibly affect your life stretches its influence deeply through the number of elements of great importance for your normal functioning. When bankruptcy occurs you are immediately confronted with various difficult questions: What will happen to my house? How am I supposed to pay for all things I need to? Eventually one of these questions will be: What is going to happen with my pension in bankruptcy? It is more than reasonable to expect that pensions will not be an exception from the bankruptcy effects. On the other side, there are certain characteristic which make situation with pensions issue during bankruptcy specific. Therefore, they deserve our attention and analysis.

Pension Types and Bankruptcy

The fate of pensions during bankruptcy is primarily determined by their type. There are 4 types of pension you already have or may have in the future.
• State Pension – Payments according to the SERPS (State Earning Related Pension Scheme)
• Occupational Pension – Payments according to the employer’s scheme
• Personal Pension – Payments according to the agreement with the insurance company
• Group Personal Pension – Payments according to the agreement where employer or trade association are involved
A person affected by bankruptcy can have one or more types of pension active at the moment when bankruptcy occurs. The question is: Which types of pension the trustee can claim?

State Pension and other payments derived from the SERPS (State Earning Related Pension Scheme) cannot by claimed by your trustee. However, it is definitely worth mentioning that pension as such cannot be claimed, but the amounts you get from it can and will be a part of your income sum which is claimed by your trustee. In this way, you may face court’s order to pay a certain part of your pension in order to reach the desired amount of income sum for the trustee.

Eliot Ness and (Un) Touchable Pensions

It has been widely believed until recently that private or personal pensions have been safe from bankruptcy’s devastating effects. Especially, if you have not actually reached your age for retirement and the scheme itself is not effective in terms of benefit payment. However, according to the court decision from April 2012 this claim has been seriously questioned. The trouble for you includes the following scenario. You have not reached the appropriate age, but according to the scheme you have the right to demand the payment simply through your own request. This is actually more than enough for the Official Receiver to interfere into your own financial affairs.

What can you do in the situation like this? Well, to be honest the full cooperation on your behalf is required. You have to provide all information to the Official Receiver which is related to your private pension. Especially, when it comes to your right to request payment. On the other hand, you may think of this as being a little bit unfair toward your situation. The last thought on your mind when you made arrangements for your private pension was the bankruptcy. In most of the cases, people by default include the option to claim freely payments before they reach required age. Who could have possible thought that this might turn against them in the future? We are taking into serious consideration when planning a future number of unwanted events, but almost never a bankruptcy itself.

Fight the Future. Fight the Bankruptcy.

Although the bankruptcy can force you to use your financial strengths and potentials to their very maximum, you should not neglect your obligations related to the pension. Even the bankruptcy will eventually have to end sooner or later. Among the things to regret about you should definitely not include your pension. Your pension arrangements can be fully operational during the bankruptcy and after the bankruptcy. As you already know, one of the consequences of stopped payment may be the reduction or even elimination of the future benefits you expected. This means that you really have to think hard about setting your true priorities when it comes to the payment during the bankruptcy period.

It is important to emphasize that the pension rights and benefits cannot be transferred. Nevertheless, this does mean that you should not try to make an arrangement with your creditors. There are so many reasons for your pension to be left untouched by their demands. In this situation, we are referring to the “human touch” of your trustee. They have already made a calculation that not all of the investments will not be recovered and that some amounts will definitely be lost. In case, that your pension has been claimed by your trustee before the bankruptcy discharge, they will be entitled for it when you reach required age long after the discharge occurs. Think about this.

Andy Gorton is the author and editor of the Bankruptcy Clinic

Andy Gorton – who has written posts on Bankruptcy Clinic Blog.

One Comment


When I was bankrupted the OR offered me my pension back for 45% of its value but still wanted to claim it for another 5 years. The age limit for this was 60 years of age, as was over the limit I asked why I had been offered the scheme. I was then sent a duplicate offer and asked again if I wanted to buy back. It seemed to me that as long as there was cash on the table they were prepared to bend their rules. They are still persuing after 18 years. The value of the pension is less than £3000 !!!

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