Bankruptcy and the treatment of pensions

This note provides an outline of the treatment of pensions on bankruptcy.

Prior to the reforms introduced by the Welfare Reform and Pensions Act 1999 (WRPA 1999), an individual’s rights under his/her pension constituted ‘property’ within the meaning of section 436 of the Insolvency Act 1986 and, with certain exceptions, thus formed part of the bankrupt’s estate and vested in his/her trustee in bankruptcy (pursuant to section 306 of the IA 1986).

The WRPA 1999 reversed this so that, with respect to any individual made bankrupt on a petition presented on or after 29 May 2000, the debtor’s pension under an approved scheme was (with two partial exceptions) removed altogether from the assets available to his/her creditors. The two exceptions were as follows:

• First, if the debtor had made excessive pension contributions the trustee in bankruptcy could apply (pursuant to section 342A of the IA 1986) to recover these excessive contributions for the benefit of the estate;
• Secondly, if the pension was in payment during the period that the individual remained an undischarged bankrupt, such payments could be taken into account in assessing the individual’s overall income for the purposes of determining whether to make an Income Payments Order (pursuant to section 310 of the IA 1986).  

Following the Court of Appeal decision in the case of Horton v Henry (7 October 2016), it is now settled law that neither the court nor the trustee has the power to compel the bankrupt to draw down or otherwise take his or her pension rights.