Details cash in a pension fund early

Annuities and bankruptcy

Pensions have a particular place in bankruptcy law. The Welfare Reform and Pensions Act 1999 modified the law, in that pensions don’t form an element of a bankrupt’s estate

If an insolvency order was made on or after 29 May 2000. For bankruptcy orders on or after that date the following conditions apply. The trustee in bankruptcy has no claim on any rights under a registered allowance scheme. The rights are excluded from the bankrupt’s estate. In summing up you won’t be required to cash in a pension fund early in order to pay your lenders as an element of your insolvency cases.

This rule mainly applies to occupational, personal, stakeholder and retirement allowance schemes. It does not apply to unregistered schemes. As with standard insolvency rules if, on application by the trustee in bankruptcy, a court is convinced that excessive contributions have been made to a pension scheme to circumvent the assets being included, it can order the allowance provider to make a payment to the trustee. This does not apply to protected rights.

For bankruptcy orders before 29 May 2000, pension rights were said to be part of the bankrupt’s assets. The trustee in insolvency must wait until the subject's retirement date, at which point they can claim the tax free one-off sum and pension benefit. Where the pension contract will allow the holder to take benefits before rather than the ordinary retirement date, the trustee can claim the rights as fast as the contract permits. However, this is an ‘old ‘ piece of legislation it still is relevant, because somebody made bankrupt before 2000 could still be young enough to have not yet taken benefits and the rule still applies to them.

Irrespective of when insolvency happened, the trustee in insolvency can still obtain an income payments order from the court, whereby the bankrupt is required to use some of their income above and beyond their day-to-day needs to remit payments against the debt for a period of at least three years from the date of the insolvency order.

Early Pension and Early Retirement are key issues looked at by My UK Pension Plan, an online service which connects individuals with Financial Advisers

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