Part 1: Pensions in cases where the bankruptcy petition was presented on or after 29 May 2000

The primary effect of  the Welfare Reform and Pensions Act 1999 (WRPA99) is that approved pension arrangements do not form part of the bankrupt’s estate thus the Official Receiver has no claim over the majority of pensions or any accruing benefits. Please note that this is only true in those cases where the bankruptcy petition was presented on or after 29 May 2000. For those cases where the petition was presented before that date, please see the guidance in Part 2 of this Case Help Manual part.

 

1)  What are approved pension arrangements?

Those pension arrangements that are approved and consequently do not form part of the bankrupt’s estate are as follows:

  1. Any pension schemes registered under section 153 of the Finance Act 2004 (essentially schemes registered by HM Revenue and Customs plus annuity contracts used to secure benefits under a registered pension scheme which do not provide for immediate payment of benefits
  2. All retirement annuity contracts;
  3. Any personal pension schemes that have been approved by HM Revenue and Customs for tax purposes (sometimes referred to as approved personal pensions); and
  4. Stakeholder pensions are exempt property in cases where the petition for bankruptcy was presented on or after 29 May 2000.

These are the most common pension arrangements but the official receiver may encounter approved pension arrangements under other regulations made by The Secretary of State.

 

2)  How does the official receiver know whether a pension arrangement has tax approval?

The official receiver can safely assume that a pension has tax approval for WRPA99 purposes, if it falls into one of the following categories:

  1. Occupational pension schemes provided by national or international based organisations.
  2. Occupational pension schemes provided by national employers.
  3. Personal pensions provided by major pension providers.

In such cases, there is no need for the official receiver to contact the pension provider to ask for confirmation of tax approval.

Where the occupational pension scheme is being provided by a small local business, particularly if the scheme has only one or two members, form PNB1 should be sent asking for confirmation of tax approval.

 

3)  What should the official receiver do if the scheme is an approved scheme?

Once the official receiver has received confirmation that the occupational pension scheme or personal pension policy has tax approval, no further action is required other than to inform both the bankrupt and the pension provider that the trustee in bankruptcy has no interest in the pension using form PNB2. It should also be pointed out that if the pension comes into payment during the bankruptcy, the trustee may include any pension payments (even though the pension does not vest) if application is made for an IPA/IPO.

 

4)  What if the scheme is not an approved scheme?

If the scheme does not appear to be an approved scheme, the official receiver should deal with it as though it was a case where the bankruptcy petition was presented before 29 May 2000 (see Part 2).

Even though a pension scheme is unapproved, it may still be possible for the bankrupt to ensure that it does not form part of the bankruptcy estate by obtaining an exclusion order from the court or by making a qualifying agreement with the trustee. In the event that a bankrupt suggests either course of action, refer the matter to the B1/examiner for advice.

 

5)  Excessive contributions

If the official receiver is of the opinion that the bankrupt may have made excessive contributions into any type of pension arrangement, and that, in making these payments, the bankrupt unfairly prejudiced his/her creditors, he/she may consider making application to court for recovery of excessive pension contributions under Section 342A.

In considering whether the pension contributions were excessive, the court will consider:

  1. whether any of the pension contributions were made to put assets beyond the reach of the bankrupt's creditors, and
  2. whether the total amount of contributions was excessive considering the bankrupt's circumstances when they were made.

If an insolvency practitioner (IP) is likely to be appointed to deal with other assets in the estate, the official receiver need not make further enquiries regarding excessive contributions. He/she need only write to the pension scheme trustees and pension scheme administrator (for an occupational pension scheme) or the personal pension provider to explain that the trustee may make an application to the court to recover possible excessive contributions. This is particularly important if the bankrupt has or is about to reach retirement age (which may be age 50 under the pension). The IP’s attention should be drawn to this aspect of the case on handover.

If the official receiver is likely to remain trustee, he/she may require the pension scheme trustee(s), administrator or provider to provide him/her with such information about the pension arrangement and rights as he/she may reasonably require in connection with the making of an application to recover excessive pension contributions. 

If the level of excessive contributions is sufficient to attract the appointment of an IP, the official receiver should either call a meeting of creditors or seek a Secretary of State appointment. Pending the appointment, the official receiver should protect the potential recovery by writing to the pension scheme trustee(s), administrator or provider explaining that the trustee may make application to court for recovery of the excessive payments.

Where the level of contributions is insufficient to attract an IP, the official receiver as trustee may apply to the court for the recovery of the contributions, although if the official receiver considers that the creditors have not been unfairly prejudiced or the loss to creditors is not significant, no further action is required. No action should be taken in this regard without reference to the B1/examiner for advice.

 

6) Pensions and divorce/dissolved civil partnership

When an individual is divorced or a civil partnership is dissolved, the court may make a special attachment order relating to a pension, whereby the pension remains in the name of the original pension holder but the ex-spouse/former civil partner has rights over the scheme and receives benefits when the pension becomes payable. This is known as earmarking and is designed to compensate the ex-spouse/former civil partner for the loss of pension benefits. This has only been available since 1996. Before then pensions could only be taken into account by offsetting the pension value against the value of other assets. The earmarking provisions apply to civil partners after 5 December 2005.

If a bankrupt is party to an earmarking arrangement, the official receiver should obtain details of the order from the pension provider and verify that it is an approved pension arrangement. Once the official receiver has considered and dismissed the possibility of excessive contributions, no further action need be taken as regards the pension.

The WRPA99 introduced the concept of pension sharing, which can be applied to all divorce and nullity proceedings commenced on or after 1 December 2000 and applies to civil partnerships with effect from 5 December 2005. It provides for clean break settlements by means of pension sharing whereby the the ex-spouse/former civil partner would become entitled to benefits in their own right, debited from the rights of the scheme member. Pension sharing may be ordered by the court for most pension arrangements other than the basic state pension.

Where a pension is divided under the pension sharing provisions, the rights of the member are reduced by what is known as a pension debit and the ex-spouse/former civil partner is granted a pension credit. If a bankrupt is entitled to a pension credit, the official receiver should seek confirmation that the pension is an approved arrangement as outlined in paragraphs i and ii of this part. If so, it is treated as though there is an approved pension arrangement and thus excluded from the bankruptcy estate.

Pension sharing is not compulsory and is ordered at the discretion of the court. It may still be possible to offset pension rights against other assets or to use earmarking arrangements as outlined above.

 

7) Income payments agreements/orders

In cases where the pension is excluded from the bankruptcy estate but the bankrupt receives his/her pension before he/she is discharged, the case may still be considered for an IPA/IPO. The official receiver may take into account all pension payments, including lump sums when calculating the bankrupt’s income for IPA/ IPO purposes. For further information, please see Case Help Manual part: Income Payments Agreements and Income Payments Orders.

 

8) What if the bankrupt operated a pension scheme for his/her employees? - complying with the Pensions Act 2004

Section 120 notice - In cases where the bankruptcy order was made on or after 6 April 2005 and the bankrupt operated a pension scheme for the benefit of his/her employees the official receiver is required by section 120 of the Pensions Act 2004 to notify the following of the insolvency event (i.e. the bankruptcy order):

  1. The Pension Protection Fund (PPF) - the PPF was established on 6 April 2005 to pay compensation to members of eligible pension schemes. If a bankruptcy order is made against an individual who operated a pension scheme for their employees and there are insufficient assets in the pension scheme to cover PPF levels of compensation, the PPF may pay compensation to scheme members. The section 120 notice should be sent to:

    The Pension Protection Fund
    Knollys House
    17 Addiscombe Road
    Croyden
    Surrey
    CR0 6SR
  2. The Pensions Regulator - The Pensions Regulator is the new regulatory body for work-based pension schemes in the UK. It became operational on 6 April 2005. It has  powers to investigate pension schemes and take action where necessary. The section 120 notice should be sent to:

    The Pensions Regulator
    Napier House
    Trafalgar Place
    Brighton
    BN1 4DW
  3. The pension scheme trustees or managers

    In accordance with section 120 of the PA2004 the notice must be sent within the notification period (i.e. within 14 days) beginning with the later of:

    the bankruptcy order or,
    the official receiver becoming aware of the existence of the pension scheme.

If the bankrupt operated more than one occupational pension scheme, a separate notice will be required in relation to each of the occupational pension schemes involved.

Scheme status notice - notice as to whether the rescue of the scheme has or has not been possible

In the majority of cases dealt with by the official receiver, there will be no prospect of the employer continuing as a going concern.  Provided there is no other person willing to assume responsibility for the pension scheme, then, the official receiver should send a suitably amended section 122 scheme status notice which states that a scheme rescue has not been possible as soon as reasonably practicable.

The official receiver is required to send the scheme failure notice to:

  1. The Pension Protection Fund.
  2. The Pensions Regulator.
  3. The trustees or managers of the scheme.

Correspondence received from the Pension Protection Fund or the Pensions Regulator should be referred to the B1/examiner.

Where can I find out more?

Insolvency Act 1986, section 310,310A

Pensions Act 2004, section 120

Pensions Act 2004, section 122

Welfare Reform and Pensions Act 1999, section 11

Technical Manual

Chapter 61 – Pension Schemes

Case Help Manual

Income Payments Agreements 

Income Payments Orders 

Technical Notice

T40-05 Pensions Act 2004 - Information to be provided by official receivers concerning employers with pension schemes

Insolvency Service Leaflet

What will happen to my pension?

Useful sources of information

Websites:

http://www.opsi.gov.uk/ - Link to the Office of Public Sector Information (for pensions legislation)

http://www.pensionprotectionfund.org.uk/ - The Pension Protection Fund

http://www.thepensionsregulator.gov.uk/ - The Pensions Regulator

Forms to be used - Bankruptcy:

PNB1 - Notice to pension provider

PNB2 - Notice to pension company

PNB2 - Notice to bankrupt

Section 120 Notice - The official receiver should use form 'section 120 notice' which can be accessed by following this link section 120 insolvency event notice to the PPF's website.  This is a suggested pro-forma only and not a legally prescribed form. 

Section 122 scheme status notice - No form has been prescribed but a proforma can be accessed by following this link section 122 scheme status notice to the PPF website.

 

Pensions Part 1 Flowchart  

 

Procedure A: Pensions in bankruptcy cases where petition was presented on or after 29 May 2000

  1. Receive instructions to deal with pension. Check age of bankrupt at Question 1.3 in questionnaire booklet PIQB (Question 1.2 in PIQDP).

State pension only

  1. Check Question 9.1 in questionnaire booklet PIQB (Question 5.1 in PIQDP) and verify that the bankrupt is not entitled to any other pension payments.
  2. If the case is being considered for an IPA/IPO, any payments received by the bankrupt by way of guaranteed minimum pension or protected rights should not be included as income for the purpose of IPA/IPO calculations but any state pension payments already being received should be included in the calculation.
  3. If the bankruptcy is not an IPA/IPO case, take no further action.

Occupational and personal pension schemes

  1. Check Question 9.1 in PIQB (5.1 in PIQDP) that bankrupt has provided the necessary details requested regarding the pension. If not, write requesting the information.
  2. Check whether occupational or personal pension is an approved scheme under WRPA99.
  3. If the scheme is operated by a national or international based organisation, by a national employer or is a personal pension provided by a major pension provider, the assumption can be made that it has tax approval.
  4. In the event of uncertainty, refer to the B1/examiner for advice.
  5. Once certain that the scheme has tax approval, notify the pension provider and the bankrupt that the trustee in bankruptcy has no interest in the scheme using form PNB2 - Notice to pension company.
  6. Note LOIS accordingly (CA08/CA15).
  7. Where the scheme is operated by a small local business, particularly if the scheme has only one or two members, write asking for confirmation that the scheme has tax approval using form PNB1.
  8. If the scheme does not appear to be an approved scheme, it should be treated as though it was a case where the petition was presented before 29 May 2000 – see Part 2
  9. If the bankrupt still seeks to exclude the pension from the bankruptcy by obtaining an exclusion order from the court or by making a qualifying agreement with the trustee, refer to the B1/examiner for advice.

Excessive contributions

  1. If instructed by the examiner, write to the pension scheme trustees, administrator or provider asking for further information regarding the level of pension contributions made.
  2. Once reply received refer to B1/examiner for guidance as to whether matter should be pursued.
  3. If the excessive contributions are sufficient to attract the appointment of an IP, take the necessary steps to seek a Secretary of State appointment. For further information, see Case Help Manual part: Appointment by the Secretary of State.
  4. If excessive contributions are insufficient to attract an IP, no further action need be taken. Note LOIS.

Pensions and divorce/dissolved civil partnership

  1. Where a bankrupt is party to an earmarking agreement following a divorce/dissolved civil partnership, obtain details of the order from the pension provider and verify that it is an approved pension arrangement.
  2. Where the pension is an approved scheme and the possibility of excessive contributions has been considered and dismissed, write to the bankrupt and the pension provider using form PNB2 confirming that the trustee has no interest in the scheme.
  3. Note LOIS accordingly (CA08/CA15). Take no further action.
  4. If the pension scheme subject to the earmarking agreement is not approved, it will vest in the trustee and should be dealt with accordingly.
  5. If the pension has been divided under the pension sharing provisions available for divorces commenced on or after 1 December 2000 (or dissolved civil partnerships after 5 December 2005), and the bankrupt is entitled to a pension credit, confirm that the pension has tax approval.
  6. If so, write to the bankrupt and the pension provider confirming that the trustee has no interest in the policy using form PNB2. Note LOIS (CA08/CA15).
  7. If the scheme does not have tax approval, it will vest in the trustee as an asset in the bankruptcy and should be realised accordingly.
  8. Where the bankrupt is in receipt of his/her pension before discharge, even though it may have been excluded previously because it has tax approval, any pension payments including lump sums (but excluding guaranteed minimum pension and protected rights elements) can be considered when calculating the bankrupt’s income for IPA/ IPO purposes. See Case Help Manual parts: Income Payments Agreements and Income Payments Orders 

Bankrupt operated pension scheme for the benefit of his/her employees

  1. Where a bankrupt operated a pension scheme for the benefit of employees a section 120 notice must be sent within 14 days of the bankruptcy order or the date on which the official receiver became aware of the existence of the scheme.
  2. The section 120 notice should be sent to the Pension Protection Fund, the Pensions Regulator and to the pension scheme trustees or managers.
  3. Once the official receiver is satisfied that a scheme rescue is not possible, a section 122 scheme status notice must be sent to the Pension Protection Fund, the Pensions Regulator and to the pension scheme trustees or managers.
  4. Any correspondence from the Pension Protection Fund or Pensions Regulator should be referred to the B1/examiner.