PENSIONS EXCLUDED FROM THE BANKRUPTCY ESTATE
The legislation [note 1] provides that, where a bankruptcy order is made on a petition presented on or after 29 May 2000, all rights and benefits (see paragraph 61.24) under approved pension arrangements (see paragraph 61.27) will be excluded from the bankrupt’s estate.
The vast majority of pensions encountered by an official receiver in current cases will be excluded from the estate by the virtue of these provisions, though it may still be possible for pension funds to be claimed by the official receiver, as trustee, for the benefit of the estate (see paragraphs 61.26 to 61.26c).
It is possible for the rights and benefits under an unapproved pension to be excluded from the bankrupt’s estate by court order or agreement with the trustee (see Part 3).
Where the official receiver is dealing with a pension in a case where the order was made on a petition presented before 29 May 2000 (and the pension is therefore not excluded from the estate), he/she should follow the guidance in Part 4 of this chapter.
All rights and benefits under an approved pension are excluded from the bankrupt’s estate. This exclusion would include not only the right to receive a pension payment and lump sum, but also any ancillary benefits such as a death benefit. Any right to bring a claim (a right of action) where that right arises from the pension arrangement would similarly be excluded from the estate.
The official receiver may not realise directly the bankrupt’s rights and benefits under an excluded pension, but any payments received by the bankrupt during the term of his/her bankruptcy or during the period of an existing IPO/IPA may be included in the calculations for an IPO/IPA, or the variation of an existing IPO/IPA, subject to certain exceptions (see Chapter 31.7 paragraph 31.7.49).
The trustee has the power to require that the bankrupt bring his/her pension into payment to facilitate this (see paragraph 61.26).
If the bankrupt has passed the earliest date at which he can drawn down benefits from the pension arrangement, the official receiver, as trustee, can seek an IPO/IPA that will, effectively, require the bankrupt to draw the pension (see paragraph 61.26c). This is the case even if the bankrupt had no intention to draw down the pension rights until a later date [note 2] [note 2a].
It is unlikely that this principle would apply to an occupational pension. Where the bankrupt wishes to continue in employment it is unlikely they will be able to access their pension fund and continue employment on the same terms. Official receivers are not in a position to require an individual to compromise their ability to work by seeking an IPO/A which can only be funded by accessing an undrawn pension. Additionally, the trustees of an occupational pension scheme may have discretion to pay benefits under the scheme and it is open to argument whether a discretionary payment would fall under the definition of income.
To assist in establishing whether pension benefits may be drawn under an IPO/A (see paragraph 61.26), the standard form [note 2b] should be issued to the provider of a personal pension plan in the following circumstances:-
a) where the bankrupt is 54 or older at the date of the bankruptcy order and is not currently receiving benefits from the pension, or
b) is aged 52-54 and is already subject to an IPO/A [note 3], or will become subject to one as a result of pension income, and
c) in any case where the bankrupt holds a Self Invested Pension Plan (SIPP). These can normally be identified from the name of the fund which will state it is a SIPP, or
d) in any case where there is a suspicion that the pension fund has been built up through excessive pension contributions (see Chapter 31.4B, Part 9).
The questionnaire attached to that form asks the provider to provide details regarding the extent to which the pension may be drawn immediately or during the period in which the bankrupt may be subject to an IPO/A. If such a facility is available, the official receiver, as trustee, should required the bankrupt to enter into an IPO/A, following the guidance at paragraph 61.26c.
For clarity, unless one of the above situations exists, there is no requirement to issue any standard letter to the pension provider. The legislation is now quite well established on approved pensions as excluded property (see paragraph 61.21) and it is anticipated that official receivers will come across very few, if any, UK administered pensions which are not approved.
A standard letter is available to establish details for occupational pensions [note 4], but should only be sent where the bankrupt is aged 59 or over, or where there is a suspicion that the pension benefits have been enhanced by excessive pension contributions (see Chapter 31.4B, Part 9) – particularly where the bankrupt is the sole beneficiary of the scheme.
The letter should not be sent where the scheme is described as an executive pension plan administered by an insurance provider.
Where the response to the standard letter suggests that drawdown is available, the advice of Technical Section should be sought, as it is probable that the option to drawdown may be subject to the discretion of the trustees (see paragraph 61.26).
Where it is possible to arrange for the drawdown of a bankrupt’s pension to facilitate an IPO/A (see paragraph 61.26a), the official receiver, as trustee, should proceed accordingly.
By way of illustration where a pension has not been brought into payment the official receiver should seek to agree an IPO/A which will require the bankrupt to bring the pension into payment. Assume that today the bankrupt has £500 general income and £520 of allowable outgoings (deficit of income over expenditure of £20). Assume further that his/her pension fund will produce a lump sum of £8,500 and a monthly annuity of £88.
In that example, the official receiver should seek an IPO/A for an initial payment of £8,480 (which allows for his £20 shortfall in outgoings over income) and thereafter 35 payments of £68 per month reflecting the surplus of income (£500) plus annuity (£88) over outgoings (£520).
In considering the position official receivers are reminded that a pension fund of less than £18,000 can be realised as a single lump sum through HMRC triviality rules (see paragraph 61.18a).
The official receiver, as trustee, may also seek to recover any excessive pension contributions (see Chapter 31.4B, Part 9).
Further guidance on IPO/As, including information on the inclusion of pension income in a calculation, can be found in Chapter 31.7, paragraph 31.7.49.
An approved pension arrangement is defined in the legislation [note 5] as, in summary:
With the exception of foreign pension schemes (see paragraph 61.31), it can be assumed by the official receiver that the vast majority of occupational pension schemes and personal pensions will have tax approval/registration from/with HM Revenue and Customs.
As such, unless the circumstances outlined in paragraphs 61.26a or 61.26b are present, the official receiver should not write to the pension provider seeking confirmation of approval and may assume that the pension is approved (see paragraph 61.27) and, therefore, excluded from the estate (see paragraph 61.21).
In the very unlikely event that a scheme is unapproved, the official receiver should consider the guidance in Part 3 of this chapter.
A pension scheme administered in another country is likely to be unapproved (see paragraph 61.14). Guidance in relation to those types of pensions is provided in paragraph 61.39 for EU-based foreign pensions and paragraph 61.42 for non-EU based foreign pensions).
As with other forms of benefits, the right to receive a state pension (see paragraph 61.12) is excluded from the bankrupt’s estate [note 7]. The purposes of an IPO/A a state pension is treated in the same way as other benefits.
In other words, the right to receive the pension cannot transfer to the official receiver, as trustee, but he/she can still access, in theory, the pension benefits through an IPO/A.