DEALING WITH A VESTING PENSION
This Part of the chapter is concerned only with pensions that are vesting assets by virtue of being property of a bankrupt in a case made on a petition presented prior to 29 May 2000 (see paragraph 61.50).
The majority of pensions in cases where the order was made on a petition presented after 29 May 2000 will be excluded from the bankruptcy estate and, therefore, the official receiver should take no action to realise those pensions.
There is detailed guidance on excluded pensions (including circumstances where benefits payable under those schemes may be claimed for the estate) in Part 2.
Further, Part 3 provides advice on dealing with a scheme in a post-29 May 2000 case that vests because it is an unapproved scheme.
Before taking any action arrange for the realisation of a bankrupt’s rights under a pension arrangement, the official receiver should be certain that the pension is one that forms part of the estate (see paragraph 61.50), and should consider the guidance for pensions in cases where the order was made under the Bankruptcy Act 1914 (see paragraph 61.52).
The Service has taken a policy decision that official receivers will take no action to recover benefits in relation to pension arrangements in cases administered under the Bankruptcy Act 1914.
Apart from those pensions that are excluded from the estate (see paragraph 61.50), the bundle of contractual rights that make up the bankrupt’s rights under a pension will vest in the official receiver as trustee by virtue of the provisions of the Act [note 1] [note 2] [note 3]. It is irrelevant that those rights may not be due for payment for some time, even after discharge [note 4] [note 5]. Equally, it has been held that the vesting of pension rights is not contrary to the European Convention on Human Rights [note 6] [note 7], and forfeiture clauses (and similar) are generally ineffective against the trustee in bankruptcy (see paragraphs 61.65 to 61.68)
Where the pension rights and benefits vest in the official receiver, as trustee (see paragraph 61.53) [note 8] [note 9], he/she will have no better title to the asset than the bankrupt. In practice this means that the trustee must wait until the bankrupt reaches the earliest retirement date under the terms of the scheme before any benefits can be realised (see Part 1). In occupational schemes (those without a valid forfeiture clause – see paragraph 61.65), the benefits are unlikely to be available until the person chooses to retire.
Where the (former) bankrupt is below the pension scheme’s normal retirement age (see paragraph 61.54), or a vesting pension interest has otherwise not be dealt with, the official receiver should ensure that his/her interest in the pension has been noted by the pension provider, before taking the following steps:
Where an individual contracted out of SERPS (see paragraph 61.13), the portion of the pension rights that related to SERPS were protected from a trustee in bankruptcy [note 10] – these rights being known as protected rights.
The concept of protected rights was abolished on 6 April 2012, and pension scheme trustees are now allowed to treat protected rights as ordinary benefits.
This does not, however, affect the pre-April 2012 principle that rights identified as protected rights at the date of bankruptcy were excluded from the bankruptcy estate.
The Service has appointed a contractor to realise the benefits in pensions in relation to cases made on petitions presented under the 1986 Act prior to 29 May 2000 (see paragraph 61.51).
The pension will be passed by the LTADT to the contractor for realisation (see paragraph 61.55)
Any approach to official receivers by independent financial advisors, professional pension trustee companies, insolvency practitioners or others with a plan to realise pension benefits as an immediate lump sum payment should be refused and referred to Technical Section, particularly if this involves the realisation of pension benefits before the earliest retirement age (usually age 55). This early realisation is known as ‘pension liberation’ and is usually illegal.
When the former bankrupt’s pension benefits have been realised (whether from selling the official receiver’s interest – see paragraph 61.58 – or by realising the pension benefits – i.e., at the conclusion of five years of annuity payments – see paragraph 61.59), the contractor will inform the pension provider and bankrupt that the official receiver has no further interest in the pension.
The matter will then be passed back to the LTADT to arrange for distribution of the realised sums (see Chapter 36A).
A forfeiture clause is a clause in the rules of a pension that forfeit the member’s rights under the pension in the event of certain events occurring. Some schemes have a clause that seeks to forfeit the rights in the event of bankruptcy.
Any dispute regarding the validity (or otherwise) of a forfeiture clause is likely to have arisen at the point that the pension provider was notified of the official receiver’s interest in the pension (i.e., prior to June 2000 – see paragraph 61.50).
A forfeiture clause in a personal pension is, in principle, invalid against the official receiver, as trustee and should be challenged [note 12].
Any problems with disputes relating to forfeiture clauses should be referred to Technical Section.
Occupational schemes will often have forfeiture clauses which, if properly worded, will be effective and the official receiver should not seek to challenge such a clause.
In areas of doubt, the official receiver may seek the guidance of Technical Section.
All approved pensions (see paragraph 61.27) will contain a general clause which prevents benefits being assigned or charged – such a clause being necessary for the scheme to gain the relevant tax-approval.
Such clauses are not effective against the official receiver as trustee as any asset vests in a trustee without conveyance, assignment or transfer [note 13]. The official receiver should not accept any refusal by the pension provider to pay funds or note his/her interest based on such a clause.
Where a case, in relation to which an insolvency practitioner trustee has obtained his/her release, has an unrealised pension, the official receiver should write to the pension provider(s) [note 14] to inform them that the case is now being dealt with by him/her and requesting that the provider update their records accordingly, before passing the matter to the LTADT (see paragraph 61.55).