Annex B

December 2010

Annex B

Guidance on the assessment of real disposable income where the official receiver seeks to claim a lump sum pension payment.

(1) The official receiver should take the following steps to calculate the real disposable income and ensure that the bankrupt has sufficient funds to meet the reasonable domestic needs of themselves and their family, where a lump sum pension payment might be claimed as a single payment or final payment under an IPA/IPO. This  guidance may be used in any circumstances where the official receiver seeks to claim a lump sum payment by way of an IPO/A.

(2) Where the official receiver is advised that a pension has been brought into payment he/she needs to obtain details of the lump sum to be paid (if any) and the monthly pension or annuity payments. If there is no monthly payment but an annual pension or annuity payment that amount should be divided by 12 to give a monthly figure for the purposes of the calculation.

(3) Where an IPO/A is sought the bankrupt might elect to make an annual payment which coincides with the receipt of the pension payment rather than pay by monthly instalments.

(4) Having established the monthly payment this should be added to any other income which will continue to be received after retirement. For example, employees may be able to take their pension benefits at the state retirement age but continue employment in a reduced (part-time) capacity.  The state retirement age is currently 60 for women, 65 for men,  although from 6 April 2010, the State Pension age for women has started to increase gradually from 60 to 65, depending on the individual’s date of birth.

(5) The calculation should include monies received by way of the bankrupt’s state pension and pension tax credits. The calculation should also include sums which are being paid as a ‘guaranteed minimum pension’ or ‘protected rights’.

(6) Amended April 2012

An assessment should be made of the real disposable income, after retirement and without reference to the lump sum, in the usual way using form IPOQ and the relevant income payments calculator available on the Technical Section (Income Payments Calculators and Household Expenditure) intranet page, where a new IPA is agreed after 1 December 2010.  

(7) Having established the bankrupt’s post retirement real disposable income, the official receiver then needs to consider how to include the lump sum payment.

(8) Set-out below are scenarios providing guidance on the amounts to claim and links to illustrative worked examples at Annex C of this chapter.

SCENARIO 1: The bankrupt has a monthly surplus income which would support an IPO/A

(9) Where a new income payments calculation is made on or after 1 December 2010 and  the bankrupt has a post retirement surplus income of £20 per month or greater, an IPO/A should be sought for the appropriate amount in the usual way. An additional provision to claim the lump sum payment should be included as appropriate (see paragraphs 10 to 12 below).

(10) Where there is no existing IPO/A, the order or agreement should require the bankrupt to pay the whole of the lump sum to the bankruptcy estate.

(11) If an existing order or agreement is to be varied, an appropriate amount should be claimed as a single payment from the lump sum depending on the status of the bankrupt and remaining term of the agreement as follows:

(a)   Where the bankrupt remains undischarged – the whole of the lump sum;

(b)   Where the bankrupt is discharged and the order or agreement has:-

  • 24-36 months remaining – 75% of the lump sum;
  • 12-24 months remaining – 50% of the lump sum;
  • 1-12 months remaining – 25% of the lump sum.

(12) Where the bankrupt has less than 12 months remaining under the IPO/A s/he might be invited to make a single payment to conclude the IPO/A which is the equivalent of the balance payable under the IPO/A plus 25% of the lump sum.

See Annex C worked example 1 and worked example 2

SCENARIO 2: The bankrupt has sufficient funds to meet his/her reasonable domestic needs but no surplus income.

(13) Where the bankrupt has enough post retirement income to meet reasonable domestic needs, or a surplus income of less than £20,  a single payment IPO/A should be sought in respect of a payment from the lump sum. Any existing IPO/A should be varied to allow the collection of a single final payment. The appropriate payment should be calculated on the basis set out in paragraph 11 above.

See Annex C worked example 3

SCENARIO 3: The bankrupt, post retirement, has insufficient income to meet his/her reasonable domestic needs.

(14) If the calculation shows the bankrupt’s post retirement income is not sufficient to meet their reasonable domestic needs, the official receiver should make the following calculation to consider whether it is still appropriate to seek a single payment IPO/A to collect part of the lump sum.

(15) The amount of the lump sum should be divided by 36 months to arrive at a monthly supplement figure.

(16) This additional monthly amount should be added to the monthly income in the original calculation of post retirement income and expenditure. This should give a figure for the appropriate amount  which would be taken under an IPO/A if this represented the real disposable income.

(17) This notional figure should be multiplied by 36. This is the amount of the lump sum available for the official receiver to claim.

(18) If there is no existing IPA/O the bankrupt should be requested to enter a single payment IPA for the figure arrived at in paragraph 17 above.

(19) If there is a pre-existing IPO/A it should be varied to allow the collection of a single final payment as a percentage of the figure arrived at in paragraph 17 by reference to paragraph 11 above.

See Annex C worked example 4, worked example 5 and worked example 6