July 2006

The following guidance applies to all cases where the bankruptcy petition was presented on or after 29 May 2000.

Where the bankruptcy order was made against the bankrupt on or after 6 April 2005 and he/she operated an occupational pension scheme for the benefit of employees, the official receiver should also refer to Part 4 for further guidance on the applicable provisions of Pensions Act 2004.

If the bankruptcy petition was presented before 29 May 2000 see Part 3.

61.2 Approved pension arrangements

The main provisions of the Welfare Reform and Pensions Act 1999 which affect pensions in bankruptcy proceedings came into force on 29 May 2000. [note 1] From that date, in any case where the bankruptcy order was made on a bankruptcy petition that was presented on or after 29 May 2000, all approved pension arrangements (see paragraphs 61.4 to 61.6) do not form part of the bankruptcy estate.

The bankrupt may be entitled to pensions from one or more occupational pension schemes (operated by current or former employers) and/or personal pension policies, retirement annuity contracts or a stakeholder pension.

Types of pension are explained in greater detail in paragraph 61.3. The official receiver should ascertain details of all the bankrupt’s pensions and should consider each pension separately using the guidance in this Part.

61.3 Types of pension

There are a number of different pension options available:

1. Occupational pension schemes set up by employers for their employees. The pension scheme may be administered by the Scheme’s trustees or by a financial services company (often referred to as the scheme administrator).
2. Personal pension schemes - usually obtained through financial services companies, e.g. insurance companies, banks, investment companies or building societies.
3. Retirement annuity contract - if a personal pension policy commenced before 1988, it will be described as a retirement annuity contract.
4. Stakeholder pensions - these have been available since 6 April 2001 and are low-cost, flexible, private second pensions available from a range of financial service companies and other organizations such as trade unions. All employers with five or more employees have had to offer access to a stakeholder pension scheme since October 2001.
5. State pensions - almost all bankrupts will be entitled to receive a state pension on reaching the state pension age (which is currently 65 for men and 60 for women - women's state pension age will start to change to 65 gradually from 2010 - see www.thepensionservice.gov.uk ) State pensions, like other state benefits and allowances, do not form part of the bankrupt’s estate. [note 2] If a bankrupt is in receipt of a state pension then payments can be included in any calculation for an income payments agreement or income payments order. The official receiver should only consider accepting an income payments agreement or applying for an income payments order where the bankrupt's sole or main income is from a state pension in exceptional circumstances. For further information on Income Payments Agreements and Income Payments Orders see Chapter 31.7.

61.4 Approved pension arrangements

Approved pension arrangements are defined in section 11(2) WRPA99. In summary:

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 the 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 [note 3]

61.5 Verification of tax approval - pension administered by national or international organization

It can be assumed by the official receiver that occupational pension schemes with nationally or internationally based organizations have tax approval from HM Revenue and Customs. A similar assumption can be made for personal pensions where the policy is operated by a major pension provider. It is not necessary to write specifically to the pension provider requesting confirmation of tax approval where this assumption can be made. If the official receiver is in any doubt as to whether tax approval has been granted, form PNB1 requests confirmation of this in any event.

61.6 Verification of tax approval- pension administered by small local business

Where the occupational pension scheme is being provided by a small local business, particularly if the scheme has only one or two members, the official receiver should ensure that he/she receives confirmation of tax approval.

61.7 Confirmation that pension does not vest in trustee

Once the official receiver is satisfied that a pension is an approved pension arrangement he/she should send form PNB2 to the bankrupt confirming that the pension does not form part of the bankruptcy estate. If the pension comes into payment during the bankruptcy (i.e. before discharge) the official receiver may take the pension payments into account in making an application for an income payments order or reaching an income payments agreement.

The official receiver should also send form PNB2 to the pension provider to inform them that the pension arrangement does not form part of the bankruptcy estate.

61.8 Unapproved pension arrangements - excluded rights

If a pension scheme is unapproved it may still be possible for the bankrupt to seek to exclude the pension from his/her bankruptcy estate.

Unapproved schemes include;

1. schemes seeking tax approval or schemes which were once approved and where approval has been withdrawn; and
2. funded and unfunded unapproved retirement benefit schemes.

A pension which does not have tax approval should still be treated as exempt property if:

1. The pension is established under an irrevocable trust or under a contract, agreement or arrangement made with the bankrupt;
2. The pension’s primary purpose is the provision of relevant benefits; and
3. The pension is the bankrupt’s sole pension arrangement or his/her main means of pension provision (other than any state retirement or state widow’s pension, under Part II of the Social Security Contributions and Benefits Act 1992). [note 4]

In order to exclude unapproved pension arrangements from his/her estate, the bankrupt must either apply to the court for an exclusion order or make a qualifying agreement with his/her trustee in bankruptcy. [note 5] Time limits apply to the making of such an application and entering into such agreement, which may be extended by the court.

The regulations are complex. If the official receiver is in any doubt about the time limit which applies, dealing with the application for an exclusion order, or the statutory requirements for the contents of a qualifying agreement he/she should consult Technical Section.

61. 9 Exclusion orders

In deciding whether to make an exclusion order, the court will consider;

1. the future likely needs of the bankrupt and his family, and
2. whether he has any other pension or benefits likely to meet the needs of himself or his family. [note 6]

The official receiver, when acting as trustee, should consider these matters when deciding whether or not to enter into a qualifying agreement with the bankrupt. If the official receiver is in doubt as to whether or not he/she should do so or the procedure to be followed he/she should consult Technical Section.

61.10Recovery of pension payments

1. Income payments agreement/order
   Where a pension which is not part of the bankruptcy estate comes into payment and the individual is undischarged from the bankruptcy proceedings, the pension should be included in any calculation for an income payments agreement or income payments order. The income of the bankrupt includes any payment under a pension despite anything in sections 11 or 12 of the Welfare Reform and Pensions Act 1999. Any lump sum payable in this period should be claimed under an income payments agreement or income payments order. [note 7]
2. Additional Voluntary Contributions (AVC's) - prior to the bankruptcy order
   An AVC facility is essentially a savings scheme approved by HM Revenue and Customs which allows members of occupational pension schemes to build up extra retirement income. The bankrupt may have paid extra contributions into his/her pension scheme to improve his/her pension. The extra contributions are known as AVC's. Up until pension simplification on 6 April 2006, the total contributions made by way of AVC's could not exceed 15% of an individual's salary in any tax year. (See paragraph 61.19 for further information on pension simplification post 6 April 2006).
   If the bankrupt made large payments into an occupational pension scheme whilst insolvent, either from his/her wages or by way of AVCs, the official receiver may be able to claim back excessive contributions under sections 340 or 342A - see paragraphs 61.12 to 61.16
3. AVC's - post bankruptcy
   The official receiver should not treat AVC's as allowable expenditure for the purposes of assessing the bankrupt's disposable income in any calculation to decide whether an income payments agreement or income payments order is appropriate unless there are extenuating circumstances. For further information on income payments agreements and income payments orders see Chapter 31.7

OR has no influence on timing or amount of pension payments

Often an occupational pension scheme or a personal pension policy will contain an option that the pension can be drawn when the individual is aged between 50 and 75. (A retirement annuity contract will not come into payment until the individual is 60 years old.) It is also common for pensions to include an option on drawing a lump sum and annuity or just an annuity. The lump sum may be up to 25% of the pension fund available at the date when the pension comes into payment - see also paragraph 61.19 (f)

Where the pension is an approved pension arrangement and does not vest in the trustee, the trustee cannot influence the bankrupt in exercising any options under the pension arrangement.

61.12 Recovery of excessive contributions - generally

Where a bankrupt has rights under an approved pension arrangement or has excluded rights under an unapproved pension arrangement, the official receiver may apply to court for the recovery of excessive contributions. [note 8]

In order to make an order under section 342A(2) restoring the position to what it would have been had the excessive contributions not been made, the court must be satisfied that;

• the rights under the arrangement are to any extent, whether directly or indirectly, the fruits of the relevant contributions, and

• the making of any of the relevant contributions has unfairly prejudiced the bankrupt's creditors.

Relevant contributions, as defined by section 342A(5), are contributions to the arrangement or to any other pension arrangement -

1. which the individual has at any time made on his own behalf, or
2. which have at any time been made on his behalf.

If the official receiver becomes aware that there may have been excessive contributions and the appointment of an insolvency practitioner as trustee is likely, the official receiver should take steps to protect the potential recovery of the contributions.

The official receiver should write to the pension scheme trustee(s), pension scheme administrator (for an occupational pension scheme) or the personal pension provider and explain that the trustee may make application to court to recover possible excessive contributions. This is particularly important if the bankrupt has reached (or will shortly reach retirement age under the pension and so is (or will be) in receipt of payments.

61.13 Recovery of excessive contributions - appointment of IP

If the estate has insufficient other assets to attract nominations from creditors for the appointment of an insolvency practitioner as trustee, and it appears to the official receiver that excessive contributions have been made, and these contributions would be sufficient to attract a nomination for the appointment of a trustee other than the official receiver, then a meeting of creditors should be called or application made to the Secretary of State for the appointment of a trustee.

If the official receiver forms the opinion, in the circumstances of the case, that the creditors have not been unfairly prejudiced or if the loss to creditors is not significant then he/she need take no further action to calculate or attempt to recover pension contributions that may otherwise be considered excessive.

61.14 What are excessive contributions?

In determining whether contributions made to the pension scheme are excessive the court will be guided by section 342A(6) and will consider;

1. whether any of the contributions were made for the purpose of putting assets beyond the reach of a creditor or creditors and,
2. whether the total amount of any contributions made by or on behalf of the bankrupt and represented (directly or indirectly) by rights under approved pension arrangements or excluded rights under unapproved pension arrangements is an amount which is excessive in view of the bankrupt's circumstances when those contributions were made.

The official receiver needs to be satisfied that there is sufficient evidence to show the court that the creditors have been unfairly prejudiced and evidence of the bankrupt’s insolvency when the contributions were made should be adequate for this purpose.

In deciding the terms of the order for recovery of excessive pension contributions, the court will have regard to section 342B(1).

61.15 Amount recoverable

Under section 342B(4) the maximum amount which the pension provider may be required to pay under an order for recovery of excessive pension contributions is the lesser of;

1. the amount of the excessive contributions, and
2. the value of the individual’s rights (in an approved pension arrangement) or of his excluded rights (in an unapproved pension arrangement).

Excessive pension contributions in pension sharing cases

When calculating whether payments into a pension scheme are excessive, the official receiver should include in his/her calculations any payments which have been taken from the pension scheme in favour of an ex-spouse/former civil partner. The trustee may seek to recover excessive contributions from the ex-spouse/former civil partner but recovery should first be made from payments remaining in the arrangement. [note 9]

Where the official receiver believes that there may have been excessive pension contributions made in pension sharing cases he/she should contact Technical Section if he/she requires further guidance.

For further information on pensions and divorce/dissolved civil partnership see part 2.

For further information on pension sharing see www.sharingpensions.co.uk

61.17 Tracing pension schemes

If the bankrupt thinks he/she may have an old pension, but is unsure of the details, the official receiver can contact the Pensions Tracing Service which has access to a database of over 200,000 occupational and personal pension schemes and can be used, without charge, to search for a scheme. Contact details are;

Pension Tracing Service
The Pension Service
Tyneview Park
Whitley Road
Newcastle upon Tyne
NE98 1BA
Tel: 0845 6002 537

The official receiver will be provided with an application form or can complete an application form online at: www.thepensionservice.gov.uk/atoz/atozdetailed/pensiontracing.htm

Where possible, the official receiver should provide the following information to the Pension Tracing Service:

Occupational pension schemes

1. The full name and address of the employer and details of whether the employer changed names or was part of a larger group of companies.
2. Whether the employer traded under a different name.
3. What type of business the employer operated.
4. Any previous addresses for the employer.
5. The type of pension scheme.

Personal pension schemes

1. The name of the personal pension scheme.
2. What address it was run from.
3. The name of the insurance company involved with the scheme.

The Pensions Advisory Service (TPAS)

If the bankrupt has a pension problem which he/she is unable to resolve with the pension scheme trustees or managers, the official receiver may direct him/her to TPAS.

TPAS is a voluntary independent organization, grant-aided by the Department for Work and Pensions. TPAS can assist in resolving a dispute between an individual and a pension provider where an attempt has already been made to resolve the problem in writing. TPAS has volunteer advisors who are experienced pensions professionals who will try, through conciliation and mediation to resolve the problem if the complaint is justified.

Contact details are:

TPAS
11 Belgrave Road
London
SW1V 1RB
Fax: 020 7233 8016
E Mail enquiries: enquiries@pensionsadvisoryservice.org.uk

Tel: 0845 6012923 (Help line -manned by pensions professional who will provide information and guidance on any aspect of occupational, personal, stakeholder or state pensions)

Note: this help line is for members of the public and should not be used by the official receiver.

Further information on TPAS may be obtained at www.opas.org.uk

61.19 A - Day - Pensions Tax Simplification

Pensions Tax simplification introduces a radical new tax regime for pensions which took effect from 6 April 2006 - sometimes referred to as 'A - day'. [note 10]. Simplification removes the previous eight tax regimes and replaces them with a single universal regime for tax-privileged pension savings making it easier for:

• Individuals - through greater choice and flexibility in when and how they save for their retirement.

• Pension providers - through reduced administration costs and a reduction in the previous business burden caused by expensive administration checks.

• Employers - through lower administration costs, the freeing up of tax rules enabling them to design pension schemes that best fit their business needs.

The official receiver should be aware of the following:

1. With effect from 6 April 2006 there are no limits on the amount an individual can contribute to a pension scheme but there are limits on the tax relief an individual receives. There are two keys controls, a single lifetime allowance (LTA) and an annual allowance (AA).
2. A UK taxpayer can get tax relief on contributions of up £3,600 each year or 100% of their UK earnings if greater.
3. All employees will for the first time be able to take some or all of their benefits and carry on working in their current jobs.
4. Individuals will be able to save in more than one pension scheme at the same time, for example in both a personal pension and an occupational pension.
5. The rules on when an individual can take their pension are changing. The current rate is 50, although many pension schemes have a higher limit. By 6 April 2010 every pension scheme must have an age limit of at least 55. (Different rules apply if an individual retires due to serious ill health or if they had the right to retire at 50 at A Day (6 April 2006)).

There will be a single set of rules on pensions in payment which allow scheme members to take a tax - free lump sum up to 25% of the pension fund up to the value of the LTA, subject to the rules of the scheme.

(g) From age 75 there are some further limits on the form of benefits that may be taken e.g. no tax free lump sums can be taken in connection with any pension benefits which commence after that age.

For more information, fact sheets and newsletters regarding pensions tax simplification the official receiver should refer to www.hmrc.gov.uk/pensionschemes and select the link to Pensions Simplification.

Pensions tax simplification regulations can be accessed via www.hmrc.gov.uk/pensionschemes/draftregs.htm Back to introduction

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