Losing retirement savings is a common fear when thinking about bankruptcy. The law gives most pensions strong protection.
The short answer
- Pensions in HMRC-approved schemes are generally excluded from bankruptcy.
- Pension income you receive counts towards an income payments agreement.
- A lump sum taken during bankruptcy may be claimed by the trustee.
- Large contributions made to avoid creditors can be challenged.
- The State Pension is income and can count towards your contribution.
Is my pension pot safe?
Since 2000, pensions in approved schemes have generally been excluded from a bankrupt’s estate. That covers most workplace and personal pensions. The trustee can’t usually force you to cash them in.
What about pension income?
If you’re receiving pension income, it counts like any other income. If it leaves you with spare money after reasonable living costs, you may be asked to make payments under an income payments agreement for up to three years.
What about lump sums?
If you take a tax-free lump sum while bankrupt, the trustee may be able to claim it. Get advice before drawing a pension if you’re bankrupt or thinking about it.
For IVAs, see can an IVA take my pension?
Common questions
Will bankruptcy affect my workplace pension contributions?
Normal contributions usually continue. Unusually large contributions before bankruptcy may be investigated.
Can I go bankrupt if I'm retired?
Yes. Retired people can apply for bankruptcy. Your pension pot is generally protected, but pension income counts.
Does bankruptcy affect my State Pension?
Your entitlement isn’t affected, but the income is considered when deciding whether you can contribute.
Getting help
You don’t have to deal with debt on your own. Free, impartial advice is available from MoneyHelper, StepChange and National Debtline. If you want to talk through whether a formal solution such as an IVA could be suitable, you can also get in touch with us.