Rules on how safe your pension is if you are declared bankrupt | Personal Finance | Finance

Declaring bankruptcy could affect your pension savings in a variety of ways, depending on how you saved, how much you have and when you last put money away. Experts at PensionBee have broken down the details, as meeting some simple criteria could actually mean your retirement fund is off limits to authorities.

When you declare bankruptcy, meaning creditors can’t pursue you directly for a debt you can’t afford to pay back, your entire financial situation is evaluated by the Trustee in Bankruptcy (TIB). It decides which of your assets, such as cars, property or savings, could be used to pay off your debts.

Pensions are usually protected from the TIB – especially if it has a forfeiture clause which automatically applies to workplace pensions.

The TIB also usually can’t access your pension pot if you aren’t going to be getting an income from it in the next four years after becoming bankrupt.

However, one major exception to this is if your contributions can’t be “deemed reasonable”.

The experts noted: “If you’ve paid large amounts towards your pension in the run up to your bankruptcy claim, with the intention of putting assets beyond their reach…they can apply to the court and recover any amounts deemed to be ‘excessive contributions’.”

If you’re claiming a pension when you file for bankruptcy, the TIB may apply for an order that would force you to use your pension payments to clear up your debts over three years.

But this arrangement must ensure you still have enough income left over to live on.

After filing for bankruptcy, the decision on whether to save for retirement isn’t quite as straightforward.

The experts said: “Whether or not you can continue paying into your pension is usually agreed at the discretion of the TIB.

“They may decide that any money you’d like to contribute to your pension should instead be used to repay your debt.

“However, any current pension schemes related to your employment shouldn’t be affected and your employer can also still contribute on your behalf.”