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Welfare Reform and Pensions Act 1999

Section 11: Effect of bankruptcy on pension rights: approved arrangements

This section provides statutory protection on bankruptcy for pension rights in approved schemes.

Where a person becomes bankrupt, his assets usually vest in the trustee in bankruptcy. However, the position of pensions on bankruptcy was considered by the Pensions Law Review Committee (PLRC), set up under the chairmanship of Professor Goode. The Committee’s report, published in 1993, recommended that pension rights (as opposed to the pension payments themselves) should not be counted as an asset in bankruptcy. (The report was published as Pension Law Reform: The Report of the Pensions Law Review Committee – Cmd 2342-1.)

The recommendations on pensions and bankruptcy in the Report were accepted by the Government (Security, Equality, Choice: The Future for Pensions – Cmd 2594). The Committee’s recommendations formed the basis for sections 91 to 95 of the Pensions Act 1995.

However, the provisions on bankruptcy in the Pensions Act only apply to occupational pension schemes. No equivalent protection for other types of pension, for example personal pensions, was included in that Act. The measures here provide statutory protection on bankruptcy for pension rights in approved schemes, as defined.

Subsection (1) provides that where a bankruptcy order is made against a person, any rights that he has in an approved pension arrangement are to be excluded from his estate for the purposes of the bankruptcy proceedings.

Subsections (2) and (3) define the expression “approved pension arrangement”.

  • Broadly, an approved arrangement is a pension arrangement recognised for tax purposes under Part XIV of the Income and Corporation Taxes Act 1988. Because of the variety of pension arrangements that exist, a regulation-making power is included as a safeguard to protect arrangements that might fall outside a strict interpretation of the definitions contained in paragraphs (a) to (g) of subsection (2).

Subsections (4) and (5) provide for circumstances where a person has pension rights in a pension scheme that has applied to the Inland Revenue for approval but not yet received a decision.

If approval is still being sought on the date that a bankruptcy order is made against a person, and subsequently the Inland Revenue decide not to grant approval, then the bankrupt’s pension rights in that scheme are to vest in the trustee in bankruptcy (subject to regulations under section 12).

Subsections (6) to (8) provide for the circumstances where a bankrupt has pension rights in a pension scheme and the Inland Revenue withdraws approval from that scheme.

If the Inland Revenue issue a notice withdrawing approval after a bankruptcy order is made and the effective date for the withdrawal of approval is before the date of the bankruptcy order itself, then any rights that the bankrupt has in the pension scheme are to vest in the trustee in bankruptcy (again subject to regulations under section 12).

Schedule 13 makes a number of repeals as a consequence of this section and section 12. (The Schedule is introduced by section 88.)

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