Pensions on bankruptcy - the Welfare Reform Act 1

The first of the provisions in the Welfare Reform and Pensions Act 1999 relating to the treatment of pension benefits on bankruptcy have come into force with effect from 29th May 2000, rather that April 2001 as originally envisaged (see: The Welfare Reform and Pensions Act 1999 (Commencement No. 7) Order).

The main provisions which have come into force provide that an individual's rights under an "approved pension arrangement" will be excluded from their estate on bankruptcy. This means that schemes will no longer have to rely on forfeiture provisions to protect a member's benefit from his trustee in bankruptcy, which is good news as recent court rulings have indicated that many such provisions are ineffective.

The new provisions will apply to all approved pension arrangements, including personal pension arrangements (which were excluded from the bankruptcy provisions in the Pensions Act 1995). However, they will only apply in respect of bankruptcies where the petition is presented after 29th May 2000.

These provisions will also apply to individuals entitled to a pension credit under a scheme by virtue of the new divorce legislation coming into force on 1 December 2000.

Other provisions which came into force on 29th May provide that pensions in payment can still be taken into account when calculating income for the purposes of an income payment order.

Provisions which will prohibit forfeiture of pension rights by reference to bankruptcy, provide some protection for rights under unapproved arrangements and allow for the recovery of excessive contributions have not yet come into force.

For further details contact Mark Grant (0207 367 2325 e-mail [email protected]) or Mark Kowalik (0207 367 3559 e-mail [email protected]) or your usual contact in the pensions team.