In this guide

This guide is for financial advisers only. It mustn’t be distributed to, or relied on by, customers. It is based on our understanding of legislation as at May 2023.


The economic impact of Covid and ongoing rises in the cost of living may mean that some people find themselves in debt, which could lead to bankruptcy. This guide gives a broad outline of how personal bankruptcy affects registered pension schemes.

If someone can’t pay their debts, and if certain criteria are met, they can be ‘declared bankrupt’. A third party, known as the trustee in bankruptcy (TiB), is appointed to take control of the bankrupt’s assets and use those assets to pay back creditors. Creditors may receive only a small proportion of the money they are owed or, indeed, nothing at all.

People are usually in bankruptcy for a year (the ‘bankruptcy period’). During this time there are restrictions on what they can and cannot do (for example, limits on borrowing money).

The money in a pension scheme is likely to be one of the biggest assets many people have. Anyone being made bankrupt will benefit from a law which protects most pension funds. This means that the pension funds don’t get counted as part of the bankrupt’s assets and the TiB cannot access them whilst they remain in a pension scheme.

A TiB might believe that, in the run up to being made bankrupt, someone was making large pension contributions purely to keep the money from their creditors. If that’s the case, the TiB can apply to court to have those contributions refunded and use that money to pay off creditors.

If someone is already receiving an annuity when they’re declared bankrupt, it will count as part of their assets and may be claimed by the TiB. If someone taking drawdown payments stops them on being declared bankrupt, the TiB could apply to court for an order under which the payments are made to the TiB.

If, during the bankruptcy period, the bankrupt starts to take benefits from a pension scheme they have to tell their TiB. The TiB may be able to claim the benefits but could only do this if they had an order from the court.

The court orders referred to above can last for up to three years so payments from the pension scheme could be made to the TiB well beyond the date the bankruptcy is discharged. A bankrupt should think carefully before taking benefits before the bankruptcy is discharged.

The law which protects pension funds from claims by a TiB was introduced from 29 May 2000. Where the bankruptcy was declared before this date the TiB may have a right to claim the benefits. Particular care should be taken if you have a client in this position as the rules are complicated. Remember - a TiB can have a claim on an individual's assets long after the bankruptcy has been discharged. Note that the TiB’s right to claim continues to apply even if the affected funds are transferred from one scheme to another.

The bankruptcy laws differ throughout the UK. You can read more about this in our Bankruptcy and pensions section of this guide, which include links to the different statutory bodies in the UK which deal with bankruptcy.