Bankruptcy and your pension — what's protected

Pensions are one of the biggest worries people have when considering bankruptcy. The good news is that most pensions are fully protected in bankruptcy — but the type of pension matters, and how you access it can change things.

The key rule: approved vs unapproved

Under the Pensions Act 1995 (as updated), the Official Receiver (OR) cannot claim a pension that is in an approved pension scheme (registered with HMRC). This covers the vast majority of workplace and personal pensions in the UK.

• Workplace pensions (including auto-enrolment, final salary/defined benefit, and defined contribution schemes) are protected.
• Personal pensions and SIPPs (self-invested personal pensions) are protected.
• The State Pension is protected and is not treated as an asset.

An unapproved pension scheme (rare, usually for high earners or overseas arrangements) is not protected, and the OR can claim the funds.

Pensions you have not yet drawn

If you are below normal minimum pension age (currently 55, rising to 57 in 2028) and your pension is untouched in an approved scheme, it is not part of your bankruptcy estate. The OR cannot take it, and creditors cannot reach it.

Pensions you are already drawing

This is where it gets more nuanced:

• Lump sums already taken before bankruptcy — if you withdrew a lump sum before the bankruptcy order, the OR may look at where the money went (especially if paid to family or kept in savings). Transferring pension lump sums to others before bankruptcy can be challenged as undervalue or preference.
• Ongoing pension income — income you receive from a pension is treated as income. If it leaves you with surplus above roughly £20 a month after essential expenses, the OR may set up an Income Payments Agreement (IPA) for up to three years. See What is an IPA?.
• Drawdown funds still invested — money remaining inside an approved drawdown pension is generally protected, but once you withdraw it as cash it becomes assessable.

What to do

• Do not withdraw pension lump sums to pay off debts before bankruptcy without advice — it can be treated as a preference or leave you worse off.
• Do not move pensions between schemes before bankruptcy without advice — it can look like you are hiding assets.
• Tell your bankruptcy adviser about every pension you have, even small ones — hiding a pension is a criminal offence.

Pensions in payment after discharge

Once you are discharged (usually after 12 months), most debts are written off and the OR's interest in your finances ends — with the exception of any IPA. Your approved pension continues to pay out as normal.

Get advice

Pension rules are technical and getting it wrong can be costly. Always speak to a free debt charity — StepChange (0800 138 1111) or National Debtline (0800 808 4000) — and, for complex pensions, a regulated financial adviser before filing.

England & Wales only. General information, not legal advice.