Drawdown Is Not Safe From Bankruptcy

Drawdown Is Not Safe From Bankruptcy.

Last month, the Court of Appeal ruled that an Income Payments Order (IPO) could not be placed on uncrystallised pension funds.

Headlines read that our personal pension plans (PPP) and our self-invested personal pension plans (SIPP) were safe from being seized by the Trustee in Bankruptcy (TIB) if you are declared bankrupt. This effectively confirms an earlier ruling by the High Court and also the Welfare Reform and the Pensions Act 1999, where pension funds that are not in payment are protected from creditors.
Again, this set is thinking. An uncrystallised pension fund is one where you have not taken any benefits from it e.g. lump sum.

The issue now is that more and more people are accessing some or all of their lump sum or other amounts from the remaining pension fund via flexible access drawdown rules that started in April 2015. Flexible drawdown is a crystallised pension benefit i.e. you have legally retired from the scheme.

This means that if you are declared bankrupt and you have accessed the lump sum from your pension fund then the whole of your remaining pension fund could be subject to an IPO.

What can I do to protect my pension?

We suggest if youown a business that is struggling or you are getting yourself into personal debt with potentially heading towards a bankruptcy outcome then you should adopt two approaches to your pension fund:

• Do not access your pension fund at all, this means that it will remain protected from creditors.
• If you are absolutely desperate and you need to access your pension lump sum then we suggest that you use a phased flexible access drawdown approach.

Phased Flexible Pension Drawdown

Imagine your pension fund has been divided into 1000 mini pension policies. These are known as clusters or segments. If you need to access funds from your pension, only cash in the segments that you need. This will mean that part of your pension fund is then crystallised and could be the subject of an IPO but the remaining clusters/segments that have not been accessed i.e. remain uncrystallised are protected from your creditors. This is phased flexible drawdown.