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Notes for Guidance - Bankruptcy (Scotland) Act 2016 (as amended)

This guidance describes the general functions of Accountant in Bankruptcy, interim trustees, trustees and commissioners in relation to their responsibilities regarding bankruptcies which started on or after 30 November 2016.


7.7 Pensions

Following a Sheriff Court ruling in the case of Gary John Cook v AiB [2019] SC GLA 82 the position is that where the debtor is in receipt of any form of pension or annuity at the date of bankruptcy, such payments are classed as income which does not vest in the trustee.

It is of course open to the trustee to seek a contribution from such income through a Debtor Contribution Order, including a one-off contribution from any lump sum payment received by the debtor.

Unapproved personal pensions continue to vest in the trustee, although there are provisions to allow the trustee to come to an agreement with the debtor that an unapproved scheme will not vest when it is the debtor’s sole or main pension, or the debtor makes application to the court for an exclusion order in relation to part or all of the pension (see the Occupational and Personal Pension Schemes (Bankruptcy) Regulations 2002).

7.7.1 The Accountant’s view

The Accountant’s policy on the treatment of personal pensions in bankruptcies is set out below:

As the policy objective is to protect approved pension schemes from the normal consequences of bankruptcy, it follows logically that payments by the debtor to produce those pensions benefits should be treated as allowable expenditure when calculating surplus income for the purpose of assessing a Debtor Contribution Order.

Payments by the debtor to a non-approved scheme need not be so treated, unless the court has agreed that the non-approved pension does not vest in the trustee.

If the pension from the approved scheme comes into payment during the period of bankruptcy, then all pension benefits, including the lump sum, shall be taken into account for the purpose of calculating a contribution (see section 8). 

The trustee should consider challenging ‘excessive contributions’ to an approved scheme. They may also be able to use these provisions to challenge a debtor’s decision to contribute to a new approved personal pension scheme or to increase their contributions to an existing scheme (see section 9.4).

Section 16 of the Welfare Reform and Pensions Act 1999 will allow the trustee to seek a court order to recover excessive contributions.

Contributions are defined as such if they were made for the purpose of putting assets beyond the reach of creditors.

7.7.2 Employee pension schemes operated by the debtor

The attention of trustees is drawn to the provisions of section 57C of the Social Security Pension Act 1975, as inserted by Schedule 4 of the Social Security Act 1990.

This section imposes a duty on the trustee to an individual or partnership and when the debtor operated a pension scheme for their employees, to ensure at all times at least one of the trustees of the scheme is an independent person.

The section further provides that if there is no such independent trustee, the trustee in bankruptcy shall take steps to appoint or secure the appointment of an independent person.

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