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The unsatisfactory status of EU pensions

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It has long been the case that most pension schemes within the jurisdiction of England & Wales do not form part of the bankrupt’s estate and are therefore not available for distribution to creditors.  This is as a result of the Welfare Reform and Pensions Act, passed in 1998 (“the Act”), which provided that any scheme registered with HMRC (in practice most schemes) was exempt from the bankrupt’s estate.

The status of foreign pensions in a UK bankruptcy is, however, quite different. For example, if an Irish national seeking to exploit the UK’s softer Bankruptcy laws were to obtain a bankruptcy order within England & Wales, the status of his or her pension scheme is not at all clear.   Although such pension may be registered with the Irish revenue, it is not “approved” within the strict criteria set by the Act (under section 11) so does not automatically have exempt status.

To clarify its status, an Irish debtor could try to reach agreement with his/her Trustee and, if agreement is not reached, apply to court under Section 12 of the Act to get the scheme excluded from the estate.

However, the section 12 procedure only applies to fairly rigidly defined criteria which, in our experience, do not catch all foreign or EU approved schemes.  This is highly unsatisfactory since it leaves the pension in an undefined category that is, in theory, an asset of the bankruptcy estate which cannot be preserved in favour of the debtor. It is questionable whether parliament could have intended this given that a comparable UK scheme would be excluded in its entirety. It is also questionable whether such disparate treatment is consistent with EU law.

Government guidance (available via the Insolvency Service) does not shed much light on the conundrum.  Although it recognises that the UK’s treatment of foreign pensions is potentially in breach of European law and that “parity of treatment” must be extended to all EU nationals exercising freedom of movement, it evades clarification, and simply advises Official Receivers to try to reach agreement with the bankrupt under the section 12 procedure.  Unsurprisingly, in practice most Insolvency Practitioners simply ignore the guidance preferring to adopt a more creditor-friendly stance of treating the pension as an asset within the estate until challenged in the Courts.

If you have any issues involving a pension scheme, then do get in touch with us on 0207 353 1000 and ask to be put in touch with one of our solicitors with specialist expertise in bankruptcy and personal insolvency.  Alternatively, email with your contact details and we will arrange for you to be called back.  There is no charge for this initial contact.

Disclaimer: this article is not to be relied upon as legal advice. The circumstances of each case differ and legal advice specific to the individual case should always be sought.

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