The recent Appeal Court decision allowing creditors to grab the pension
funds of bankrupts has sparked controversy over whether a forfeiture clause
would have protected them.
A forfeiture clause gives life offices the discretion to pay the benefits
of a bankrupt's personal pension to one of their relatives, such as their
spouse, instead of making the money available to creditors.
Following previous judgments which seized the personal pension pots of
bankrupts, many life offices had established clauses to protect pension
scheme members. Other life offices are expected to follow and set up
But legal experts and some life offices cast doubt on whether these
clauses will stand the test of a court of law.
Clerical Medical pensions strategy manager Nigel Stammers says:
“Forfeiture clauses are not necessarily a form of protection. Lots of
companies have rushed out and implemented these clauses but there is still
no concrete guarantee they will protect a bankrupt.”
Pensions lawyer Eversheds commercial and finance partner Robin Ellison
says: “The latest case did not test forfeiture clauses so no one really
knows if they work. There is a discussion going on between those who
believe they do and those that think they do not.”
Scottish Equitable pensions development manager Steven Cameron says: “It
is certainly better to have one rather than not having one. We believe they
have a good chance of standing up in court and they do give a fair amount