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Insolvency Service: Drawdown pensions out of scope for debt collectors

Savers with drawdown accounts will not be forced to increase the amount of income they take in the event of bankruptcy, the Insolvency Service has confirmed.

In March, the Government said “undrawn” pensions were out of debt collectors’ reach. But the definition of undrawn was not made clear.

However, in an email seen by Money Marketing, the Insolvency Service confirms that “any aspect of the pension which remains within the fund and subject to election by the individual on the method and timing of payment falls within the term “undrawn pension entitlement” and cannot be included in any calculation for an income payments order”.

This would include funds that have been crystallised and placed into drawdown arrangements, but from which no income has been taken. It also prevents individuals who are taking an income from being forced to withdraw more than they’ve previously elected.

In addition, in guidance for official receivers, the Service says someone in debt who has opted to declare themselves bankrupt through a debtors’ petition, may find it is annulled if they were over 55 at the time and have pension savings worth more than what they owe.

AJ Bell technical resources manager Gareth James says: “Confirmation that the term undrawn pension entitlement can also include funds in drawdown is helpful, although it is worth noting the guidance may need to be amended subject to ongoing litigation.

“The apparent difference in treatment between debtors’ and creditors’ petitions may be problematic. Some debtors will be prevented from entering bankruptcy, whilst creditors will still be able to petition for bankruptcy, but may be discouraged from doing so because of the protection offered to the bankrupt’s pension pot.”

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