What the trustee can reach instead is the income, through a debtor contribution order. That is the mechanism worth understanding before anything is drawn.

The exceptions are real, though. An unapproved arrangement, a lump sum taken at the wrong moment, or a large payment made in shortly before applying can each change the answer.

The rules here come from the Bankruptcy (Scotland) Act 2016 and the guidance under it, so English bankruptcy material is the wrong place to look. How sequestration works covers the process around this.

Not where it is an approved arrangement. The Accountant in Bankruptcy’s notes for guidance on pensions say it is unapproved personal pensions that continue to vest in the trustee.

Why vesting is the right word to start with

Section 78(1) vests the whole estate of the debtor in the trustee at the date of sequestration, and the trustee’s job under section 50 is to realise it for the creditors.

A pension that sits outside that is not something the trustee sells. What a trustee in sequestration does sets out the wider role.

Sections 78 and 89 have both been in force since 30 November 2016, and the amendments to them recorded against the Act are prospective rather than applied. What you read on the section pages today is what is operating.

How the Scottish Government puts it to the public

mygov.scot’s page on assets says you can usually keep any money you have put into a pension, and that payments you are getting from it when you are made bankrupt usually count as income.

It also tells readers to speak to the trustee about how bankruptcy could affect a private pension. That is good advice and this page repeats it.

It keeps being paid to you, because it is treated as income rather than as part of the estate. What changes is that it is counted when your contribution is assessed.

Where that position comes from

The notes for guidance say that following a sheriff court ruling in Cook against the Accountant in Bankruptcy, payments of any form of pension or annuity in issue at the date of bankruptcy are classed as income which does not vest in the trustee.

Cook is a sheriff court decision from 2019 and we have not read the judgment itself. It is described here as the Accountant in Bankruptcy describes it in its own published guidance.

Why income and estate are treated so differently

Estate is something the trustee can sell once. Income arrives every month, so the Act reaches it through an assessment of what you can afford instead.

That is why a pension in payment produces a contribution rather than a sale, and it is the same machinery that replaces a wage arrestment. What happens to your car in a sequestration deals with the other side of the line.

What the trustee can do with that income

The same paragraph says it is open to the trustee to seek a contribution from such income through a debtor contribution order. National Debtline draws the same distinction for readers in plain terms.

Each situation, side by side

Not by vesting, and that is not the same as saying a lump sum is safe. The route is the contribution order instead.

What the guidance says in terms

The notes for guidance say the trustee may seek a one-off contribution from any lump sum payment received by the debtor.

They go further where an approved pension comes into payment during the bankruptcy. All pension benefits, including the lump sum, are then taken into account when a contribution is calculated.

A one-off contribution is still an assessment

The sum is measured against your circumstances through the common financial tool rather than simply handed over. That is a meaningful difference from an asset being sold.

So timing decides more than anything else here

Drawing money you did not need to draw, while a trustee is assessing your income, tends to produce a larger contribution rather than a windfall you keep.

Money advice from an approved adviser is a statutory requirement before a debtor application in any event. How to apply for sequestration sets out where that conversation fits, and it is the right place to raise pension timing.

Unapproved personal pensions. Most people will not have one, and anyone who does should raise it before an application goes anywhere.

The two ways out of it

The notes for guidance describe an agreement with the trustee where the scheme is the debtor’s sole or main pension, and an application to the court for an exclusion order.

Neither route is automatic

An agreement is the trustee’s decision and an exclusion order is the court’s. Both take time, so an unapproved arrangement is a reason to start the conversation early.

Ask your money adviser to put the point in writing at the application stage. It is far harder to argue once the estate has vested and the trustee is in post.

Find out which category yours falls into

Your provider can tell you, and it is a question worth asking in writing. The answer changes whether this is a vesting problem or a contribution problem.

A protected trust deed reaches a pension by a different statutory route again. What happens to your pension in a trust deed deals with that one separately.

A debtor contribution order is set using the common financial tool, so it is calculated from what your budget shows you can afford rather than from what you owe.

The calculation, and the protections inside it

Regulation 15(2) of the Bankruptcy (Scotland) Regulations 2016 takes your whole surplus income above the lower of the published trigger figures for reasonable expenditure and your actual expenditure.

There is no percentage in it, because the assessment produces the whole of the assessed surplus. Section 89 of the 2016 Act is the enabling provision and it carries two protections a pensioner should know about.

Why the expenditure figures are worth arguing

Every pound accepted as reasonable expenditure is a pound off the monthly figure. How a debtor contribution order is calculated sets out the steps in order.

The order outlasts your discharge

It normally runs for 48 months, which is longer than the twelve months to discharge. The payments carry on after you are discharged.

That gap catches pension savers more than anyone. Whether discharge ends everything at twelve months covers what continues.

They can, and the guidance is clear about the route. It is not clear about any threshold, and nor is anyone else.

What the trustee can do

The notes for guidance say section 16 of the Welfare Reform and Pensions Act 1999 allows the trustee to seek a court order to recover excessive contributions.

Making an excessive pension contribution is separately a listed ground on which a bankruptcy restrictions order may be made, under section 156(2) of the 2016 Act.

There is no published percentage, whatever you have read

One commercial page in this market prints a fifteen per cent of income test for excessive contributions. That figure appears in no statute and in no published guidance we could find.

Ordinary monthly saving into a workplace pension is not the target. A payment out of scale with your circumstances, made while creditors were going unpaid, is a different matter.

A restrictions order is not the usual outcome

A bankruptcy restrictions order runs for between two and five years where the Accountant in Bankruptcy makes it.

The credit restrictions are not automatic. Section 157(1) lets the decision maker specify that they apply, which means some orders carry them and some do not.

There is no such thing as a bankruptcy restrictions undertaking in Scotland. The 2016 Act provides for orders and interim orders only, and undertakings belong to the law of England and Wales.

Five things, and all of them are answerable from documents you can obtain. None of them improves by being left until after the award.

The checklist

Whether a pension counts towards the Minimal Asset Process asset limits is a separate question, and nothing published addresses it. Whether you lose your pension in a MAP sets out exactly what is and is not said.

Compare the routes before you commit

Sequestration is one option and it is not always the best one for someone with pension income. A trust deed against sequestration compares them, and whether a wage arrestment can be taken from a pension covers the enforcement side.