Pensions and Bankruptcy:
Re The Trusts of the Scientific Investment Pension Plan

Article by Richards Butler

The recent case of re Scientific Investment Pension Plan has drawn attention to the validity of non assignment/forfeiture clauses, which are included in approved schemes to protect the member's benefits on his bankruptcy.

These clauses provide that, on bankruptcy, a member's benefits are forfeited and held by the scheme trustees on discretionary trust for a wide class of beneficiaries, including the member, his spouse and dependants. If the clause is triggered, the scheme trustees will usually pay the member's pension to his spouse until his discharge, and then to the member.

Without a forfeiture clause (or with an invalid forfeiture clause) the member's pension (including any lumpsum) would be payable to his trustee-in-bankruptcy to pay off his debts.

The Scientific Investment Pension Plan had a forfeiture clause in fairly conventional terms. A member went bankrupt and forfeited his pension. The trustee-in-bankruptcy challenged the forfeiture in the name of the member, claiming his pension to help him pay off his debts.

The case centred around the subtle distinction between the following two propositions: "You have a pension. You may not assign it, but if you do it is forfeited and will be applied on discretionary trusts."
"Your pension is payable to you during such time as you do not attempt to assign or go bankrupt etc, whereupon it will be applied on discretionary trusts."

The case of Re Scientific Investment Pension Plan confirmed that the first proposition is invalid and the second valid. As the Scientific Investment Pension Plan's forfeiture clause followed the second proposition, the trustee-in-bankruptcy's claim failed. However, there have been other recent cases, such as the one involving Alan Bond, the bankrupt Australian entrepreneur, where forfeiture clauses have been held not to work.