We are today launching a consultation about personal insolvency. Specifically, we are asking whether we should amend the eligibility criteria relating to debt relief orders (DROs) in order to allow access to those people who are currently excluded because they have pension rights based on a small current pension valuation that they cannot draw down for some years.
DROs were introduced in April 2009 following research that identified that there were people in long-term debt difficulties who had nothing to offer their creditors and who could not afford to make themselves bankrupt. Delivered in partnership with the professional debt advice sector, DROs provide low-cost easy access to debt relief for those overwhelmed by relatively low levels of unmanageable debt. They are designed to provide a fresh start for the most vulnerable people trapped in debt.
There are strict eligibility criteria of assets less than £300, debts of no more than £15,000 and surplus income of less than £50 per month. But because a pension is treated as an asset, some people who would otherwise qualify find themselves unable to apply for a DRO because they have pension rights based on a pension that has a low current valuation. This consultation examines a number of options designed to make the system fairer for these people. In particular, we propose asking whether a pension should not count towards the value of assets provided that the current valuation is no more than either £1,000 or £5,000 or £10,000; and/or where the individual cannot draw down the pension for at least five years or 10 years. We also intend to ask whether there should be an additional requirement that the pension scheme must be one that is approved by HMRC.
I am placing copies of the consultation paper in the Libraries of both Houses.
We intend to actively engage with stakeholders throughout the consultation and welcome views on whether the proposals will deliver a workable solution that provides greater access to vulnerable debtors. The consultation will close on 23 June 2010.