Can An IVA Take My Pension?

Written by Will Lyon on 5 August 2019

If you’re currently in an IVA and are over 55, you may be able to use your pension to pay off your debts.

It’s unlikely that your pension will be explicitly taken and put into your IVA, but it’s worth getting in touch with your IVA Company to double-check and review any terms and conditions.

Since the new rules introduced in 2015, more and more people seem to be accessing their pension pot before retirement. Furthermore, many are doing so to pay off their debts.

Although it’s a sure way to tackle your debts quickly, there are many things to consider when it comes to pensions and debt solutions, so no decision should be made lightly.

A word to the wise: Check the terms of the IVA with your Insolvency Practitioner (IP). Each solution is tailored to the individual, and therefore the terms of each IVA could be different. 

What is an IVA?

An IVA (Individual Voluntary Arrangement) is a legally binding agreement between you and your creditors.

Within an IVA, you repay your unsecured debt in manageable instalments, typically over a 5 to 6 year period. After this, a large proportion of your debt is written off – this can be as much as 80% of your debt in some circumstances. For more information on what an IVA is visit our page.

Why would I need an IVA?

There are a number of reasons you might need an IVA. Perhaps you’ve racked up a high level of credit card debt, or you simply want relief from creditors pursuing you for the money owed.

For more information,visit our IVA page.

For whatever reason you might need debt help, speak to PayPlan today – we offer free, impartial debt advice, and can inform you on a number of debt solutions.

I’m in an IVA and nearing retirement, should I be worried about my pension?

Having said this, it’s unlikely that your pension is at risk in an IVA. However, it’s worth speaking to your Insolvency Practitioner to go over your IVA’s terms and conditions with relation to your personal pension pot; you’ll want to make sure there’s no clause granting access to it.

Not only will liaising with your IP help you better understand your plan’s small print, they may also give you some valuable information regarding pension payments, and what steps to take moving forward.

Can I pay into my pension whilst in an IVA?

Although your pension is unlikely to be at risk, your Insolvency Practitioner may ask you to reduce any regular payments towards it.

For example, if you’re making substantial regular payments from your salary or bank accounts each month, the creditors may expect that you put some of these payments towards your IVA.

Granted, this is to maximise their returns, but every penny paid into your pension is a penny less going towards paying off your debts. Thus, redirecting workplace contributions may be wise.

What if I turn 55 whilst already in an IVA?

If you’re of retirement age, you may already be receiving a state or workplace pension. If this is the case, it will be factored into the Annual Review in your IVA, and your budget will be reconsidered.

What if I receive a lump sum during or after my IVA application?

If you come into a lump sum during the application process, you may be expected to contribute this towards your IVA.

Again, this may seem frustrating, but a lump sum will make the IVA proposal more appealing to creditors.

Furthermore, a lump sum can be used to make a full and final settlement towards paying off your debt.

If you receive a lump sum whilst already in an IVA, let your IP know. They will inform you how this should be treated in the IVA. 

Learn more about full and final settlements in an IVA

Should I use my pension to pay off my debts?

If your debts are stacking up, using your pension to pay off your debts may seem like a good idea. There are certain things worth considering before you dive into your pension pot however. For example:

Paying Tax

When you withdraw money from your pension, it’s classed as extra income. You can have 25% of your pension pot tax free, but after that you’ll have to pay tax. 

In addition, the extra income may raise you into a higher tax bracket, meaning you’ll pay a higher rate of tax.

Your debts may be a short term issue

Your pension serves to protect your finances when you retire. The lump sum you’ve saved not only acts as a financial safety net however. It may well be your only source of income when you retire.

Consequently it’s worth asking if making pension withdrawals is necessary, when it may affect your quality of life further down the line.

Keen to learn more about IVAs or any of our other debt solutions? Get in touch with PayPlan today. Alternatively, check out this IVA forum for FAQs on many different topics.

We offer FREE, impartial debt advice as one of the UK’s leading advisers. Contact us via phone on 0800 280 2816 or fill in our free debt help form.


Filed under Debt Facts

This article was checked and deemed to be correct as at the above publication date, but please be aware that some things may have changed between then and now. So please don't rely on any of this information as a statement of fact, especially if the article was published some time ago.

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