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30/09/2019

What happens to my pension in an IVA?

30/09/2019

What happens to my pension in an IVA?

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Entering an IVA is something that, for most people, requires serious thought as there are many aspects to take into consideration. One of the most important things is what will happen to any assets you have, which includes your pension.

It’s written into the rules of insolvency that any existing pension funds will not be made available to your creditors. This means that if you choose to begin an IVA, this will not be accounted for when you’re discussing your assets.

However, if you are still contributing to a pension plan or are in receipt of pension payments, then there are some other things you will need to consider.

Here we shine a light on how an IVA and pension work together.

Pension safety

Typically, when you reach the age of 55 you can be granted access to your entire pension pot in one go, or at least a portion of it.

This will work one of two ways. If you turn/will turn 55 whilst in your arrangement, you will need to discuss this with your IVA provider. Generally, a clause will be put into your proposal that will either exclude your pension altogether or caters to specific circumstances.

If you won’t turn 55 until after your IVA has been completed, then you needn’t worry as your pension will be secure. The only exception to this is if your case is extended for a period of time that takes you beyond that threshold – usually if you are unable to equity from your home, if you have had a break in payments or if your payments have been reduced.

Pensions and your IVA life

If you’re already receiving pension payments, then this will be accounted for when setting up your arrangement as part of your income. This will then help to create a budget that highlights your affordability.

In some cases, creditors may ask that all pension contributions are stopped or reduced whilst in your IVA. This is normally requested for creditors to receive more of the overall balance owed by the time your IVA ends.

Nevertheless, creditors understand the importance of a pension and appreciate that this is something you require later in life. As such, they often will allow you to continue to contribute towards this.

However, if you receive a lump sum at any point in your arrangement, then this will be expected to be paid into the IVA to help pay back more of your overall debt level. In some cases, this may be a good thing – as it may mean that you can end your case early, which we explain below:

Can a pension be used to pay off an IVA?

Many people often have the thought of using their lump-sum pension to pay their IVA off early in what is called a ‘full and final offer’.

Whilst this may be an option, it’s always best to seek advice from your IVA provider if you’re considering this as there may be drawbacks that you should think about. These include things such as:

  • There may be tax payable on the money you withdraw
  • Choosing this option means you will have less/no money for when you retire
  • This can also mean that you may not have enough time to build your pot back up (depending on how old you are)
  • If you receive benefits, they may be affected

It’s also worth noting that if you take access to only a portion of your pension pot, there is the possibility that the companies you are in debt to can get access to the balance that’s leftover.

Your pension is a very important factor when it comes to IVA. For further advice, speak to one of our advisors today on 0808 2234 102.

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