Pensions and debts – worries and questions

This page brings together the most read Debt Camel articles about pensions and debt, together with some posts about pensions news.

New pensions options for the over 55s

Until April 2015, the subjects of pensions and debts were very largely separate, because it was difficult or impossible for people to access their pensions before they retired and after retirement most people had no choice but to buy an annuity. So money in a pension couldn’t be used for paying debts, whether you wanted to or not.

But the “pensions freedoms” introduced in April 2015, mean that many people can now choose to take money from their pension when they are 55. For the first time people have the option of withdrawing money from a pension and paying off debts, clearing their mortgage, giving it to their children, doing up the house with it or – as journalists seemed to find fascinating – buying a Lamborghini.

Along with these new freedoms however have come new risks:

• if you dip into your pension now you will have less when you retire. Even though this sounds obvious, it is hard to balance in your mind what may seem an urgent need for money now against something that seems a long time away;
• it sounds easy to take money out, but in practice there may be more tax and charges to pay than you would expect;
• if you currently get any means-tested welfare benefits such as housing benefit or ESA, then these could be cut if you take out any pension money;
• scammers have seized on people’s concerns about banks and low interest rates to offer tempting sounding “investments” to get their hands on your money.

You can get a free appointment with Pension Wise  – this will explain what your options are for taking money out of a pension – and they may be more complicated than you expect. But Pension Wise won’t cover what you should do with the pension money. So look at:

• Should you use your pension to pay off your debts?
• Use your pension to pay off debt? Avoid this tax trap!
• Should you help your son or daughter with debt?

Can your creditors get at your pension?

This is a common worry – if you can get at your pension money, can your creditors make you do this to pay your debts? The answer is usually “No – it is your choice if you want to do this.” However if you are near 55 and already in debt management or a form of insolvency, or are thinking about one of these solutions, it is vital that you check out the implications for your pension:

Still saving for a pension?

If you aren’t close to 55, then your main concern is likely to be how much you should be saving for a pension. The depressing answer is “probably a lot”, but if you have debts you want to get rid of, is it better to do this first then put money into your pension? Too much debt – should I stop paying into a pension? looks at the pros and cons of this situation.

Pension news

New Insolvency Service guidelines on pensions (2015)
Bankruptcy & Pensions – important new legal case (2014)
Pension changes – the challenges for debt advice (2014)