The pension changes in April 2015 mean that many more people aged 55 and over will be able to take some or even all of their pension pot in cash. You need to know how this may affect you if you are considering an IVA. If you already have an IVA, you may be wondering if your pension is safe. I’ll look at these two situations in turn.
First a warning: IVAs are individual arrangements and it is possible for almost anything to be included or excluded in the detailed terms and conditions. You will have to look at your IVA paperwork and / or talk to your IVA firm to tell if the generalisations here are applicable to you. Think of this article as an overview which gives you pointers about what to look for.
If you are thinking about an IVA:
“Can I keep my pension safe in an IVA?”
If you will be over 55 at the end of your IVA you need to discuss how pensions will be handled with your IVA firm. It’s best to get a clause that excludes your pension completely; second best is a clause which specifies clearly under what circumstances how much can be accessed.
In my opinion it would be dangerous to agree to an IVA where pensions are not mentioned or the wording seems vague. The pensions area is very fluid at the moment and you don’t know how it could change over the next few years, with clear wording you will be protected.
If you are in any doubt, talk to a different IVA firm – there are dozens of them that would love your business! I can’t say which firms will adopt what wording as it’s going to take a while for this to become known. I hope standard wording will be included in the IVA Protocol at some point so this will be easier. A good place to discuss what an IVA firm is proposing and whether there are better alternatives is this IVA forum.
“Should I use my pension to clear debt instead of an IVA?”
If you are over 55 and have money in a pension, then the April 2015 pension rules give you a new option for tackling your debts. As that article points out, there are a lot of things to consider, so don’t rush into this. I look at the general pros and cons of IVAs in Debt Camel’s Guide to IVAs.. If your debt situation is serious enough for an IVA to be a real possibility, then it would be sensible to consider if using your pension pot is a good alternative. Indeed if your pension pot is very large you may find that your creditors will not accept an IVA.
However there are important negative factors for taking money out of you pension. These include:
- you will be retired a long time, probably decades. Don’t make a choice that will leave you struggling when you retire if there are better ways of tackling your debts now;
- what tax you would have to pay on withdrawing the money from your pension – depending on your income and how much you are taking out, you may have to pay between 4% and 45% tax on it;
- if you get any welfare benefits, you need to talk to a debt advisor such as Citizens Advice or National Debtline about whether taking money from your pension and paying it off debts could affect your benefits;
- if you have a pension that is linked to your salary, you could lose a lot of its value by switching it to a money purchase pension in order to take money out;
Another approach would be to opt for a Debt Management Plan for a year or two now instead of an IVA. After that you may then be able to offer individual creditors full and final settlement offers using money from your pension.
Pensions if you are already in an IVA:
“I will be under 55 when my IVA finishes”
If you will be under 55 when your IVA ends, the pensions changes aren’t relevant and your pension is completely safe. There is only one minor complication – don’t forget that your IVA may potentially be extended beyond the normal 5 years if there is equity in your house that you can’t release or sometimes if your payments are reduced for a period.
“I don’t want to touch my pension”
If you don’t want to withdraw any money from your pension before your IVA ends, then it is very likely to be safe. It could only be at risk if there was a specific clause in your IVA which obliges you to release money from your pension. This isn’t a common term and anything like it should have been discussed with you before the IVA was agreed, so if this doesn’t ring any bells with you, it’s very unlikely you have a problem.
“I would like to withdraw some money from my pension”
Life in an IVA can be tough and you may be hoping that the new pension freedoms will enable you to replace your car or get a new boiler.
If there is no mention of your pension in your IVA terms and conditions, then if you take money from your pension it is likely to be seen as a “windfall” and it may have to be paid to your creditors – not what you wanted! Before you do this, you need clarification from your IVA firm that it will not be touched – I would want this in writing.
If your IVA has a clause which says your pension is excluded this should be fine. As a general point though do think about the four big negative factors I have listed above for taking money out of a pension.
“I want to try to settle my IVA using money from my pension”
A full and final settlement offer could be a good use of your pension money if you are having big difficulties with your IVA. You do however want to offer the minimum amount possible so that your future pension is not wrecked. You need to talk to your IVA firm about what could be acceptable, they can then propose this to your creditors and if your creditors agree, you can withdraw the money. Don’t take the money from your pension without having the settlement agreed first – this is important because if you do, it may be taken as a “windfall” payment by your IVA and not as a settlement amount.
If you are not having major problems managing the IVA payments then a settlement offer is still a possibility, but a low offer would be unlikely to be accepted – it’s difficult to give any guidelines but I have talked through some of the issues here. Again consider the negative factors listed above. If you are going to end up paying say 30% tax (it could even be more) on the money you take out, then this may not be a good deal for you at all.
So is a pension safe in an IVA?
Whether you pension is safe in an IVA after the April 2015 pension changes will depend on the exact wording of your IVA. If you haven’t yet started an IVA, you need to be sure that you are happy with what is being included about your pension. If you are already in an IVA, then your pension will probably be safe unless you want to take some money out of your pension – but you need to read your T&Cs and talk to your IVA firm about this.
Repairing your credit after an IVA
A Guide to IVAs – what you need to kinow
If a debt is forgotten, can it be added to your IVA?
Earl Barrington says
Being in an IVA is tough believe me. If’ I’d known two years ago about these new pension reforms, I’d have stuck as I was (with a debt company) waited two years, then paid off my debt with my pension pot as luckily its quite substantial. As it is now – negotiations with the IVA company and paying off my contract early is going to be costly. It appears they want the full amount I owe paid back, along with the remaining contributions as well! But needs must and I desperately need to be out of the IVA to progress and generally get my life back on track, invest some money into my own business, so am going to negotiate and pay it off the best I can. IVA’s aren’t all they’re cracked up to be. So, If you’ve a pension looming and are considering entering and IVA, I wouldn’t. Just pay back your debt from your pension and do it that way, as your immediate future will be easier to operate, such as having credit cards and buying a car if you need to etc etc. Freedom speaks volumes, Just learn to curb your spending habit. IVA’s were essentially invented long before the new pension reforms, so they haven’t taken this into consideration for a current client in my view, perhaps in years to come they’ll be more understanding.
Karen Jones says
My husband and I are in an IVA it finished this February, however, as they are allowed they added an extra 12 months. My husband wants to cash in his pension, if he does can the IVA take it? I think it can but he says no and that he’ll transfer the money to one of the children. Is this possible?
Sara (Debt Camel) says
You are most likely to be right. Your IVAs are still running – unless your husband’s pension is clearly excluded from his IVA (which would be unusual) if he takes money from it this is a windfall which will have to be paid into the IVA. Transferring the money to one of the children doesn’t get round this problem.
If he is sure it is OK, then tell him to ask for confirmation from your IVA firm in writing that the money will not be touched before he does this.
carole says
We are in 12 month extension of our IVA and my Husband has been offered the 25% tax free from his pension, he wants to put it somewhere so that we have a start when he retires and we move to Spain but I think the IVA will be able to take it. Can they?
Sara (Debt Camel) says
I think they probably would :(
If he wants to take this, he needs to get it in writing from his IVA firm beforehand that it will not be touched.
The options are either to delay for a year? or to forgo taking the 25% tax free and use the whole pension to get a larger annuity? It might be sensible for him to talk to Pension Wise https://www.pensionwise.gov.uk/ about his options if this is a Defined Contribution pension.
Bill says
Hi I am in the early stages of applying for an iva. In a year I will be 55
Can I use my frozen pension to pay my iva off early
Sara (Debt Camel) says
If you have pension monies that you can access next year, you should seriously think about NOT starting an IVA now but opting for a temporary debt management plan instead until you are 55. Then next year you could look at taking some money out and proposing a full & final settlement, possibly in the form of a single payment IVA, see https://debtcamel.co.uk/debt-options/less-common/full-final/.
If you take the IVA out now, you are incurring all the IVA fees and it is then difficult to take money out of your pension, because any money you take out should be paid into your IVA but NOT as an early settlement, just as an extra to go to your creditors, you would still be expected to carry on with the rest of the IVA.
It is usually a bad idea to commit to an IVA if you know you are likely to want to end it early , either by selling the house or accessing your pension or if you are likely to be inheriting money.
I suggest talking to StepChange at the moment about these different options.
Mrs K says
Have made a F&F offer and my variation meeting is within the next couple of weeks. I have a couple of queries regarding my pension
1) I would like to draw some money (£500) from my pension to pay for Christmas..I have been on SSP for the last 4 weeks so have been unable to put anything by.( my terms state I can have a £500 windfall)
2) should I wait for my certificate of completion before I draw my pension pot and move it elsewhere
My IVA finishes next July
Sara (Debt Camel) says
1) I suggest checking this with your IVA firm before you do this. Also I have to say that if you are in financial difficulty, £500 seems a huge amount to spend on Xmas. Money in your pension is there for your old age and it’s really not a good idea to dip into it for something like this. tell your family now that you aren’t going to be able to afford much this year because of your health and they will understand!
2) definitely!
MrsK says
Sorry Sara
I also meant that the majority of the £500 would be to supplement my wages as I’m on SSP… not the full amount for Christmas !!
Sara (Debt Camel) says
OK! I suggest talking to your local Citizens Advice about your situation, as there may be some help you can get from benefits?
Mrs k says
Thanks for the advice.. but I have my variation meeting in a few weeks, so hoping the end is nigh
toyah says
My husband took out an IVA just before we married a little over a year ago. i think it was for around 30,000. He currently repays 190 per month.
I ve never heard about them extending it until I read this post.
He s just turned 55 and we ve been to an IFA to discuss pension options. He has 3 seperate pensions. Two of which are old and he has nt paid ibto fir 20 years. His iva aggrement words something about a pension.his small company pension only. I presume he forgot to mention the other two.
The IFA is looking at the possiblility of cashing in all pensions to enable us to buy a small house outright. over this finicial year and next. sounds crazy but i m 20 years his junior so our household income set up is differenr and currently we pay 625 rent. So purchasing a house outright makes finicial sense and a huge saving per year.
We are just not sure if this is possible in an iva ? Any ideas?
Sara (Debt Camel) says
Yiu must not take money out if a pension unless the IVA firm has agreed you can in writing beforehand. Otherwise it will be taken into your IVA.
Also even if you are allowed to keep the money and buy a house, it is likely to mean that his IVA payments are increased a lot, so you may be no better off.
Your choices are either to forget about this idea until his IVA has finished or discuss his options with his IVA firm.
Rowntree Travis says
I have made a full and final settlement payment which has been agreed and monies received by my IP. I await my Certificate of Completion. If I take money from my pension pot before the certificate arrives, can the IVA still grab it? I could maintain it is for reinvesting in a ‘pension scheme’ (in property) or put it back into a pension if they demanded it. As full and final settlements go, surely I have satisfied my debt obligations in the eyes of the law and the Certificate is merely a formality?
Sara (Debt Camel) says
Get your IP to agree to this in writing before you take the money out. Better safe than very sorry!
baby cable says
I have just over 3years of an iva to run, i have since found out that i have a pension pot of £43,000. from me opting out of serps many years ago.
i was thinking of taking my 25% but reading into the iva site and people e-mails this does not seem a good idea.
so i am putting it on hold .for 12 months
My son as said he will make an offer to the iva to come to a settlement, can he do this, and will this bring my iva to an end so i can access my fund with no problems.
.
Sara (Debt Camel) says
You absolutely must not take this money out without checking with your IVA first that you don’t have to pay it into your IVA. With the vast majority of IVAs you would just lose this money:(
Also you can’t usually just take the 25% tax-free out, you have to withdraw the whole amount and pay tax on the 75% OR take the 25% tax-free and buy an annuity with the rest. Actually, there are a lot of other complicated options, but only touching the tax-free amount isn’t usually one of them. If you want to find out what the options are – and this would be a good idea as you may want to do it in 3 or 10 years time if you don’t do it now, then contact Pension Wise, which is a government service.
How much are you paying a month to the IVA? Are you renting or buying?
Your son making a settlement offer could work well. Or you could propose to your IVA firm that if they agree to accept the amount as a full & final settlement, you will take the money from your pension. But they have to agree this FIRST and in writing, before you do this.
Rowntree Travis says
This will work as I’ve just done it. Keep the pension thing a secret until you have your certificate of completion. Make sure you have a good reason (real or fabricated) for an early settlement. Good luck!
Mike says
What about a car on pcp.
I have heard they take them back but not sure as also heard they let you keep them until the balloon payment is due, then if you haven’t got it, they take it back?
Sara (Debt Camel) says
There may be a clause in your PCP agreement that allows the company to terminate it if you become insolvent – an IVA is a form of insolvency like bankruptcy. Some finance companies will, some won’t – it may depend how far your car is in negative equity at the moment.
When the balloon payment is due, unless someone else could pay it for you, you won’t be able to afford it to the car goes back. You are then in the difficult position of having no deposit, and a wrecked credit record. It may be possible to get a car on HP but the interest rate is going to be very large.
How long until your PCP ends? Do you have a house with equity?
Mrs A says
Hi, my Iva comes to an end this August, having run for the past five years, and I’ve been told that I will have to wait up to 6 months for the final administration to be completed and the notice of completion issued. Would I be wise to wait till this is issued to access my pension pot – I am now 59 and am considering leaving my employment soon, so may need to draw down some or all of my pension at some stage.
Does the Iva have any call on my pension once the letter of completion has been issued?
Sara (Debt Camel) says
You must not take any money from your pension before you have your letter of completion UNLESS your IVA firm tells you in writing that you can do this and none of the money will be claimed for your IVA. It’s really best to wait if at all possible.
After a completion certificate, your IVA has ended and you can access your pension if you want.
maddy says
is it suffice to wait for the completion certificate or do you have to wait until your name is taken of the insolvency register before claiming pension ?
Sara (Debt Camel) says
The completion certificate should be enough. If you are unsure, ask your IVA firm to confirm this.
Gary098 says
Hi my question is I have got four different pension s one is a defined pension total fund value 126000.I am in a IVA started in 2014 Before my annual review my IP brought up the fact that I was still paying into my employer scheme which is Tesco .I looked on my original contract in my IVA and the creditors said I could make the payment which at start was defined pension scheme .It has now changed at Tesco to money purchase I am putting 4% and company matched .My payment to my IVA got brought and my pension I no about the high court decisions in 2016 1 am 49 my nominee said in 2014 I had to be above 52 to lose them through ipo my IVA transferred from Knightsbridge to creditfix one thing which was asked my payments into my pension could be dropped I admit I have received a closure bonus from defined pension scheme which was paid into new scheme at Tesco is their anyway they can get them without permission also previous pension was held with one of banks I owe money to
Sara (Debt Camel) says
There is no way you can get the money out of a pension if you are 49. It doesn’t matter where the pension is held, it just can’t be accessed.
I also think you should complain if your IP asks for your pension contribution to be dropped – your IVA was not set up on that basis. I am sorry to hear that Credit fix are asking about this.
Gary098 says
My IVA payment after expenses was set at 80 pounds in my IVA .I currently pay 65 pounds every four weeks into my pension. Had no increase in my IVA payment for three half years they mention ppi claims sent evidence by old credit statements at year one but bank just said no Barclaycard.
Total debt was 22000 on credit cards
Sara (Debt Camel) says
That is no reason to cut back on your pension contributions. If you had gone bankrupt (and I am guessing you are renting, so bankruptcy would probably have been a better option for you) you would never be asked to reduce your pension contributions.
Gary098 says
Yes I am renting from housing association.But work the fees on IVA equivalent to 30 months payment .Nominee said my creditors would take a IVA rather than bankruptcy because they get a greater return .understand that they can’t have IPO if not working if IVA did fail would go bankrupt but my creditors would not want this because my nominee said I had little or no assets a part from my pension.whitch was told can be included in individual payment order only at 52 and a IPO can only last for three years .The trustee could only acesss funds in my pension if I contributed 15% or more of my salary into pension and they show that I was deliberately placing money in the pension to hide from them.Also some pension schemes have a protected early age of 50- 52 if scheme started before government changed to 55 and early pension benefit age protected in private scene example previous Scottish amicable Pension scheme if transfer would loose that right.Also creditors asked for them to be frozen.But did not agree to this . Scotish amicable now is a closed fund been managed by Prudential in Hong Kong .Which complicates things even further .
Sara (Debt Camel) says
“But work the fees on IVA equivalent to 30 months payment” bankruptcy fees are £680 pounds – that is about 8 months worth of IVA fees, not 30 months. What your creditors want doesn’t matter – they couldn’t stop you going bankrupt. You would have been much better advised to do this, I am sorry.
I am not quite sure what you are asking at the moment. You can’t access your pension now and Creditfix should not be suggesting that you can. Nor should they be suggesting that you decrease your pension contributions – they are not high and that would not be a reasonable request. If Creditfix are pushing you to agree to something, then I suggest going to your local Citizens Advice and asking for their help.
Gary098 says
Did receive communications by email while Knightsbridge saying some would say this is the wrong option but they can assure me IVA was right option currently no chance of IVA failing if keep up with payments also some other data company from notingham which specialises in recovery of greater tfunds to creditors through IVA contacted me not
sure if I was supposed to no this wasn’t Knightsbridge or creditfix. A company called tdx group ltd which specialises in credit recovery
Ps the company employed open up us all new pension scheme after change plus was asked if we still wanted protected early retirement age
Sara (Debt Camel) says
I am still not sure what you are being asked to do by Creditfix?
Stephen says
I had an Iva which was completed and Certified in September 2013, in the last year i moved my SIPP pension in to an investment through my pension company, being under 55 i did not have access to to funds only able to transfer them. the company who dealt with this and the investment company have gone bust , and liquidation, i believe the company was false and was ill advised.
The FSCA are looking at compensation to get some money back but say the IVA trustee could have access to any compensation, even tho i didn’t have the money as a windfall and the investment was only accessible at the age of 55.
Could you shed any light on this, as i would rather return the money to a pension for my retirement.
Sara (Debt Camel) says
I am very sorry to hear you have been a victim of this sort of pension scam.
“I had an Iva which was completed and Certified in September 2013, in the last year i moved my SIPP pension in to an investment ” can I check what the phrase “in the last year” refers to here? did you do this in 2012/3 or in 2017?
Tony says
Hi Sara
I am in the process of trying to source my final payment of my IVA which is to the value of £14,109.00. Having drawn blanks with raising finance or a remortgage I`ve been told that when I reach 55 I can draw my private pension to clear my final payment. I`m not 55 until April next year so for now I`m thinking of asking for a 10 month extension and to keep making my monthly payments then clear the remainder with my pension. My pension is only £20,621.00 so it wont leave much but if I do this will they take the remaining £6000.00 from me as available money and also will I be taxed on taking the money to clear the IVA if this is the way chosen
Thanks for any advise you can give
Sara (Debt Camel) says
Is this final payment specified in your IVA – that would be unusual. Or are you just being asked to release equity?
Tony says
Hi Sara
I`ve been instructed that I need to source funds to the whole of my share of the equity
Tony says
Could you do a quick calculation for me please Sara.
I`m in a joint mortgage and only me is on an IVA.
Our house is valued at £175,000. and left on my mortgage is £146,000
Can you calculate what my share of the equity is that I need to find for my final payment.
Thank you
Sara (Debt Camel) says
See Equity release in an IVA – that has a calculator.
But read the whole of that article. It would VERY unusual for you to have to release the whole amount of your equity – you are normally allowed to keep 15%. And you should only be asked to get a remortgage – if you can’t you just have to pay an extra year of payments.
There should be no need for you to have to use your pension – which would be very expensive for you as yopu have to pay income tax on the money you are taking out.
Tony says
Thanks for your reply Sara
I`ll read through your article.
I put my figures into your equity release calculator and it calculated below £5000 so nothing to pay. I’ve previously spoke to my IVA company and asked them if I should only be paying 85% of my equity share and they said I need to pay the whole of my share. Also I mentioned the 12 month extension to them as I can`t remortgage, raise finance or get a 3rd party input but they told me that I would need to pay the whole of my share over however many years it would take to pay the £14109.00.
Sara (Debt Camel) says
You need to read your IVA documentation. What they are saying isn’t impossible but it is very unusual and you should have had this explained to you when you agreed to the IVA.
Ian says
Hello
Thank you for a fabulous website. My completion certificate on my Iva was 26/7/18 after early settlement. I then cashed in pensions after this date. My inland revenue letters still say they are sending copies to my Iva firm. Is there any way the Iva firm can touch the pension as it is after the date of completion? Can I get them removed as an ‘agent’ with the HMRC?
Sara (Debt Camel) says
I am not aware of any way your pension can be touched if you access it after your IVA is closed.