Is your pension at risk if you do an IVA

Is your pension at risk if you do an IVA

Whatever stage of life you are at, understanding how your pension is treated by an IVA is key. Is a pension at risk in an IVA? Rather speak to someone? Call 0800 077 6180.

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Is your pension fund / pot at risk?

A pension pot is the fund of money that is built up during over a person’s life with regular payments each month. The size of the pot is key. The amount of regular income you receive once you retire will depend on the size of the pot you have built up.

In an IVA creditors will be interested in all your assets and will expect you to raise funds from them if possible; e.g. a property. However a pension is an ‘exempt asset’ as stated in The Welfare Reform Act 1999. This means that any money already in your pension pot cannot be accessed by creditors in an IVA.

If you choose to release funds from your pension then it is a different story. You may be able to release a lump sum from your pension when you reach the age of 55. If you choose to do this you won’t be able to keep the money. This would be deemed a ‘windfall’ and would have to be paid to the IVA.

Even if you are able to release funds from your pension at 55, you cannot be forced to release them . This became case law as a result of Horton v Henry (Court of Appeal 2016).

What if you start taking your pension?

You may already be receiving pension payments each month. If so these funds just become part of your income as declared in your budget. As a part of your income they are effectively ‘accessible’ by your creditors.

If you start taking your pension payments during an IVA, they will be added to your income as part of your budget. Your expenses would then be reviewed. Your IVA payments are not fixed, so you will have to pay more if you can afford to.

Remember, you cannot be forced to start taking your pension. This applies to both lump sums and to monthly payments your pension may bring. You may want to wait to let your pension pot grow as big as possible before you take it.

Ultimately an IVA cannot put your pension at risk. However an IVA may effect when you choose to start your pension.

Can you maintain pension contributions?

Monthly pension contributions will be scrutinized like all expenses in an IVA. The more you contribute in pension payments, the less your IVA will receive each month. As such you may have to stop paying them during the IVA.

This depends on the type of pension you have. It is likley that you would have to suspend private pension contributions during an IVA. Although if you are closer to retirement age you may be permitted to make some payments, depending on your circumstances.

You would normally be able to pay into a workplace pension or employer’s company scheme. However, you could not make over payments and contributions would be set at the minimum permitted for the scheme. This will not put your pension at risk as such. Though the pot will not grow as much as it could have.

Once you complete your IVA you could then use some of your disposable income to boost your pension fund.

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4 thoughts on “Is your pension at risk if you do an IVA

    Victoria says:

    We finished our IVA 5 years ago,my husband has the chance to take a lump sum from a pen,my worry is,will we have to pay to the IVA as a windfall? Thank you.

      Hi Victoria

      You have no need to be concerned. After an IVA is completed and you have your completion certificate you can then take money from your pension and the funds are yours. Unlike something such as PPI compensation, money taken from a pension in this way is not regarded as an after acquired asset of the IVA because the pension fund itself was not included as an asset in the IVA.

    Janet says:

    I am currently in year 4 of iva. I have a small pension which is winding up. They have offered me a lump sum in settlement so I forfeit my pension. This sum would be enough to pay off my iva and give me a little over. Is this classed as a windfall as I would be forfeiting my pension.
    Thank you

      Hi Janet

      If you cash a pension during an IVA (for what ever reason) it will be automatically considered to be a windfall. As such, if you just accept this lump sum from the pension company, you will have to pay it to your IVA company and continue paying your payments as normal. It will simply mean you pay back more of your original debt overall.

      The only way this lump sum could be used to pay off your IVA early is to first agree with your IVA company that the funds are being released “of your own free will” with the sole purpose of settling early. You will need to agree the amount required to settle and confirm if the amount released from your pension will cover this.

      If this is all agreed in writing before you get the lump sum you should then be OK. If this can’t be done and you don’t want to lose your pension, the only other option is to investigate whether it can be transferred directly into another pension fund. I suggest you speak to an independent pensions adviser about this option.

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