What will happen to my pension in an IVA? IVA Issue
Summary: What will happen to my pension in an IVA? - This article considers the issue of pensions and IVA's - both in terms of paying into and receiving from any pension fund.
One of the fundamental rules of insolvency is that any money you have already paid into a pension is not available for your creditors. This means that if you start an IVA, a pension fund that you have already built up will not be taken into account when considering your assets. However if you are still paying into a pension or you are already receiving payments from a pension then it is important to understand how these things will be treated in an IVA.
Already Receiving a Pension?
If you already receive an income from a pension, then it will be taken into account during your financial assessment that creates the budget underpinning your IVA.
If you receive a lump sum during your IVA it is likely that you will need to pay this into the pot as part of your overall repayment to your creditors. This can sometimes work as an incentive to creditors accepting an otherwise less appealing IVA proposal.
Paying into a Pension during an IVA
If you are paying regular payments to your pension from your wages each month, your creditors may request that this stops during the term of the IVA so they can get a higher return overall. Again this can work in your favour if this makes the monthly IVA payment to creditors more realistic and affordable within your overall budget.
However, creditors understand the importance of you saving for your retirement, so the simple answer is yes, you can continue to pay into a pension whilst in an IVA. However they will want to ensure that you have not set the pension contributions at an unreasonably high level, as every pound you pay into a pension is a pound you cannot pay back on your debt.
If your pension is provided by your employer and is a voluntary scheme, your creditors will expect you to reduce your contribution to the minimum threshold or percentage of your income, whatever that may be. If you have no control over your pension contributions, and they are deducted at source, you will be allowed to continue at that established level.
Accessing your pension pot for the IVA
In April 2015 changes in pensions meant that people over 55 years old could take out some or all of their pension pot in cash. So if you are already in or are considering an IVA and you would be 55 or over by the time it ends you must find out how this will effect your pension. Ideally you would get a clause in your agreement that excludes your pension pot entirely, but terms and conditions vary quite a lot and creditors may wish to access the funds.
If you are able to access the funds in your pension scheme, you may wish to use the cash to do a lump sum IVA and finish the IVA early. However, you should always get advice from a financial advisor regarding this as there could be pitfalls to consider:
- You will have less money to retire on
- You may have to pay tax on the pension funds you withdraw
- Benefits might be effected
- You may lose value in the pension overall by switching to the money purchase option
- Depending on your age, you may not have enough working years to replenish your pension pot.
It is also possible that if you cash in some of the pension for the IVA, the creditors could then gain access to the rest of the pension pot. Your insolvency practitioner will be able to advise you on this.
Your creditors' attitude may change the nearer you are to retirement, as there is obviously a shorter time frame left for your pension contributions to build, but there is no hard and fast rule. Voluntarily stopping pension payments
Voluntarily stopping pension payments
If you are struggling to afford an IVA, due to lack of income, or high expenditure, then you may wish to consider a voluntary cessation of pension contributions in order to use the extra income to bring the IVA payments within your financial range.
Receiving lump sums
If you receive a one-off lump sum from your pension while the IVA is in place, this may fall under the bracket of a windfall in the eyes of your creditors, and may need to be handed over. However, the value of your pension is generally exempt from your IVA.
Is my pension safe in an IVA?
Put simply there is no hard and fast rule. Every IVA is different and the devil will be in the detail – i.e. the terms and conditions that you sign up to. Whatever age you are when entering an IVA it is important to know what you are signing up to and be comfortable with how your pension is being handled during the process.