It is important to understand the implications for your pension if you start an IVA. The money you pay into it or currently draw from it could be affected.
Included in this article:
- Is your Pension Fund at risk if you start an IVA?
- Can you pay into a Fund during the Arrangement?
- What happens to payments you already receive?
- Can an IVA be settled early using cash from your Pension?
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Is your Pension Fund at risk if you start an IVA?
The Welfare Reform and Pensions Act of 1999 states that if you become insolvent your pension is an exempt asset. In other words any money already invested in the fund itself is protected from your creditors.
Given this if you propose an IVA you do not have to offer your creditors any money from your pension as part of the Arrangement.
It may be possible to draw cash from your fund after you reach 55 years old. However based on the case of Horton v Henry (Nov 14, upheld Oct 16) if you reach this age during an IVA you cannot be forced to release money.
If you choose to withdraw cash from your pension during an IVA you will not be able to keep it. It will be treated as a windfall and will have to be paid into the Arrangement.
Can you pay into your Pension during an IVA?
If you are making pension payments your take home income is reduced. In turn the amount you can pay into your IVA falls. Given this whether these payments can continue will depend on the type of pension you have and the amount you are paying.
If you pay into a work place pension or your employer’s company scheme you can normally continue to do so. However you will have to restrict your contributions to the minimum allowed. Your creditors are unlikely to allow over payments.
You may have to suspend your contributions into a personal pension. However this will depend on your financial circumstances. In addition if you are close to retirement reasonable payments will normally be allowed.
Starting an IVA may mean you have to reduce your pension contributions. However once the Arrangement is over you will be debt free and can save all of your disposable income if you wish.
What happens to Payments you already receive?
If you are already receiving payments from your pension this money makes up part of your income. Is such it must be included when you calculate how much you can pay into your IVA.
If you start receiving payments during an IVA you must inform your Insolvency Practitioner (IP) immediately. They will review your income and expenses budget. If the change means you can pay more you will have to do so.
If any additional income you are due to receive means your IVA contributions will rise you may be able to defer the payments. Based on Horton v Henry you cannot be forced to take income from your pension if you do not want to.
Can an IVA be settled early with a lump sum from your Pension?
If you reach the age of 55 during your IVA you may have the option of taking a lump sum from your pension. If so it is possible to offer this cash to settle the Arrangement early.
You make the offer in exchange for not having to make any more monthly payments. Your creditors would not otherwise be entitled to the cash. As such if they do not agree then you can simply withdraw the offer.
You must be careful not to draw any money to settle an IVA without the prior agreement of the deal from your IP. If you do it may be treated as a windfall and would simply have to be paid into the Arrangement.
You cannot draw money from a pension during an IVA and expect to be able to use the cash for whatever you want. It would then become a windfall and you will be required to pay it all to your IVA Company.
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