What happens to your Pension if you start an IVA?
If you start an IVA any money already in your pension (known as the fund) is protected. Unlike other forms of savings it is regarded as an exempt asset. The fund cannot be touched to help repay your debts. However if you are already receiving payments these form part of your income. As such these receipts must be included when calculating the amount you can pay into the Arrangement.
If you start drawing your pension during an IVA you must tell your Insolvency Practitioner (IP). They will then review your income and expenses budget. The amount you pay into the Arrangement could be affected as a result. You cannot be forced to start drawing your pension during an IVA. This was confirmed in the case of Horton v Henry (Nov 14, upheld Oct 16).
Can you continue paying into a Plan during an IVA?
Making regular payments into your pension is important for a secure retirement. As such these are recognised as allowable in an IVA living expenses budget. However the amounts must be reasonable.
Payments into a company scheme are taken directly from your wages. You should be allowed to continue making the minimum contributions required to stay in the Plan. However overpayments may have to be suspended.
If you pay into a private scheme then depending on your circumstances you should be able to continue doing so. Again the amount paid in each month must be reasonable and may have to be reduced if deemed too high. You may have to reduce or suspend payments into your pension during an IVA. However once it is completed you will be in a position to increase the payments again if you wish.
Can you do an IVA if you already receive Pension Payments?
You can start an IVA if you are already receiving your pension. In fact given this form of income is generally guaranteed it should mean that you have no problem maintaining the agreed payments.
It is important to understand that this money is not protected. It must be included when you are working out your total income each month. As such it can be used to help pay your debts.
In other words pension receipts are included when working out how much you can afford to pay into your Arrangement each month. If your pension income changes during your IVA you must inform your IP. If the amount you receive increases your payments may also go up.
Can you withdraw a lump sum from your Pension during an IVA?
You may have the option of drawing a lump sum from your pension after reaching the age of 55. However if you are already in an IVA you should act with care and get further advice before doing so. If you take a lump sum without prior agreement from your IP it will be treated as a windfall. If discovered all of the cash you received will have to be paid into your Arrangement.
Where you are facing a financial emergency your IP might allow you to withdraw cash to cover it. But you must first get written agreement from them. You might also be able to draw a lump sum to settle your IVA early. After the Horton v Henry ruling you cannot be forced to withdraw a lump sum from your pension to increase the amount you pay into your IVA.