Can I use my personal pension plan to pay debts?
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I have some business debts I would like to payoff. Is there any way I can cash in my pension plan so I can pay off these debts?
chrissiet
1 year ago
Expert Financial Adviser Answer
Darren Smith
answered 1 year ago
you havent really given a great deal of detail in order to accurately answer your question but i'll give you some pointers:
generally speaking you cannot access your pension fund before age 55 and if the value is above 1% of the lifetime allowance (which will soon be £1.5m so 1% would be £15000) then the maximum you can draw is 25% of the fund value.
the exception to this is only usually in the event of gravely serious ill health.
you mention its to cover business debts:
depending on precisely what you intend and the value of your plan there are ways of using the pension to buy business assets which might release funds in another way but this wouldnt be an "easy" answer and not for the faint hearted.
this all sets aside the concerns of how your plans will impact on ability to live comfortably in retirement, sometimes its better to take the pain now rather than later when you might be unable to replace the lost pension value.
i would first of all consider other ways of releasing cash to repay your debts, starting with a wholesale review of your income and outgoings, reviewing subscriptions and memberships etc as this might release some extra monthly income which could be used to pay down the balance.
if the monies involved are on finance it might be worth considering reviewing the finance arrangement as rates and terms have improved recently.
my key point is not to rush into anything without reviewing all of your options - consider drawing up a list of pros and cons of each solution and then weigh up which option carries the least financial pain.
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generally speaking you cannot access your pension fund before age 55 and if the value is above 1% of the lifetime allowance (which will soon be £1.5m so 1% would be £15000) then the maximum you can draw is 25% of the fund value.
the exception to this is only usually in the event of gravely serious ill health.
you mention its to cover business debts:
depending on precisely what you intend and the value of your plan there are ways of using the pension to buy business assets which might release funds in another way but this wouldnt be an "easy" answer and not for the faint hearted.
this all sets aside the concerns of how your plans will impact on ability to live comfortably in retirement, sometimes its better to take the pain now rather than later when you might be unable to replace the lost pension value.
i would first of all consider other ways of releasing cash to repay your debts, starting with a wholesale review of your income and outgoings, reviewing subscriptions and memberships etc as this might release some extra monthly income which could be used to pay down the balance.
if the monies involved are on finance it might be worth considering reviewing the finance arrangement as rates and terms have improved recently.
my key point is not to rush into anything without reviewing all of your options - consider drawing up a list of pros and cons of each solution and then weigh up which option carries the least financial pain.
Expert Financial Adviser Answer
Dr David Carter FPFS
answered 1 year ago
Also, how bad are your debts? Your pension is designed to provide you with retirement income and if you can hold onto it, do try to do so. If your situation is becoming desperate, then the pension has a particular feature that is worth a lot: as long as the pension payments were made honestly and not, for example, as a way of escaping creditors, then the fund is safeguarded against creditors.
If you have taken the 25% of the fund that should be available to you at age 55, then go bankrupt or have an IVA imposed (an individual voluntary arrangement, a stage short of bankruptcy) then you will lose all benefit of that 25%. Whilst the remainder would be safe, it is nevertheless a high cost to pay for zero benefit. If you have a small pension pot (currently up to £18,000 but in 2012 reducing to £15,000 and are over 55 then, yes, you can take it all (there will be some tax to pay on part of it) but even a modest pension pot such as this deserves being protected from creditors and would provide eventual benefit in retirement.
Do heed Darren's wisdom and certainly don't rush into any solution even if it looks easy and attractive. Take your time, think, talk, and listen.
report abuse
If you have taken the 25% of the fund that should be available to you at age 55, then go bankrupt or have an IVA imposed (an individual voluntary arrangement, a stage short of bankruptcy) then you will lose all benefit of that 25%. Whilst the remainder would be safe, it is nevertheless a high cost to pay for zero benefit. If you have a small pension pot (currently up to £18,000 but in 2012 reducing to £15,000 and are over 55 then, yes, you can take it all (there will be some tax to pay on part of it) but even a modest pension pot such as this deserves being protected from creditors and would provide eventual benefit in retirement.
Do heed Darren's wisdom and certainly don't rush into any solution even if it looks easy and attractive. Take your time, think, talk, and listen.
