With the new legislation that has come about recently with pensions, with people being able to release their pension money, one of the questions being asked by people is: “Can I use my pension to pay off my debts?”
This is an interesting question:
Short answer: Yes it is possible to release your pension and use that money to repay debts or mortgage arrears (frankly debts of any type or nature).
The other component to a question like this is: is it a good idea to release your pension to pay off debts?.
It is possible to release cash from a pension for an individual who fits into either of the 2 criteria:
1/ They are over 55 years of age
2/ They are in ill health.
However when considering releasing cash from a pension, releasing cash from a pension you must consider the following factors:
1/ Is there enough money present in your pension to cover the debts’ you are looking to repay?
You could also use the money as a contribution to existing savings, but will this in total be enough to repay the debt?
2/ Are there other channels whereby you can keep your pension as it is and procure the finance through other means?
There are certain situations where using pension money to pay debts may not be the best option:
If clever financial management and a 0% balance transfer then this would be a good option to use to repay the debt.
People on a debt management plan (DMP) whom are gaining control of their debts, then this should potentially be stuck with because a debt management plan can be an effective means of clearing debt and is protected by a negotiation between the debt management company and the debtors’ creditors.
If there is income tax liabilities an IVA (Individual Voluntary Arrangement) might be a viable option for people looking to clear a tax liability, however an IVA itself comes with it’s own rules, regulations and other factors that may put off an individual.
Releasing money from a pension is not necessarily a bad idea at all, but it is important to consider the situation from all angles and see if there is a solution that can keep an individuals pension intact.
It is important that individuals (prior to releasing money from their pension) are educated before taking such a step.
If you are looking to release your pension money, feel free to get in touch using the contact form to request a free pension review.