Your pension pot is protected in an IVA. It’s not treated as an asset that can be taken by creditors. However, pension income and lump sum withdrawals are treated differently and can affect your monthly payments.
Here’s exactly how pensions work in an IVA, what happens if you withdraw money, and what you need to know if you’re approaching retirement.
Your Pension Pot Is Safe#
The good news: your pension savings—whether in a workplace pension, private pension, or SIPP (Self-Invested Personal Pension)—are protected in an IVA.
Creditors cannot force you to withdraw money from your pension to pay them. Your pension pot is not treated as an asset for the purposes of the IVA, unlike equity in your home or a high-value car.
This protection applies regardless of your age. Even if you’re over 55 and legally able to access your pension, creditors can’t make you do so.
But Pension Income Counts Toward Your IVA Payment#
If you’re already drawing a pension—whether state pension, workplace pension, or private pension—that income is included in your affordability calculation.
Your Insolvency Practitioner assesses your total monthly income (wages, benefits, pension) and deducts essential living costs. The surplus determines your IVA payment.
Example:
- State pension: £800/month
- Part-time work: £600/month
- Total income: £1,400/month
- Essential costs: £1,000/month
- Surplus (IVA payment): £400/month
The pension income is treated exactly the same as wages. It’s part of your overall financial picture.
Lump Sum Withdrawals: The 25% Tax-Free Rule#
Since 2015, anyone over 55 can withdraw up to 25% of their pension pot tax-free. If you do this during your IVA, the withdrawal is likely treated as a windfall.
What Counts as a Windfall?#
If you take a lump sum from your pension while in an IVA, your IP will assess it. In most cases:
- The money must be declared immediately
- It may be used to clear part or all of your IVA
- If the lump sum exceeds your remaining IVA balance, you get the surplus back
- If it’s less than the balance, it’s absorbed into the IVA and your payments continue
Some IVA agreements include a specific “pension clause” that addresses this. If yours does, taking a lump sum could trigger a requirement to pay the full remaining balance.
Before withdrawing anything, talk to your IP. They’ll clarify whether the withdrawal will be claimed as a windfall.
Pension Drawdown and Regular Withdrawals#
If you’re in flexible drawdown—taking regular amounts from your pension instead of buying an annuity—those withdrawals are treated as income, not windfall.
Your IP will factor this income into your monthly affordability calculation. If your drawdown increases your income significantly, your IVA payment may increase.
Pension Contributions During an IVA#
You can usually continue making pension contributions during your IVA, but there are limits.
Workplace Auto-Enrolment#
If you’re in a workplace pension scheme and your employer makes automatic contributions, these are generally allowed. Your IP will include this in your budget as a normal household expense.
The standard auto-enrolment contribution (currently 8% total—5% employee, 3% employer) is typically accepted without question.
Increasing Voluntary Contributions#
If you try to significantly increase your pension contributions during the IVA—say, from 5% to 15%—your IP will likely challenge this.
Creditors might argue you’re sheltering money from the IVA by funnelling it into a protected pension pot. This could be viewed as non-cooperation.
Stick to your existing contribution level. Don’t try to game the system.
Self-Employed and SIPP Contributions#
If you’re self-employed and paying into a SIPP, your IP will scrutinise contributions more carefully. They’ll assess whether the contributions are reasonable given your income and the terms of your IVA.
Large or irregular contributions may be questioned.
Approaching Retirement During Your IVA#
If you retire during your IVA, your income will change. This triggers a reassessment.
Scenario 1: Your Income Falls#
If you retire and your pension income is lower than your previous salary, your IVA payment will likely decrease.
Your IP recalculates your affordability. If you genuinely can’t afford the current payment, they can reduce it (by up to 20% under the 2025 Protocol without needing a variation).
Scenario 2: Your Income Stays Similar#
If your pension income is roughly the same as your working income, your IVA payment stays the same.
Scenario 3: Your Income Increases#
If you retire with a generous pension that’s higher than your previous income, your IVA payment could increase.
The affordability calculation works both ways. If your surplus income goes up, so does your payment.
State Pension and IVAs#
Your state pension counts as income. If you start receiving it during your IVA, your IP includes it in the affordability calculation.
The state pension is not protected in the same way your pension pot is. It’s simply regular income.
What If You Need to Use Your Pension to Settle the IVA?#
Some people use their pension lump sum to make a full and final settlement offer—paying off the IVA early in exchange for writing off the rest.
This can work, but consider:
Tax Implications#
The 25% tax-free lump sum is… well, tax-free. But anything above that is taxed as income. If you withdraw a large sum to settle your IVA, you could face a significant tax bill.
Make sure the settlement offer accounts for this. You don’t want to end the IVA only to owe HMRC thousands.
Long-Term Financial Security#
Your pension is meant to fund your retirement. Using it to settle an IVA leaves you with less money later in life.
Before making this decision, get independent financial advice. Make sure you’re not solving one problem by creating another.
Effect on Benefits#
If you claim means-tested benefits (Pension Credit, Housing Benefit), withdrawing a lump sum from your pension could reduce or stop those payments temporarily.
The money counts as capital, and if it takes you over the savings threshold (currently £10,000 for Pension Credit), you may lose entitlement until you’ve spent it down.
Frequently Asked Questions#
Can my IVA force me to stop paying into my pension?#
No. You cannot be forced to stop contributing to a workplace pension, especially if it’s auto-enrolment. However, if you’re making very large voluntary contributions that significantly reduce your IVA payment, creditors may challenge this as non-cooperation.
What if I inherited a pension (like from a deceased spouse)?#
An inherited pension is generally treated as a windfall if it’s paid as a lump sum. If it’s paid as ongoing income, it counts toward your monthly income and may affect your IVA payment. Declare it to your IP immediately.
Can I take my 25% tax-free lump sum and hide it from my IVA?#
No. This is fraud. Your IP reviews your bank statements during annual reviews and can request information from HMRC. If caught, your IVA fails and you owe the original debt plus interest. In serious cases, you could face prosecution.
What happens if I turn 55 halfway through my IVA?#
Nothing automatic happens. You’re now legally allowed to access your pension, but you’re not required to. If you do withdraw money, declare it to your IP. If you don’t withdraw anything, your IVA continues as normal.
Will the 2025 IVA Protocol change how pensions are treated?#
The 2025 Protocol didn’t fundamentally change pension treatment, but it gave supervisors more flexibility in reducing payments for retirees whose income has fallen. This makes it easier for people retiring during their IVA to get their payments adjusted without a full variation meeting.
Need Help with Your IVA?#
If you’re not already in an IVA but think it might help, use our free IVA calculator to see if you qualify. It takes 2 minutes and won’t affect your credit score.
For more information on how IVAs work, read our guide: What is an IVA?
If you’re ready to start the process, visit our Apply for an IVA page.