With the change in the pension rules, suddenly those over the age of 55 will be eligible to draw down larger sums e.g. £20,000 which could be used to settle debts. Those with long standing debts might view this as a salvation, but what are the side effects of drawing everything down and what else needs to be taken into account?
* The first thing that needs to be considered is the debt itself. How old is it and is it still enforceable? Any debt over six years old might be ‘Statute Barred’ under the Limitations Act 1980 – covered elsewhere on this website – and this needs to be investigated, perhaps by a visit to your local CAB.
* You will have to pay tax on the money you take out of your pension as though it is extra income and this might push you into a higher tax rate – again, this needs to be investigated. Although the first 25% is tax free, you will still be ‘burning away’ a good chunk of your pension in tax and we query the wisdom of doing this.
* You might be exchanging a short term problem for long term deprivation – some people are retired for three decades or more before passing away and loss of income could have a terrible effect in years to come.
* Taking a lump sum might affect your eligibility to certain benefits, especially Housing Benefit under something called ‘Deprivation of Capital’ – we recommend you investigate this thoroughly, as again, it could affect you for many years to come.
Suffice it to say, it is worth taking visiting your local CAB and taking advice before rushing headlong into something that might affect you for the rest of your life.
Bankruptcy UK offers a full bankruptcy administration service and will submit your bankruptcy application online. Court appearances are no longer required for bankruptcy. Call us for bankruptcy help on 01425 600129 or for an informal chat about your circumstances.