# Can I use my pension fund to clear my debt?



## greeneman (23 Sep 2013)

I am 51.  €75K mortgage on home. Have another €700 K of investment property debt. Investment properties are worthless. Have €500K in pension. Six children still in school.  Spouse and I are working. For the last 6 years every euro not spent on household goes on servicing debt. We feel we cannot keep this up for another 20 years. Could I utilise the pension fund in some way ? I am not too worried about not having a pension because when we retire we would both have contributory pensions of €230 per week and that seems fantastically huge when compared to today when we have nothing. Also I am  assuming that the pension fund will be eaten up by the pension industry so I want to get something from it now.


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## Steven Barrett (23 Sep 2013)

Is your pension in a company paid or personal pension plan? If a company plan, are you a shareholder in that company?


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## greeneman (23 Sep 2013)

Thanks for your query. The pension is a SAP with Standard Life. The company where I previously worked closed down and I put the pension pot into Standard Life. Spouse could get 48000 lump sum and pension of 12k Per rannum if she retired now.


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## greeneman (23 Sep 2013)

*Could pension clear debt*

*My Bankers and pension adviser advise us to keep paying monthly debt. But it is getting very difficult. Could someone have a brief look at my situation and see if I am missing a better strategy.*

*Income details
Net  Employed with net income of €30000 per annum. No pension plan in this employment.*
*Net *income partner/spouse: €27000 net as a public servant with 17 years service. 

Amount of child benefit received €650 per month. 
Amount of Mortgage Interest Supplement received : Nil 

*Personal circumstances so we can calculate your reasonable living expenses 
*The Insolvency Service has published Guidelines for reasonable living expenses based on the family size, whether or not you need a car for work, childcare costs and other exceptional circumstances. By filling in this information, we (or you ) can calculate what your reasonable monthly living expenses should be. 
One adult family or two adult family: Two adult family.
Do you need a car for work or do you use public transport? both need cars. 
Number of children 0- 2 years old: 0
Number of 3 years old children: 0
Number of 4 - 11 years old:1
Number of 12 - 18 years old:4
Monthly childcare costs:  nil
Montly spend on special circumstances: e.g. exceptional healthcare costs 0
Third level student costs about 600 per month.


*Home loan
*Lender: B O I
Amount outstanding: 70000
Value of home: 250000
Interest rate: specify whether tracker or SVR or fixed rate SVR
Monthly repayment 700
Amount in arrears 0

*Investment property - *Lender: Bank of Ireland  
Amount outstanding: 400000
Value of warehouse: 200000
Interest rate: 4%
Monthly repayment 3100
Amount in arrears 0
Monthly rent received 1000

Lender KBC
Amount O/S 190000
Value of flats 30000
Interest rate 4%
Monthly repayment 1375
Amount in arrears 4125
Monthly rent 775

*Other loans and creditors - *
Overdraft - 4000: 
Credit Card - 4000 
Credit Card - 300 
Term loan 6000
Term loan term left: 24 months
Term loan - 250
Term loan - 6.75
Family loan - 0
Family loan - 0

*Other savings and investments 
*
*PRSA with about 35000 in it.
Shares worth about 40000*
*Pension fund of 474000*
* 

How important is retaining the family home to you?  very
*
*Any other relevant information

**I want to know if I can use the pension fund I have can do anything to reduce debt. Spouse is a public servant who will get a sum of 48000 if retires now and  a pension of 12000 per annum. Ideally we want her to retire. Was hoping that my pension pot could do something to alleviate debt. Rental income would service the remaining debt. *
*I have written down investment properties to reasonable values but still think they would be very difficult to sell. Not really concerned with pension as I feel that state contributory pension after children are reared is far more than I have ever had. *


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## Brendan Burgess (25 Sep 2013)

Let's look at what happens if we convert all the mortgages to interest only 

Home loan - €70,000 @ 5% = €3,500
BoI investment - €400,000 @ 5% = €20,000 
KBC investment - 190,000@4% = €7,600
Total interest - €31,000 per year
Interest per month - €2,600 
Rent received - €1,775 
net monthly shortfall - €800 

So you can comfortably cover the interest on your mortgages. 

You should ask all three to put you on interest only. Even if they don't agree, if you pay the interest, they are unlikely to take further action. 

*Shares worth about 40000
*Why have you shares worth €40,000 when you have €14,000 in expensive credit card and term loan debt?  You are borrowing money at rates between 10% and 20% to invest in shares. 

You should sell these shares and pay off the unsecured debt. 

You should not be in arrears and damaging your credit record, while you have such shares. 

*Net asset position 
*

 |value|mortgage 
Home|250|70
Warehouse|200|400
Flats |30|190
Total|€480k|€650
You don't need to panic.  You can afford the interest on the mortgages and, if property prices rise by 35% , your negative equity will evaporate. 

You have €500k in a pension fund and your wife has a state pension anyway. 

*While you don't need to panic, your wife can't afford to retire

*As long as she is working, she is getting an income but also she is building up a bigger pension.


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## cremeegg (25 Sep 2013)

Just a couple of questions.

What is your net monthly income, and what are your monthly living expenses

How much do you owe B of I on the investment is it €600k or €400k.

Is it one flat that you have under the KBC loan. If it is producing rent at €775 per month it is worth more than €30,0000.

At what age can you retire from the Standard Life SAP

Now some suggestions.

1. Keep your pension off the table. As far as I know, you will not loose this in a PIA or bankruptcy.

2. Stop paying KBC. They will repossess and get a judgement mortgage on your other properties. That expires after 12 years. Again as far as I know they cannot touch your pension. Effectively you wipe €190k off your debt.

You would then have equity of home plus inv. property €450,000 and mortgage of €470,000 (?). And a significant pension asset.


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## 44brendan (25 Sep 2013)

KBC can progress those JM's to orders for sale on the other properties within the 12 year period!


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## LDFerguson (25 Sep 2013)

If the Standard Life pension fund is in a Buy-Out Bond, then it can be accessed from age 50 onwards.  Therefore as far as I know it's "on the table" in any debt restructuring negotiations.  

Here's some suggestions for consideration: - 


Sell the shares
Retire the Standard Life BOB if possible, taking €118,500 as a tax-free lump sum, putting €63,500 of the balance into an AMRF and €292,000 into an ARF.  You must draw 5% annual income or €14,600 per year from the ARF).
You'll have €158,000 of a lump sum available.
As Brendan says, use €14,000 to pay off the expensive unsecured debt.
Use €70,000 to clear the mortgage on your home.
You'll have €74,000 left over.  See if either Bank of Ireland or KBC will write off your loan if you sell the property and give them €74,000.
If not, use some of the €74,000 as a sweetener to convince them put you on interest-only.


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## cremeegg (26 Sep 2013)

44brendan said:


> KBC can progress those JM's to orders for sale on the other properties within the 12 year period!



Not on the investment property. B of I have a charge on that and there is no surplus.

Perhaps not on the home. Again B of I have a prior charge and while there is a surplus, as it is the family home a court would be reluctant to order a sale to satisfy a charge arising from a loan that was not originally raised against the home.


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## cremeegg (26 Sep 2013)

LDFerguson said:


> If the Standard Life pension fund is in a Buy-Out Bond, then it can be accessed from age 50 onwards.  Therefore as far as I know it's "on the table" in any debt restructuring negotiations.
> 
> [/LIST]



The OP should do every thing possible to keep this valuable asset "off the table"

I would agree he should sell the shares. He could repay the short term debt and  have €25k left to fund the shortfall on the mortgage repayments. 

The OP is in a stronger position than he realises and should do what he can to defend his assets. 

His position is strongest against KBC and so they should be first to suffer if he cannot make monthly payments.

Strangely I suggest that his home mortgage should be the next to suffer. The OP would be better off if he had less equity here.


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## greeneman (27 Sep 2013)

First of all thanks to everyone who posted. I think this is a fantastic forum and service to have. Well done to all involved in this.
I have always paid and would like to continue if possible. Having said that, business is business.
I am 52, wife is 51. Pension is a BOB from a previous employment.
I suppose I could use the shares and lumpsum to take out the short term debt and most of  KBC loans. These are for two flats in the UK. but the yield is low and when tax kicks in its even lower. Does anyone think KBC would do a deal on a write off ?
I wanted to keep the shares for education. I suppose the after tax yield from  UK would be something in this line but very low. That and the ARF withdrawal might meet education costs. But still would have a long road on the home mortgage and commercial property with Bank of Ireland.
I suppose Irish banks do not do deals for early paymentnts ? Thanks again.


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## LDFerguson (27 Sep 2013)

cremeegg said:


> The OP should do every thing possible to keep this valuable asset "off the table"


 
I'm not sure that he will have any choice in the matter.  

My specialist subject is pensions and not debt renegotiation, but I did have a look over the Personal Insolvency Act paying attention to where it crosses into pensions.  

Section 51 of the act says that pension funds will not be assets in any Debt Settlement Agreement or Personal Insolvency Arrangement unless Subsection 2 applies.  

Subsection 2 says that if a person exercises an option which draws down money from a pension arrangement, then that money is on the table.  Or if they do so within 6 years 6 months of applying for a DSA or 7 years 6 months of applying for a PIA, it's still on the table.  

So in theory this man can keep it off the table as long as he doesn't claim it within the next 7.5 years or so.  

But realistically, if he's trying to do a deal directly with lenders outside of the insolvency legislation, the first thing they'll ask is for a financial statement which will show them the existence of this €476,000 in a Buy-Out Bond.  It would just take one person in a lender's office to be aware that he can access this fund from age 50 onwards and they'd want it.


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## Dr.Debt (27 Sep 2013)

Liam,

I think the act goes a bit further than that in S.51 subsection 2.

The money is already on the table by virtue of the debtor having the "option" to draw down the money. The money is on the table regardless of whether he choses to draw it down or not. So he cant just keep it off the table by not exercising the option to draw it down. If he has the option to draw it down, then the money is available for the arrangement

The wording of the act below

(2) Where this section applies and a debtor has an interest in or 
entitlement under a relevant pension arrangement which would, if 
the debtor performed an act or exercised an option, cause that 
debtor to receive from or at the request of the person administering 
that relevant pension arrangement— 
(a) an income, or 
(b) an amount of money other than income, 
in accordance with the relevant provisions of the Taxes Consoli- 
dation Act 1997, that debtor shall be considered as being in receipt 
of such income or amount of money. 
55


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## LDFerguson (27 Sep 2013)

Thanks for that. The act assumes that one is going down the insolvency route.  So the only way that this man can keep the pension fund off the table is if negotiating with lenders (without going down the insolvency route) who aren't aware that his BOB can be retired now.  I don't know how well up on pensions most lenders are, but I would have thought that this one would be fairly obvious.


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## Dr.Debt (27 Sep 2013)

Yes absolutely agree.
And its not only a person who is entitled to draw down money NOW but at anytime in the next six years.

So If I'm 46 and considering opting for a PIA and if I also have a pension arrangement that allows me to withdraw a lump sum at age 50, then the PIP must schedule it into the six year arrangement.


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