Using Pension to pay off debt

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kgs290680
kgs290680 Posts: 12 Forumite
in Debt-free wannabe
I have money tied up in a SIPP. Is it possible to use this money to pay off credit card debt?
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  • sourcrates
    sourcrates Posts: 28,885 Ambassador
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    Hi,

    A "SIPP" is a personal pension yes ?

    If you are 55 or over, you can withdraw the full amount as cash, and use the money for what ever you wish.

    However, there is a downside to this, only 25% will be tax free, the rest is taxable, so you should check that whatever you withdraw, does not take you into another tax bracket, to avoid this, you can make staged withdrawals, over a period of time, when ever you like.

    Not really what i`d want to do with my pension pot, pay off some credit card, have you looked into other options at all ?
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  • kgs290680
    kgs290680 Posts: 12 Forumite
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    Unfortunately i am not close to 55 but thought that it would be a good way to free up some money to help with the debt. A loan is a route that i dont want to go down so any other options or ways to access it would be good.
  • National_Debtline
    National_Debtline Posts: 7,998 Organisation Representative
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    Hi kgs290680


    I'd suggest you visit https://www.pensionsadvisoryservice.org.uk/ in order to get some impartial advice on what you can and can't do with any pension pots, and any potential knock-on effects of those choices.


    Dennis
    @natdebtline
    We work as money advisers for National Debtline and have specific permission from MSE to post to try to help those in debt. Read more information on National Debtline in MSE's Debt Problems: What to do and where to get help guide. If you find you're struggling with debt and need further help try our online advice tool My Money Steps
  • enthusiasticsaver
    enthusiasticsaver Posts: 15,594 Ambassador
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    kgs290680 wrote: »
    Unfortunately i am not close to 55 but thought that it would be a good way to free up some money to help with the debt. A loan is a route that i dont want to go down so any other options or ways to access it would be good.

    It is not a good way to free up money. It is borrowing from your future income so just as bad as a loan and very punative tax wise. How much do you owe and are you working?
    I’m a Forum Ambassador and I support the Forum Team on the Debt free Wannabe, Budgeting and Banking and Savings and Investment boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing forumteam@moneysavingexpert.com. All views are my own and not the official line of MoneySavingExpert.
  • kgs290680
    kgs290680 Posts: 12 Forumite
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    I am earning but struggling to pay the overall debt and having to use money form 1 card to pay off another.
  • CapricornLass
    CapricornLass Posts: 668 Forumite
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    Oh dear, kgs, what a dreadful situation to be in!

    I agree with the others, though, that taking money from your SIPP should be the very last resort, especially as the tax-man will clobber you for tax, and you may find that taking the money out will push all of your earnings for this year into a higher tax bracket too. I was going to suggest that as well as talking to the Pensions Advisory Service, you contact someone like Stepchange or Christians Against Poverty. They have helped many others in a similar situation as yourself, and I don't think it will do any harm to talk through things with them first before taking any action.
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  • enjoyyourshoes
    enjoyyourshoes Posts: 1,093 Forumite
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    Do a complete overhaul of your finances:-

    Identify true cost of OD's

    Let debts in order of highest APR first

    Calculate how much you ned to accrue monthly to pay for yearly/half/and quarterly bills and produce a monthly amount you need to save to pay these.

    Identify monthly DD/SO (can you reduce mitigate remove any of these)?

    Reconcile you bank account daily with the above items plus the spending you incur daily.

    Review these cost and reduce so as to put more money aside to pay off your debts.

    Its probably small amounts each day/week/month that is putting you in this position.

    You need to stop spending on wants and only spend on needs
    Debt is a symptom, solve the problem.
  • MallyGirl
    MallyGirl Posts: 6,627 Senior Ambassador
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    kgs290680 wrote: »
    Unfortunately i am not close to 55 but thought that it would be a good way to free up some money to help with the debt. A loan is a route that i dont want to go down so any other options or ways to access it would be good.

    If you are not 55 then this simply is not an option for you.
    I’m a Senior Forum Ambassador and I support the Forum Team on the Pensions, Annuities & Retirement Planning, Loans
    & Credit Cards boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing forumteam@moneysavingexpert.com.
    All views are my own and not the official line of MoneySavingExpert.
  • Eldrax
    Eldrax Posts: 30 Forumite
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    Agree with Molly Girl. Normally you cannot take your pension before age 55. The best way to confirm for sure is to check with the company that deals with your pension fund. Also be very wary of any company that claims they can get you the money before age 55 as these are often fraudulent .
  • iolanthe07
    iolanthe07 Posts: 5,493 Forumite
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    I am retired with fairly decent pensions, but I really wouldn't want to try and live on the basic State provision. Retirement may seem a long way off to you, but it will be with you sooner than you think. IMHO you will regret cashing your pension out.
    I used to think that good grammar is important, but now I know that good wine is importanter.
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