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  • FIRST POST
    • mikrt
    • By mikrt 15th Oct 16, 7:46 AM
    • 78Posts
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    mikrt
    Withdraw pension to pay off mortgage?
    • #1
    • 15th Oct 16, 7:46 AM
    Withdraw pension to pay off mortgage? 15th Oct 16 at 7:46 AM
    I am married and have just reached 55 and am deciding what (if anything) to do with my pension.

    I presently have 10 years remaining of my mortgage. We were on an endowment mortgage for the first 20 years (until 5 years ago)and were very naive in doing so, hence the extended mortgage to 65!

    So for the last 5 years we've been on repayment mortgage and are just in the process of remortgaging for the final 10 years for £75k. We are presently heading to a 10 year fix @ 2.49%

    I had 2 pensions, the first, a current work pension, I pay £50/m and the company pays £350/m which is currently @ £84.5k

    The 2nd is an old company pension, current transfer value is £159.5k

    I was going to take my 25% tax free lump from my old pension to pay some debt off a credit card and contribute to my son's upcoming wedding, and leave my current work pension as it is.

    Except I have just been sent a transfer value of £108k for an even older pension I didn't know i had.

    I'm now thinking of transferring the old 2 pensions into my current pension and then taking out the combined 25% (over £87k) and paying off all I need in one swoop.

    Is this a good idea, or is there something I'm not understanding which makes it not a good idea?

    Sorry it's a long one, and thanks in advance.
Page 1
    • AllyMac
    • By AllyMac 15th Oct 16, 9:06 AM
    • 88 Posts
    • 54 Thanks
    AllyMac
    • #2
    • 15th Oct 16, 9:06 AM
    • #2
    • 15th Oct 16, 9:06 AM
    Wow to getting a lottery win sized surprise £100K! ��

    Personally, before I started withdrawing anything I'd be working out whether my retirement income was enough - otherwise you're robbing Peter to pay Paul.

    With a mortgage until 65 and credit card debt, I would think twice about raiding my pension to pay towards a child's wedding. Just because you suddenly have access to this money doesn't mean that you can afford to spend it!

    Do you plan to divert the mortgage payment you no longer have to make, back into topping up your depleted pension? (and if having planned to do it - you know yourself best - would you actually do it?)

    With interest rates low, would you save more paying it off than you would make by leaving that pension fund to grow?
    • Voyager2002
    • By Voyager2002 15th Oct 16, 11:04 AM
    • 11,027 Posts
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    Voyager2002
    • #3
    • 15th Oct 16, 11:04 AM
    • #3
    • 15th Oct 16, 11:04 AM
    You will probably pay tax on any money you take out of your pension pot: be sure you know how much before make any firm plans.

    I tend to think that anyone with credit card debt and an extended mortgage cannot afford a lavish wedding. That is a personal choice of course. I do think you need to get a pension forecast and see how much income you would sacrifice by taking money out of your pension.
    • Thrugelmir
    • By Thrugelmir 15th Oct 16, 11:44 AM
    • 51,279 Posts
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    Thrugelmir
    • #4
    • 15th Oct 16, 11:44 AM
    • #4
    • 15th Oct 16, 11:44 AM
    The sums look enticing. However have you worked out what annual pension they will actually provide you with. May not look so attractive to cash in then. Better to find savings from elsewhere within your budget.
    “A man is rich who lives upon what he has. A man is poor who lives upon what is coming. A prudent man lives within his income, and saves against ‘a rainy day’.”
    • atush
    • By atush 15th Oct 16, 12:29 PM
    • 15,315 Posts
    • 9,190 Thanks
    atush
    • #5
    • 15th Oct 16, 12:29 PM
    • #5
    • 15th Oct 16, 12:29 PM
    What type of pensions are these? Are any DB/Final salry type? Do any of the come with guarantees?

    I would nto transfer them into your current pension, as you may not be able to take the 25% while you are still paying in?

    50/month is a pretty low contrib rate. Even with the employers boost.

    taking 25% from an old DC pension to pay off debt and help your son (although to be fair isnt the bride's family who should be paying?

    But I would not take more than that to pay off your mtg at this time. i would pay more into pensions, and not get into further debt.
    • mikrt
    • By mikrt 15th Oct 16, 10:50 PM
    • 78 Posts
    • 8 Thanks
    mikrt
    • #6
    • 15th Oct 16, 10:50 PM
    • #6
    • 15th Oct 16, 10:50 PM
    Voyager2002, I won't be taking any more than my tax free allowance.

    atush, I didn't realise I may be unable to draw my 25% tax free from current and keep paying into it. That's something I'll need to check.

    The wedding.... Well we paid for our daughter's four years ago and we're paying 50% of our son's, and we're committed now, and it's not lavish by most standards.

    Any mortgage savings would be paid into the current pension (~£715/m) over the current schedule.

    But what really appeals to me, is that another 10 years of mortgage is something we would love to be free of. One way I'm looking at it is that the new £108k which I wasn't aware of is clearing my mortgage and still leaving me better off than I was expecting last week.

    Being mortgage free, and pumping £700/m extra into my mortgage is very appealing.

    But, from the sound of most of you experts, It looks like what I want may not be the best idea.
    • Kynthia
    • By Kynthia 16th Oct 16, 12:37 AM
    • 4,701 Posts
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    Kynthia
    • #7
    • 16th Oct 16, 12:37 AM
    • #7
    • 16th Oct 16, 12:37 AM
    I guess most people here wouldn't view being mortgage free as a big relief or achievement if it came at a price that was more costly than the mortgage or leaves you worse off in retirement than if you had the money in the pension. At the moment mortgages are cheap debt and it's one you are managing. Would this pension gain more in investment growth than you'll save by paying off the mortgage? Could this pension have guarantees you are giving up or even be a very valuable DB pension which would pay an amount for life? Like most financial and retirement related decisions, things are based on everyone's individual circumstances and then their own goals and desires so it isn't easy for people to say for sure what the best option is.
    Don't listen to me, I'm no expert!
  • jamesd
    • #8
    • 16th Oct 16, 2:28 AM
    • #8
    • 16th Oct 16, 2:28 AM
    I could clear my interest only mortgage now from savings and investments. I don't because it would lose me more money than it would save me and cost me in reduced financial security.

    Two big issues:

    1. You may be forced to sell your now mortgage-free home because you can't pay your living expenses. While keeping the money would let you pay all bills including the mortgage for a long time if unable to work. Paying off the mortgage actually makes you less financially secure until the point where you can live indefinitely and clear it.

    2. It's easy to obtain investment interest or dividends above the 2.49% mortgage rate so any repaying you do is making you poorer long term.

    Some investment options to consider:

    A. Albion VCT. 30% of the purchase price refunded by HMRC, 10% tax exempt dividends paid in two pieces each year on the after tax relief purchase cost. Tax relief is limited to income tax actually paid in the tax year of purchase. Have to hold for five years or repay the 30% unless you die. can sell and buy back or buy a different VCT after five years and get the tax relief again.

    B. Peer to peer. interest rates of 11-12% before bad debt, perhaps 10% after, are readily available from p2P lending secured on physical property of various sorts, from development property to hire purchase cars and their HP payment streams. Good ones to consider include Ablrate and MoneyThing. Also a wide range of lower paying options with various forms of security or protection.

    Taking the 25% tax free lump sum isn't necessarily a bad idea, I intend to do it as soon as I can, it's what you're planning to do with the money that isn't optimal for improving your position.

    Using options like those, instead of repaying your mortgage you could potentially get it or most of it paid for out of investment income. Freeing up your own income to use for other things including other investing.
    • atush
    • By atush 16th Oct 16, 11:56 AM
    • 15,315 Posts
    • 9,190 Thanks
    atush
    • #9
    • 16th Oct 16, 11:56 AM
    • #9
    • 16th Oct 16, 11:56 AM
    Find out (or tell us( what type are all of your pensions- DC or money purchase pensions or DB/Final salary type. And if the DC pensions, do any of the old ones have guaranteed attached.


    How much does it cost per month to service your outstanding debt? What will you do with this cash once debt is paid off? How sure are you that you wont fall back into debt (as you have been spending above your means?

    It could be worth your while, taking the 25% TFLS from one of your old DC pensions and using that to pay off debt and help with the wedding. But not pay off the mtg.
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