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  • FIRST POST
    • Tomshayes
    • By Tomshayes 19th Apr 17, 9:18 AM
    • 9Posts
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    Tomshayes
    Pension Pay Off
    • #1
    • 19th Apr 17, 9:18 AM
    Pension Pay Off 19th Apr 17 at 9:18 AM
    Hi
    I am 56 years old and have a mortgage on my house with 5 years left to run.
    It currently stands at £44,000 at 2.7% Offset against £14,000 savings (So effectively only paying interest on £30,000)
    I am overpaying by £100 pcm. (Minimum payment is just under £700.00 pcm)
    One of my pension pots is frozen but I can cash it in to the tune of approx. £40,000
    This pot promises me an annuity of £2,700.00 a year (£225 pcm) at retirement in 10 years’ time.
    I currently earn £34,000 p.a. gross so I am a lower rate tax payer
    Here's my question. Should I cash in the pension pot and pay off the mortgage or not?
    Options
    • 1) Carry on paying mortgage and leave pension pot alone.
    • 2)Take 25% tax free (£10,000) and put it in the mortgage offset pot making it £24,000 or pay it off of the mortgage as a lump sum payment. With this option I would be paying interest on only £20,000 of the mortgage
    • 3) Take the whole pension pot (about £34,000 after tax) and pay off about £30,000 of the mortgage balance leaving about £14,000 against the offset balance of £14,000 (i.e. no interest). With this option I could either increase my payment to £1000.00 pcm and pay off in 14 months then plough the money into my other pension pot or alternatively I could decrease my payment to minimum of roughly £250 pcm for the remaining 5 year term of the mortgage and increase monthly payments into my AVC pension pot.
    Option 3 would also push me into the 40% tax bracket for the coming year.

    Any ideas?
    Tom
    Last edited by Tomshayes; 19-04-2017 at 1:42 PM. Reason: Clarity
Page 1
    • Tropically
    • By Tropically 19th Apr 17, 10:01 AM
    • 101 Posts
    • 283 Thanks
    Tropically
    • #2
    • 19th Apr 17, 10:01 AM
    • #2
    • 19th Apr 17, 10:01 AM
    Is that all of your pension money or just part of it? Would you be relying on state pension for the rest?
    Mortgage, as of 30 March - £309,991. Original MF - 2041
    • AnotherJoe
    • By AnotherJoe 19th Apr 17, 10:26 AM
    • 6,295 Posts
    • 6,667 Thanks
    AnotherJoe
    • #3
    • 19th Apr 17, 10:26 AM
    • #3
    • 19th Apr 17, 10:26 AM
    IMO both options are, forgive me, barking.

    You pay tax (between some and a lot) in order to save less than 3% interest on a mortgage a pension fund whilst that money in your pension fund over the next 10 years unless badly mishandled has a very good chance of producing about 2x that at least.

    So overall you'd likely lose between 2 to 10 times what you'd save on the mortgage, paying off of which seems to have become an end in itself overriding common sense rather than part of an overall financial strategy.

    On the same subject, if the overpayments you made went into a pension, eg that £800, that would be bumped up to £1000. Withdraw that £1000, £250 is tax free, you'd pay 20% on the £750, leaving £600 meaning you have a free £50 for every £1000 you add into your pension. End of 5 years pay £3k off the mortgage with that (or do it as you go along, £600 a year)

    EDIT: Miswrote pension instead of mortgage above, corrected.
    Last edited by AnotherJoe; 19-04-2017 at 3:02 PM.
    • Tomshayes
    • By Tomshayes 19th Apr 17, 10:28 AM
    • 9 Posts
    • 0 Thanks
    Tomshayes
    • #4
    • 19th Apr 17, 10:28 AM
    • #4
    • 19th Apr 17, 10:28 AM
    Hi


    Thanks for the reply.


    No its not all of my pension money.. I will have a company pension plus OAP upon retirement.


    Regards


    Tom
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