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  • FIRST POST
    • cheeky
    • By cheeky 26th Nov 17, 8:59 PM
    • 499Posts
    • 67Thanks
    cheeky
    mortgage v pension v salary
    • #1
    • 26th Nov 17, 8:59 PM
    mortgage v pension v salary 26th Nov 17 at 8:59 PM
    hi im 46, 2 kids 12 and 10 from previous marriage. My partner of 4 years is 41 and is selling her house, releasing approx £150k of equity. The plan was to pay off the mortgage on my house so we are mortgage free and with a split of 65:35 in my favour

    I earn this year £39k plus 4k bonus, my pension fund at the moment is approx £150k so about £100K short of where i should be.... my company and i pay 6% pm each so £450pm

    Im thinking i need to start paying ALOT more into my pension. I can either do that by:
    a/having no mortgage and pay £400pm gross into company pension (run by Aviva) so benefit from tax and NI
    b/have £50k mortgage (so changing the ownership split), keep cash to live while diverting 100% salary into company pension over next 18 months so benefit from tax/NI
    c/ pay into ii.co.uk SIPP (£90k) but miss out on NI saving
    d/some mix of the above

    Any help very much appreciated as i am new to this

    P
Page 1
    • enthusiasticsaver
    • By enthusiasticsaver 26th Nov 17, 9:19 PM
    • 4,868 Posts
    • 9,191 Thanks
    enthusiasticsaver
    • #2
    • 26th Nov 17, 9:19 PM
    • #2
    • 26th Nov 17, 9:19 PM
    Do you have a retirement date or age in mind and what sort of income will you need?

    I think if you are in your mid 40s then 12% contribution level may be too low. Are you maximising your employer contributions?

    Personally my preference would be (a) as you benefit from saving interest on the mortgage and maximise employers contribution presumably and will keep your self below the 40% tax bracket.

    One thing you do need to bear in mind though is the age you plan on retiring as at the moment most pensions do not allow to draw on them until age 55. There are noises about this being increased to 10 years before spa which probably in your case is closer to 67 or 68 so you need to know when the AVIVA scheme will allow you to draw on it.

    We did three things when deciding to aim for early retirement initially at 60 which was 6 years before our state retirement date. The first was overpay into the pensions and take out SIPPS. The second was overpay the mortgage with the aim of bringing outgoings down. The third was to invest in stocks and shares isas so if the pension age was altered we could draw on those instead.
    3 days to go until early retirement. Debt free and mortgage free.

    I'm a Board Guide on the Debt-Free Wannabe, Mortgages, Banking and Budgeting boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Any views are mine and not the official line of moneysavingexpert.com. Pease remember, board guides don't read every post. If you spot an illegal or inappropriate post then please report it to forumteam@moneysavingexpert.com
    • zagfles
    • By zagfles 26th Nov 17, 9:29 PM
    • 12,497 Posts
    • 10,496 Thanks
    zagfles
    • #3
    • 26th Nov 17, 9:29 PM
    • #3
    • 26th Nov 17, 9:29 PM
    You can't sal sac below minimum wage (about £15k if full time). You can pay more into a pension as personal conts to either a workplace scheme or to a SIPP, without NI relief.

    If your company use the usual "net pay" method for non sal sac pension conts you don't get tax relief within the personal allowance, so you'd be better tax-wise using a SIPP as you can get tax "relief" within the personal allowance.

    You can't put £90k into your SIPP in one go as it'd more than 100% of relevant earnings (well techinically you can but you can't get tax relief above 100% income so it's nearly always a bad idea).

    If you're getting tax credits for the kids or are in an area where families can still apply for them, you should get an increase if you increase your pension conts. Possibly universal credit too but that has capital rules.
    • Thrugelmir
    • By Thrugelmir 26th Nov 17, 9:31 PM
    • 56,257 Posts
    • 49,626 Thanks
    Thrugelmir
    • #4
    • 26th Nov 17, 9:31 PM
    • #4
    • 26th Nov 17, 9:31 PM
    Paying off the mortgage entirely gives one piece of mind. A secure platform to build on. Once cleared. You can channel money as you wish into short term, medium term and long term savings. Even enjoy life a little while you able.
    “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”
    ― Warren Buffett
    • Prism
    • By Prism 26th Nov 17, 10:34 PM
    • 53 Posts
    • 29 Thanks
    Prism
    • #5
    • 26th Nov 17, 10:34 PM
    • #5
    • 26th Nov 17, 10:34 PM
    If you haven't already done so I would log on to the Aviva portal and make sure that your investments suit your risk levels and long term requirements. I also have an Aviva pension and after changing the funds it was invested in a few years ago I have been much happier with its performance
    • cheeky
    • By cheeky 29th Nov 17, 10:40 AM
    • 499 Posts
    • 67 Thanks
    cheeky
    • #6
    • 29th Nov 17, 10:40 AM
    • #6
    • 29th Nov 17, 10:40 AM
    Thanks for the replies all. Just to add some info:

    i would like to retire at 62 or 63. My work is 6% matched contribution which i am doing ie 12% total. RE "£90k into SIPP" - i already have this in various old employer pensions so i plan to put these into a single ii.co.uk SIPP. No tax credits etc, just child benefit split between me and my ex. Im 7 years short of full NI contributons to my state pension

    Interesting point i cant take less than £15k salary - i thought it was minimum wage?

    So my plan is to not pay all the mortgage off. Reason is:
    - my partner wanted to pay £150k but will have to pay stamp duty over £125k - so keep £25k cash = save £500
    - We use the £25k to live off
    - I use my work "pension salary exchange" to reduce NI by paying in all my salary and bonus for the rest of 2017/18 FY - approx £18k This will save 12% NI. - approx £2k saved
    - For 2018/19 FY again max my pension ensuring i meet minimun salary/NI for 2018/19 FY. approx £3.5k NI saved
    - Any cash left over repeat 2019/20

    Im thinking out loud so feel free to blow my plan apart!

    Prism - yes moved my default to a far more agressive plan thanks
    • MallyGirl
    • By MallyGirl 29th Nov 17, 11:16 AM
    • 2,100 Posts
    • 6,974 Thanks
    MallyGirl
    • #7
    • 29th Nov 17, 11:16 AM
    • #7
    • 29th Nov 17, 11:16 AM
    Interesting point i cant take less than £15k salary - i thought it was minimum wage?
    Originally posted by cheeky
    £7.50 per hour, 40 hour week = £300 pw
    equates to £15,660 per year
    I'm a Board Guide on the Debt-free Wannabe, Loans & Credit Cards boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Board guides are not moderators and don't read every post. If you spot an inappropriate or illegal post then please report it to forumteam@moneysavingexpert.com
    Any views are mine and not the official line of MoneySavingExpert.com.
    • GunJack
    • By GunJack 29th Nov 17, 1:17 PM
    • 9,883 Posts
    • 7,362 Thanks
    GunJack
    • #8
    • 29th Nov 17, 1:17 PM
    • #8
    • 29th Nov 17, 1:17 PM
    f you're going to split the property ownership with (unmarried?) new partner, then you need to get your new (joint?) Wills sorted pretty sharpish....allow £2-300 solicitor's expenses and get it done properly...
    ......Gettin' There, Wherever There is......
    • cheeky
    • By cheeky 30th Nov 17, 5:31 PM
    • 499 Posts
    • 67 Thanks
    cheeky
    • #9
    • 30th Nov 17, 5:31 PM
    • #9
    • 30th Nov 17, 5:31 PM
    hi yes we are doing a trasfer equity so my partner will own a % of the property. We will then do wills which includea life insurance policy that pays my % to my children while she gets the house. I believe this is standard stuff?

    Any thought on the pension ideas?
    • MallyGirl
    • By MallyGirl 30th Nov 17, 5:58 PM
    • 2,100 Posts
    • 6,974 Thanks
    MallyGirl
    I have been throwing money at the pension via sal sac as I came to this later than you. I am 50 but my combined pots were around £250k.
    There seem to be a lot of people who believe that future budgets may limit how much you can do this so maybe 'make hay' while the sun shines.
    • cheeky
    • By cheeky 4th Dec 17, 3:00 PM
    • 499 Posts
    • 67 Thanks
    cheeky
    yes i think making hay is the right word!

    In case anyone come s across this and thinks similar - the minimun wage is monthly so even though ive earnt well over this so far this year is still have to be paid approx £1300 pm.

    This means i can put 53% of my salary into my pension and save approx £200 pm in NI. Seems a no brainer to get my pot back in shape
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