Use of Pension In Debt Management

woz37

I have a interest only offset mortgage - outstanding amount is £120000 which is approx 25% of property value. I also have a company group private pensional pension - which lo and behold - the current valuation of the fund is £120000 ish. I am 38. My priority is pay off the mortgage debt. Is there any way at all of using the pension fund to pay off the remaining mortgage. Can I get the Pension fund to invest in property and "buy" 25% of my house? It seems inequitable that people may lose their homes if they cannot pay the monthly mortage interest, when they may have funds exceeding the mortage debt tied up in pension pots they cannot use. Any advice appreciated.

MikeJones_2

Hi woz37,

woz37 wrote: »

Can I get the Pension fund to invest in property and "buy" 25% of my house?

Simple answer I'm afraid, is 'no' - it's not possible within the current pension regulations.

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

dunstonh

the current valuation of the fund is £120000 ish

That is a good value for a 38 year old. Well done.

Is there any way at all of using the pension fund to pay off the remaining mortgage.

Thankfully there isnt.

Can I get the Pension fund to invest in property and "buy" 25% of my house?

Also thankfully the Govt changed their mind on allowing things like that.

It seems inequitable that people may lose their homes if they cannot pay the monthly mortage interest, when they may have funds exceeding the mortage debt tied up in pension pots they cannot use.

Pensions get tax relief for you and the employer contributing and tax free growth to ensure they are used for retirement. People have to budget for retirement as much as for now and it is right that you shouldnt rob peter to pay paul.

There is no reason for most people to lose their homes. It is usually down to poor planning such as not insuring yourself, living beyond your means, not saving when times are good for example. Of course, there are genuine reasons as well by losing your home only hits a minority of people and it is a last resort. With respect, if you have done so well on your pension, it would be strange to think you havent done so well on your savings and investments or covered yourself with insurance.

woz37

Thanks Dunstonh - the first 10 years were with Equitable Life and there were some good returns.

I have made no savings or investments - but ploughed anything spare into the pension and equity in property. For the last 3 years I have reduced pension to the minimum personal contribution required -3% (my company puts 7% in) - although I would like to increase contributions at the moment (it's better to buy those units when they're cheap!!)

The equity in property is easy to release with no penalty through the offset mortgage account, in case of an emergency. Do you think it might be better to build up a tax free cushion of savings/investments outside the pension, rather than keep making capital repayments off the mortgage/ extra mortgage contributions?

Also - I have no insurance in place, so I guess I should start looking that sooner rather than later...

I just think it would be sensible to allow Pension Trusts to invest in the residential property of the pension beneficiary by taking a 1st charge. If the property is sold - the Pension Trust would be paid back (thus guaranteeing the funds are preserved for retirement). Property is as good an investment as the stocks that Pension Trusts invest in. And it would have the added benefit of reducing the debt burden. There could be a provision that only personal contributions made into the pension pot , excluding all tax relief and employer's contributions, could be used for residential property investment.

Thanks again for answer

jamesd

You might consider waiting until you're 55 and then using the 25% tax free cash option to pay off a chunk of whatever mortgage you have then. The remainder can be left to grow until retirement. Particularly useful if the pension contributions get higher rate tax relief or are via salary sacrifice.

Mortgage interest is cheap. Seems like a better plan to invest instead of paying off capital. Given the LTV you had I'd probably have gone for using equity for low volatility investments to help generate money to pay off the rest.

If you remain committed to paying off the mortgage balance you might look at the high inflation forecasts for a year plus from now and defer until that inflation has reduced the real value of the capital owed.