No company pension, big mortgage, now what?

ncomben

I've contributed into pensions in the past as my employers have offered schemes that they also contribute to. Now I'm in a new job and there is no pension provision at all. Since my last pension was actually a stakeholder pension the most obvious choice is to just start making my own contributions. I am a high rate tax payer so would benefit from the extra tax relief.

However there are two things that have stopped me so far. 1 - I have a large flexible offset mortgage and have started building up a savings fund that I can use to reduce my mortgage debt and 2 - My existing mortgage funds have lost a lot of value of the last few months.

Previously it was an easy decision to make - take the free money from my employer but its not so simple now. With very low interest rates, is this a brilliant opportunity for me to reduce my largest outgoing... my mortgage - or am I being short sighted and missing out on the opportunity to expand my pension pot at a time of low share prices?

dunstonh

am I being short sighted and missing out on the opportunity to expand my pension pot at a time of low share prices?

In the long run almost certainly. In the short term we wont know and there will be periods you will think you have done the right thing one minute and not the next.

There are rumours that higher rate tax relief wont be around for too many more years. From 2012, the NPSS is introduced and that only has relief at an equivalent at 20% and even then it is capped. Personal pensions may still get 40% but it would create a stange inbalance.

My existing mortgage funds have lost a lot of value of the last few months.

Investments go up and down. Always have, always will. The stockmarkets are actually down by a similar amount seen in the dot.com (and other unrelated issues) at the start of the millenium. Since 1956 there have been 8 financial crisis, averaging once every 7 years. There have been 10 periods of losses greater than 10% since 1986. Recessions tend to occur in every decade. The scale of the economic issues is greater than usual but they happen and you cant go stopping every time the markets are cheap and restarting when they are high otherwise it will just be 40 or so years of constant loss.

Dithering_Dad

My view on mortgage overpayments has always been to put whatever SPARE money you have each month onto your mortgage. Spare money being anything left over after you have paid your bills and any investments (such as a pension). Your mortgage will get paid off eventually, even if it takes the full 25 years (unless it's interest only). If you can pay it off earlier then that's ideal but not at the expense of a pension.

Instead of reducing your pension contributions in order to overpay your mortgage, you should look at your outgoings to see if any fat could be trimmed from there and paid onto the mortgage. I did this when I started the Mortgage Free in Three thread over on the Mortgage Free Wannabe board. I cashed in a crappy endowment and paid the capital and monthly premiums onto my mortgage, I got much cheaper (but just as good) life assurance, house insurance, car insurance, I moved to cheaper utility suppliers and we cut back a bit on dining out, Starbucks coffees and the like. It made a huge difference to our outgoings and allowed us to redirect this money onto our mortgage instead of into the deep pockets of corporations.

I would advise you to use one of the many pensions sites to determine how much money you would need/like to retire on each month and then get state and private pension forecasts to see how much you need to contribute to your stakeholder each month to meet your retirement target. Once you know this value, you'll be able to determine how much of your disposible income remains to overpay on your mortgage.

Good luck.

ncomben

Thank you both for your valuable input. I shall definitely start making my own contributions to the stakeholder pension and examine those outgoings to see if I can maximise any mortgage overpayment!

Thanks again.

Robert_Sterling_3

With stocks and shares the past is NOT a guide to the future and prices can go down as well as go up. This has consequences for Annuity, Endowments and Pensions.