Mortgage or Pension

mark333_2

Some advice please I have a mortgage of £95000 which i am just paying interest on and have been for 2 years. Just started new job with final salary pension 10% of wages so do I do that or pay £200 a month off mortgage. I can only afford to do one of them.
Thanks

opinions4u

mark333 wrote: »

Some advice please I have a mortgage of £95000 which i am just paying interest on and have been for 2 years. Just started new job with final salary pension 10% of wages so do I do that or pay £200 a month off mortgage. I can only afford to do one of them.
Thanks

How long until your planned retirement? We need to know how many years service you'll get in.

How long is left on your mortgage, and if you pay in to the pension what is your plan to deal with the mortgage?

What do you get on retirement? Is it years service/60 or years service/80?

You haven't really told us enough.

Gut instinct is to go for the pension and start chipping away at the mortgage with a nominal amount (e.g. £30 a month) and then increase that amount by a decent wedge every time you get a pay rise.

mark333_2

Some more information
20 years on mortgage and till i retire.
No plans on paying mortgage other than selling and moving to smaller house
Pension years service/60
Thanks

dunstonh

10% of contribution isnt really 10% out of your pocket. Its 10% gross. So, if you are a basic rate taxpayer that would be 8% net. If you are a higher rate taxpayer it would be 6% net. You will also pay less NI as well so small gain there.

You dont say what your salary is but you need to be aware that 10% into the pension would not be the same as 10% going into your pocket if you didnt joint. It would be under 8% or 6% depending on your tax rate.

Final salary schemes also tend to include death benefits (death in service of x times your salary) and sickness benefits can be packaged in with them as well.

Plus, the thought of living on a basic state pension of £4700 a year (£6900 if tax credits still exist then for the low earners) tends to be enough to encourage people who are closer to retiement to go with the pension. A 60ths scheme means you will get a third of your pensionable salary as a pension. Thats the sort of pension you cry out for.

I can only afford to do one of them.

What you are asking is similar to saying should I pay the gas bill or should I pay the electric bill. If you can only afford one of them then you have financial problems and should seek help.

No plans on paying mortgage other than selling and moving to smaller house

And how are you going to pay for the smaller house?

jamesd

Pension first because that'll be for the longer part of your life. For the mortgage, you should be looking to start accumulating equity as soon as you can, as pay rises allow it.

A possible exception is if you have to remortage soon. Are you on a life of mortgage (20+ years) tracker deal or is it something that you'll want to renew with a remortage deal sometime in the next few years?

You should try to accumulate six months of living expenses as soon as you're able to save that much. Your costs seem very marginal, leaving you in a very vulnerable position if you lose your job or suffer any other significant financial stress.

You might also want to post in the debt-free wannabe section to see whether the regulars over there can find some ways to trim your spending and make it more practical to do both.

dimbo61

You are paying 10% gross of your income into your pension your employer may be paying 15/20% into the fund as well !!!
Its far to important to not pay into a pension unless you want to work until you retire and then DROP DEAD or live in poverty £72.95 a week state pension.

dimbo61

Sorry the state pension is now £90 a week and goes uo to £95 in april still not much to live on is it !

michael1983l

dimbo61 wrote: »

Sorry the state pension is now £90 a week and goes uo to £95 in april still not much to live on is it !

If you own your property outright, it is bound to grow in value during the coming years dare I guess at a rate higher then a pension. So not only will the money grow quicker other monies will be saved in interest repayments during the mortgage period as it slowly reduces.

No brainer for me, pay the mortgage everytime.

A_Nice_Englishman

dimbo61 wrote: »

You are paying 10% gross of your income into your pension your employer may be paying 15/20% into the fund as well !!!
Its far to important to not pay into a pension unless you want to work until you retire and then DROP DEAD or live in poverty £72.95 a week state pension.

A very good point about the employer's contribution.

A lot depends on how long the OP is intending to stay with his new employer. If it's only a year or two then I'd probably overpay the mortgage. If he intends to be there for the rest of his career then the pension wins hands down assuming employer's contributions are payable. I'd imagine they must be as 10% of wages is nowhere near enough to fund a final salary pension.

dunstonh

If you own your property outright, it is bound to grow in value during the coming years dare I guess at a rate higher then a pension.

That is very wrong. The OP has an 60ths scheme. There is no investment growth involved. However, even if there were the typical balanced managed fund (the most used type) has fallen by less than property over the last few years.

A very good point about the employer's contribution.

Employers contribution doesnt matter in this case being a final salary scheme. In a money purchase scheme it would though of course.

Financially, the pension is an absolute no brainer. However, that still doesnt solve the problem that the OP is on interest only basis and has a budget problem.

Robert_Sterling_3

michael1983l wrote: »

If you own your property outright, it is bound to grow in value during the coming years dare I guess at a rate higher then a pension. So not only will the money grow quicker other monies will be saved in interest repayments during the mortgage period as it slowly reduces.

No brainer for me, pay the mortgage everytime.

In my opinion this is the worst advice I have ever seen on MSE

[ Edited in reply to the post below ]