AVC Pension vs Extra Mortgage Payment??

twins_2_Be

I'm 42 and I currently put in 15% of my salary into my pension at work as an AVC. I am about to buy a house and will soon have a mortgage of between 150,000 and 225,000

Which is better?
1. stop making AVC payment which I think are about 6,000 which would give me about 4,800 pounds to go into the mortgage each year to pay it off early

or

2. keep making pension AVC payments becasue of the tax advantages.

My temptation is to make extra mortgage payments. Any personal experiences or thoughts?

tyllwyd

I think you need some proper professional advice on your AVCs - I think there is a maximum on the amount you can take out as a pension, so if you are in danger of going over that amount you might want to stop your AVCs anyway (http://www.opas.org.uk/publications/WhatAreAdditionalVoluntaryContributions%20.htm).

Apart from that, I guess you have to balance up the tax advantages and the performance of your pension against the extra interest you will pay on your mortgage. And the pension money is locked up until you retire, whereas you would see a benefit on making extra mortgage repayments sooner than that. If there was any danger of you losing your job a few years down the line, you might prefer to have money in your house so you could sell up and downsize, rather than having it all in your pension.

ReportInvestor

I'd be tempted to go for ISAs rather than a pension given that you are "just" a basic rate taxpayer. That would give you even easier access to your funds, should you need it, than if you overpaid the mortgage.

Is there any chance of you becoming a higher rate taxpayer later in your career? If so then later pension payments might get you even more tax relief.

A large deposit (25%+) can often help find even better mortgage deals, so that's another consideration.