Pension v Mortgage. who to pay Peter or Paul!

Marrow_2

I'm 53 single and earn 40k + with mortgage 40K, Mortgage £550 mth but over pay by £650 per mth.
I don't have much of a pension and new employers pension allows me to over pay.
Question :- should I reduce mortgage overpayment to £150 and increase pension by £500 per mth as I would have been paying 40% tax on the £500

dunstonh

Which option is best for you? What will your income be in retirement? Will it be enough or will you have to equity release (therefore largely negating the benefit of paying off the mortgage early)?


Pension gets 40% tax relief straight away. If you get working/childrens tax credits, then pension contributions will increase those as well (as pension reduces your income). So, from a tax efficiency point of view, the pension wipes the floor with overpaying the mortgage. Mortgage rates are low as well.

Marrow_2

pension low about 11k + state so very low. child left home and seperated. Mortgage fixed 5.19 on 5 year, 1 to go. Sounds like pension best bet them?

jem16

Marrow wrote: »

increase pension by £500 per mth as I would have been paying 40% tax on the £500

You are only in the 40% tax barcket by just over £3k so you will only get 40% tax relief on that amount with the rest getting 20%.

How much do you pay into your pension at the moment?

Marrow wrote: »

pension low about 11k + state so very low. child left home and seperated. Mortgage fixed 5.19 on 5 year, 1 to go. Sounds like pension best bet them?

Have you got a state pension forecast yet? Will you get SERPS/S2P entitlement or are you contracted out.

You have to be aware of the age related allowance reduction which starts at income over £22,900. Anything higher than that loses some of your increased personal allowance due at age 65 which could see you paying more tax.

Depending on your answers a pension or S&S ISA might be best for you.