25% tax free at age 55

Marrow_2

I earn approx 52k and am 53Yrs of age with approx 20K left on mortgage.
I have recently joined a new comany and they pay apprx £500 per mth into my pension and I can over pay into this which would tax and NI free.
I don't have a very good pension plan but as I'm single I'm hoping to build my pot up ASAP.
I over pay my mortgage by approx £500 per mth
Would it be worth me reducing my mortgage payments by £500 and overpaying my pension with a view of taking out 25% when I reach 55 which would give me 2 years of pension contributions.
I would pay that off my mortgage and then over pay my pension with the money I've saved.
Does that make any sense. :rotfl:

Loughton_Monkey

Sounds like you're a higher rate tax payer. If so, then I would strongly suggest you consider paying into pension to enough of an extent to nullify the higher rate tax. It is extremely efficient to do so.

Where I am in doubt, is the wisdom of of taking the tax free lump sum at 55 in two years. Firstly your mortgage rate is probably quite low, and so overpaying it doesn't give you a really good benefit. THen there are complications you would get with your employer's scheme trying to take a 25% lump sum but continuing to pay into it. And then there is the 'short term' nature of it. Extra money into pension investments would be expected to grow in the long term. But how about if the growth rates over the next 5 years were to be, say, +10%, -25%, +40%, +10%, +9%. That's a good growth overall, but you'd be pig sick about taking a big amount out at the lowest point.

Another 'clue' is that you say you don't have much of a pension. So my own instincts would be to continue with 'normal' mortgage repayements. Pay as much as I humanly could into pension - at the very least all my 40% tax earnings right up to retirement. Plus any 'spare' I would tend to put away in ISA's.