Boost pension or overpay mortgage?

lorelei_lou

I've got the Civil Service Nuvos pension and have been paying into it for 3 years (I'm 28). Recently I got sent a notification that I could 'boost' it by either making a regular extra payment (which can be a specific amount or % of salary) or by doing a one off payment.

I got a promotion about 18 months ago and have been using the extra money I've earned from that to make overpayments on my mortgage. I've made all the overpayments I can this year and can't overpay again without incurring charges until January 2012.

But I started to wonder what's more sensible, overpaying the mortgage or boosting the pension? I feel too young to think about this in some ways, but surely the younger you start, the better? Initially I thought perhaps I should concentrate on paying off the mortgage and then look at boosting the pension after that, but I guess I'll be fairly close to retirement age when it's paid off.

I'm lucky at the moment in that I'm quite ok financially , have no dependents and am able to save a fair bit. But who knows how that might change! I thought if I overpay it might help if in the future if I have to take a career break to look after children, for health reasons etc which would affect my pension.

And what's better, small regular payments or saving up to put a big payment into the pension as a one off? I've realised regular payments should be as a % rather than a set amount, because the amount will be worth less over time....

Many thanks

jamesd

What is your mortgage interest rate and LTV? How long until you can get the LTV to a level that might make a real difference in your interest rate?

Are you a higher rate tax payer? If not, initially investing within a S&S ISA looks good because it'll long term grow more than you can save with mortgage overpayments and you have access to the whole of the capital even before retirement.

I don't know how the market conditions adjustment works when buying extra pension in Nuvos and want to know that before thinking much about it because some markets are very high now - gilts - while others are moderately low - equities. If it's based on the gilt market then now would probably be a bad time to be buying extra pension.

The cost of extra pension appears to be a very good deal for those close to retirement. I have more reservations about those far from retirement like you who may be able to invest the money and make it grow enough to buy more Nuvos pension later.

atush

How much have you saved outside your oension? In Cash? In S&S Isas? If you don't have 6 months spending saved in cash, I would do that instead of boosting pension.

And given you are in a pretty good pension scheme, and are so young still, I would agree that saving outside a pension (into tax saving vehicles like ISAs) would be the next best course at your stage of life alongside of overpaying your mtg. You need to build up savings that are flexible if you may want in future to effect life plans that start before the age of 55/60.

lorelei_lou

Thanks for the advice

jamesd - the interest rate is 4.3% and the LTV is 60%. I'm not a higher rate tax payer.
atush - I have over 6 months spending saved in cash, some in an ISA (max allowance) and the rest in another savings account.

I guess just carrying on saving is best then!

atush

Well your mtg is higher than you would get in savings.

If you are maxed out on cash and S&S isas this year, overpay. In april start saving some of your extra into more ISAs.