Pension/Mortgage Plans

marathonic

I'm 29 years old and through very large pension contributions since the age of 23, my pension pot is now at 1.4 times my salary.

I'm a lower rate tax payer but my company do the Salary Sacrafice scheme, where they contribute their entire National Insurance savings back into the scheme.

My thoughts at the time were, contribute a hell of a lot now when I've no commitments and decrease them when I've a mortgage and/or children.

I've now reduced my pension contribution to 2% (the minimum needed to get the companies 4%) to help save for a house deposit. When I turn 30, this will increase to 3% to get the companies 6%.

I've now saved enough for a 20% deposit for a house (partially through an inheritence) in my area where houses are pretty cheap.

Obviously, plans will change if/when marriage/children come along but do you think this sounds like a good plan:

From the age of 30, I contribute 3% and my company contribute 6% to my pension bringing it to a total of 9%. I've already 1.4 times my salary in the pot so, assumming a growth rate of 6%, this would, in theory, add 8.4% of my annual salary to the pot. That totals 9 + 8.4 = 17.4% which I feel is pretty good.

At the same time, overpay my mortgage as much as possible. As soon as I get down to 60% LTV, switch to one of the better deals, stop overpaying the mortgage and consider increasing the pension again.

Obviously, the above plan could take years if house prices continue to drop or could be complete within 2 years if house prices start rising again.

spin_doctor_2

Sounds like a good plug for a prospective partner ?

Thrugelmir

marathonic wrote: »

assumming a growth rate of 6%,.

Big assumption. As this will be after fees.

Investment performance won't be smooth either. Some years you'll see 20% - 30% falls potentially.

Your pension fund may yield you a return of 5% - 6% . Calculate how much capital you will need to generate the pension you would like to retire on.

kidmugsy

"At the same time, overpay my mortgage as much as possible."

We've found it very convenient to have a 'flexible mortgage' so we can draw down the overpayments when we've wanted to.

jamesd

You're getting pension tax relief of 20% + 12% employee NI + 13.8% employer NI = 45.8%. This leads me to wonder why you wouldn't want to contribute to the pension and use the pension lump sum at age 55 to clear the mortgage, effectively getting tax relief on your mortgage equity. Your age fits this perfectly and you have one of the better pension deals around. Not so easy to get an interest only mortgage deal these days, though.

Getting down to 75% LTV is probably worthwhile, not so much benefit from going below that. Why buy before you reach 75%? From your description you're not that far from getting there and that'll cut the cost of your first mortgage.

You're in one of the better defined contribution pension deals around. If you've any thought of ever moving to a different employer it's good to exploit this deal while you can.