reduce pension and overpay mortgage?

digg

hello all.
I am currently investing the maximum possible in my pension (17% of salary).
I am thinking of reducing this and using the money to overpay the mortgage.

What should I be aware of when making this decision?

dunstonh

I am currently investing the maximum possible in my pension (17% of salary).

The maximum is 100%

What should I be aware of when making this decision?

You will get less income in retirement. You could get less children/working tax credits (if applicable).

A half decent investment spread should outperform the mortgage interest rate over the long term. So, you may not make the gains you think will.

Reducing your contribution may reduce employer amount (if applicable). If self employed, you get less state pensions than an employed individual so you need to pay more to make up the difference.

EdInvestor

digg wrote: »

hello all.
I am currently investing the maximum possible in my pension (17% of salary).
I am thinking of reducing this and using the money to overpay the mortgage.

What should I be aware of when making this decision?

If you are a basic rate taxpayer you may wish to consider just investing enough in the pension to get the employer contribution and using additional savings to overpay mortgage or in equity ISA.

This is because the pension is a very inflexible wrapper which can be accessed later and is really best used by higher rate taxpayers,whereas the ISA is a use it or lose it annual allowance and a much more flexible wrapper.

Anyone paying 6-7% on their mortgage should also consoider overpaying at present IMHO as this is a risk free return at much the same level as a standard investment return.

wotsthat

Anyone paying 6-7% on their mortgage should also consoider overpaying at present IMHO as this is a risk free return at much the same level as a standard investment return.

Anyone paying 6-7% on their mortgage should in the first instance find out if they can get a better deal.