Pensions or over pay mortgage?

Little_Vics

This is quite possibly the wrong place, but I'm still a DFW!

There's a strong chance we'll have cleared all our debt next year, which has got us wondering whether we should pay more into our teeeny-tiny pensions, or overpay on the mortgage?

We've got a loan to value ratio of about 60% on the mortgage and are on a good deal.

Any thoughts?

Newyorkdreams

Hi - I think it depends on how old you are/how close to retirement you are. When I become debt free in 2015, I will have the option of saving my money (rather than paying enormous debt repayments!!!) - about £1500-£2000 per month and I need to decide whether I overpay my mortgage or start Additional Voluntary Contributions on my pension. However, I'm only 34 and have been paying a significant amount into my pension since I was 21 so I think I will focus on the mortgage as a priority. After all, it's still clocking up interest whereas your pension would be building over the longer-term. Again, depends when you need to access it. I know my boss is looking into AVC's starting at £1000 a month because he is 55 and thinking about retirement. At the higher rate of tax, for every £1 you put into your pension as an AVC, it only actually costs you 60p as it's tax free.

Little_Vics

We're both 37 and will have an extra £1000 a month we think. To be honest, I'm not entirely sure we've got the best pensions, so maybe I need to start with that.

Happier_Me

Contributing to a pension is tax efficient but there are restrictions in how you can withdraw funds when you reach retirement (and no guarantees on income levels either unless you are lucky enough to have access to a public sector pension - in which case, I wouldn't hesitate to sign up). Pension income is also taxable (after taking into account your personal allowance). ISA savings on the other hand are not as tax efficient up front but any interest you receive is tax free. Interest rates are rubbish at the moment but this may not be the case in the longer term so this may an option. An increase in interest rates could see your mortgage payments increase also, so saving into ISAs would give you the flexibility to pay off a chunk of your mortgage if this became worthwhile at some point in the future.

I pay into a great company pension scheme (average salary now, but was final salary scheme). If I moved jobs and lost access to this benefit I would not pay into a private pension - I would make other arrangements to fund my retirement. My DH pays a small amount into a company pension that is not going to pay much at all on retirement (unless you listen to the Insurance Rep!). He could increase his contributions but he has no intention of doing this because the return is too unreliable. Our current plan is to pay off our mortgage asap and then save into ISA's. We will rethink things in 3-5 years time.

This is all down to personal choice - our choice is not have all our eggs in one basket. We're aiming to be completely debt free, have some pension savings as well as other savings to fund our retirement.