mortgage overpayment or pension plan?

crighton

hello,
sorry im a newbie and this may be a really dumb question and in a completely the wrong place, forgive me.
My question is "should I overpay my mortgage or set up a pension as I don't have one? which should I do first?"
Thank you in advance

forpetessake_2

I am in a very similar position. Problem being I am not in a position to remedy either issue!

I consider the mortgage to be the bigger of my issues and if there was a way of repaying sooner, I would do it.

You can throw vast amounts of money into a pension scheme and the rewards could be very small in future times.

Just my own view.

dunstonh

My question is "should I overpay my mortgage or set up a pension as I don't have one? which should I do first?"

It is a bit like asking if you should pay the electric or gas bill. In reality you do both.

You can throw vast amounts of money into a pension scheme and the rewards could be very small in future times.

Why do you think that?

Pensions are only as good as what you pay in. If you put in peanuts, you get back peanuts. Problem is that many people have a totally unrealistic expectation of the amount they need to save. You get people out there saving £30pm into a pension thinking they are going to get back £1500pm from that. When they dont, they blame the pension. Yet anyone with a bit of common sense would realise that the expectation is unrealistic.

Typically, investment returns over the long term exceed mortgage interest rates. You get tax relief on your contributions going in. If there is an employer contribution then you would be crazy not to join it (free money!). State pension will be £155 a week. Pension credits are being abolished. So, do nothing and £155 a week is what you have to look forward to. If that is enough for you, then overpay the mortgage. if it is not, the start looking towards retirement provision.

A rough guide is to aim to have £35k in your pension by age 35. If you are not near that then you are playing catch up.

forpetessake_2

Your starting age is a consideration also.

I paid into a pension scheme for 20 years from the age of 18. Then in 2005, the stake holders changed the nature of the scheme after a vote. Which basically screwed it up for those a long way from retirement. Then the company was sold. Today the newer company who inherited the scheme are struggling to keep it going, pumping millions into each year to keep it in the black.

Every year I receive a statement saying that my contributions of 20 years are almost irrelevant. Today, I do not earn enough to do much at all than the basic employers standard. I would love to join in, but not in a favourable position to do so.

I appreciate that I will have an issue in 2030, but I have a bigger issue right now in 2014 with trying to pay the mortgage!

If anybody has some good advice what should happen with my original scheme, I would be all ears!

For Crighton, it has to be a balance of affordability against benefit.
With a low disposable income it is a personal choice, but I would go with trying to clear the mortgage quicker and freeing up cash in my later years.

If I was in a more affluent position, I would look into pension contributions. *shrugs*

Yorkie1

Assuming you have a repayment mortgage, this will pay itself off in due course without you paying any extra. I agree with dunstonh's perspective. The sooner you start with pension provision, the longer it has to grow. If you start late with a pension, you need to pile much more into it in order to get the same return that you'd get from an early start.

SG27

I would at least get some sort of pension going first. I think probably the pension would be of more long term benefit. However overpaying the mortgage can be quite fun which is the main reason I do it.

ccbrowning

I think you should do both, or at least not neglect the pension. At my employer (and probably most if not all?) I get some % contributed by the employer, so if I'm not using the pension I'm basically burning money.