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Using a pension to pay off the mortgage.

peterg1965
Posts: 2,164 Forumite


In a nutshell, I have a thread running on the MFW forum discussing whether I can pay my mortgage off earlier and more efficiently using my 'secondary' PPP. I may get some different ideas/responses on this thread. Briefly
- £255K Mortgage over 16.5 years - repayment (4.94% fixed) (£1068 interest, £800 or so capital repayment at the mo)
- already have very secure occ pension. Will give me ~ £31K a year at 55 (index linked) and a £100K lump sum - todays prices. (currently 41)
- want to pay mortgage off earlier and more efficiently
- have a Scot Eq seconday PPP (PR money) current value £18,000 reasonably aggressive fund mix.
- Could go interest only on the mortgage and use ISAs or pension investments to pay off mortgage.
- Keen on the pension option.
If I went down the pension route and stuck with my Scottish Equitable PPP (for now anyway - I would review if/when the PR rules change to permit access to a SIPP) I think I could invest £1000/month Net. I would then pay £1068 interest on my £255K mortgage. The pension funding would be £20,000 a year Gross. (I am a high rate taxpayer). Using a compund Interest calculator I would have a fund of £683,000 at age 55 with a 10%/year average increase. My PPP current value is £18,000 (PR) and is unfunded. At 55 I would use my tax free company pension lump sum (£126K (estimated) to pay down the mortgage capital) and part of the 25% PPP drawdown to pay the rest. That would leave me a large sum in my PPP pot as well as a very good occupational pension at 55.
Question is will I exceed the Lifetime Allowance for pensions and hence incur punative tax rates on the excess? If I dont, this scheme appears very attractive to me, although where does it leave my wife? I assume that if I died the PPP pension pot would be an additional 'life insurance' for her?
- £255K Mortgage over 16.5 years - repayment (4.94% fixed) (£1068 interest, £800 or so capital repayment at the mo)
- already have very secure occ pension. Will give me ~ £31K a year at 55 (index linked) and a £100K lump sum - todays prices. (currently 41)
- want to pay mortgage off earlier and more efficiently
- have a Scot Eq seconday PPP (PR money) current value £18,000 reasonably aggressive fund mix.
- Could go interest only on the mortgage and use ISAs or pension investments to pay off mortgage.
- Keen on the pension option.
If I went down the pension route and stuck with my Scottish Equitable PPP (for now anyway - I would review if/when the PR rules change to permit access to a SIPP) I think I could invest £1000/month Net. I would then pay £1068 interest on my £255K mortgage. The pension funding would be £20,000 a year Gross. (I am a high rate taxpayer). Using a compund Interest calculator I would have a fund of £683,000 at age 55 with a 10%/year average increase. My PPP current value is £18,000 (PR) and is unfunded. At 55 I would use my tax free company pension lump sum (£126K (estimated) to pay down the mortgage capital) and part of the 25% PPP drawdown to pay the rest. That would leave me a large sum in my PPP pot as well as a very good occupational pension at 55.
Question is will I exceed the Lifetime Allowance for pensions and hence incur punative tax rates on the excess? If I dont, this scheme appears very attractive to me, although where does it leave my wife? I assume that if I died the PPP pension pot would be an additional 'life insurance' for her?
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