pension pot/mortgage quandary

peterrocketts

Hello
I have this pension pot quandary hopefully somebody can give me an idea If this is best for me.
I am 55 soon to be 56 and to cut a very long story short, I have a mortgage £87000 that I can barely afford, which I will need to carry on paying until I am 67 - 70. As the company I work for has gone into this new nest pension scheme I now have 3 small pension pots approx. £3100, £26000, £29000. With the option to be able to cash in either part or all my pensions, I was wondering if it would make sense to use the pensions (I know there would be 40% tax on 75% of the pots) to pay off as much as possible. If I do get the cash gift promised plus savings I could pay off the entire mortgage.
I could then use the mortgage payments for a pension top up.

Mistermeaner

Bit confused by this; you can only draw your pensions on retirement and hence would no longer be earning.

Not really answering your question but if those sums are all you have and with all that mortgage debt you need to consider selling your house to downsize, get rid of the mortgage and invest the proceeds in your pension.

Once mortgage free max your pension contributions to top up your pot taking advantage of employer contributions and tax relief.

You may get more specific advice if you post more details about your debts, assets, savings, income, family situation etc.

Don't want to sound grim but you need a plan asap or you may find retirement miserable.

Have you by any chance got divorced and remortgaged to buy her out? Don't know how you can have such debt at your age

dunstonh

I am 55 soon to be 56 and to cut a very long story short, I have a mortgage £87000 that I can barely afford, which I will need to carry on paying until I am 67 - 70.

Is it 67 or 70? Mortgage redemption dates are specific and not a range.

With the option to be able to cash in either part or all my pensions, I was wondering if it would make sense to use the pensions (I know there would be 40% tax on 75% of the pots) to pay off as much as possible.

It would be a foolish waste of money in the vast majority of cases. Paying 40% tax against a lump sum to repay a mortgage costing you a few percent a year is wasteful.

If I do get the cash gift promised plus savings I could pay off the entire mortgage.
I could then use the mortgage payments for a pension top up.

But you wont recover the 40% lost in tax and would be limited to a £10k annual allowance and at age 55, you would need to pay in more than £10k a year realistically.

I think its fair to say you are not going to be able to afford to retire earlier than state pension age. Your state pension age appears to tie in with your mortgage redemption age (or thereabouts). So, if you can service the mortgage, then that is fine. If its tight, then use some of your savings (which would appear to be over £40k from what you are saying) to part repay the mortgage to bring the monthly payment down to a level you find more affordable (but ideally leave it as high as possible to try and clear the mortgage quicker).

kidmugsy

peterrocketts wrote: »

I now have 3 small pension pots approx. £3100, £26000, £29000. ...
I could then use the mortgage payments for a pension top up.

Withdraw only money taxed at 0% and 20%. It would be mad to pay 40% tax if you don't need to.

What's the interest rate on your mortgage? If you used only the TFLSs, could you remortgage with a lower LTV and thus get a cheaper mortgage?

atush

Why take out a mtg you can't afford? Can you downsize?

I would agree with D above, taking money out of a pension taxed at 40% to pay off a mtg is foolish in the extreme. Madness really.

Your biggerst problem is that at 55 you only have 58K in your pension. I'd be adding more, not taking any out. You certainly cannot afford to retire before SPA, and how you will live on that is anyone's guess.

Have you tried the Debt free forum? Or the mtg free wannabe one? where you can post an SOA to get ideas from others how and where to cut back on your outgoings? So you can save more and pay off your mtg?

peterrocketts

Why I took out a mortgage late in life, property price was cheap so even if I sold now I would make some money on it, downsizing hopefully in the near future, as for the financial situation I was expecting to pay off mortgage earlier, but that’s water under the proverbial bridge, and like I said earlier very long story short.
The 67 – 70 age for finishing mortgage repayment is because Iam looking at that, and the best I can that I can afford, without putting in any other monies is perhaps 67. Iam not looking to put in the savings unless I can pay off the entire mortgage.
I was not aware of the 10000 pension investment cap is that even if I take out only the 25% tax free?
Thank you for all your input and I do appreciate your frank and honest opinions.

saver861

peterrocketts wrote: »

With the option to be able to cash in either part or all my pensions, I was wondering if it would make sense to use the pensions (I know there would be 40% tax on 75% of the pots) to pay off as much as possible.

The answer to your question is definitely in the brackets. If you are going to pay 40% on what you draw then you are losing amost half straight off. Not economical at all.

peterrocketts wrote: »

I could then use the mortgage payments for a pension top up.

I can understand why you would want to be mortgage free, but I think you have things in reverse. I think the better path would be looking at ways of reducing the mortgage payments to a more affordable level and leaving the pensions intact.

Apart from anything else, even if you did go down the route you are asking, once the mortgage is paid off you would need to be super diligent to redirect the payments into the pension. Things have a habit of cropping up such as boilers going bust, etc to make that redirection all to easy to miss.

atush

Your best bets are either reduce outgoings and put that into mtg and pension or downsize now if you cant afford the payments.

property price was cheap so even if I sold now I would make some money on it,

Always good to buy low and sell high but moot point if you c ant afford the payments. So get rid now. Or refinace so you can afford them?

peterrocketts

Thanks for the input. By the way I said barely not cant afford the mortgage and was and Iam looking at reducing payments by paying off a lump sum etc not including the pension pot. The consensus of opinion is keep the pension pot, and that fine again thanks.