Pension - lump sum or mortgage?

WiltshireLad_2

Hello all - I am new user.

I will be 55 in 18 months and plan to retire and take my pension, which should be around £30k per year uncommuted. I want to take out about £70k as lump sum to help our kids with deposits, etc, but that would commute the annual pension to just under £26k per year. We will soon have no mortgage, but my question is:

Should I take the lump sum from my pension, and be forever £260+ per month (and growing at each annual review) worse off compared to taking no lump sum, or should I take a £70k mortgage, interest only, with would cost £200 per month, if interest rates dont suddenly leap up? I have another pension that will come out at 60, which should be worth gross around £140k, and other lumps that could come later in my 60s or 70s (assuming I'm still around) that could pay off the mortgage

My feeling is that while it is nice to be mortgage-free, commuting any pension to a lump sum feels like a loan that will never paid off.

I would welcome any insights!

atush

Tell us more about the 140K mtg. If it is DC, and you can take a 25% tFLS at 55?

kidmugsy

It might be worth telling us how would commuting affect your widow's pension.

But even if it leaves it unaffected, it seems unwise to me to cost yourself about £4k p.a. before tax, index-linked, for the rest of your life, to release a measly £70k when you can see lots more money on the horizon anyway. Why not buy a fixed rate mortgage that will last for 5 or 10 years or, more precisely, until rescue is at hand?

More generally, you have a desire for capital now, to gift to your children. You will have ample money, but not just yet. So why not borrow to plug the gap, while borrowing is very cheap. Do it now before rates rise!

P.S. What sort of pension do you mean when you refer to "a pension that will come out at 60"?

WiltshireLad_2

Thanks for your interest - the pension that comes out at 60 is a private pension that I have been contributing to for many years. It is with Abbey Life, so there is no flexibility, I cant dip into it at 55 without stopping it and transferring to another provider, with a penalty for stopping it early.

As I understand it, commuting would not affect widows pension, 50% of the uncommuted pension would still be payable.

I am starting to come round to the idea of borrowing rather than taking a lump sum, although it goes against the grain as we have been scrimping like mad to try and get the mortgage paid off!!

Andypandyboy

Do interest only mortgages still exist?

kidmugsy

WiltshireLad wrote: »

It is with Abbey Life, so there is no flexibility, I cant dip into it at 55 without stopping it and transferring to another provider, with a penalty for stopping it early.

How big's the penalty?

Anyway, you want to retire at 55 and to splurge some money on the offspring. You are going to have heaps of money in the future, but not at 55. Borrow! At fixed rate! While cheap!
If you scroll down at the link you'll find that there are even unsecured loans going at 3.5% at the mo'. These rates are unparalleled since 1400 AD or some such date. Seize the day.

http://www.moneysavingexpert.com/latesttip/

dunstonh

With retail personal pensions, you should take the maximum tax free cash payment unless there is a justifiable reason otherwise (such as a guaranteed annuity rate.

If there are no gaurantees and you are looking at an annuity, then you should utilise the open market option via an IFA.

Any lump sum can be used to provide an income in other ways. So, you may not be any worse off and indeed, may end up better off.