Pay off mortgage with pension

Disduprop

Some advise please. My DH is about to turn 55 and will therefore have access to a small pension pot (he's gone from job to job throughout his career and has a number of work pensions and private pensions he's paid into throughout the years. None of which add up to very much).
I'm wondering if we should get this out as a lump sum and pay off our mortgage? Being mortgage free would bring our longer terms plans a bit closer to reality.
I pay into a works pension which I won't get my hands on until I'm 66.
Any help would be greatly appreciated.
Thanks

kidmugsy

Disduprop wrote: »

he's gone from job to job throughout his career and has a number of work pensions and private pensions he's paid into throughout the years. None of which add up to very much

When he finally retires let's say he will get a State Pension of £7.5k, and that the income tax Personal Allowance will be £10.5k. So he'll have a chance to draw £3k p.a. tax-free from his personal and occupational pensions. If he draws them now he'll have to pay income tax on 75% of the money, I presume. It's almost bound to be better to get the money out tax-free.

If you need some capital urgently you could consider withdrawing the 25% lump sums from them, but you'd need to consider any penalties, or charges, or any advantages forgone.

Disduprop

kidmugsy wrote: »

When he finally retires let's say he will get a State Pension of £7.5k, and that the income tax Personal Allowance will be £10.5k. So he'll have a chance to draw £3k p.a. tax-free from his personal and occupational pensions. If he draws them now he'll have to pay income tax on 75% of the money, I presume. It's almost bound to be better to get the money out tax-free.

If you need some capital urgently you could consider withdrawing the 25% lump sums from them, but you'd need to consider any penalties, or charges, or any advantages forgone.

Ok, Thanks for that Kidmugsy. I think if we were to take out the 25% lump sums from a few of them then that should go a good way to finishing off the mortgage.

xylophone

Are any of the pensions Defined Benefit? If so, probably best left alone.

Do any of the others have valuable guarantees?

With regard to the rest, might it be worth considering consolidating them into one plan, drawing the tax free lump sum and leaving the rest invested until your husband retires?

https://www.unbiased.co.uk/ - if independent financial advice required.

Disduprop

xylophone wrote: »

Are any of the pensions Defined Benefit? If so, probably best left alone.

Do any of the others have valuable guarantees?

With regard to the rest, might it be worth considering consolidating them into one plan, drawing the tax free lump sum and leaving the rest invested until your husband retires?

https://www.unbiased.co.uk/ - if independent financial advice required.

OMG xylophone, I have no idea. I will need to get out the policy documents and have a good look.
This is a minefield.
Thanks

xylophone

You say that your husband paid into various work based and private schemes.

Some occupational schemes were defined benefit/final salary.

When a person left before scheme pension age he became a deferred pensioner of the scheme - his benefits would revalue under scheme rules in deferment and he would draw his deferred pension at scheme pension age.

Other occupational schemes were money purchase or defined contribution schemes, often administered by an insurance company - an early leaver might choose to leave his accrued benefits within the scheme and they would go up and down with the value of the underlying investments.

Some private pension policies had Guaranteed Annuity Rates - you might wish to check for these.

http://www.pensionsadvisoryservice.org.uk/about-pensions/retirement-choices/buying-an-annuity-how-to-shop-around/guaranteed-annuity-rates

And re new state pension https://www.gov.uk/new-state-pension/overview

Would it be worth having an IFA look over your husband's situation?

atush

What rate is your mtg? How much left to pay? How old will he be when it is paid of normally?

Your pension is probably out performing the interest you are paying. mine is over 5x the rate of my mtg

Disduprop

Thanks for advice and comments. I think we need to do a lot more research before making final decisions. Will think about contacting a financial adviser.
Thanks again

FatherAbraham

Disduprop wrote: »

Some advise please. My DH is about to turn 55 and will therefore have access to a small pension pot (he's gone from job to job throughout his career and has a number of work pensions and private pensions he's paid into throughout the years. None of which add up to very much).
I'm wondering if we should get this out as a lump sum and pay off our mortgage? Being mortgage free would bring our longer terms plans a bit closer to reality.
I pay into a works pension which I won't get my hands on until I'm 66.
Any help would be greatly appreciated.
Thanks

I know this sounds obvious, but taking money out of your retirement pot to pay off the mortgage means you'll have less income in retirement.

If your husband has pensions which don't amount to very much, doesn't that mean that you need to increase, not decrease, retirement saving?

You say that extinguishing the mortgage debt would bring your long-term plans closer. What is that long-term plan?

What I'm saying is that simply moving assets from pension funds to mortgage debt isn't necessarily going to make you any richer overall.

Warmest regards,
FA

jamesd

Disduprop wrote: »

Being mortgage free would bring our longer terms plans a bit closer to reality.

That's quite unlikely because taking money form investments to pay off a mortgage usually leaves people worse off longer term: they give up the higher returns from investing to save the lower mortgage interest rate.

Earlier this week I invested a few thousand Pounds at 14% annualised interest rate for five months via Ablrate. Normally 10-12% is available there. Investing, so not risk free, but always secured on physical property. there are many others. Given the interest rates available from the higher rate P2P places it's quite an easy decision for me to stay invested and not do any repaying of my interest only mortgage, even though I could pay it off twice over and more whenever I wanted to. The P2P ISA hasn't arrived yet but it'll get even more attractive when it does.

Earlier this year I invested in a range of VCTs, mostly the Albion VCT. That's secured on physical property, much of which was banned for new VCTs because the risk is too low. It pays around 10% tax free a year and I got 30% of my purchase price back in tax relief from HMRC (capped at the income tax actually payable in the tax year of purchase). In effect this eliminated almost all of my income tax bill last tax year.

I also have lots of money invested in the usual shares types of things, in both pension and ISA.

Combining tax relief and investment growth I'm probably making well in excess of 10% on my money.

So the leading questions here are what are your long term objectives and how does paying off a mortgage bring them closer instead of having its usual effect of pushing them further away?

My own objectives have been fairly simple: first get to the point where I could live without changing spending even if I was long term unemployed, then to the point where I could retire on the median average pensioner household income and now to do that in my choice of country, which requires investment capital and health insurance on top of the income need. Paying off my mortgage would hurt all of those objectives, requiring me to work longer to compensate for the reduced investment growth.

dunstonh

Being mortgage free would bring our longer terms plans a bit closer to reality.

How does reducing your retirement income/capital in a pension fund that is likely to be out performing the interest rate you pay on the mortgage end up being better for you? (this assumes a money purchase pension. If defined benefit, then there are other issues to consider).

None of which add up to very much

So, what is he doing about that?