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Mortgage Pay Down Scheme

edited 11 January 2017 at 8:01PM in Auto-enrolment
1 reply 7.7K views
DaranDaran Forumite
1 posts
edited 11 January 2017 at 8:01PM in Auto-enrolment
Hi,
Our Company Pension Scheme is changing, and the options available are;
1/. Employee contributes upto 6% into pension and Employer contributes 12% into pension.

2/. Employee contributes 3% into pension 3% into mortgage and Employer contributes 6% into pension 6% into mortgage.

You do not receive tax relief on payments.
Has anyone had any experience or knowledge of this mortgage pay down scheme?


Interested to hear your views.

Replies

  • edited 11 January 2017 at 11:58PM
    jamesdjamesd Forumite
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    edited 11 January 2017 at 11:58PM
    The mortgage part is likely to be subject to income tax and NI. Otherwise employees with flexible mortgages could take the money back out of the mortgage to indirectly get tax free pay.

    It's likely to be a good deal for employees who have mortgage LTVs of 100%, 95%, 90% and perhaps 85%. Probably not by the time LTV is 75% or lower. This is because the interest saving from a lower LTV can be more valuable than the pension tax relief when LTV is high. This is less likely to be true for higher rate tax payers who lose more pension tax relief.

    For lower LTVs it's likely to be best to take the pension choice and maybe use some pension tax free lump sum for mortgage reduction. This way there is effectively mortgage tax relief on the overpayment.

    The tax treatment would make the mortgage option more expensive for the employer than the pension one.
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