Pension or OP Mortgage

copperclock

Hello, sorry. I know there have been some other threads on this subject recently, but I just wondered if anyone could lay things out simply for me, please. I am not very 'up' on pensions. They flummox me.

So, in a nutshell, when is it better to overpay the mortgage, and when is it better to add to the pension?

Here are our circumstances:

Our mortgage: new(ish) mortgage with £272000 still owing over 26 years. Will not have to extend this as house is biggest we will need.
Edit to say: 90% LTV, hopefully will ride down the bands over the next few years. Currently on 2.64% 2 year fixed.

Pensions: OH pays 7% and his employer pays 10.5% into DC pension, amounting to a total of about £670pm
OH also has an old DB pension which is worth about £9kpa, plus lump sum of about £25k

Us: I'm 35. OH is 40. So he'll be 66 when the mortgage ends unless we can pay it sooner. OH is a 40% taxpayer, quite a way into the band.

So what would be best for us to do? DOes it depend on how much we're willing to OP? If my OH withdraws from his pension at 55 will there be penalties? And are there any good resources on the matter?

Thank you!

Thrugelmir

How comfortable are you with a debt of that size? Secure job prospects, health etc for the next 26 years.

atush

What cash savings and other investments do you have? Do you have a pension? Will your OH's company pay more into his pension if he pays more? How much HRT band does he have left after paying his 7%

Normally, with a HRTaxpayer, paying more into pension should be done first (if has room to do so and save 40% tax. ie 100 into his pension only costs 60.

BUT, if he were close to dropping out of HRT then I would say splitting the available money between pension and the mtg might be a good idea. Only because your LTV is so high.

copperclock

Thrugelmir wrote: »

How comfortable are you with a debt of that size? Secure job prospects, health etc for the next 26 years.

OH's job prospects are as secure as they can be, and I can see a promotion or two before retirement. No health issues, but you never know, do you? He has a very good sickness package. If required I could add some income.

Saying all that, I think both of us would like to have it paid off one way or another before the planned 26 years. Maybe somewhere around 20 would be good.

atush

We crossposted, so have a look at post 3?

copperclock

atush wrote: »

What cash savings and other investments do you have? Do you have a pension? Will your OH's company pay more into his pension if he pays more? How much HRT band does he have left after paying his 7%

Normally, with a HRTaxpayer, paying more into pension should be done first (if has room to do so and save 40% tax. ie 100 into his pension only costs 60.

BUT, if he were close to dropping out of HRT then I would say splitting the available money between pension and the mtg might be a good idea. Only because your LTV is so high.

Thank you.

Cash savings are poor and need building up over this year (already planned).

OH's company has a SIP scheme so we pay the maximum into that (£150pm). Company gives one share for every three we buy. There is a few thousand in there, maybe £4k? Locked in.

I don't have a pension.

OH's company will pay a maximum of 10.5% when he pays 7% so that's what he's been doing since the scheme started a few years ago.

Where does the HR tax band kick in? I think he's quite a way beyond it.

atush

it was 43K but I think it is going up to 45K?

So as long as you are building up cash, do that first. Then whack in extra to his pension. Might make sense to start one for you as well.

Even if you dont work, you can put in 2880 to a pension, which will become 3600 after BRT relief is added

copperclock

atush wrote: »

it was 43K but I think it is going up to 45K?

So as long as you are building up cash, do that first. Then whack in extra to his pension. Might make sense to start one for you as well.

Even if you dont work, you can put in 2880 to a pension, which will become 3600 after BRT relief is added

Thank you. Yes, his income is a fair way north of that.

Thanks for the advice. Yes, I think we'll concentrate on the cash savings for now and see what kind of LTV we can get at the end of this year/start of next year and then reassess. I've never thought of adding to pension in place of OPing mortgage before. It's definitely interesting.

Can most people take a lump out of their DC pension at age 55?

Thrugelmir

copperclock wrote: »

OH's job prospects are as secure as they can be, and I can see a promotion or two before retirement. No health issues, but you never know, do you? He has a very good sickness package. If required I could add some income.

Saying all that, I think both of us would like to have it paid off one way or another before the planned 26 years. Maybe somewhere around 20 would be good.

I asked the question rhetorically. As the one certainty in life is uncertainty. Personally I'd maintain a balance and allow flexibility into ones personal plans. To allow for the potential what if scenarios.

atush

copperclock wrote: »

Thank you. Yes, his income is a fair way north of that.

Thanks for the advice. Yes, I think we'll concentrate on the cash savings for now and see what kind of LTV we can get at the end of this year/start of next year and then reassess. I've never thought of adding to pension in place of OPing mortgage before. It's definitely interesting.

Can most people take a lump out of their DC pension at age 55?

While it makes sense to concentrate on cash savings, remember that 60 into a pension becomes 100 (80 in pension and 20 in your pocket). So he has a 40K annual allowance and if you dont put some extra in now, a new allowance starts Apr 6.

You can go back 3 years to use up unused allowance, but one year will drop off apr 6.

copperclock

Yeah, getting that extra 40% makes it really tempting, but then, on the flipside, I worry about making a plan that would mean the money was locked in for 15+ years (he's 40 now). It's effectively using borrowed money (the mortgage) to invest in a pension.

Also I've got no idea how to make a somewhat accurate prediction on how much our extra investment might be worth in 15+ years. When we look at projections for the pension proper it's confusing and massively variable.

If directing money at a pension instead of OPing a mortgage is a good idea, how come people almost always do the latter?