Mortgage free at 35. Now to start a pension.

wolvoman

As you're self employed you may be able to set up your own employer scheme with just yourself as a member.

Then you could have your employer (you) pay your pension via salary sacrifice. This way you can avoid some NICs (employer and employee).

If you have nice savings (and no mortgage helps here), you can sacrifice right down to the working tax credit threshold (guessing it's around £7k).

Overall tax savings would amount to around 50% doing it this way. So the £64k invested in your pension fund would actually only 'cost' you about £32k in net income.

dunstonh

As you're self employed you may be able to set up your own employer scheme with just yourself as a member.

Self employed would just use an individual scheme with individual payments. There is no benefit of "employer contributions". Salary sacrifice would not work either as there is no salary.

Bravepants

I can understand the argument about not paying mortgage off, as long as interest rates stay low of course. I'm mortgage free (I'm 49) and my partner and I could not be happier.

We have a modest house that I originally paid about £145k for, and I had a relatively small mortgage, which I would always overpay. My partner moved in and she paid in half the value of the house at the time, and we finished the mortgage off. We are now joint tenants.

So I figure nowadays the house is worth about £200k. That's part of our net worth, and we are happier that we are not having to service any debts.

Sure we could have shoved £100k more into an ISA, but interest rates can shoot up over a 5 year period, whereas investing is for the long term, even to get 5 to 7%.

somethingcorporate

No-one here doubts the psychological benefits of being mortgage free.

However, financially it's almost never the best option against pensions where employers and the tax man generously contribute.

£60 from net income overpays a mortgage by £60. £60 from my net income results in a contribution of £220 including the tax and employer contributions to my pension.

This growth compounded over many years will far outweigh almost any scenario you can consider when it comes to mortgages.

A_T

The OP was asking about his pension planning from now on.

Where did he ask to be scolded about decisions he has made that cannot now be changed?

somethingcorporate

A_T wrote: »

The OP was asking about his pension planning from now on.

Where did he ask to be scolded about decisions he has made that cannot now be changed?

No-one has scolded him, merely pointed out the error of his ways that could easily be of substantial benefit to anyone else that reads these forums in a similar position.

k6chris

The 'pension before mortgage' feedback is good, but why no corresponding 'remortgage to live off and contribute more to your pension' wisdom? Yes, employer contributions have been lost, although you may be able to maximise any future matching? So what am I missing with the 'remortgage and contribute £40k a year to a pension' that makes it different from 'maximise pay into pension not overpay mortgage'??

kidmugsy

2016Convert wrote: »

Income is around £70k.

Higher rate tax starts at £45k (except in Scotland). So you could get 40% tax relief on £70k - £45k = £25k p.a. gross. So you contribute 0.8 x £25k net = £20k. The taxpayer makes that up to £25k within your pension, and you claim back a further £5k for your pocket.

Thus the pension fund's £25k has cost you £20k - refund of £5k = £15k. Bargain!

Note that £15k p.a. is less than your potential £1500 per month = £18k p.a. Put the extra £3k p.a. into an emergency cash fund, for example.

BLB53

So, now I'm planning on a pension and was to get things started ASAP.

I don't know where to start. I can afford to save £1000 a month. Any advice or links to where to start?

If you feel comfortable doing this yourself then a SIPP would probably be the best option. It can be very simple - select a low cost sipp provider ...see monevator guide
http://monevator.com/compare-uk-cheapest-online-brokers/ ... then select a low cost fund such as Vanguard Lifestrategy or Vanguard Target Retirement then set up you monthly DD and that's basically it.

Lots of simple options on the monevator site and also diy investor (pensions section) http://diyinvestoruk.blogspot.co.uk/p/pension.html

You have plenty of time to build a decent pension pot...good luck!

AndyAdams

Personally I paid my mortgage off as soon as I could. This was driven by many things, perhaps the one with the most impact was when I was a child and we were very close to eviction,my mum was in tears and had to pawn her engagement ring to keep a house over our head.

Job security, is another factor thata drove me to pay my mortgage off as soon as practically possible. No income means you cannot service your debt, and we all know about compound interest.

Finally there is no guarantee pensions growth will grow 5% per annum.

Paying your mortgage off gives you additional choices, about life and work. Due to the fact I paid my mortgage off early I managed to negotiate better pay rises , as I knew I could afford to walk away. I have also taken positions that I would not have considered taking if I had a mortgage as the job security was very poor.

Personally I don't think it is decision as straight forward as service debt at 2% or invest in a pension with tax relief and growth of 5%. The decision is a lot more complex than that. For me the decision was the one I was most comfortable with and for me that is paying off my debt as soons as possible and owning a house outright.

Also once I paid my mortgage I contributed to a pension but did not put all my eggs in one basket as I could not access the pension money until 55, so I also invested in S&S ISAs to ensure I had access to funds if needed. I now have the added benefit of having a 50:50 split of ISAs and Pensions, meaning I should not hit the lifetime allowance and also my income tax bill will be a lot lower when I start drawing my pension.