Mortgage free at 35. Now to start a pension.

MoneyGeoff

AndyAdams wrote: »

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

It's true that 5% isn't guaranteed and it's even possible your pension investments could go down in value. That's why posters go to great lengths to explain the tax benefits of pensions. For example, a higher rate PAYE employee with matching employer contributions would get £344 into their pension for a £100 net salary contribution, before investment returns. You don't really care about that extra 5% when you're already 244% up.

AndyAdams wrote: »

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.

Agreed, putting all eggs into one basket is not recommended. A balance of pensions, ISAs and property is all good. Nobody is suggesting to go all out on pensions only. Putting all your eggs into one basket would involve, for example, going 100% into property and ignoring pensions and ISAs.

badmemory

I sometimes feel that the security of a roof over your head which no-one can take away is seriously undervalued on here. If you have lived, as I did for over 10 years, under threat of redundancy you would know just what a difference it can make to know that nothing can make you homeless.

What I do know is that even if I went back 25 years I would still pay off my mortgage as a priority. When we actually got our redundancy notices (they were fortunately later withdrawn) I saw it as an opportunity not a major problem. But I would have been a very lot less optimistic if I hadn't paid off the mortgage.

Malthusian

badmemory wrote: »

I sometimes feel that the security of a roof over your head which no-one can take away is seriously undervalued on here. If you have lived, as I did for over 10 years, under threat of redundancy you would know just what a difference it can make to know that nothing can make you homeless.

Sure it can, you could go bankrupt. Whereas pensions can't be taken away even if you go bankrupt.

I'm intrigued by exactly what you mean by "under the threat of redundancy for ten years". If you held on to the job for ten years it can't have been that much of a threat. There isn't a person in the country who doesn't live under the possibility of redundancy.

AnotherJoe

k6chris wrote: »

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? yes you may. OTOH you may not and you may also fall out of 40% tax band (after a redundancy perhaps?) so having passed up the chance to take it whilst was going. Will the 40% be around indefinitely as well? You have a few scaremongers here saying "i dont think there will be a SP when i retire". Thats not going to happen, FAR more likely is, there wont be 40% tax relief in their earnings lifetime.

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'??

It would depend on the relative numbers - income, tax position, size of mortgage, likely income in retirement and so on. In some circumstances it could well be the better option.

What you see more of here is the "put your money into your pension rather than overpay" messages since especially for 40% tax rate payers they are throwing away a lot of free money.

I do agree there's a happy balance but perhaps regard the posts here advising putting more into pension as an antidote to the lemming like attitude of the mortgage free wannbees on that forum, many of whom will end up being substantially worse off because of their 100% focus on mortgage at all costs.

atush

badmemory wrote: »

I sometimes feel that the security of a roof over your head which no-one can take away is seriously undervalued on here. If you have lived, as I did for over 10 years, under threat of redundancy you would know just what a difference it can make to know that nothing can make you homeless.

What I do know is that even if I went back 25 years I would still pay off my mortgage as a priority. When we actually got our redundancy notices (they were fortunately later withdrawn) I saw it as an opportunity not a major problem. But I would have been a very lot less optimistic if I hadn't paid off the mortgage.

You are 100% wrong. We dont undervalue the idea.

What we say is, dont neglect a pension to overpay. Ie not having one at all (or not having a S&S isa at all). We always say to do all things together, overpay a bit, pension a lot, S&S isas a bit.

I overpayed my mtg by a huge mount, then reduced it when the interest rates dropped, then stopped completely when i could pay it off easily. I always had that idea of security, but many overpayers completely do JUST THAT and nothing else til it is done.

That is what we warn against.

Not_Me_Officer

MoneyGeoff wrote: »

higher rate PAYE employee with matching employer contributions .

Where are all these people?
Whenever i read about pensions online it's like anyone talking about it is really pushing it towards higher rate tax payers and companies who pay in nice amounts.

Granted i don't know 100s & 100s of people but of those i do know not a single one is a higher rate tax payer. Some come close but none of them are.

Some have nice employers who pay in beyond what they're forced to by the government but the vast majority only pay in the minimum.

I don't know if anyone ran any statistics but i wonder out of all those paying into pensions up & down the land how many are higher rate and what percentage are basic rate, also who has an employer who pays in extra and who has an employer who pays in the minimum. I wonder how the percentages split.

Malthusian

People who have enough of a grip on their finances to investigate their retirement planning are however more likely to be higher rate taxpayers, or aspiring towards it, and to have employers which offer more generous pension contributions than auto-enrolment to attract the right sort of people. Verging on snobbery but it is what it is. And there's no point underselling the benefits of pensions.

The starting point was the assertion that you can't guarantee growth of 5% per annum in a pension. Maybe not, but even with the less generous auto enrolment contributions (3:5 employer/employee rather than 1:1) and basic rate tax relief, you don't need 5% growth, over a 30-year time period you only need 2.6% growth to match what you would get if you opted out of the pension scheme and got 5% per annum. Over 20 years, 1.4%. If you can't get 2.6%pa growth on a 30-year investment we may as well all go home and give up on savings and investments.

justme111

NMO ,good observation.In addition to previous poster explanation - It is probably because for many people who earn less pension is not an issue. If one is on £24 k ( an average wage ) after tax , NI, mortgage, child expenses they are left with less than a state pension would provide ! So their standard of living is not going to drop once they are retired and as a result they do not need any additional one. Dare I say most of population fits this description. I know it is considered a blasphemy to say one does not need pension beyond SP on a pension board but it is important not to become so wrapped up with an idea and not to see a nut in everything because one happened to have a hummer.

Eric_the_half_a_bee

2016Convert wrote: »

Kicking myself now.

Don't. You have achieved something very good and have plenty of time to sort your pension out.

The fact that you could have achieved something slightly better had you known something different 10 years ago is of little relevance now.

justme111

Or it might have been something worse - you not going for a career change into better paying job because you felt pressure of heavy mortgage or you not being the same at work if you did not have mortgage free end in sight. Although pension results in larger numbers over lifetime mortgage free or similar results in more flexibility and more and warm fuzzy feeling which at the end of the day is an aim. Money is not an aim , it is means to an aim