Using Pension Pot to pay off mortgage?

atush

Or move 25% into low volatility funds (possibly wealth preservation like RIT) or even if a sipp 25% to cash (as sipps tend to have better cash options than other pension types)

ConfusedWithInvesting

Hi All,

Thanks for the discussion and opinions here. Really interesting.


I am still not sure what I intend to do is the right thing.. and so comments/feedback is highly appreciated l.


I am 48 years old with v large mortgage (400k outstanding! and 23 years to go), high tax payer..with 400k in pensions fund so far.

Like many here, I believe the mortgage interest (I am in 2% fixed for another 3 years) is cheapest at the moment and not much benefit in paying off the mortgage early.

I am contributing a lot to my Company Pension(i via salary sacrifice) at the moment with the hope to withdraw 25%Tax free at 55 years.

What i was intending to do is take off 25% Tax free from my pension fund at 55 and reduce the mortgage as much as possible. (Let say my pot will be over 500k in another 7 years)!

I have started Stock and Share ISA in 2019 and 2019 was an impressive year for the funds(growth in excess of 20%) . Not sure this is something to count on in future years.

But I am confused from the opinion here.

I understand the 25% withdraw from pension is tax free (even if I am working)??
Please comment if I am wrong here.


So at age 55,! Should I try to reduce the Mortgage with my 25% tax free pension OR continue to invest in the Stock and Share ISA well beyond 55years?

If I should continue investing in S&S ISA, beyond 55, when is it right time to pay off the.mortgage?

Or there is completely different way of looking at planning the finances for the future?

atush

ConfusedWithInvesting wrote: »

Hi All,

Thanks for the discussion and opinions here. Really interesting.


I am still not sure what I intend to do is the right thing.. and so comments/feedback is highly appreciated l.


I am 48 years old with v large mortgage (400k outstanding! and 23 years to go), high tax payer..with 400k in pensions fund so far.

Like many here, I believe the mortgage interest (I am in 2% fixed for another 3 years) is cheapest at the moment and not much benefit in paying off the mortgage early.

I am contributing a lot to my Company Pension(i via salary sacrifice) at the moment with the hope to withdraw 25%Tax free at 55 years.

What i was intending to do is take off 25% Tax free from my pension fund at 55 and reduce the mortgage as much as possible. (Let say my pot will be over 500k in another 7 years)!

I have started Stock and Share ISA in 2019 and 2019 was an impressive year for the funds(growth in excess of 20%) . Not sure this is something to count on in future years.

But I am confused from the opinion here.

I understand the 25% withdraw from pension is tax free (even if I am working)??
Please comment if I am wrong here.


So at age 55,! Should I try to reduce the Mortgage with my 25% tax free pension OR continue to invest in the Stock and Share ISA well beyond 55years?

If I should continue investing in S&S ISA, beyond 55, when is it right time to pay off the.mortgage?

Or there is completely different way of looking at planning the finances for the future?

i
t is a wait and see really, to see the size of the pot and your interest rate at the time. in the mean time pie as much into ensions and s&S isas as you can

888VVV

ConfusedWithInvesting said:

Hi All,

Thanks for the discussion and opinions here. Really interesting.


I am still not sure what I intend to do is the right thing.. and so comments/feedback is highly appreciated l.


I am 48 years old with v large mortgage (400k outstanding! and 23 years to go), high tax payer..with 400k in pensions fund so far.

Like many here, I believe the mortgage interest (I am in 2% fixed for another 3 years) is cheapest at the moment and not much benefit in paying off the mortgage early.

I am contributing a lot to my Company Pension(i via salary sacrifice) at the moment with the hope to withdraw 25%Tax free at 55 years.

What i was intending to do is take off 25% Tax free from my pension fund at 55 and reduce the mortgage as much as possible. (Let say my pot will be over 500k in another 7 years)!

I have started Stock and Share ISA in 2019 and 2019 was an impressive year for the funds(growth in excess of 20%) . Not sure this is something to count on in future years.

But I am confused from the opinion here.

I understand the 25% withdraw from pension is tax free (even if I am working)??
Please comment if I am wrong here.


So at age 55,! Should I try to reduce the Mortgage with my 25% tax free pension OR continue to invest in the Stock and Share ISA well beyond 55years?

If I should continue investing in S&S ISA, beyond 55, when is it right time to pay off the.mortgage?

Or there is completely different way of looking at planning the finances for the future?

Hi ConfusedwithInvesting
I'm in a very similar situation to you (the numbers are almost the same too) - and have been giving this situation a lot of thought the same as you.  I'd be interested in others views but my logic goes like this.
1.  About 5 years ago, in my early 40's I realised I'd be in the position of having a large mortgage at the time I wanted to retire (about 55-57).  The mortgage payments would be a significant hinderance to me retiring (or more likely, earning money in a different way on my own terms).
2.  So, back then - my thoughts were what is the best vehicle I have to build up a large capital sum as quickly as possible.  The answer I came up with is my pension.  I can put into it from my gross pay (which is a massive boost), I can take 25% of it tax free, and my employer also contributes.  I value others opinions but surely for higher rate tax payers, there is very little you can do with your post-tax salary that beats this as a vehicle?
3.  So my aim has been to build up my pension as much as possible in the last 5 years, totally maxing out my contributions so that my 25% tax free sum is big enough to clear my mortgage, and I'm still left with a sizeable pot to use for income drawdown.

For me, the fact that I can shift to earning money in a different way after clearing the mortgage trumps marginal discussions about interest rates between mortgages and savings/investment rates.  Its such a game changer that its worth it.

Would love to hear other thoughts - especially any flaws in my plans!!

Mutton_Geoff

888VVV said:

Would love to hear other thoughts - especially any flaws in my plans!!

If you were in your early 40's 5 years ago and want to retire age 55-57, that is approx 10 years from now? You say you want to pile into your pension in the last 5 years. The flaws I see are:

1. Pensions are usually investment vehicles and 5 years is probably not long enough to see out a market crash. You would be better off loading the pension now because you'll have the benefit of more compounding and time for market recovery.

2. High pension contribution rate. How high is high? You are currently limited to £40k a year.

3. Changes in tax rules. I predict the PCLS tax free element will be capped in the future at some low figure like £30-50k rather than 25% of the LTA it is now. Even at current limits with an LTA of £1,073,100, the tax free cash is limited to £268,275. Is your "large mortgage" equal to or smaller than that figure?

If your income supports it, you could max your pension contributions and make overpayments to your mortgage so that there would be residual PCLS for you to enjoy on retirement. And learn not to be worried about mortgages into retirement especially in these low interest times. I'm always surprised by the high interest on the "Mortgage Free Wannabe" board since a properly managed, low interest, mortgage is nothing to fear.

As always, make sure expensive debt is cleared before saving. These forums are full of people who have a pot of (low interest bearing) savings at the same time as running credit card debt and buying cars on expensive loans.