Pension withdrawal to finish off mortgage

VikingWood65

Hi all, yet another financial idiot here. I have a final salary pension (1/60th) with around £600k in it 23 years worth of input. An MPS with about £100k in it (5 years contribution) and just started a new MPS with a new company (all 3 company schemes by the way) that i'm paying around £800 per month into. I am 52 years old and wondering what to do now with the 3 pots and also whether in 3 years time I could draw down on one of the 2 bigger pots to finish off my mortgage (circa (£75K). Sorry a lot of questions in there but glad of any help. I also need to find an IFA but terrified to get bad advice. Hence why i'm here first, Many thanks in anticipation. Mike

jamesperrett

The standard advice is to not use a pension lump sum to pay off a mortgage as current mortgage rates are lower than the growth you would expect from your pension investments.

atush

VikingWood65 wrote: »

Hi all, yet another financial idiot here. I have a final salary pension (1/60th) with around £600k in it 23 years worth of input. An MPS with about £100k in it (5 years contribution) and just started a new MPS with a new company (all 3 company schemes by the way) that i'm paying around £800 per month into. I am 52 years old and wondering what to do now with the 3 pots and also whether in 3 years time I could draw down on one of the 2 bigger pots to finish off my mortgage (circa (£75K). Sorry a lot of questions in there but glad of any help. I also need to find an IFA but terrified to get bad advice. Hence why i'm here first, Many thanks in anticipation. Mike

FS pensions dont have a value of 600K. They have a set of benefits they pay you based on your age, salary and number of years of service. More details are needed, or are you talking about a transfer figure?

What is an MPS? A DC pension?

xylophone

What is an MPS? A DC pension?

Perhaps money purchase scheme which is a DC pension.

xylophone

I have a final salary pension (1/60th) with around £600k in it 23 years worth of input.

A Final Salary Pension does not have a pot.

You have defined benefits.

Presumably a pension of 40/60 of your Final Pensionable Salary/spouse pension/benefits for dependants.....

GunJack

xylophone wrote: »

Presumably a pension of 40/60 of your Final Pensionable Salary/spouse pension/benefits for dependants.....

or in the OP's situation, 23/60ths...

kidmugsy

VikingWood65 wrote: »

An MPS with about £100k in it (5 years contribution) and just started a new MPS with a new company ... whether in 3 years time I could draw down on one of the 2 bigger pots to finish off my mortgage (circa (£75K).

One easy possibility is to draw the TFLS from the £100k fund, and pay off one third of the mortgage with that. Whether it would be wise to draw taxable income from it depends first on your tax position. Secondly, drawing taxable income from it would limit the amount you could contribute to pensions in future to £4k p.a., so you'd not want to do it lightly.

westv

jamesperrett wrote: »

The standard advice is to not use a pension lump sum to pay off a mortgage as current mortgage rates are lower than the growth you would expect from your pension investments.

I thought paying off a mortgage was one of the suggested uses of a lump sum but that pension contributions were more useful than mortgage overpàyments.

dunstonh

westv wrote: »

I thought paying off a mortgage was one of the suggested uses of a lump sum but that pension contributions were more useful than mortgage overpàyments.

I give up. Not with you before you draw your dagger. It just made me think of a case we had third party checked recently.

We all know the guide rule that you should pay expensive debts off before investing. That case I mentioned saw the person take the 25% to clear some short-term debts and the mortgage to allow them to have the budget to semi-retire without taking any income from the pension.

The third party checker (who are the type the FCA use when checking cases) said that they didn't feel that using the 25% to pay the debts was ideal but instead they should look at refinancing and that loans at 15% APR were more affordable than the cards they held. As if a cautious investor looking to semi-retire can afford to take on a personal loan repayment at a rate that is more than double the investments are likely to make. This guy wanted to semi retire. The point of his pension was to allow that. Clearing the debts allowed it. Not taking on different ones.

It made me so frustrated at the time that you are told don't invest when you have those expensive debts. Yet are told that you should not take the investments to reduce the debts.

If this person was looking to invest the equivalent of the 25%, the first thing that checker would say is why isn't the loan/credit cards being paid off first. So, why doesn't it work both ways?

Back on to your point. It all comes down to the objective and which is likely to be best. Mortgages are cheap and in most cases at lower interest rates than the long-term returns on most pensions. So, if you are not retiring but want to use the pension early to clear the mortgage it doesn't really make sense to do that. However, if you are retiring and want to reduce your expenditure and clearing the last bit of the mortgage will help make that retirement affordable then its fine.

atush

xylophone wrote: »

Perhaps money purchase scheme which is a DC pension.

Yes, have seen it as MP but never MPS.

Anyway, she doesnt have a pot of 600K, she has a DB pension.

Peter314

atush wrote: »

Anyway, she doesnt have a pot of 600K, she has a DB pension.

‘Mike’..?!