Overpay mortgage or pension

Malthusian

andydownes123 wrote: »

Have to disagree with this. I wouldn't put all my hard earned into a pension pot that may not even exist for me in the future.

Unless you are putting your entire pension into Cape Verde storage pods or other unregulated scams there is no such thing.

I may not get to the point at which I can withdraw, not to mention pension companies changing terms or going 'bang' completely.

If a pension company goes bang then nothing has happened. A pension is not an investment, it is a wrapper for investments. If the company adminstering the wrapper goes bust the investments are still there. If you are using the kind of pension company that anyone here would have heard of, the likely outcome is that another pension company would take over your investments.

Pension companies cannot change terms retrospectively to the detriment of people who have already paid in, unlike the Government.

A healthy 30 year old is more likely to live into their mid-90s than die before late-middle age and drawing their State Pension.

Overpay into bricks and mortar - the only sure way of keeping your money reasonably safe. There will be future market crashes, but the prices always recover and then increase higher.

Exactly the same applies to diversified pension funds. Only diversified funds don't suffer permanent losses if the area you are living in turns out to be an uninsurable flood risk, or you have a new build that has insoluble issues, or the area you are living in suffers economic decline.

scrappy_doo1

100% I would clear my mortgage first ,after all it is your home .

Jjd1000

Overpay mortgage. If loose job you still need to but pension not. Plus my pension has decreased in value this year!!!

Kynthia

Jjd1000 wrote: »

Overpay mortgage. If loose job you still need to but pension not. Plus my pension has decreased in value this year!!!

The stock market doesn't only go up. When there are drops like there is now, your contributions each month are buying more units due to their reduced price. When the market recovers and prices rise you'll have more units to rise in value.

Malthusian

Jjd1000 wrote: »

Overpay mortgage. If loose job you still need to but pension not. Plus my pension has decreased in value this year!!!

If anyone still thinks that the "overpay your mortgage" side knows what they're talking about and the "pay into your pension" side doesn't, there is no helping them.

Fireflyaway

I'd concentrate on the mortgage. You will 100% need somewhere to live and not having a mortgage payment will mean a lot more cash free to do other stuff. The cost of living can somewhat be controlled ( where you food shop / how much energy you use / if you have a car etc) but you can't borrow a place to live.

Malthusian

Fireflyaway wrote: »

I'd concentrate on the mortgage. You will 100% need somewhere to live and not having a mortgage payment will mean a lot more cash free to do other stuff.

This is just as terrible advice as it was seven months ago.

By the time you have no mortgage payments, you will have missed out on significant amounts of compounded higher investment growth, and may have missed out on your opportunity to benefit from pension tax relief.

The cost of living can somewhat be controlled ( where you food shop / how much energy you use / if you have a car etc) but you can't borrow a place to live.

I really don't know what this is supposed to mean. The question is whether you should overpay the mortgage. The assumption is that you will own your own home and be rent-free in retirement regardless of whether you overpay the mortgage or put the money into a pension instead. Either way the mortgage is going to be paid off.

The question is purely about which gives the higher level of investment return; interest saved by paying off the mortgage before it is due, or diversified investments within a pension. Tax relief + low mortgage rates gives the pension a realistically insurmountable advantage.

MallyGirl

For many years I focused on paying off the mortgage. I did get to zero once but then bought a bigger house. Mortgage rates were high then (15% was my worst rate) so it did make some sense. I did always pay into a pension, and enough to always maximise the employer contribution, but it wasn't my focus. I carried on in the same way even when the mortgage rates fell. Then I finally did some reading and have changed my plan - because I didn't see the light till I was nearly 50 I am having to put a lot into my pension now to catchup and support the sort of retirement lifestyle I am seeking (plus retiring by 60 not 67).
I am salary sacrificing myself below high rate tax so that pension contribution immediately gains the boost from 40% tax relief plus 2% NI before I start investing - plus I get to earn £1000 in interest on savings before tax (instead of £500) and if DH earned less then it would probably get me child benefit again.
I wish I had wised up earlier.
If I have any outstanding mortgage balance by the time I retire I can use some of the 25% tax free element of the pension (which got its 42% boost on the way in) to pay that off

SandraX

Depends all on how old you are, size and length of your mortgage, income after tax.
EG, a friend of mine bought a property 500k plus stamp/etc near where we live. She
has a good job but mortgage of close to 400k, she was paying top wack into pensions,
so sensible thing for her was cut back on pensions and make overpayments
for the first fixed 5 year term, so if interest rates shoot up, she can increase the length next time
if required and her mortgage left should be close to 250k a much more manageable sum especially if interest rates shoot up - btw the couple have separate life insurances as well.

Purplyworply

Hi, I've been searching for the Pensions Board since reading this interesting thread but I can't find it. Would you have the URL? Thank you!