Pension contributions as repayment vehicle for mortgage. Feasible?

MK62

Thrugelmir wrote: »

For many it's the security of their employment in their latter years that's the determing factor.

Determining factor for what though?....;)

Thrugelmir wrote: »

Losing your job when you are over 50. Can have a life changing impact on ones finances.

Very true.....in fact losing your job at any age can have a life changing impact on your finances, though I'd agree it's harder to recover from if you are over 50....

bostonerimus

dunstonh wrote: »

Or alternatively, use a sensible asset allocation (which may be upto medium risk) but use a low target growth rate.

If we look back at endowments, which is what the OP is proposing in a roundabout way, its not that the underperformed. Many have done very well for the risk level they took. The problem was they were mostly invested at cautious to medium risk with inappropriate target growth rates for that level. i.e. they have achieved 5-7% p.a. returns over the term but the contribution rate was set on the basis of them needing 8-13% p.a. to hit target.

Agreed, a realistic level of expectations and sufficient deposits is vital. If the OP takes the pension solution then they must keep investing and monitor progress. Gaps in contributions if they are ever unemployed could become a serious problem when the certainty of principal pay off is coming. My personal philosophy when it comes to the roof over my head is to be conservative. I would only ever finance with a repayment mortgage and would avoid any endowment type approach.

MoneySavingUser

atush wrote: »

as a HRTaxpayer I would pay 100% of all of your Annual allowance that isnt covered by the 22% paid now. You can pay 40K pa, plus you can claw back unused alowance fromt he past 3 years. Only you can owrk this out, so do and tell us.

Don't forget that employer contributions also count towards the £40k and for very high earners (£110k+) the allowance may be tapered.

I would be tempted to go the pension route - but remember only 25% comes back out tax-free, you have to pay tax on the rest at your marginal rate

edit: the £40k is also a gross figure, so gross up if you pay in net

edit 2: if you do pay in net and the additional 20% tax relief is via your tax return, then you could use that tax saving to also overpay a little bit

atush

pinklady21 wrote: »

Thank you everyone who has been kind enough to reply. This has given me a lot of food for thought.
It is indeed similar to the old "endowment" route in many ways, and the hope that in this case the investment vehicle of the pension will grow sufficiently to do two things - be able to pay off a large lump sum at some point within 15 years, and provide a decent income in retirement.

I need to confirm more details about my current pension pot - what is its value, how quickly it is growing, and what difference an additional £500 a month AVC might make.
Although of course these are all best guesses, as I agree, we live in very uncertain times.

I simply took the employers' recommendation on asset allocations, so probably medium risk, but I am also ashamed to say I do not actually know if the pension is DC or DB which is kind of shocking given how much money I have invested in it!

I have another question:
Am I correct to assume that once I reach 55, I can then draw out up to 25% of the pension pot? Is this tax free?
Can this only be a one off - or can I subsequently make lump sum withdrawals?
Assuming I am still in employment, do I also have to retire at that point, or can the pension keep going even though the pot is reduced?

Thank you - and apologies to the pensions experts for my lack of knowledge!

We cant really answer unless you tell us what type of pension it is. DC/Money purchace- ie you put money each month, and it is invested in pension funds within your pension that you generally choose. Or DB and it is based on your final or carreer average salary and the number of years you work for them and is a guaranteed amount. It isnt open to the movement of markets.

So if you say who you work for, that would help. Otherwise you get out yoru latest statement and read it to us in general. Or call HR and ask.

Wih DC pensions yes you can take a TFLS at age 55, and leave the rest for drawdown. Some will even allow you to pay more in. but if you take a penny over the 25% TFLS then your annual allowance drops from 40Kpa or your salary to 4K pa.

With a DB pension, you can take it at age 55 in many cases, but they have to agree and it will be reduced by a set amount per year and your could lose 50% of it or even more. And once you take it, in most cases you cant pay in more.

If you have a DB pension you can also have AVCs in addition to your DB. These are more like DC pensions.