Pension Options Advice at 29 years Old

Trundley27

Hi all.
I was wanting some Pension advice from all you Pension Experts!

I am a 29 year old male, have one 2 year old daughter living with my long term partner.
We bought our house 4 years ago (Life type home) refurbished most of the house, a lot of work undertaken myself so saved a fortune.
Current mortgage debt £111,000 and remortgage April 2019. Have been making over overpayments the last 4 years on and off. Original term 35, now 29 years.
I will be making a lump sum overpayment at the end of this year before re-mortgaging and intend to reduce term to 14 years with overpayments pay mortgage off in 10 years at age 40!
Sooo, I have been with my current employer 13 years, I am a Mechanical Engineer and have paid into company pension for 9 years at 5% Personal and 5% employer Contributions.
Current Pension value is £20,000,I have increased my contribution to 7% (June) and intend to use the 'pay rise trick' from now (Will increase to 9% in February 2019) until I pay mortgage off. Hopefully will be up to 15% or 16% by then.


Do I when the mortgage is paid off increase my personal contribution massively to say 20% to 25% in view of retiring 55 or 60 and put money into ISA's also? is this a good idea?

I Know 10 years is a while off but I want to put the ground works in now to reap the benefits later! Might be a engineer thing.....

Cheers all look forward to your thoughts!

Dox

Before deciding where to save, think about why you are saving. If you're a higher rate taxpayer, the advantages of pension contributions (and the allied tax relief) score highly - but can't normally be accessed before the age of 55 (and that's likely to rise before you get there). ISAs give you ready cash in case of emergency - the proverbial 'rainy day' fund.

Revisit your thinking as you get closer to paying off your mortgage and/or have more cash you can afford to tie up longer term.

Got any life cover? If not, that's certainly worth thinking about given that you have a partner and a very young child - ditto wills for you and your partner.

dunstonh

Are you a higher or basic rate taxpayer?

Do I when the mortgage is paid off increase my personal contribution massively to say 20% to 25% in view of retiring 55 or 60 and put money into ISA's also? is this a good idea?

Or perhaps do it earlier as the pension returns are almost certainly higher than the interest you are paying on the mortgage.

You are way behind on an objective to retire at 55. So, it will need a serious jump in contributions.

Trundley27

Thanks for your replies. I am posting on two threads here due to my first post mistake I made!


I am not a high rate tax payer but have a decent salary/annual bonus and I am very frugal and careful with money!

Sorry for the title thing, just getting used to how this forum works and posted without changing title!

So looking at this from a slightly different angle, would it be worth if I re-mortgage into a new deal and bring my term comfortably down to 14 years from 29 years, instead of overpaying on top of this new term to pay the mortgage off in 10 years I should use this (Overpayment money) to pay more into my pension AND into S/S ISA's and, ISA's or Bonds.

I know I can get the mortgage down to around 1% interest rate on a 2 year deal then I would need to re-mortgage again. But this is no problem, I just don't no what to do for the best. Overpay on new reduced term deal or divert this payment into pension and savings?...!!!8230;!!!8230;..


I like the point that investing in the pension gives more maturity over time etc etc.


I do consider myself in a sound financial position given my age, but my grandad always said put the foundations in early and strong and they will last a lifetime!

cloud_dog

Just a comment regarding re-mortgaging and bringing the mortgage term down. My preference in finances is flexibility so, by all means overpay the mortgage, re-mortgage to a better deal, or even a smaller term but you may want to consider keeping a longer term that 14 years just in case of possible future bumps in the road.

AnotherJoe

WHat cloud dog says. rather than commit yourself to a 14 year mortgage, go for a shorter one by all means and overpay as appropriate . That avoids teh situation where financial hard times are there and you are stuck with high payments, rather than just dropping voluntary overpayments with no fuss or hassle.

Next point, one of the main things about a pension or indeed any investments, is time. You are much better off by getting pension contributions in early.

Next, as already said, paying into a pension is more financially rewarding but it is a comittment and in particular there is a lock in until age 55 or whatever it rises to.

So, if you intend to retire earlier than say 60, you need soemthing to bridge the gap. A LISA or ISA is one way of doing that. And, FWIW merely paying off your mortgage wont cut it.

But either way, pension or ISA, will beat out mortgage. Your mortgage is probably 2% or so. Thats less than inflation. Left long enough inflation is partially paying off your mortgage. Left long enough investments (be that pension or ISA or LISA or some combo) will outstrip your mortgage and inflation. The key phrase being "left long enough". By planning to back end load those investments by paying off mortgage first you are losing out on one of the key reasons they are so powerful, compounding.

kidmugsy

If your pension contributions aren't escaping higher rate tax then I suggest that you don't tie up any more money in pensions once you've got the maximum employer contribution. The exception would be if you can use salary sacrifice (sometimes called 'salary exchange' or 'smart pension').

Instead I suggest you use S&S ISAs and then when you can get a higher rate of tax rebate move investments from the ISAs to pensions. (This applies whether the higher rebate comes about because you get large pay rises or just because the government of the day reforms the rebate system.) This policy both preserves flexibility and offers the hope of higher returns.

With the nipper and her mother in the house you should, as was recommended above, consider insurance. Term life insurance is cheap. You might also like to consider these other two; they may not be for you but I think you should consider them:
http://monevator.com/do-you-need-income-protection-insurance/
http://monevator.com/family-income-benefit-the-forgotten-policy/

atush

What is your mtg rate? And your LTV?

I think in general, investing in both S&S isas and pensions are better than overpaying at todays low rates. But your circumstancs might be different.

At your age I would not cut the mtg term further, instead remtg at the same no of years you have currently.

Trundley27

It all gets very confusing, because your first instinct is to pay off the mortgage as its the biggest debt! At the moment around £35,000 LTV between owed mortgage and house value.

Can someone enlighten me on these S/S ISA's, I have had a look and I have seen you can invest £25 per month via standing order, is this a good way to start saving into this type of Isa? Or do I defer my lump sum overpayment into S/S ISA's and bonds and regularly save into these? I don't want to just slam a sum of money straight into S/S Isa.

At the moment the mortgage is fixed for 5 years with 11 months left to re-mortgage, at 5%.

Or do you re-mortgage on 29 years have lower monthly payments and increase savings and pension contributions? I thought I had a good plan to rid myself of the mortgage but I'm thinking otherwise
now!

Everyones ideas are taken on board and i really appreciate it, i will absorb all this!

Trundley27

I have decreasing mortgage term, with critical illness both me and my partner. She works also. But I have never fully understand this type of cover you mention or trusted it, but I appreciate all the information.

cloud_dog

Trundley27 wrote: »

At the moment the mortgage is fixed for 5 years with 11 months left to re-mortgage, at 5%.

Ouch.

What are the charges for existing early? You appear to be in the last year of a 5 year deal. Bottom line is to work out if, financially, is it more advantageous to re-mortgage, say 2%, with lower repayment costs now but incur an exit penalty.

You'd need to do the maths.

Can you confirm how much an early exist penalty would be, i.e. 1% of the amount outstanding or a fixed cost?

EDIT:

Trundley27 wrote: »

Or do you re-mortgage on 29 years have lower monthly payments and increase savings and pension contributions? I thought I had a good plan to rid myself of the mortgage but I'm thinking otherwise now!

The two are not exclusive. You need to work out the finances for a re-mortgage so as to be on the best deal possible and then consider what term you want it on. And, then consider if that allows you the overpayments etc that fits your requirements.