HELP - Additional pension contribution or pay off mortgage?

vanbel

Grateful for any help with optimising my finances on retirement.


Confused at to my best option. I am very lucky to have some disposable income (£6-700) and don't know how best to invest this. I am currently 46 and want to retire at 55. Should I

1. pay off my mortgage - home and/or buy to let
2. purchase additional service credit (years) in my final salary pensions scheme (I am very lucky I know!) or
3. purchase AVCs

My current situation is:

• No savings to speak of.
• Home mortgage - £182,000 @2% = £950 p/m
• Buy to let mortgage - £150000 @3% on property worth £400000 = £400 p/m
• Personal Income - £56,000 (£3000 p/m net)
• Wife income - £40,000 (£2300 p/m)
• Buy to let income - £2500 £2500
• Final Salary Pension - 9.5% personal contribution. 25.9% employer contribution. 1/62.5s payout. I currently pay £426 a month by salary sacrifice. Have been told that cost of purchasing 1 year additional service credit will cost £56 a month and will pay out £256 a year if I retire at 55.

Just not sure what to do. Any advice? Thanks

GunJack

First thing would be to build a cash emergency fund if you don't have one...

AnotherJoe

vanbel wrote: »

• Final Salary Pension - 9.5% personal contribution. 25.9% employer contribution. 1/62.5s payout. I currently pay £426 a month by salary sacrifice. Have been told that cost of purchasing 1 year additional service credit will cost £56 a month and will pay out £256 a year if I retire at 55.

Just not sure what to do. Any advice? Thanks

So £672 (£56 x 12, which after tax will cost you about £400 a year), will buy you £256 a year for life from age 55? So after 2 years you'll be up. Or that same £400 after tax will save you £8 a year on your mortgage? hmmm tough choice .... not !

Why are you even asking?

vanbel

Thanks AnotherJoe but Im a bit confused. . You say I'll be up after 2 years but £400 a year (after tax) will cost £3600 and it will take about 14 years to make this up if I get £256 a year for life from age 55? Is this still better than AVCs?

kidmugsy

vanbel wrote: »

Have been told that cost of purchasing 1 year additional service credit will cost £56 a month and will pay out £256 a year if I retire at 55.

£56 per month for how long?

Thrugelmir

vanbel wrote: »

[*]Home mortgage - £182,000 @2% = £950 p/m

How long does your 2% rate last for? Certainly be a factor in my thinking.

AnotherJoe

vanbel wrote: »

Thanks AnotherJoe but Im a bit confused. . You say I'll be up after 2 years but £400 a year (after tax) will cost £3600 and it will take about 14 years to make this up if I get £256 a year for life from age 55? Is this still better than AVCs?

Ah, possibly my bad, I read it as for one year. Is this every year until you retire at 55 ?in which case how many years ? Are you 41? Hence the 14 years ?

atush

I would first build savings to 3 to 6 months outgoings.

Then split the cash between pension, cash and mtg.