Pension or Mortgage?

justme111

jonnygee2 wrote: »

Sorry, I was using monthly income figures, derived from your statement that your DB schemes are worth £6400 a year and DC scheme £15,000 a year, producing a 21k / year income, about £1500 a month.



This, in your situation I think overpaying the mortgage would be fine. Your pension seems enough, even to retire a bit earlier (it's already pretty much to live off, if your outgoings are reasonable).


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I think you mistaken the DC pot size (15k) for the annual income. At least I read it as 15 k pot size , not 15 k annual income - with DC pension the figures are about pot sizes, not annual income usually.

JillyC8

Yes the £15000 is the current pot size...

kidmugsy

As long as you have a suitable emergency cash fund, then I recommend market timing in two senses.

(i) Equities in the US are very expensive - a crash or slide there might cause the same elsewhere. I'd overpay the mortgage for the next two or three years and then revisit the question.

(ii) In that time span you will pass 55 and therefore any money paid into a pension is not tied up - you can access it. I'd be happier paying into a pension knowing I could get it back if required.

One thing that might make me hesitate is if your DC contributions benefit from Salary Sacrifice (aka "smart pension" or "salary exchange"). But I think I'd still plump for my strategy of overpaying until aged 55.

And (who knows?) maybe basic rate taxpayers will get a larger tax rebate in a few years time.

JillyC8

Thanks all for your input.

mark55man

noting all the above with interest, I think I certainly wouldn't do in a hurry is take your tax free 25% out of your DC fund and pop it into the mortgage as you would certainly expect better performance over 12 years (until 67) so if youhave to do it it is most likely to do it then and pay more off. If you take more than the tax free element from your DC fund then the amount you can contribute tax free in the future to the pension will be limited to 4K (not 40K)

secondly you may get a lump sum from one of you DB schemes (but be careful about commuting future income to get a lump sum as the rate at which you can do that is normally not great.). If you get this lump sum (eg £8K to use the example above) it would still be better to pay it into your DC as you will get 20% uplift from the government and the chance of greater growth

JillyC8

What would be the approximate 'pot' or transfer value of a DB pension? Is there a formula?

justme111

You would have to ask your DB pensions to produce transfer values for you.
What would you intend to do with that money if you were to take it ?
So your take home pay would be 25 k take away pension contribution - or any other payments like trade contributions? So how much are they? If 2% then about £500 a year I guess. So it leaves 24.5 k. Then you probably pay about £600 in mortgage/month - take away £7 k roughly/year= 17.5 k. Any other expenses related to work that you will not have in retirement? Commute etc costs? Subscriptions? How much do you spend on children ? What percentage of food , bills, entertainment and other costs of yours are theirs? Deduct those as well. Any other income - benefits, child support, maintenance? - add those. The the remaining figure is going to be what you will roughly need when you retired.
Keeping in mind you already have about 7k in DB pensions + state pension you may not need to worry that much.

Oliver1191

If I were in your shoes, i'd chuck it all into a pension.

Remember, you get tax relief and compounded growth as discussed on this thread. Given your age, you'll pretty much be able to access your pension at any time, if you need it.

It's worth keeping in mind that no one knows the future. On this basis, putting it into your pension gives you more options in the future.

You may choose to do a phased retirement. So, you may have enough income to cover all your costs anyway.

What hasn't been mentioned is life expectancy. Hopefully, you'll have 30+ years to enjoy when retired. Just because you can pull your private pension, it doesn't mean you have to. You may just leave it sitting there, growing. You may choose to pull some out every now and then when you need it or when you want to treat yourself. So you haven't got 10 years left for the pension - you've got decades of growth time.


If you put the extra money into your house, do you limit your future options?

atush

100 into a pension will cost you 80.

100 into a mtg will cost you 100.


By all means put something extra into yor mtg if yu want, but TR means a pension is the best bet overall

kidmugsy

atush wrote: »

100 into a pension will cost you 80.

Everyone says that but it's only a half truth. To get the money out again you currently pay 20% tax on 75% of it, so the equivalent of 15% tax on the lot. That is, your 100 shrinks to 85.

And if the basic rate of income tax were increased to a little over 25% then your hundred becomes 80, where it started.