Is this a crazy idea?

Wellgood

Most people come on here and ask whether it is best to overpay mortgage or increase pension contributions.

What about releasing equiy/remortgaging and using this money to increase pension contributions. via AVC.Mortgage would probably be aroud 2.5%

Is this effectively a no -no as you shouldn't use debt to finance pension contributions?

My logic is if for example I paid in £8000
Tax gets added back = £2000. So total in AVC = 10,000
My AVCs also offer a guaranteed retutn of Around 9% i think but obvoously can't touch this until i am 58-60
Also get around 4000 increase in child tax credits as pension contributions can be taken off income for tax credits purposes

In summary . Paid in = £8000 . Get back 10k pension + 4k CTC = £14000
As i have DB pension i can get the AVCs out tax free as part of my 25% tfls as they combine db pot and avcs to calcjlate tfls

I'm thinking about this as i want to retire early e.g 58 -60 . Not because i want to make the most out of the system e.g Its not my fault that making extra pension contributions means i get more child tax credits or that. I can get the avc pot tax free as part of the tfls. Thats just the rules that are in place

Is this a crazy idea?

Bigmatt0811

Any half decent adviser will not endorse borrowing to invest. One of the key views of any adviser will be to reduce personal debt as much as possible.

On paper it looks a very good but the truth is it is risky so no adviser would endorse this.

Can I ask who the AVC is the is going to guarantee a 9% return?

Alexland

It really depends on your situation but in principle provided it is affordable and you have fully considered the risk profile then there is no fundamental reason you should not borrow for sensible long term investment, tax efficiency or take advantage of pension options.

The problem is that most lenders will not consider additional lending for those reasons. This leaves you the option of committing mortgage fraud (telling them a different reason) or finding another source of borrowing.

If you only need the borrowing to be efficient this tax year then consider a Zopa loan as they have good rates, no early repayment charges and accept the reason 'other'.

I did something similar at the end of last tax year:
https://forums.moneysavingexpert.com/discussion/5796919/extend-mortgage-to-fill-isas

Alex

Dox

A guaranteed 9% return? Are you absolutely sure? If 'yes', then given your thought process (which is rather better than many) it may be worth thinking about a short term loan to accomplish this - but as pointed out above, re-mortgaging isn't really the way to go.

Thrugelmir

Wellgood wrote: »

Is this a crazy idea?

What's the likelihood of being in well paid continuous employment until you've paid your mortgage off?

Nullboris

Dont negate "personal" disasters also .. you could go off the rails in any number of ways . divorce Illness and Burn-out can smash the best laid plans of women and men.
AVC's are from the Neolithic era arent they ??

Bigmatt0811

Nullboris wrote: »

AVC's are from the Neolithic era arent they ??

Nope they are still alive and well if you have a DB scheme where you want to add to your pension provision!

That tiny pension scheme with the NHS has AVC's!

Alexland

And many DC schemes use AVC terminology (and even ASC for additional swap contributions) to indicate a level of employee contribution above the minimum required for scheme membership.

Alex