Salary sacrifice - is this a good idea for me

MallyGirl

I was focused on paying off the mortgage for a long time but I regret that approach now. There is certainly something to be gained by bringing down the loan to value ratio but once it is less than 50% there aren't really any benefits, in rate terms, to dropping it further. As a result I am now contributing 50% of salary (plus employer puts in 10%) as I want to retire by 60 and I am 51 - major catch up mode!
Don't forget that you can take 25% of your pension as a tax free lump sum in the future which could be used to pay off the mortgage.
I now Sal sac myself down to avoid paying 40% tax which has other benefits - tax free interest on savings of £1000 rather than £500 for example. If you have kids in the future you can both Sal sac down below £50k (if earning above) to keep qualifying for child benefit.
The more you understand about this now the better prepared you will be in the future.

TARDIS

Depending on your mortgage interest rate and the lone to value you're aiming for to remortgage you may be mathematically better off putting more in your pension whilst interest rates are low.

That said many people prefer the psychological benefit of paying their mortgage off sooner.

There's also nothing stopping you doing both!

crv1963

As someone considerably older than you OP, I would look to do both aims overpay mortgage with the aim of a better LTV rate but also more into the pension to facilitate earlier retirement.

Life throws lots of curved balls at you, having a balance between mortgage overpayment and pension may serve you well. We're in the position similar to Mallygirl of throwing everything we can at Mrs CRV pension to play catch up. Even if we'd made different choices 10 years ago we would not be having to run as hard as we are now.

Well done you for looking at it all in your 20s!

kaycastle

Thank you @mallygirl @tardis and @crv
You've all given me so much to think about. I haven't posted for advice before but this has definitely encouraged me to be less passive on here in future! I think since I managed to save enough to buy a house and excelled my career I've got complacent.

Thanks for the compliment and advice crv - I'm going to start a diary on mortgage free wannabes now so I can hold myself a bit more to account on my decisions and get help - as I think I could be doing better.

Thrugelmir

MallyGirl wrote: »

I was focused on paying off the mortgage for a long time but I regret that approach now.

Never justify something on the basis of hindsight. If investing were that easy and predictable everybody would be rich effortlessly. Endowment mortgages failed for the very reason that actual market returns failed to match expectations. You'll find over time that fads will come and go in cycles. Always be a new generation that have no prior knowledge.

pensionpawn

kaycastle wrote: »

Thank you Dox. It doesn't seem to be a huge difference then. It was useful to get someone else's opinion on it as I haven't paid much attention to my pension yet - more been focusing on overpaying mortgage. I feel like I've learned so much more on pensions from my readings this morning bleh haha. Thanks again!

Personally I would throw the amount you overpay the mortgage into the pension instead. Why, if you use the pension tax free lump sum to repay your mortgage you are effectively getting the government to chip in 20% That's a nice thought! Also, besides the usual variance in mortgage rates, unless you increase your mortgage, repayments are eroded by inflation. Not to mention a larger pension too.

kaycastle

pensionpawn wrote: »

Personally I would throw the amount you overpay the mortgage into the pension instead. Why, if you use the pension tax free lump sum to repay your mortgage you are effectively getting the government to chip in 20% That's a nice thought! Also, besides the usual variance in mortgage rates, unless you increase your mortgage, repayments are eroded by inflation. Not to mention a larger pension too.

Interesting thought, I must be affected by the psychology of paying off mortgage

My thinking is that if I'm overpaying the mortgage that is definitely reducing my term and increasing my LTV in the future which takes a way the biggest outgoings for us, if something happens as we get older if I've got a very low mortgage/practically paid off we will be a bit more secure - because I'll only get the tax free lump sum when I'm 55. And if I don't have to use it to pay off my mortgage I can use it on other things too.

I actually think I *might* be able to match what I'm overpaying and throw it into my pension and do both - especially as I put away £650 in savings each month for house improvements.

MallyGirl

Doing both is a great idea

pensionpawn

crv1963 wrote: »

As someone considerably older than you OP, I would look to do both aims overpay mortgage with the aim of a better LTV rate but also more into the pension to facilitate earlier retirement.

Life throws lots of curved balls at you, having a balance between mortgage overpayment and pension may serve you well. We're in the position similar to Mayygirl of throwing everything we can at Mrs CRV pension to play catch up. Even if we'd made different choices 10 years ago we would not be having to run as hard as we are now.

Well done you for looking at it all in your 20s!

Agree entirely. We sort of overlooked the importance of Mrs P's pension however on returning to work after a 10 year maternity break and eventually moving into a job which where her employer matches pension contributions up to 10%, for the last couple of years we have been skewing our family finances to throw as much into her pension as possible. Why? So that she can at least draw her personal allowance each year in retirement. Having £25k tax free between us as a baseline is our goal. I can easily cope with the idea of paying mortgage repayments through retirement that dwindle with age, I can not cope with the idea of having to work until 67 and just living on a modest uplift to the state pension.

pensionpawn

kaycastle wrote: »

Interesting thought, I must be affected by the psychology of paying off mortgage

My thinking is that if I'm overpaying the mortgage that is definitely reducing my term and increasing my LTV in the future which takes a way the biggest outgoings for us, if something happens as we get older if I've got a very low mortgage/practically paid off we will be a bit more secure - because I'll only get the tax free lump sum when I'm 55. And if I don't have to use it to pay off my mortgage I can use it on other things too.

I actually think I *might* be able to match what I'm overpaying and throw it into my pension and do both - especially as I put away £650 in savings each month for house improvements.

I understand the psychology of paying off debt, and the 'peace of mind' that being mortgage free must be. However, the closer you get to being able to access your mortgage the more compelling it becomes to divert all excess into your pension. That said, as mentioned by others, time is your friend and the more you can put in earlier the better off you will be in retirement. However, please do live in the moment as tomorrow is never promised, as my father would say.