Overpay into DC pension?

JillyC8

I've posted on here a lot about my pensions as I want to maximise what I can take at 55 to pay down my mortgage as much as possible.

Being that, of my three pensions, only one is a DC and the other two are deferred DBs, would it be more sensible to pay as much into the DC pension every month in the next two years to maximise the 25% I can access from it at 55? I currently have a pot of £17000 and paying in around £200 a month (combined employer/employee contributions).

I would like to pay as much off my mortgage as I can.

Thanks

xylophone

It is likely that the DB pensions are not payable without actuarial reduction until age 60/65.

Therefore it would make sense to pay as much into your DC pension as you can to take advantage of the tax relief.

Currently you would be able to access that pension from age 55 and could use the PCLS to pay down the mortgage.

Have you obtained a state pension forecast to help with future planning?
https://www.gov.uk/check-state-pension

JillyC8

Hi, yes I have a state pension forecast; I have two more years to contribute to reach maximum.

One of my DB pensions is very small with a current CETV of £14000; the other option was to cash that one in, either instead of, or with 25% of my DC pension. I want to reduce my mortgage as much as possible as money is tight from month to month.

Albermarle

One of my DB pensions is very small with a current CETV of £14000; the other option was to cash that one in,

Normally on this forum it is advised to keep DB pensions and not cash them in or move them.. However this is rather small and below the £30K level where you would have to take financial advice. So could be a good option, However you can not just cash it in but would have to transfer it to another pension provider , presumably the DC pot you already have . So at 55 you would have a bigger DC pot of which you could take 25% tax free.

JillyC8

Albermarle: this sounds like a good option, then at least two of my pensions are consolidated ... the small DB is forecast to only pay out around £1200 a year at 65 so not one I think I need to keep hold of especially ... I paid into it when I worked part time for a few years in the 2000s and the value now is only £700 so I think this would be a good option.

bluenose1

Does your employer offer salary sacrifice for D.C. contributions. If so I woukd definitely increase my D.C. pot as for every £68 your salary reduces £100 is put in your D.C. pot. How much you will have to pay tax on when you withdraw will depend on whether you have used up all your basic allowance. Though 25% of your total pot won't be taxed at all.

I am 53 in a couple of months and saving to retire at 55. Will be taking my DC pot and my DB pensions from 55 as when I have worked it out would be my mid to late 70s before worse off and I want the money while I can enjoy it. Plus SP kicks in at 67 so less of a need.
Have spent hours looking at the figures and options. Cannot wait to retire.

xylophone

Will your current provider accept a transfer in? Some are twitchy about accepting transfers from DB pensions, however modest the CETV.

JillyC8

Bluenose: I'm not sure if my works pension is salary sacrifice - I'll look into I think but I doubt it ... it's a standard pension run by Aviva.

I'd like to work part time at 55 but I think the only way I could do that is to take as much as possible from all three pensions at 55 and the years following ... but all I read is to leave the pensions alone. I'm much in the same mind as you and would prefer to have the money earlier ... how will that leave you when you start to get state pension? Do you have other money you could use to supplement it?

JillyC8

Sorry don't mean to be nosey just trying to get perspective ...

Also will that mean you'll be hit with a big tax bill when you take your pensions?

Thrugelmir

What funds are you investing in? While the 25% TFLS is attractive. Investing should be viewed as long term. You may find yourself disappointed with the market value when you reach 55. There's no harm in overpaying your mortgage. Leveraging with debt against investing is a double edged sword. While there's huge upside , there's a very real possibility of a huge downside.

bluenose1

JillyC8 wrote: »

Bluenose: I'm not sure if my works pension is salary sacrifice - I'll look into I think but I doubt it ... it's a standard pension run by Aviva.

I'd like to work part time at 55 but I think the only way I could do that is to take as much as possible from all three pensions at 55 and the years following ... but all I read is to leave the pensions alone. I'm much in the same mind as you and would prefer to have the money earlier ... how will that leave you when you start to get state pension? Do you have other money you could use to supplement it?

My DB pensions if I take at 55 will be approx £8,000 per year and my SP at 67 £8000 so I reckon from 67 I am fine income wise. And that's not even counting my husbands pensions.
You need to ask your DB Pension provider what the actuarial deduction will be if you take at 55.
Very roughly for one of my DB pensions it was £6k at 60 and £4,740 at 55. Therefore between 55-60 I will receive £23,700. Divide this by the annual reduction of £1,260 from age 60 = 18.8 years. Now even if you say with inflation etc this will be reduced to maybe 17 years and take into account my lump sum reduced by approx £3k, so call it 73ish before potentially worse off.
I will take that to finish work 5 years early at 55. Don't think I could last until 60.

Although my DB pensions are £8k I will have a D.C. pot to drawdown and I also have rental income from a couple of properties.