Pension Advice/Evaluation

Whiterose23

I'm not in the same league as some posters on here pension-wise but would appreciate opinions of my situation and if there's anything I can do to improve it.
Currently 53, single parent, mortgage of £94000 owed (till age 69 but trying to pay it off sooner).

I have the following pensions:
Deferred DB pension forecast to pay £7100 a year at 65 (current CETV £94000)
Deferred DB pension forecast to pay £1000 a year at 65 (current CETV £33000)
Deferred DC pension with currently £7500 with L&G
Current active DC pension at £19000 with Aviva and paying in a total of £250 a month (mine and employers contributions)
2 years to contribute to get full SP

The reasons for the very small pensions is when I was working part time and bringing up children.

I would really like to pay more towards the mortgage as I want to bring it down as much as I can but need to build up a larger emergency fund first. I thought about taking 25% at 55 to help with this.

Does this situation look healthy enough for a single person? Also, would it make sense for me to consolidate the DC pensions? I.e. Move the £7500 into the Aviva pension?

Is there anything else I should be thinking about? I am trying to save but only have £3000 which I need to build up as a buffer in case of redundancy or other emergencies.

232607

At a glance I would say your DB’s along with your SP gives you a good solid base for your guaranteed income.
What I would concentrate on from now on is a combination of getting your DC higher & mortgage lower.
Certainly try & get your mortgage paid off when SP kicks in as a minimum by overpaying.
Pay as much as you can in to your DC but as a minimum pay enough to get maximum Co contributions.

With regards to consolidating your DC’s.
it would be a good idea to put it in the 1 that is currently active provided the charges & choice of funds are not poor compared to the other.

enthusiasticsaver

The main thing is to determine how much you will need to live off so you know what you are aiming for. The DB pensions give you a base but obviously paying off the mortgage would help. I think I would move the small DC pension into your active one but check on charges and fund choices first.

If your mortgage holder does an overpayment calculator maybe see if you are able to overpay by even £100 a month and see what difference that makes to your MFD. I personally would not want to withdraw from the pension to pay it off.

232607

enthusiasticsaver wrote: »

The main thing is to determine how much you will need to live off so you know what you are aiming for. The DB pensions give you a base but obviously paying off the mortgage would help. I think I would move the small DC pension into your active one but check on charges and fund choices first.

If your mortgage holder does an overpayment calculator maybe see if you are able to overpay by even £100 a month and see what difference that makes to your MFD. I personally would not want to withdraw from the pension to pay it off.

I’d just reiterate was is said here & try to avoid drawing from the pension to pay down the mortgage if possible.
The 25% TFLS would only scratch at the surface of the mortgage and you’d really only be stealing from your future.
Far better to get a grip of the mortgage now with a plan to get it finished in line with when you retire.

Whiterose23

232607 wrote: »

I’d just reiterate was is said here & try to avoid drawing from the pension to pay down the mortgage if possible.
The 25% TFLS would only scratch at the surface of the mortgage and you’d really only be stealing from your future.
Far better to get a grip of the mortgage now with a plan to get it finished in line with when you retire.

The worry for me is whether I would be able to maintain a job at the pay level I'm at until 67. The idea was to try to reduce the mortgage using the 25% to enable me to either retire earlier or move to part time sooner, but as you say it would be less money in future. As I live in a 3-bed house, I could downsize at some point which would help.

232607

Going P/T is not out of the question.
You’re currently paying £3K P/A into your DC.
Let’s say you could push that a bit & pay an extra £80 PM bearing in mind you’d probably only lose about £60 in your take home pay.
This brings the £3K up to about £4K and let’s say you did that up to 60.
7 x £4K = 28K + your current DC’s of approx £26K = £54K.
If you drew off this at say £8K P/A till 65 it means you’ll have exhausted £40K of this till the DB’s kick in.
Would £8K + P/T be enough for you?

The advice not to use some of you DC to pay off the mortgage is probably sound but very generic.
It may be it works for you.
Just be aware that 25% of £26.5K is about £7K so this is all you’d reduce the mortgage by.

As you’re not 55 yet and therefore using the DC is not an option, why don’t you use the next 2 years to try and see if you can overpay the mortgage & pension a bit.
IE If you’ve managed too then carry on, if not look at drawing off the DC to give you a boost.

crv1963

Another way to look at it would be to reduce or stop overpaying the mortgage. Take the view that £100 mortgage overpayment is worth £125 into a pension saving account. Given the HMRC boost any pension savings gets. Defer the current overpayments and start a SIPP?

If concerned about market falls save this into a cash SIPP, with a view that even with inflation at the current boost to the cash saved is more or less in line with the amount owed on the mortgage.

Over the timescale involved 100 becoming 125 is better than the amount of interest saved from the mortgage overpayment. So I would split what I would be overpaying between my current pension savings and a cash SIPP, writing off the cash SIPP from my pension calculation but counting it as earmarked specifically for the mortgage in the future. Even if you pay tax on the cash SIPP in withdrawal you are making more than you would have saved by making the mortgage overpayments.

Hope my convoluted suggestion makes sense?

Evil_Egg

Another way to look at it would be to reduce or stop overpaying the mortgage. Take the view that £100 mortgage overpayment is worth £125 into a pension saving account. Given the HMRC boost any pension savings gets. Defer the current overpayments and start a SIPP?

That's similar to what I'm doing. I'm 42 and paid hefty chunks over the last two years into my DC pension and will hopefully continue at 20% of my salary for the next few years until it hurts too much.

Then we're putting £200 a month into a Vanguard ISA, specifically to pay off the mortgage (or a part thereof) which is due to finish when I'm 61. We're on a 10 year fix @ 2.49% so won't be any unexpected changes to our monthly payment for a while but leaving it in an ISA gives me a bit of comfort if we have a personal financial crisis. More risky than overpaying (if financial markets dip or crash) but over the time scale I'm looking at I think I should be OK.

Whiterose23

232607 wrote: »

Going P/T is not out of the question.
You’re currently paying £3K P/A into your DC.
Let’s say you could push that a bit & pay an extra £80 PM bearing in mind you’d probably only lose about £60 in your take home pay.
This brings the £3K up to about £4K and let’s say you did that up to 60.
7 x £4K = 28K + your current DC’s of approx £26K = £54K.
If you drew off this at say £8K P/A till 65 it means you’ll have exhausted £40K of this till the DB’s kick in.
Would £8K + P/T be enough for you?

The advice not to use some of you DC to pay off the mortgage is probably sound but very generic.
It may be it works for you.
Just be aware that 25% of £26.5K is about £7K so this is all you’d reduce the mortgage by.

As you’re not 55 yet and therefore using the DC is not an option, why don’t you use the next 2 years to try and see if you can overpay the mortgage & pension a bit.
IE If you’ve managed too then carry on, if not look at drawing off the DC to give you a boost.

This is definitely something I would like to do ... it would be a dream to be semi-retired at 60! Obviously the mortgage would still need paying but with a P/T position plus the drawdown of the DC money, it could be achievable...

Whiterose23

crv1963 wrote: »

Another way to look at it would be to reduce or stop overpaying the mortgage. Take the view that £100 mortgage overpayment is worth £125 into a pension saving account. Given the HMRC boost any pension savings gets. Defer the current overpayments and start a SIPP?

If concerned about market falls save this into a cash SIPP, with a view that even with inflation at the current boost to the cash saved is more or less in line with the amount owed on the mortgage.

Over the timescale involved 100 becoming 125 is better than the amount of interest saved from the mortgage overpayment. So I would split what I would be overpaying between my current pension savings and a cash SIPP, writing off the cash SIPP from my pension calculation but counting it as earmarked specifically for the mortgage in the future. Even if you pay tax on the cash SIPP in withdrawal you are making more than you would have saved by making the mortgage overpayments.

Hope my convoluted suggestion makes sense?

Thank you for this - I will look into a SIPP although I know less than nothing about investing ... would I need to educate myself first and if so would you recommend any online reading material?

MallyGirl

I usually recommend the John Edwards series of DIY books as a starting point. There is a personal finance one, a pension/SIPP one and an investing one. Very readable.