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Mortgage V Pension dilemmas

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klew356klew356 Forumite
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I’m 36 and have a 22 year mortgage…..should I overpay the mortgage or put money away in my pension? Its all so confusing!
I have a work based pension its been on the go since around 2014?
Whatever the government is going to give me when I retire

I have it in my head I want to overpay and have it cleared by the time I am fifty but should I be concentrating on my pension instead? From April 2019 the minimum contribution was 8% - 5% employee/3% employer
This work based pension has an annual investment charge of 0.3% with a monthly administration charge of £1.50 per month
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  • SonOfSonOf Forumite
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    should I overpay the mortgage or put money away in my pension? Its all so confusing!

    It is something that needs more detail about your financial circumstances, current position and future position.
    I have a work based pension its been on the go since around 2014?

    So, that is a little over 5 years. How much is in it? This will let us know how far behind you are with your retirement planning.
    I have it in my head I want to overpay and have it cleared by the time I am fifty but should I be concentrating on my pension instead?

    And when you do not have enough for retirement, you can then sell the property and move into rented (cost of rent for life) or take out equity release and pay interest on the debt for the rest of your life.
    From April 2019 the minimum contribution was 8% - 5% employee/3% employer

    For someone that started late in their retirement provision, that is not a high contribution level. Good if you were in your early 20s but you have some catching up to do.
  • torrencetorrence Forumite
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    Your mortgage debt reduces in real terms with inflation. So unless you are paying a high interest rate, a £100,000 mortgage in 22 years will be less in real terms in 22 years than it is today.
    On the other hand every £100 put into a pension invested in mostly equities assuming a long term average 6% growth over a 22 year period and the growth will compound to £360. That's even before adding in any tax credits that may apply.
  • crv1963crv1963 Forumite
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    As SonOf said others will want more info, generally as a rule of thumb with interest rates where they are people advise to put money into pensions as inflation reduces the value/ cost of a mortgage over time while compounding increases the value of the pension.

    One caveat is if you are trying to increase the LTV to get a better interest rate at the next re-mortgage.

    Why not do a bit of both? Round the mortgage payment up to the next whole zero- mortage £392 pm, increase to £400 pm, have the psychological benefit of knowing you're overpaying while putting more into a pension.

    Another generally stated "rule of thumb" is to save a percentage of salary into pension half your age when you start- in your case if you didn't start until age 30 about 15% and keep that rate up to retirement- if you want to go earlier than SPA put more in.

    Though like everything it is doing the best you can afford with what you have coming in and crucially look at any partners provision as well- it is if in a relationship all about joint planning.
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
  • AlbermarleAlbermarle Forumite
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    should I overpay the mortgage or put money away in my pension? Its all so confusing!
    As you can already see from the previous posts , there is no absolute right or wrong answer either way .
    It partly depends on your circumstances but there is also an emotional aspect too .
    Some people are wedded to the idea of paying their mortgage off asap . There is even a forum on MSE called 'Mortgage free Wannebees' Now of course if your mortgage is giving you sleepless nights then probably better to pay it off quickly , however financially it might not be in your best interests in the long run as putting more money in your pension is nearly always a good idea .
  • edited 15 January 2020 at 12:51AM
    steampoweredsteampowered Forumite
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    edited 15 January 2020 at 12:51AM
    Financial benefits of investing into a pension:

    1) Tax relief: Worth an additional 20% of your investment if you are a basic rate taxpayer, 40% if you are a higher rate tax payer.
    2) Investment returns: The average long term return on pension investments is about 6-8% per year.
    3) Matched contributions: The 3% put in by your employer is free money.

    The financial benefit of clearing a mortgage early is that you save interest. If you are on a competitive rate you are probably paying about 1-2% per year at the moment.

    Looking at it from a purely financial view, you are better off increasing your pension contributions than overpaying the mortgage. 8% pension contributions are the bare minimum really.
  • edited 15 January 2020 at 6:10AM
    JoeCrystalJoeCrystal Forumite
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    edited 15 January 2020 at 6:10AM
    klew356 wrote: »
    I’m 36 and have a 22-year mortgage…..should I overpay the mortgage or put money away in my pension? It's all so confusing!

    Well, the essential thing that you are saving into the pension scheme, which is the whole point behind the auto-enrollment really (and that the employer has to contribute into it).

    Bluntly, you can do both. The most important thing is making sure you got a right amount in the emergency fund, at least six month's expenses ideally, then look at the minimum you need to pay into the pension and the mortgage which you already got.

    As you already know that you will be paying off the mortgage over the next twenty-two years, that gives you more flexibility in increasing your contribution. So with this in mind, look at first at your retirement provision and make sure that is sufficient. If you got any money left over and if you got enough savings for an emergency, then overpay the mortgage.

    Just make sure you got enough savings outside the pensions and overpaying the mortgage that you are not impacted by permanently losing access to money (or temporary in pension scheme). To this day, I am still wincing and angry at myself at doing significant overpayments I made in the last few years and would again love to have the money sitting in my emergency fund instead. :(
  • atushatush Forumite
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    klew356 wrote: »
    I’m 36 and have a 22 year mortgage…..should I overpay the mortgage or put money away in my pension? Its all so confusing!
    I have a work based pension its been on the go since around 2014?
    Whatever the government is going to give me when I retire

    I have it in my head I want to overpay and have it cleared by the time I am fifty but should I be concentrating on my pension instead? From April 2019 the minimum contribution was 8% - 5% employee/3% employer
    This work based pension has an annual investment charge of 0.3% with a monthly administration charge of £1.50 per month

    There should be no dilema. A pension beats mtg overpayment.
  • dano17439dano17439 Forumite
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    I have the same dilemma all the time. I 100% agree that putting more into your pension makes better financial sense than overpaying your mortgage, especially if you are on a low rate, BUT once the money has been committed to the pension it is locked away for at least 19 years in your case


    19 years is a long time and anything can happen. This is where the draw of trying to pay your mortgage off as quick as possible has its advantages. At least you will have security if you suffer a financial meltdown - I.e you are out of a job etc, at least you will have a roof over your head and you wont have to find your biggest monthly outlay every month.


    You think your bank will care if you cant make your mortgage payment but you say you have hundreds of thousands in your pension pot, which you cant access for another 10 years?


    I think balance is the key here, and no matter what advice you receive on this board, or from anywhere, you have to do what's right for yourself, and what you are comfortable with, even if it means that its not the most financially efficient way
  • klew356klew356 Forumite
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    So thank you everyone for your responses, at the moment I pay 5%, I think what I will do is ask for my contribution to my work based pension to be upped to 10% and see how I get on. Plus my employer contribution of 3% takes me to 13%. It’s a start. I have a separate savings pot to add money to for mortgage over payment, my mortgage company wont let me simply up the DD. I can log in online and pay by card or set up a standing order. Only lumps of £500 will be added to the mortgage.

    A bit more info, I’m a basic rate tax payer, I’m in the north so not a massive earner. Work for a successful company. Single. I have got an emergency fund, I’m just looking to transfer it into a better savings account.

    my next question would be should i put this extra 5% into the auto enrollment or look to get another pension aside from this?
    i would like to add where i can still to the mortgage, i get a bonus twice a year, i could add.
  • klew356klew356 Forumite
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    dano17439 wrote: »
    I have the same dilemma all the time. I 100% agree that putting more into your pension makes better financial sense than overpaying your mortgage, especially if you are on a low rate, BUT once the money has been committed to the pension it is locked away for at least 19 years in your case


    19 years is a long time and anything can happen. This is where the draw of trying to pay your mortgage off as quick as possible has its advantages. At least you will have security if you suffer a financial meltdown - I.e you are out of a job etc, at least you will have a roof over your head and you wont have to find your biggest monthly outlay every month.


    You think your bank will care if you cant make your mortgage payment but you say you have hundreds of thousands in your pension pot, which you cant access for another 10 years?


    I think balance is the key here, and no matter what advice you receive on this board, or from anywhere, you have to do what's right for yourself, and what you are comfortable with, even if it means that its not the most financially efficient way


    this is great :money:
    i will see how i get on upping the contribution, i can always knock it down again if need be, whilst making over payments to the mortgage. albeit smaller than i had initially intended.
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