Switch to Interest Only and Use Pension Lump Sum to Pay Off Capital

scorzonthedawes

Sorry this one straddles mortgages and pensions.
I am in a very good workplace DB scheme. I have 13 years to go, retire at 65.
Between us my wife and I will both also get max state pensions at 67 plus we have 2 other deferred DB pensions and a deferred DC pension all arriving at 65.
Overall we have no pension concerns and feel we will be well catered for.
We have a 115k repayment mortgage that will be repaid at age 65. I could ramp up my payments and pay off early at age 60 BUT borrowing is so cheap right now.
My workplace pension has an excellent additonal voluntary scheme offering minimum 2.5% growth per year but which has given 9% pa on average over the last 10 years. I would benefit from 40% tax relief on any such additional pension payments. The scheme is very flexible in levels of payments etc and could easily be stopped if need be.
Give the above I am considering switching to an IO mortgage and then salary sacrificing the difference in mortgage payments into my added voluntary scheme. The increased lump sum produced would pay off the mortgage capital and leave me with a much bigger annual pension.
Does that sound like a good idea? Any pitfalls I should worry about?
Cheers All

Whats_your_forte

I doubt you can get the answer you want on a forum as there as so many other factors to bear in mind ie attitude to risk, capacity for loss, health etc. But borrowing is cheap whether it be Interest Only or Repayment. So the pension thinks it can get 2.5% and going to 9% versus the security of knowing your mortgage will be paid off? 

You state yourself that you have no pension concerns so why pay into them further? Why run the risk? Will lenders offer you the IO option you want based on the current values? What happens at 65 when you have to commute more of your pension to make up a shortfall? 

For me, too many unknowns. 

Thrugelmir

scorzonthedawes said:

My workplace pension has an excellent additonal voluntary scheme offering minimum 2.5% growth per year but which has given 9% pa on average over the last 10 years. 

No possibility that the value of the investments could fall at any time? The past 10 years coincides with the longest bull market on record. 

scorzonthedawes

Thanks folks, all advice welcome.
Just to clarify the pension additional cont scheme GUARANTEES 2.5% minimum. Yes it has been a 10 year bull, and certainly the previous 10 year stretch (the worst 10 year stretch in the scheme's history by a country mile) shows the that it gave 4.4 average, but it NEVER gives less than 2.5% in any given year.
I do understand the risk sentiment, and our (wife and I) other main and deferred pension schemes already have a sufficient lump sum to pay off the mortgage captital and leave us a modest sum left over as well. This is more about pushing harder to milk that 40% tax break to really pump up the lump sum and pension itself. I have children and the more I have the better for supporting them as required in future.

Thrugelmir

If there's built in guarantees and the value of the investment never falls then seems to good to be true. People would be mad to decline such an offer. 

scorzonthedawes

Thanks Thrugelmir, the extra contributions sit in with the main pension fund, they arent part of a separate DC fund, so they are in effect as safe as the main pension. I work for a huge multinational company with a solid order book stretching decades that has several parallel schemes left over from mergers and buyouts; it is 'committed' to funding each to completion and it just so happens that the one I am part of has a scheme with these features. The main pension scheme does seem very well run and supported, certainly as well as a pension scheme can be, so I feel that it is about as safe a bet as an investment can be. As you say, it does seem too good to be true hence my hesitation given the old saying :-)