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Diminishing returns on a private pension

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Diminishing returns on a private pension

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My works pension pot is doing rather nicely.... but year on year I my inactive private pension is earning less and less for me.  (Investments may go down, blah, blah, blah)
Now I am 55, should I cash in my private pension pot and use it to pay off my mortgage which will be paid off when I am 67? (I just so happens to have the same value.)
I was always taught to pay off my debts first, so should I pay off my mortgage with the proceeds from my personal pension pot?  The smart thing to do, is then invest what would have been my mortgage payments into my work pension, maximising my employers contributions. (Sneaky huh?)
There are a couple of things to watch out for - only the first 25% of my pension lump sum is tax-free. Other options may be more tax efficient.  I already pay the higher tax rate.
My calculations show that my private pension savings are making less money than my mortgage is costing me, even when I factor in tax and the fees my pension provider will charge me.  (Why does my pension provider charge me for the privilege of investing my money badly?)
The final spin on this question, is where do I see the economy going post Covid-19... doomed, we are all doomed! (When I was 18, when I bought my personal pension, I thought to myself, before I retire, the economy will go legs up and the politicians, who have their greedy eyes on my pot of dosh, will have figured a way to syphon off their cut of my pension money!)
Can someone test my reasoning?   (Let us call the figure £144,000....just to keep the maths of my remaining 12 years of employment / mortgage simple!)
The last point is that my private pension pot is only one of my many investments, so I am spreading the risk for when I retire.
.... you have two hours.... please turn your papers over!


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  • ThrugelmirThrugelmir Forumite
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    Why have you left your private pension in underperforming and/or over charging investments? Your mortgage likewise must have a high interest rate if the pension has been serially underperforming. 

    “Buy value, not market trends or the economic outlook. Individual stocks determine the market, not vica versa." - Sir John Templeton
  • MordkoMordko Forumite
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    1. Surely you have a say over how the pension pot is invested. The returns are a function of your decisions (as well as market in general).
    2. I wouldn’t want to incur a large tax bill by using the approach you described.
    3. You could design the approach so that your overall investments in various pension pots make a coherent portfolio.
    4. Getting rid of the debt as you get older makes a lot of sense. You can do that by accelerating payments rather than depleting your pension and incurring a massive tax bill in the process
  • Paul_HerringPaul_Herring Forumite
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    Now I am 55, should I cash in my private pension pot and use it to pay off my mortgage which will be paid off when I am 67? (I just so happens to have the same value.)
    Before, or after, you've been taxed on the withdrawal?
    Let us call the figure £144,000
    So, presuming that's the pension, and you have no other income since you've retired (haven't you?) withdrawing that will incur a tax charge of around, and about, £50K, leaving you £94,000.

    (BTW, the answer is probably going to be no.)

    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
  • PrismPrism Forumite
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    You should first get access to your private pension online to see what it is invested in. It is your responsibility to select the investments rather than just let decrease in value. If you can't get online access to it then maybe consider transferring to another provider that does. I needed to do this for a few of my older plans. 
    There is no way that it should be losing money to be honest. As a comparision my pension has been increasing by over 13% per year in recent times but my mortage is only 1.4%. 
  • LucyTheWestieLucyTheWestie Forumite
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    Why have you left your private pension in underperforming and/or over charging investments? Your mortgage likewise must have a high interest rate if the pension has been serially underperforming. 

    Well.... it was doing quite well until recently.   I probably painted a darker image than I should have, to illustrate the concept.  
  • LucyTheWestieLucyTheWestie Forumite
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    Now I am 55, should I cash in my private pension pot and use it to pay off my mortgage which will be paid off when I am 67? (I just so happens to have the same value.)
    Before, or after, you've been taxed on the withdrawal?
    Let us call the figure £144,000
    So, presuming that's the pension, and you have no other income since you've retired (haven't you?) withdrawing that will incur a tax charge of around, and about, £50K, leaving you £94,000.

    (BTW, the answer is probably going to be no.)

    I have not retired....the ex wife saw to that!! 
    My figures are before tax and all the other deductions.
    I will have a decent income from my work pension pot.

  • AlbermarleAlbermarle Forumite
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    Why have you left your private pension in underperforming and/or over charging investments? Your mortgage likewise must have a high interest rate if the pension has been serially underperforming. 

    Well.... it was doing quite well until recently.   I probably painted a darker image than I should have, to illustrate the concept.  
    Most investments were doing well until a certain virus appeared.....
    In fact most medium risk/balanced/diversified investments are pretty much back were they were on Jan 1st .
    (Why does my pension provider charge me for the privilege of investing my money badly?)
    Your pension provider does not actively choose your investments . Either you ( or your advisor if you have one ) do that.
    If you do not make any choice , then your money goes into the default fund , or cash if it is a SIPP .
  • LucyTheWestieLucyTheWestie Forumite
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    Prism said:
    You should first get access to your private pension online to see what it is invested in. It is your responsibility to select the investments rather than just let decrease in value. If you can't get online access to it then maybe consider transferring to another provider that does. I needed to do this for a few of my older plans. 
    There is no way that it should be losing money to be honest. As a comparision my pension has been increasing by over 13% per year in recent times but my mortage is only 1.4%. 
    Really? Does this include payments by yourself or employer?  What was the % increase over the last 12 months without including what you or your employer pay into it?    
  • edited 13 July at 2:53PM
    ThrugelmirThrugelmir Forumite
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    edited 13 July at 2:53PM
    Why have you left your private pension in underperforming and/or over charging investments? Your mortgage likewise must have a high interest rate if the pension has been serially underperforming. 

    Well.... it was doing quite well until recently.   I probably painted a darker image than I should have, to illustrate the concept.  
    Investing is for the longer term. Easy to get lulled into a false sense of security. Portfolios should be viewed as a whole.  There'll always be one sector that performs better in the short term. 
    “Buy value, not market trends or the economic outlook. Individual stocks determine the market, not vica versa." - Sir John Templeton
  • LucyTheWestieLucyTheWestie Forumite
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    Why have you left your private pension in underperforming and/or over charging investments? Your mortgage likewise must have a high interest rate if the pension has been serially underperforming. 

    I thought the performance was on track until Covid-19 threw the curveball - I was very happy with my mortgage rate which is now up for renewal (hence the question).
    .... it is when I started to look at the numbers more closely when the light bulb came on and I then questioned what the best approach was.  There are loads of sneaky savings such as no longer needing to pay mortgage protection and so on....
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