Dilemma: Pay off mortgage or salary sacrifice into pension?

Mickey666

Given the tax advantages of pension contributions and the fact that the OP plans to be mortgage-free in less than two years I’d say they have things pretty much under control.
Incidentally, I’ve always regarded being mortgage-free as a key part of my pension plans, so I’ve never really regarded them as separate things.  We all need somewhere to live and being mortgage-free is typically worth around £1000/month or £12k per year or maybe a lot more for a property in the higher reaches of ‘the ladder’.

GunJack

Mickey666 said:

Given the tax advantages of pension contributions and the fact that the OP plans to be mortgage-free in less than two years I’d say they have things pretty much under control.
Incidentally, I’ve always regarded being mortgage-free as a key part of my pension plans, so I’ve never really regarded them as separate things.  We all need somewhere to live and being mortgage-free is typically worth around £1000/month or £12k per year or maybe a lot more for a property in the higher reaches of ‘the ladder’.

Exactly, especially in these uncertain times, knowing you're secure in your house which (unless very extreme things happen) you'll not get kicked out of is a major stresser removed from your life. Plus, the ability to retire earlier on a lower income is certainly not to be sniffed at.....

Why stress about getting a higher income in retirement if a large chunk of it is still going on a mortgage? House paid for  = more security, lower outgoings, and therefore needs a lower income to be comfortable...

I think if I was in the OP's position, I'd go for no mortgage by 2022 THEN hammer the pension cont's until I decided to pack up work. It may not be the biggest absolute £ number, but the security and everything else it brings is priceless...

GazzaBloom

GunJack said:

Mickey666 said:

Given the tax advantages of pension contributions and the fact that the OP plans to be mortgage-free in less than two years I’d say they have things pretty much under control.
Incidentally, I’ve always regarded being mortgage-free as a key part of my pension plans, so I’ve never really regarded them as separate things.  We all need somewhere to live and being mortgage-free is typically worth around £1000/month or £12k per year or maybe a lot more for a property in the higher reaches of ‘the ladder’.

Exactly, especially in these uncertain times, knowing you're secure in your house which (unless very extreme things happen) you'll not get kicked out of is a major stresser removed from your life. Plus, the ability to retire earlier on a lower income is certainly not to be sniffed at.....

Why stress about getting a higher income in retirement if a large chunk of it is still going on a mortgage? House paid for  = more security, lower outgoings, and therefore needs a lower income to be comfortable...

I think if I was in the OP's position, I'd go for no mortgage by 2022 THEN hammer the pension cont's until I decided to pack up work. It may not be the biggest absolute £ number, but the security and everything else it brings is priceless...

Thanks! I have been leaning this way, especially as I have seen paying £7K into my pension this year disappear without a trace so far! (yes, I know it will come back in time)

MallyGirl

I am very much in camp 1 but then that is because I am in catchup mode and putting £40k per year into a pension now. As you are putting in less than the £40k limit you have the option to use carry forward later if you want to go heavier on the pension.
On the other hand - in terms of thinking about security - payments on such a small mortgage can't be that high.
My mortgage has actually gone up a bit, after years of paying it down, in order to support the aggressive pension contributions (and my rate is higher than yours)

atush

SS pension for sure

garmeg

MallyGirl said:

As you are putting in less than the £40k limit you have the option to use carry forward later if you want to go heavier on the pension.

Only if their salary supports this of course.

garmeg

atush said:

SS pension for sure

Being mindful that you cannot SS below the minimum wage (which is about £19k I think).

pensionpawn

Salary sacrifice for me, however I really can understand the feel good factor of being debt / mortgage free. Number of factors for me... 1. What is your confidence that you can service your mortgage for the rest of its natural term? You say the payments are 'peanuts' so I'm guessing that this isn't a significant factor. Which leads to 2. What are you going to save by paying your mortgage off at term (or sooner). The answer is also 'peanuts', so not a significant fiscal event (though highly desirable for other reasons). 3. What are the benefits of maximising your pension payments? Well that's tax relief, employer contributions and growth. As a friend advised me decades ago, your fund would have to drop 20% before you lose any of your own money. 4. How much are your funds likely to fall by? Well mine dipped just short of 10% at the bottom of this current crises and six months later, having continued contributions at the same rate, I'm back in black. Chances that you'll see a fall of over 20% is low (though certainly not impossible) and if that did occur chances are that society is in a much more worrying state than our pensions. 
To be honest, I'm planning to fix my mortgage for 5 - 10 years as I can easily afford the payments (lower than my council tax), the payments will erode with inflation and the pot will grow to easily pay off the mortgage later on down the line. Time has an interesting way of making a mortgage look small in comparison. 

steampowered

I also understand the "feel good" factor of being mortgage free. 

But I'd rather have £2 in my pension than £1 off my mortgage.

So in the Op's case - I'd rather have an extra £88k in my pension than pay £44k off my mortgage. Perhaps get the "feel good" factor by taking a nice holiday instead.

Perhaps the balance is different for basic rate tax payers - where the pension won't have as big a tax advantage. 

Clive_Woody

Nothing wrong with balance, split your extra cash, reduce your mortgage balance while making some extra payments towards your pension....well that's been my plan. Peace of mind clearing the mortgage faster and paying your future self to enjoy your retirement.