Has anyone ever done this.....

IAMIAM

Take out additional borrowing on their mortgage to top up a pension before retirement, then drawdown and pay off the mortgage. Is this allowed?

Peter314

Yes. An offset mortgage makes this easy. Usual rules apply regarding annual allowance, income and carry-forward.

Dox

IAMIAM said:

Take out additional borrowing on their mortgage to top up a pension before retirement, then drawdown and pay off the mortgage. Is this allowed?

If you have the earned income to support the level of pension contribution you have in mind, then yes from that perspective.

ffacoffipawb

Peter314 said:

Yes. An offset mortgage makes this easy. Usual rules apply regarding annual allowance, income and carry-forward.

Yes

Dox said:

IAMIAM said:

Take out additional borrowing on their mortgage to top up a pension before retirement, then drawdown and pay off the mortgage. Is this allowed?

If you have the earned income to support the level of pension contribution you have in mind, then yes from that perspective.

And also read up on the recycling rules.

IAMIAM

Just based on a friend who is civil service too.
They haven't quite maxed out their additional pension they can buy and are interested in paying circa 40-50k to buy the additional amount before leaving work and then retiring, ultimately then claiming the pension and lump sum and paying off the additional borrowing. 

barnstar2077

There is also a slightly different way of doing it, and that is to increase your mortgage term to decrease the amount of money you have to pay back to the mortgage company every month.  Which in turn frees up money to go into your investments / pension.

Probably not suitable in this case, as your friend is very close to retirement, but worth considering for someone in their forties say, who's mortgage would normally have finished in their early fifties.

IAMIAM

Interesting. So would it be cost effective to buy additional pension in say a lump sum if you were 40 and effectively pay for it monthly through a mortgage at a rate of 1-2% over 10 years rather than pay for it over 10 years via salary (as is the case of what I am doing). Ultimately claiming back the tax relief directly from HMRC

hugheskevi

IAMIAM said:

Interesting. So would it be cost effective to buy additional pension in say a lump sum if you were 40 and effectively pay for it monthly through a mortgage at a rate of 1-2% over 10 years rather than pay for it over 10 years via salary (as is the case of what I am doing). Ultimately claiming back the tax relief directly from HMRC

The mortgage costs are 1-2%.

The 'return' on additional pension is the discount rate, which is CPI +2.4%. Note this will be slightly different for every individual, based on things such as life expectancy, marriage status, spouse age, etc.

Borrowing makes the investment earlier than it would otherwise have taken place, increasing borrowing costs but also increasing return. 

In this case, you would either reach a target amount of pension (or additional pension cap) earlier than you would otherwise have done, or purchase more pension at the end of the period.

Johnnyboy11

Worth remembering that the pension is taxable at your marginal tax rate when drawn, except the 25% tax free element. For a Basic Rate tax payer, the benefit is a 20% tax saving on 25% of the pension pot, which works out at 6.25%. Is it reallly worth the hassle and expense of messing around with your mortgage?

steampowered

Depends on your personal circumstance.

This can be well worth doing if you would benefit from the tax relief. Especially if you are a higher rate taxpayer. 

Less worth doing if you are a basic rate tax payer and you have enough pension to mean you'll be paying the basic rate in retirement.

pensionpawn

IAMIAM said:

Take out additional borrowing on their mortgage to top up a pension before retirement, then drawdown and pay off the mortgage. Is this allowed?

If you can afford the (increased) payments, and your pension is growing as at the rate you hoped, besides approaching LTA why pay off the mortgage?