Cutting it Fine - the challenge is on!

savingholmes

I am planning to grow a pension pot privately so I don't take a hit on my dB pension for taking it early. Your maths above is not quite right as you effectively get 25% top up if pay pension with net £

SandyShores

Thanks savingholmes, I thought I'd seen the £50 payment topped up to £62.50 (25%) but I was thinking about tax at 20% - getting myself very mixed up.

It seems quite complex - just reading on the Money Advice Service website that if you take some of the money early it could trigger the MPAA which limits you to tax relief on only £4k going forward.  I need to look into this some more and see if Mr Shores could take a tax free lump sum and still continue paying in.  Doing the sums, then £100 paid overpaid to the mortgage over 2 years saves about £3.50 interest.  Whereas paid into the pension it immediately attracts £25 plus any investment increase over the 2 years.  It seems too good to be true, so will need to look into it.  One thing I did see that won't trigger MPAA is cashing in small pensions under £10k, so its annoying that Mr Shores put all his pensions into one a few years ago.  

I'll need to look into this some more.  I like the idea of paying it off the mortgage as once its paid its paid, but it seems to make more financial sense to pay it into the pension first (as long as it doesn't affect tax relief on future contributions).  Might have to see if there's a pension thread.

joshiesaunt

We are in a very similar position to you SandyShores re; age and large London mortgage and defined benefit pension positions.  You seem much more financially savvy than us so will follow your diary with interest.  Psychologically, i would feel better knowing the mortgage is being paid down quickly but i can see this isn't always the most financially sensible thing to do.

SandyShores

Thanks for dropping in joshiesaunt.  Sadly I am very unsavvy financially but I'm better now than when I was younger.  Oh, if only I knew then what I know now .  I agree with you as I like the idea of seeing the mortgage go down.  Mr Shores can see his pension pot in his Halifax account and in the the pandemic it went down by at least £10k but then it went up again.  Little bit scary, but I like the idea of doing something safe with a low return alongside something with a better return.  Just got to work out the proportion of risky stuff we could do.

SandyShores

Just been looking around the forum and its not easy to get the answer to this question.  So I had a look on gov.uk and haven't found it on there yet.  But found some useful definitions:  Defined Benefit is e.g. final salary pension; Defined Contribution - can be private or workplace and builds up a pension pot in order to buy a pension (this pension will run out when the pot runs out).  I have two final salary pensions - I took one at 55, and will take my second one when I can afford to stop working.  Mr Shores has two defined contribution pensions - one is workplace and one is private.  With the private one, when he gets to 55 he can take 25% tax free, but in certain circumstances this seems to trigger MPAA which then limits future contributions to £4,000 per annum.  There are circumstances where MPAA isn't triggered and at the moment he is only paying £600 pa in it anyway.  However, would he want to pay more than £4k into at anytime if MPAA was triggered.  The reason I can't really find the answer to my question about taking the 25% tax free is, I think, because the reason MPAA was brought in was to stop people taking advantage of the tax breaks of saving into a pension.  I think I might need to talk to a pensions expert and get some advice.  If we paid £24k into Mr Shores private pension over the next two years, then when he's 55 we could draw down the whole amount tax free (25% of the pot) and pay it off the mortgage (we can overpay 10% of our mortgage per year).  It means that 25% of £24k (£6k) would remain in the pension pot and boost his pension.  Sorry for anyone who is reading this but its useful for me to write it down here.

SandyShores

Managed to access the mortgage account online finally and have just rounded it down to £304k.  Going to make rounded up payments over the next few months and will look forward to leaving the £300s behind in the next few months.  Current plan is to have the emergency fund in place by then and start overpaying £1k p/mth (plus the rounded up payments).  Its good to see the payments in b&w, motivates me to want to see that number go down (and equity go up).

The To Do list has another 2 things crossed off the.  15 left to do and I should be able to cross at least 3 of those off this week.  The To Do list has joined my list of things 'to do' ,  too many things on there have been hanging around.  I've definitely had to do list inertia this weekend - I should have crossed more things off.  I really don't like that list - it seems like a barrier to getting on with more interesting stuff - or maybe its an excuse to be lazy.  Either way the to do list must be tackled.

SandyShores

Posted all of my Christmas cards today, so that's crossed off the list.  Found a few more things to add on the list, but will soon be down to single figures - hopefully by the end of the week/weekend.  Aiming to get it down to under 5 by the new year, when my resolution will be to concentrate on all those things to enrich my life and grow my wealth.

Edit - just messing around with my signature - all very achievable targets for 2021.  

savingholmes

You could always post on the pensions board. My understanding is that if you are in a DB pension the MPAA isn't triggered if you keep paying into the DB as normal and take upto 25% of another pension. My impression is that you can take 25% as a lump sum without triggering the MPAA regardless. However the government's pensions advice service offer a free consultation where you could check it all out if you are over 50.

SandyShores

Thanks savingholmes, I hoped that was the case.  Will definitely take up the free pensions advice service consultation.

Mr Shores had a couple of jobs from his sideline and his tax return came through as well, so I've managed to top up some pots - have now reached £1k into the emergency fund.  Our next target is to get £6k into the emergency fund while making sure that at least £1k a month comes off the mortgage capital.  It will be nice to see it come down by solid £1k's monthly.  One of the things on my to do list is to change Mr Shore's website.  At the moment we are paying about £120 a year, and you need to have html knowledge to change any of the details.  I want to change to something that's easy to change and maybe a little cheaper.

Signature 15/12/2020:
To Do List: 17 items
Emergency Fund: £1000/£6000
MFW 2021#29: £0/£4000 now £304k
Christmas Saver: 2021#5 £26.81/£366
Credit Card 0%: remaining £600/£750 (£50/m)
OS Weight Loss: Q4 current 12st 6lb (1.5lb/5lb gained!)

savingholmes

Glad things are improving for you