Cutting it Fine - the challenge is on!

SandyShores

Thinking about mortgage neutral today and wondering whether I can put Mr Shores' £100k private pension in the virtual pot.  Plus I can take a lump sum, so I can look at that as well - its around £20k.  It would be a good start.  Ideally I'd just like to overpay it off with earnings, but it would be nice to think we're much closer to being able to pay it off if we wanted to.  Mr Shores has also got a small pension pot (under £10k) which he was considering adding to  the bigger pension fund, but might put to one side and pay it off the mortgage when he's 55.  The tax wouldn't be too big a hit at the moment and would be a nice OP.  

Fortune_Smiles

I treat our pension lump sums as part of our emergency fund Sandy as we would be able to access them quickly now we are of that age.  However, when we were calculating the impact of taking on a bigger mortgage, we did include the lumps sumps as potential future overpayments.

Everybody does things differently so I'd allocate them to whatever pot is best for you.  Would you be able to take Mr Shores £100k as a whole amount?

Fortune x

SandyShores

Hi Fortune that's interesting to know.  We could take Mr Shores £100k as a whole amount but when he gets to 55, we can start drawing down 25% annually tax free I believe.  The plan is to keep it as a pension pot, but it would be nice to think that we could make potential OPs with it if needed.  I'm definitely going to start a virtual mortgage neutral pot, it will make me feel a lot better about our large mortgage.

savingholmes

On Mr Shores pension. You can have a one off 25% tax free lump sum - of some pensions. Read the Ts and Cs as they are all different. If you want to annually raid the pensions and have a share of it tax free you would do it differently. You would take whatever he could have as his annual tax free allowance - say £12.5K and then a further 20 or 25% of that figure as tax free or something along those lines. You need to look up 'crystalised' versus 'uncrystalised funds' or hop over onto the pensions boards. 

The advantage of taking a one off lump sum - is it doesn't reduce how much you can pay into your pension in future - as long as you don't start drawing any of the income thereafter (until you are ready). Once you start drawing a regular income - or anything after the initial lump sum - my understanding as a non finance person is that it triggers the MAPP - the max amount you can put into your pension thereafter per year (unless you are in a defined benefit pension). This could then be a problem - if he carries on working or goes back to work later in life and wants to contribute more to a pension. 

If his/your pension is through work he/you may be able to speak to a pensions adviser but they can only tell him/you your options - they are not an IFA and so can't advise. You can also access a free government chat about your pension options. I've not tried it but imagine they are quite narrowly focused too. 

HTH

SandyShores

Thanks savingholmes, it sounds like we need to look into that carefully if we take it earlier than retirement, but I will count it in the mortgage neutral pot for the future.  We'll have our state pensions, (whatever they are), and we both have work pensions.  I've already taken one direct benefit pension, and then Mr Shores has two personal pensions.  One is under £10k and one is £100k, so my first step is to look at whether we should transfer the small one into the large one, or keep it separate to take under the small pot pension rules (small pots don't trigger MPAA) when MrShores gets to 55.  But I will have a look at the pensions board nearer the time thank you.

I forgot to say last night that I made @Fortune_Smiles masala carrots and coconut lentil recipe last night.  It was absolutely delicious.  I used korma curry powder and a tin of tomatoes.  I've another portion of lentils for tonight, but sadly I didn't have as many carrots as I thought so ate them all.  But I will have a flat bread with it tonight and will definitely make it again - next time with lots more carrots

Fortune_Smiles

Glad you liked it Sandy.

Fortune x

SandyShores

Fortune_Smiles said:

Glad you liked it Sandy.

Fortune x

I loved it!  And I had a portion tonight with some brown rice and a spoon of mango (no carrots left sadly) and it was just as nice if not better.  I've even got another portion left for tomorrow - yum.  I love meals like this and I don't need something different every night so one pot cooking suits me.  Its one of my new favourites.  I've got a portion or two of chilli in the freezer so that's my Thursday and Friday dinner sorted too.  

SandyShores

Payday tomorrow, so I did all the account moving around on paper and we'll have £2,300 in the emergency fund.  We've got our eye on a new table but it won't be for a couple of months so hopefully we can save the full amount/use 0% finance.

I haven't done the mortgage neutral calculation yet, but I feel better knowing that if we use DH's DC pension and my £30k lump sum we can be mortgage neutral before retirement.  Then, and only then will we need to make a decision about actually using pensions to pay off the mortgage.  If we use Mr Shore's small lump sum - around £5k, the calculator says we will save about £1,800 in interest and pay off the mortgage 5 months earlier.  Sounds good to me, but I need think about what the £5k could mean in pension later down the line.

SandyShores

Pleased that payday is here today, and Feb is a bit shorter so we should be able to catch up with ourselves after a spendy few months.

There's so many what-ifs when planning for the future, but I'm pleased to be thinking about a mortgage neutral option.  We're still paying a small amount into Mr Shore's private pension, so it is growing and we can consider from both sides - i.e. what it will mean to pay off the mortgage/keep as pension.  Another 10 years of work should give me a pretty good DB pension and I can take around a max lump sum of £30k if needed.  I'd ideally  like Mr Shore's to keep his pension pot, as his work pension is so new, but both my pensions pay out a survivors pension (about half) so Mr Shore's should be covered if anything happened to me.  I'm going to look at a few scenarios this weekend and forecast when the mortgage balance will be c£130k -  mortgage neutral day.  Its a big ask to pay off such a huge mortgage in 10 years without those pots, but anything is possible - and as the mortgage goes down, the pension pots goes up.  Its making me feel a lot more enthusiastic to have some choices.

SandyShores

So the options are to pay the mortgage off are:

1. Continue to overpay the mortgage with wages, there's a slight possibility this could mean working into retirement.
2. Continue to overpay until we have reached a point where we we think the best option is to pay off with the mortgage neutral funds
3. Get a mortgage that we can pay through retirement e.g. Nationwide will lend up to £150k/40%equity to the age of 85. 
4. Win the lottery/Premium Bonds etc.

So, we are going to start off with option 1 and start making more serious OPs this year.  Then we may use option 2 if necessary (depends on work situations) and/or if we think that's a good option when we get there.  Option 3 provides another alternative, where we would take our pensions and less lump sums, but would have mortgage payments.  We'll keep option 4 up our sleeve just in case.

Option 1 is the preferred choice.  That way we would keep our pensions and have no mortgage.  But its good to know there are alternatives.   A choice between 2 and 3 would need to be made nearer towards mortgage neutral.  And I've got premium bonds but haven't bought a lottery ticket for a while.