Mortgage or Pension?

Whiterose23

I know this is an oft-visited topic but would like some views. At 55 I have an £84k mortgage not due to finish till I’m 69 so I’ve been overpaying each month to try to bring it down to retirement age of 67.
However I’m thinking of stopping this and instead adding the money to my pension. I’ve posted on here before and received great advice about how to make the best of my spare money but as I’m very risk averse have decided not to dabble in a new investment ie a SIPP, which is something I was looking into. 

So given my age, I’m not sure whether to keep plugging away at the mortgage (1.64% interest rate locked for 5 years) or to build up my pension pot (which is currently only 25k) to try to one day achieve mortgage neutrality.
I have a couple of small final salary pensions which equate to around 9k a year at 65 and am fully paid up for govt. pension. My job is fairly safe although i can’t predict the future. 

Dazed_and_C0nfused

Have you checked your State Pension forecast on gov.uk, reading past the headline figure?

If you contribute to a SIPP you will get an immediate 25% increase even if you then leave the money in cash and don't invest it i.e. you contribute £4,000 and the pension company adds £1,000 giving you a pension fund of £5,000.

If you are risk averse maybe 50:50 would be a suitable option, continue plugging away at the mortgage whilst putting something extra into your current pension or a SIPP.

Would your employer contribute more if you increased your contributions?

Whiterose23

Hi, thanks for your response. I’m now fully paid up for govt pension and will receive the full amount at 67.
My employer pension is dismal - they pay only 4% whilst I pay the same and they wouldn’t increase if I do, and don’t do salary sacrifice. However I can make my own payments into the scheme separately.  Re a SIPP I don’t have thousands ready to invest as I need to keep an emergency fund, which I have in place and which covers around 4 months’ bills should anything go wrong with my job. So if I opened a SIPP it would only be with around £500 with £75 a month paid in from then on.

Albermarle

It would probably be simpler just to increase your contributions to your workplace pension. There is nothing magic about a SIPP and your workplace pension may  be probably adequate for your needs . You say you are risk averse . Do you know how your workplace pension is invested ?
I have a couple of small final salary pensions which equate to around 9k a year at 65
Just to put the whole situation in perspective , a guaranteed retirement income of £9Kpa is a valuable thing to have .
Depending on the exact terms of the scheme, if you were to go out in the open market and try and buy a lifetime annuity of £9Kpa at age 65 and with inflation linking , it would probably cost in the region of £300K .

Whiterose23

Albermarle said:

It would probably be simpler just to increase your contributions to your workplace pension. There is nothing magic about a SIPP and your workplace pension may  be probably adequate for your needs . You say you are risk averse . Do you know how your workplace pension is invested ?
I have a couple of small final salary pensions which equate to around 9k a year at 65
Just to put the whole situation in perspective , a guaranteed retirement income of £9Kpa is a valuable thing to have .
Depending on the exact terms of the scheme, if you were to go out in the open market and try and buy a lifetime annuity of £9Kpa at age 65 and with inflation linking , it would probably cost in the region of £300K .

Hi thanks for your response. All I know it’s in an average risk (4 out of 7) lifestyle fund. I’m very pleased to have the Defined Benefit pensions but as the DC one is the only one I can access before pension age, I was thinking about building it up so at some point I could use 25% tax free LS to pay off part of the mortgage.

Albermarle

A lifestyle fund will derisk as you approach retirement age . You can change this age online usually , or it will default to 65 normally. If you intend to start taking it before then , maybe a good idea to change the planned retirement date.
Be aware though that it might derisk you more than you want , to almost a cash position , so with no potential growth .
I am obviously guessing a bit without knowing the exact fund you are in but have a good read of the info about it , especially how/when it starts derisking .

Whiterose23

My pension is with Aviva Mixed Investment 40 - 80% Shares ?