Upping pension contributions vs upping mortgage payments

bournejason7629

Albermarle said:

soldave said:

Thanks for the responses, all. One remortgage offer a broker has provided me with so far is at 1.56% for 5 years.
Current pension contribution from me is 6.65% and my employer 6.35%. When I move into my new role I believe maximum employer contributions will be 3% so I'll need to up my contributions to make up for that shortfall.

Be aware that 13% total contribution is not high . When the above posters were all recommending more pension contributions , especially as you are a higher rate taxpayer, I think they were probably thinking about a higher level than that .

Thanks. Yeah, I've not had it so high as I've had to be paying quite a bit for something over the past couple of years. That cost has gone away though now so I can throw some more money into the pension pot.

bournejason7629

One addition (and which is possibly something for another conversation) is that I do have around £25k in bank accounts which could be redirected to investments/savings/pension/mortgage, and still leave me with a decent amount in case there are any unexpected payments which need to be made.

MaxiRobriguez

£25k can be considered your emergency fund if you're a HRT. Will work out to max 6 months worth of funds, which is about where you want it.

In terms of pension contributions, it would be rude not to take advantage of the extremely generous 40% tax dodge, so why not contribute as much as it requires to get you under the HRT threshold, or up to £40k contribution (which is the max) - whatever comes first.

bournejason7629

MaxiRobriguez said:

£25k can be considered your emergency fund if you're a HRT. Will work out to max 6 months worth of funds, which is about where you want it.

In terms of pension contributions, it would be rude not to take advantage of the extremely generous 40% tax dodge, so why not contribute as much as it requires to get you under the HRT threshold, or up to £40k contribution (which is the max) - whatever comes first.

Apologies - I should have been clearer. The £25k I'd mentioned for savings would leave me with a similar amount for emergencies.

And that's fair advice on the pension contribution front. Would just have to make sure contributing enough to get me under the HRT threshold doesn't interfere with my wife's expensive taste! 

Thrugelmir

Worth spreading your money across all spectrums. Optimisation rather than maximisation one might say. The downside with funding the pension at the expense of everything else is accessibility. The longer bull markets run for the higher the conviction that they are in themselves infinite. Unfortunately reality eventually kicks in and for some investors disappointment lies ahead. 

ElmoR

Just wanted to add to the already good advice that it isn't always simply the money side. Some people get some life/emotional well-being uplift from having no mortgage, which is worth more than the money value. But that's just some people.

It's great that the advice here has been more balanced than it has been in the past when this question pops up. Perhaps it should be made into a Sticky because it is a FAQ each week.

Good luck on your journey @soldave