Should I use pension drawdown to pay off debt?

mat1964

I think that one of the problems of being a serial accumulator and re-payer of debt is it becomes a habit.  If you use you pension to pay off your debt, you will no doubt end up taking on more debt at some point and then where do you go?  In your case, a DMP might be the best option as it would restrict your opportunity to do this whilst keeping your full pension value.

It's not ideal though, there are consequences from a DMP, so some good professional advice is needed.

Albermarle

mat1964 said:

I think that one of the problems of being a serial accumulator and re-payer of debt is it becomes a habit.  If you use you pension to pay off your debt, you will no doubt end up taking on more debt at some point and then where do you go?  In your case, a DMP might be the best option as it would restrict your opportunity to do this whilst keeping your full pension value.

It's not ideal though, there are consequences from a DMP, so some good professional advice is needed.

Although you do not need to pay for the advice as various debt charities offer it for free, like Stepchange .

moving_forward

Just my two penny worth.
Would it be possible to pause pension contributions until debt and contributions more serviceable and use the money towards the debt. 
Then if wife's self employment or other circumstances change for the better can put them back in.
This way OP would still have pension accruing albeit more slowly than if contributions weren't paused.

Malthusian

moving_forward said:

Just my two penny worth.
Would it be possible to pause pension contributions until debt and contributions more serviceable and use the money towards the debt. 
Then if wife's self employment or other circumstances change for the better can put them back in.

Possible, yes. With the debt currently at 0-3%pa interest, making pension contributions may do better than paying back the debt early (although it's risky). If the OP is contributing to a defined benefit scheme, or is getting matching employer contributions, or higher rate / salary sacrifice relief, stopping pension contributions to repay debt out of taxed income may tip over from "safe option" to "money-loser".

OP: You mention uni costs; is this for your partner or children? Are they taking out the maximum "student loan"?

GunJack

To me it'd be a no-brainer if the OP is not servicing the debt properly - take 25%, pay of debt, and budget properly to allow for fluctuating income going forwards....

..and maybe cut up some cards too...

Brenster

Its all about how you deal with the debt mentally.
Personally i wouldnt like to be starting retirement with such a large debt.
If i was in your position, i would continue to work and throw everything i could at reducing the debt, then at say age 60, your pot may have grown to £400k assuming pretty poor returns over the next 5 years and making no more contributions, hopefully more.  And your debt could be less than £30k assuming you could afford to pay off £10k per year.  then at 60, you can get £100k tax free, and still have the majority of it after paying off the £30k debt...therefore £70k left.
To stop working now and use your full 25% tax free to pay off your debts, yes the debts will be gone, but financially it isnt the wisest choice.  Its a very short sighted solution.
Its all about personal choice really.  

GunJack

Brenster said:

To stop working now and use your full 25% tax free to pay off your debts, yes the debts will be gone, but financially it isnt the wisest choice.  Its a very short sighted solution.
Its all about personal choice really.  

no-one's on about the OP stopping work...