Any thoughts on breakdown of DC/ISA/mortgage overpayment split?

MaxiRobriguez

Hello -

Just wondering what changes you'd make if any in my situation.

Currently popping £2k into DC pension via salary sacrifice each month. £125k in the pot so far.
Also putting £500 into either mortgage overpayment or stocks and shares ISA - each month. Mortgage outstanding is £100k (roughly £170k equity) and S+S ISA is £65k.

Might well be looking to move house in next couple of years to a bigger place which would mean mortgage goes up to around £250k, equity would stay about the same.  Overpayments/S+S contributions in that scenario would likely halve, or stop altogether, in order to meet the bigger monthly mortgage cost. Unlikely to pay it all off by retirement horizon but happy to carry into retirement if the LTV is low enough.

Plan to retire in about 17 years time, and that would be before access to pension so would need a few years of either drawing from the S+S ISA or freeing equity from the house. Savings, however they're drawn, would need to service potentially 50 years of retirement.

Likely to need/want about £20k-£25k in todays money in retirement.

So - thoughts?

TIA.

Edit: Eventually when I can get state pension, assuming it still exists, I'd have the full amount.

michaels

Benefit of lower mortgage is that it may let you get into a cheaper rate LTV band, both now and after you upsize.  Disadvantage is that current low borrowing rates mean that money invested in pension or isa should grow more than the interest saved from mortgage overpayments but this might change in the future at which point it is not easy to shift money from pension to mortgage.

Benefit of pension is obviously the tax saving; not sure if you might eventually run into lifetime allowance issues so no point in contributing now to get standard rate relief if in future your/employer contributions will be subject to LTA.  If you can sal sac and especially if you can get some of the employer NI saving this might change the maths again.

ISA has some tax advantages especially on 'drawdown' and also gives the flexibility to move funds into the mortgage should the relative returns/costs move in favour of paying off the mortgage.  Obviously can also be used to bridge any gap between retirement and pension age.

jamesd

Since  ISA  offers the benefits of investment growth and access before pension access age that seems like a better choice than mortgage overpaying. If a bigger deposit would help with the LTV and new mortgage rate you'd be able to withdraw the required amount from the ISA.

I have an interest only offset mortgage that I could pay off at any time and am retired. I'm not because I prefer to be invested.

MaxiRobriguez

I've toyed with the idea of pushing more into the S+S ISA (have an offset mortgage, so have the capability of doing so) but have held off this tax year so far as equity prices feel quite frothy - the opposite of last year when I shifted the full allowance in April.

Bigger deposit is not necessarily required for lower mortgage rate, more so required to afford the property we want. We've recently had our first child so wife will be part time from here for the forseeable. The outcome of that means combining our future 4x salaries means we need the full £170k equity in our current house to go towards next house.

Albermarle

Likely to need/want about £20k-£25k in todays money in retirement

That seems low for a family man , unless you mean it is just from you ,and your partner will also have about the same .

MaxiRobriguez

Albermarle said:

Likely to need/want about £20k-£25k in todays money in retirement

That seems low for a family man , unless you mean it is just from you ,and your partner will also have about the same .

Yes, just for me, partner will have the same through a mix of NHS pension and a separate SIPP we've got for her, although she might have to work a few extra years more than me.