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Pension vs Mortgage

Afternoon folks !
I've just hit 55 and can drawdown on my pension.
I'm not relying on my pension for future income, I have other assets that cover that. So I don't really NEED the pension per se.
If my pension is worth say £100,000 and I will be taking the full 25% Tax Free chunk forthwith.
This will leave £75,000 in the pension pot.

Lets assume I earn £40,000 so I have a potential further £10,000pa I could drawdown and pay 20% tax.

Does it make any sense to maybe drawdown all of the  £75,000, so £10,000 @ 20% (8k in the bank) and take the hit on the £65,000 @ 40% (leaving another £39k in the bank)
So I'd get £25,000 tax free, £8,000  & £39,000 which is £72,000 and would clear my mortgage.
This would free up £1,200 a month we currently pay servicing the mortgage, and we'd not be paying £200 a month interest on the mortgage and we'd be mortgage free.

Or we could more tax efficiently just draw £10,000 @ 20% tax for a number of years, but continue paying the mortgage & interest, but save up until we have enough to clear the mortgage in a few years.

My head hurts.


DEBT FREE - Feb '21
  • Mortgage March '21 -£130,000
  • Mortgage now - £81,187
  • Mortgage daily interest Nov £4.60 Dec £4.57 Jan £4.54 Feb £4.52 March £4.49 April £4.46 June £3.97 August £3.91


  • edinburgher
    edinburgher Forumite Posts: 13,257
    Part of the Furniture 10,000 Posts Name Dropper
    Why on earth would you pay 40% tax instead of 20% tax to pay off a debt that can't be costing you more than a few % a year? Go and have a lie down :D
  • L9XSS
    L9XSS Forumite Posts: 436
    Third Anniversary 100 Posts Mortgage-free Glee! Name Dropper
    It’s not that tax efficient. Bear in mind you probably have a very low amount of interest payable on your mortgage debt! Far better to overpay your mortgage if you are keen to reduce the term but balance this with adding to your pension with the tax breaks (that’s what I do, and my money is growing in my pension as my mortgage is also decreasing).
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