25% TFLS now or later?

Gazjoe

Hello,
My personal Pru pension matures in around a month's time and I will be just over 55 years old. I will need to use the 25% TFLS to aid in paying off my mortgage which still has 15 years to run and I want it paid off by the time I am 65 years old.
The Pru estimated pot is £149k at present, and the outstanding mortgage is £163k.
If I were to use the TFLS now and pay it off the mortgage I could reduce the mortgage term to 10 years by raising the monthly payments by £200 which I could afford.
The other option is to leave the pension pot in place until I reach 65 and use the TFLS then to pay off the remaining balance of the mortgage.
Any advice n which way to go would be gratefully appreciated please.

Marcon

Gazjoe said:

Hello,
My personal Pru pension matures in around a month's time and I will be just over 55 years old. I will need to use the 25% TFLS to aid in paying off my mortgage which still has 15 years to run and I want it paid off by the time I am 65 years old.
The Pru estimated pot is £149k at present, and the outstanding mortgage is £163k.
If I were to use the TFLS now and pay it off the mortgage I could reduce the mortgage term to 10 years by raising the monthly payments by £200 which I could afford.
The other option is to leave the pension pot in place until I reach 65 and use the TFLS then to pay off the remaining balance of the mortgage.
Any advice n which way to go would be gratefully appreciated please.

There's rather a lot of essential info missing here... Are there any early redemption penalties on your mortgage? What's the interest rate? Where are your Pru pension savings invested? What's your attitude to risk? If you leave your Pru pension where it is and the market crashes when you reach age 65, your potential lump sum will also 'crash' - how would you deal with that? You could take less than the full 25% tax free now and pay that towards your mortgage - have you considered that possibility?

Sorry for all the questions, but nobody can give informed advice without the necessary info.

dunstonh

My personal Pru pension matures in around a month's time and I will be just over 55 years old. I will need to use the 25% TFLS to aid in paying off my mortgage which still has 15 years to run and I want it paid off by the time I am 65 years old.

Your Pru pension, assuming it is an older plan and not their current offering, doesn't actually mature until age 75.   What is likely is that the current selected age is 55 but that doesn't mean you have to take it at 55.

Taking money out of your pension to clear a mortgage is not normally considered a good idea unless it is part of your retirement plan.

If I were to use the TFLS now and pay it off the mortgage I could reduce the mortgage term to 10 years by raising the monthly payments by £200 which I could afford.

And what impact will there be on your retirement income being 25% lower?

Gazjoe

There are no early repayment penalties as my fixed rate mortgage is about to end. My next mortgage fixed rate will be around 2.5 to 3% hopefully.
I'm not too sure where my Pru pension is invested, I took it out in my mid 20s and haven't paid in to it for years.
I am aiming to retire at 65 and will need the TFLS to clear the remaining 5 years that will be left on the mortgage at that time as I do not want to be working until I am 70 years old. 

I am adverse to risk with this pension as although it is a smallish pot, it would be a major part of my retirement income.
Thanks for the advice so far.

dunstonh

I am adverse to risk with this pension as although it is a smallish pot, it would be a major part of my retirement income.

What risks are not adverse to?   Having less money in retirement is a risk.     Investment risk is one risk, but there are others.  Risk of doing things that are not best for you.  Inflation risk. Shortfall risk etc.

Having an investment that is averaging 5-6% a year to clear a debt costing you 2% can be folly. If mortgage rates were higher or unaffordable then there can be a good reason to use the pension money but doing it now whilst you are still working and rates are low doesn't really seem to stack up.

I am aiming to retire at 65 and will need the TFLS to clear the remaining 5 years that will be left on the mortgage at that time as I do not want to be working until I am 70 years old. 

And how are you funding the gap from 65 to your state pension age?
Clearing the mortgage then seems more sensible.  However, it may not be necessary.  Higher inflation and increasing earnings mean you may afford to overpay the mortgage at some point and clear it naturally during your working life.

Gazjoe

Thank you Dunstonh,
My wife and I will still be in full time employment until I reach 65.
Your comments re overpaying the Mortgage make more sense than using the pension TFLS.
In my letter from the Pru they state that if they do not hear from me by my selected retirement date (01/08/22) they will move my pension to a Cash Fund or Deposit Fund, which is not a good long term investment. I don't want to commit to an annuity at this stage so what other options would be available to me please?

MallyGirl

With that comment they are definitely thinking that you will be buying an annuity. That was probably more common when you signed up but time has moved on. If you are not wanting an annuity, and not at 55 when you plan to work for another 10 years, then you are probably going to want to transfer to a more modern product which supports drawdown options. You could ask the Pru what options they offer that support drawdown.
At your age you will not get your state pension till you are 67 so you don't want to be spending down the pot too much if it needs to cover that 2 year gap as well as topping up the state pension.

Gazjoe

Thank you MallyGirl, I will speak to the Pru and discuss my options.
As all of this is new to me, what would I be looking for in a good drawdown plan please?
Pros and Cons, etc

dunstonh

I will speak to the Pru and discuss my options.

Be on guard.  Most of the Pru pensions do not support most of the drawdown options.  They have an in-house sales team to convert people to their pension plan that does.  At a cost that is greater than many IFAs.

As all of this is new to me, what would I be looking for in a good drawdown plan please?

Don't go looking for solutions until you know what your objectives are.    A good drawdown plan meets your objectives. 

Start with planning and modelling your future needs.  Then if you can achieve them and how you can achieve them.  Then look at the providers that facilitate that.  Don't jump to providers first.  Otherwise you can end up paying extra in costs.