Has the time come to prioritise the mortgage over the pension?

saucer

OldBeanz said:

If she is retiring on 2.5 years, she is getting an uplift of 25% in her income (£8 becomes £10). I cannot see how that is not the best option even sitting in cash, assuming she is not overshooting her max TFLS. I may be missing something.

Indeed.  Paying in at the current rate should keep her just under the max TFLS when she retires.  If it sat in cash in the AVC, so 0% growth, and interest rates averaged BoE 5% over the next few years, my spreadsheet suggests it would be a neck in terms of the funds left after the mortgage is paid off.  That is comparing the monthly payment on a 3.5% repayment mortage on a 15 year term (which we would pay off in 4-5 years) versus continuing to pay the interest only off an offset mortgage with the difference paid into the AVC.  (I hope that makes sense).   However the concern is that interest rates could go higher such that nothing is being paid into the AVC and the capital balance remains the same on the mortgage.  

OldBeanz

saucer said:

OldBeanz said:

If she is retiring on 2.5 years, she is getting an uplift of 25% in her income (£8 becomes £10). I cannot see how that is not the best option even sitting in cash, assuming she is not overshooting her max TFLS. I may be missing something.

Indeed.  Paying in at the current rate should keep her just under the max TFLS when she retires.  If it sat in cash in the AVC, so 0% growth, and interest rates averaged BoE 5% over the next few years, my spreadsheet suggests it would be a neck in terms of the funds left after the mortgage is paid off.  That is comparing the monthly payment on a 3.5% repayment mortage on a 15 year term (which we would pay off in 4-5 years) versus continuing to pay the interest only off an offset mortgage with the difference paid into the AVC.  (I hope that makes sense).   However the concern is that interest rates could go higher such that nothing is being paid into the AVC and the capital balance remains the same on the mortgage.  

I would think most AVCs would start paying low risk interest at 1 or 1.5%.
Not a life changing decision for you and you are in a good position
We had to finish paying ours off in 2020. Mortgage free not wannabee as Santander were paying us to borrow their money. 

Bimbly

One thing that could change the calculation - if the new Prime Minister decides to cut tax. Then the tax advantage of paying into the pension become less.