Pension options to deal with debts / mortgage situation

MallyGirl · 28 October 2022 at 4:49PM

The comments about advice relate to transferring DB pensions - you are correct that you won't need that for a straight DC one.

From £200k you 'might' get £7k if you work follow the 3.5% 'safe' withdrawal rate.
It would definitely be worth understanding what your wife's pension would be so you can make decisions from a position of knowledge.

It depends on the pet but I am one that would say keep the insurance - you don't have any borrowing headroom - but then I incurred vet bills of £8k in 3 weeks this summer. I was insured thankfully.

zAndy1 · 28 October 2022 at 4:57PM

Kim1965 said:

Out of interest, what have you bought on the cards?
Have you had periods of un employment, gambling?
Give us a clue. If i was in your position I would be confident on your také home i could sort it out. A period of austerity would be the way forward.
Most people on this site spend less than they earn, thats it, in a nutshell.

No unemployment, no gambling. Dining out, holidays , daft stuff like that really. As for the spending less than I earn, I am now, I paid £750 off my credit cards this month and £200 overpaid on the mortgage and still ended up with £400 more left at the end of the month than I started with.
I'd feel a lot more confident I could sort this situation out if I knew the credit card debt wasn't going to start incurring a lot of interest next year. I'm making a dent in the credit card debt at the moment only because most of the balance is at 0% interest. Change that to most of the balance is at 20% and it's a whole different story....

Cus · 28 October 2022 at 5:11PM

Does your wife know the full details of your finances?

german_keeper · 28 October 2022 at 5:12PM

Sorry if I have missed your answer to this Andy but a few posts have touched on your interest only mortgage. Is it really interest only and if so do you have anything in place to pay off the capital at the end of it?

Admiral_Barbarossa · 28 October 2022 at 5:22PM

zAndy1 said:

Admiral_Barbarossa said:

zAndy1 said:

Admiral_Barbarossa said:

zAndy1 said:

Admiral_Barbarossa said:

Link for debts letters!

Sample Letter - Write off the debt | Sample letter | National Debtline | National Debtline

Do not pay for an IVA!

Slight problem with that letter especially this comment 'As you can see, my outgoings are more than my income and I am experiencing extreme financial hardship.'. That's clearly not the case which is why I think I'm going to struggle to get sympathy from credit card companies when it comes to writing debt off etc.
I need this debt off my mind and I have an opportunity to do just that by this time next year at the latest if I dip into some of my pension. When I turn 60 my DB pension will start paying (unless I defer it) and I can continue to contribute to my current company pension (and at a good level) for the next 5 years all being well which should result in that being worth getting on for £150k by the time I'm 60. With my wife's pensions we'll be comfortable in retirement irrespective of whether I take my tax free lump sums now so I fail to see really why it's not sensible to do that and get rid of this debt asap , trust me it will be a huge weight off my shoulders if nothing else.

You are limited by MPAA rules to £4,000 a year to your pension if you raid it. Better paying off the loans over the years until you are 60.

Not if you only take the tax free lump sum

The problem here is you will use the pot to supplement further spending.

To access your pot, you will have to take Financial Advice. This may cost money and reduce future income. If your pot is below a set limit, of around £50,000, you may not be able to take it tax free as a lump sum, but have income and tax free. You need professional advice on this. No FA I know will allow you to use your pot to pay off debt.

Look at the debt helpline and there budget calculator and letters and do it that way!

Aviva will let me take the tax free cash after getting advice from pensionwise which I'm doing next week and that's free. I don't have to take income from either DC pension I have , one worth £100k and one worth £30k , Pensionbee will also let me take the tax free lump sum without incurring cost. I don't really get the comment 'No FA I know will allow you to use your pot to pay off debt'? Various advice I've seen suggests paying off debt is one of the few legitimate reasons for taking the tax free lump sum and it's up to me what I do with my tax free lump sum at the end of the day and no FA can stop me taking it either as far as I'm aware, it's a right everyone has at the end of the day.

And to address other comments made. It's all very well saying use the surplus income to pay the credit cards off but next year all of the credit card debt will start incurring interest at the standard rate, at that point I probably won't be able to afford the minimum payments or even if I can they'll just pay the interest and make no dent in the debt. Saying paying £1500pm off credit cards will have them paid off in 2.5 years, yes sure at 0% interest but as I said interest will start being applied next year unless I can move the balances to other 0% promotional rates which seems unlikely. Surely it makes sense before that happens to try and get the credit card debt paid off because frankly having say £35k on credit cards at 20% interest is not a sustainable situation.

House value is approx £250k so we have £90k equity in the house so yes I guess we could consider downsizing but it's definitely a last resort option , is that a better option than taking my pension tfls, perhaps and I'll definitely look into it but moving would be a major pain in the !!!!!! and we love our house and the neighbourhood but at the end of the day it's a 4 bed detached house and there are now only me and my wife living in it so downsizing is certainly an option I guess.
£34 wife's loan is for a DFS sofa, there's about £900 left , will probably look to pay that off in the next few months
Yeah I've thought about the pet insurance as it has got expensive, tempted to just put £50 a month away instead
£300 misc is to cover things like clothes, haircuts, nails, car servicing / MOTs , odd meal out (birthdays / anniversarys) things like that really
DC pension fund value £130k, that's current value and it's down a lot this year for obvious reasons (so yes not an ideal time to be taking cash out I get that). By retirement, let's say when I'm 65 for the sake of argument I would hope the DC funds would be worth at least £200k , with £5k going into my current one each year and a potential increase purely from the inevitable rebound in the next few years I don't think £200k is unreasonable as a DC fund value for myself. I would hope that would give me £8k a year. Think my wife's DB pensions are forecast to be about £15k, would have to double check that.

Money wise will not advise taking a lump dump to pay your debts. You current spending habits of the last 20 years suggest that you will not be responsible in paying your debt. Your continued spending pattern, over the last 15 years need looking at, and my links to National Debtline should be considered.

Kim1965 · 28 October 2022 at 5:30PM

Every body is trying to work out how you are in this pickle. For what it worth i hope you get your self sorted.
Your assertion that you will be fine in retirement needs thinking about though. If you cannot manage on 5k pm net now, will you manage on a lot less? Only i guess if you live within your means. Dipping into your pension seems to be an extension of the financial mismanagement that has got you to this point.

QrizB · 28 October 2022 at 5:46PM

I think you can do this without touching your pensions so long as you and Mrs zAndy1 can stop growing your debts.

First, I think you should stop overpaying on your mortgage. It's cheap debt and you've got CCs that surely are costing you more than 6%.

You've got £41k of credit card debt. You say £37k of that is currently at 0%, with £4k that isn't, and minimum payments are £700pm, but you're actually paying £1000pm - so that's £300pm that you're already paying above the minimum to pay down the £4k? If you also put your spare £1200pm towards that to make £1500pm, you'll clear the interest-charging £4k in 2-3 months.

Do you think you''ll be able to roll the other £37k over onto new 0% deals? If you can, £1500pm will clear those in 24 months, so by the end of 2024 you'll be free of the credit card debt and will have £2200pm to start eating away the principal on your mortgage.

Do you think you and your wife can make this work?

(If you can't roll the £37k over, it's going to be more challenging as you could have £10k pa of CC interest to pay, as well as the current balances.)

Clueless56 · 28 October 2022 at 5:59PM

I concur with the other posters that the issue you need to address is your spending and the place to start is with an SOA followed by a budget to see what is open to you without raiding your pensions.

I also can't understand your figures concerning your house and mortgage. You have said:
- house value is c£250k
- mortgage outstanding is £164k
- equity owned is c90%

Your figures suggest you own 65% of the equity.

I think you would be better leaving your DC pension untouched to recover from the effects of all that has happened this year in the markets, continue contributions and allow it to recover and build over the next ten years. £150k DC pot isn't a particularly big pension to be relying on (other posters have pointed out that it's about £7k p/a at 3.5% drawdown), and if you take 25% now when the markets are low, you're compounding the problem.

I understand your fear and panic, but do please head over to the debt boards and ask for their input in how to snowball your CC balances etc. as the Admiral has recommended. You have loads of fat to trim on the limited SOA you have given and probably options for extra income (at your wife's age I had 2 jobs to support myself and two children). Your fear is pushing you towards a quick solution rather than a good one.

I feel for you and wish you well but please don't compound your previous errors.

Admiral_Barbarossa · 28 October 2022 at 6:03PM

QrizB said:

I think you can do this without touching your pensions so long as you and Mrs zAndy1 can stop growing your debts.
First, I think you should stop overpaying on your mortgage. It's cheap debt and you've got CCs that surely are costing you more than 6%.
You've got £41k of credit card debt. You say £37k of that is currently at 0%, with £4k that isn't, and minimum payments are £700pm, but you're actually paying £1000pm - so that's £300pm that you're already paying above the minimum to pay down the £4k? If you also put your spare £1200pm towards that to make £1500pm, you'll clear the interest-charging £4k in 2-3 months.
Do you think you''ll be able to roll the other £37k over onto new 0% deals? If you can, £1500pm will clear those in 24 months, so by the end of 2024 you'll be free of the credit card debt and will have £2200pm to start eating away the principal on your mortgage.
Do you think you and your wife can make this work?
(If you can't roll the £37k over, it's going to be more challenging as you could have £10k pa of CC interest to pay, as well as the current balances.)

I think 0% cards are a less available these days. Problem with OP is they would use the new card to continue spending out of their means.

Grumpy_chap · 28 October 2022 at 6:45PM

zAndy1 said:
Aviva will let me take the tax free cash after getting advice from pensionwise which I'm doing next week and that's free. I don't have to take income from either DC pension I have , one worth £100k and one worth £30k , Pensionbee will also let me take the tax free lump sum without incurring cost. I don't really get the comment 'No FA I know will allow you to use your pot to pay off debt'? Various advice I've seen suggests paying off debt is one of the few legitimate reasons for taking the tax free lump sum and it's up to me what I do with my tax free lump sum at the end of the day and no FA can stop me taking it either as far as I'm aware, it's a right everyone has at the end of the day.

DC pension fund value £130k, that's current value and it's down a lot this year for obvious reasons (so yes not an ideal time to be taking cash out I get that). By retirement, let's say when I'm 65 for the sake of argument I would hope the DC funds would be worth at least £200k , with £5k going into my current one each year and a potential increase purely from the inevitable rebound in the next few years I don't think £200k is unreasonable as a DC fund value for myself. I would hope that would give me £8k a year. Think my wife's DB pensions are forecast to be about £15k, would have to double check that.

Based upon your salary level stated, your current pension provision is inadequate IMO. I tried to set out in my post above why this would be so. On that basis, any solution that uses your pension fund now will only be creating a miserable retirement when compared to your current level of income and expenditure.

I am not an expert on the rules for drawing the lump sum at age 55. It may be your "right" to do so and clearing debt may be a legitimate reason to do so. My understanding of the rules (which may be incorrect) is that the 25% lump sum can be drawn and you can do whatever you want with it - clear debt, world cruise, Ferrari, or be a twit and buy an internet social media site. Simply that you can do these things does not necessarily make them sensible depending on the whole circumstance for the individual.

Your specific proposal is whether it is legitimate to use the lump sum to pay down debt. I would say that really depends on the extent to which drawing the lump sum to clear debt will impact on the future retirement life-style. Consider the difference between these two scenarios:

Couple, £60k gross income between them, £50k debt, pension fund £900k, available 25% pot £225k, remainder fund might yield £30k plus two state pensions, so £50k possible retirement income (>80%).
Your scenario as set out following:

Against a current joint income of £87k gross (£62k nett), you are showing a retirement income of:

£19k (two state pensions)
Your DB pension £6k per year
Your DC pension £8k per year drawdown using your figures (which I think is optimistic from an expected £200k fund)
Your wife's DB pension £15k per year

Total retirement joint income £48k gross. About half of current gross income between you.

zAndy1 said:

And to address other comments made. It's all very well saying use the surplus income to pay the credit cards off but next year all of the credit card debt will start incurring interest at the standard rate, at that point I probably won't be able to afford the minimum payments or even if I can they'll just pay the interest and make no dent in the debt. Saying paying £1500pm off credit cards will have them paid off in 2.5 years, yes sure at 0% interest but as I said interest will start being applied next year unless I can move the balances to other 0% promotional rates which seems unlikely. Surely it makes sense before that happens to try and get the credit card debt paid off because frankly having say £35k on credit cards at 20% interest is not a sustainable situation.

House value is approx £250k so we have £90k equity in the house so yes I guess we could consider downsizing but it's definitely a last resort option , is that a better option than taking my pension tfls, perhaps and I'll definitely look into it but moving would be a major pain in the !!!!!! and we love our house and the neighbourhood but at the end of the day it's a 4 bed detached house and there are now only me and my wife living in it so downsizing is certainly an option I guess.
£34 wife's loan is for a DFS sofa, there's about £900 left , will probably look to pay that off in the next few months
Yeah I've thought about the pet insurance as it has got expensive, tempted to just put £50 a month away instead
£300 misc is to cover things like clothes, haircuts, nails, car servicing / MOTs , odd meal out (birthdays / anniversarys) things like that really

You have asked for advice, and people are giving suggestions to be helpful - I have not seen any negative or daft suggestions in the thread.

You don't feel paying down the CC is practical. Well, why not start from now? That will be a good way to spend the £1.5k spare each month and buy you the time to get proper advice and make a decision before jumping on the pension drawdown possibility which you may later regret and cannot reverse.
Out of interest, where is the spare £1.5k each month going at present?
Is the money being saved?
I ask, genuinely, as sometimes people post and then it transpires they have savings available that they don't want to spend as it means no emergency fund. Clearing unmanageable debt is better than having am emergency fund.
If the £1.5k is not being saved, what are you spending it on? Is it really spare?

You don't want to down-size, which I totally understand, and you see that as a last-resort.

You don't want to let the pet go, which I also understand as the pet has become part of the family, so this is also last-resort.

You have not commented on things like the car.

Then questions about anything you could sell. Jewellery? Watch?

Which of the last-resort actions is truly last-resort?
Are any of these last-resorts less-bad than having a long but miserable retirement?

The only consensus I see in the responses is not to rush into using pension to clear debt.
That seems to the be the only option you do not wish to hear.

Pension options to deal with debts / mortgage situation

Comments

Do not pay for an IVA!

The problem here is you will use the pot to supplement further spending.

Do not pay for an IVA!

The problem here is you will use the pot to supplement further spending.

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