Advice required

Qyburn

I know this goes against the advice of others, but since he's a 40% tax payer what about taking some tax-free from the pension to clear some of the expensive debts, and increasing pension contributions to make it back up over a few years, saving on 40% tax while doing so?

It's my understanding that taking tax-free doesn't stop you making contributions and getting tax relief, if that's wrong then clearly my idea doesn't fly.

london_lad

I don't think it is a good idea to touch your pension pot.

SusieT

Qyburn said:

I know this goes against the advice of others, but since he's a 40% tax payer what about taking some tax-free from the pension to clear some of the expensive debts, and increasing pension contributions to make it back up over a few years, saving on 40% tax while doing so?

It's my understanding that taking tax-free doesn't stop you making contributions and getting tax relief, if that's wrong then clearly my idea doesn't fly.

It is not a case of being tax free, it is that with pensions you always do everything possible to leave them well alone and do not touch them until retirement.  Have a look at the thread on the pensions page, there are people posting there who are brokers and IFA's and all are giving reasons not to touch it.

zAndy1

SusieT said:

Qyburn said:

I know this goes against the advice of others, but since he's a 40% tax payer what about taking some tax-free from the pension to clear some of the expensive debts, and increasing pension contributions to make it back up over a few years, saving on 40% tax while doing so?

It's my understanding that taking tax-free doesn't stop you making contributions and getting tax relief, if that's wrong then clearly my idea doesn't fly.

It is not a case of being tax free, it is that with pensions you always do everything possible to leave them well alone and do not touch them until retirement.  Have a look at the thread on the pensions page, there are people posting there who are brokers and IFA's and all are giving reasons not to touch it.

In an ideal world sure, but sometimes circumstances make touching it the sensible thing to do. If I take the tfls from both DC schemes (and I'm not saying I do that as soon as I turn 55 as I accept the timing isn't great but perhaps at some point next year if the funds reverse some of this years losses) I will immediately be in a much better position to a) pay off the loan that's costing me £400pm at the moment b) overpay my mortgage saving who knows how much in interest over the next 10 years c) contribute more to my pension , currently I contribute 4.5%, I can contribute up to 10% and the company will match it , that would mean a much bigger amount going into my pension, less tax and maximising the company contribution I'm eligible for. I can't do all of those things as things stand at the moment. 

MEM62

@zAndy1 Look back and take some perspective.  In the past you have had a debt issue to the point of bankruptcy.  You have now run debts up again and are looking to pay for them using your future (retirement) income.  The real solution is getting to grips with your spending and repaying your debts from your current disposable income.  Your SOA indicates that you have more than enough spare cash each month do so this. 

Your future self with be extremely grateful that you did not spend his money.        

enthusiasticsaver

If you forego holidays for a few years and pay £2k per month towards the cards as you say you are hoping to then  you could get on top of the debt without resorting to using your pension pot. 

You are looking for a quick fix but it doesn’t work like that. You need to change your lifestyle and reduce your dependency on credit. Sort out your budget and make a realistic plan to pay off the debt out of your income. As the debt decreases 0% deals will come available. 

zAndy1

Can we take a step back perhaps and work out exactly what the impact of me taking the tfls from my DC pensions is going to be on my retirement income as that's the crucial thing really at the end of the day isn't it. So let's do a very basic calculation to work out the potential difference if I don't take the tfls and if I take the max tfls from the 2 DC pension funds, approx £32500 (might be a bit less, might be a bit more depending on when I take it). Let's assume growth on average of 5% a year ,  so if I don't take the tfls £132500 x 10 years at 5% growth pa = £215000 , if I do take the tfls £100000 x 10 years at 5% growth pa = £163000 , a difference of £52000. So what sort of additional income could I expect from that in retirement, about £2k pa realistically?
 
So the million dollar question is, can I increase my retirement income (or reduce my retirement outgoings) by more than £2k if I take the tfls now? And I wish I had the answer to that but my gut feeling is yes I could. How best to go about that though is the question....

Cressida100

zAndy1 said:

Can we take a step back perhaps and work out exactly what the impact of me taking the tfls from my DC pensions is going to be on my retirement income as that's the crucial thing really at the end of the day isn't it. So let's do a very basic calculation to work out the potential difference if I don't take the tfls and if I take the max tfls from the 2 DC pension funds, approx £32500 (might be a bit less, might be a bit more depending on when I take it). Let's assume growth on average of 5% a year ,  so if I don't take the tfls £132500 x 10 years at 5% growth pa = £215000 , if I do take the tfls £100000 x 10 years at 5% growth pa = £163000 , a difference of £52000. So what sort of additional income could I expect from that in retirement, about £2k pa realistically?
 
So the million dollar question is, can I increase my retirement income (or reduce my retirement outgoings) by more than £2k if I take the tfls now? And I wish I had the answer to that but my gut feeling is yes I could. How best to go about that though is the question....

I think you've already made your decision.....

kimwp

It feels like you are trying to persuade everyone here that your initial thoughts are correct. 

Personally (if your age makes this possible), I'd be paying off the unsecured debt, highest interest first, and doing the 10% pension contributions (free money). Then overpaying the mortgage. I'd set the payments to have paid off the debt and mortgage by certain times eg to remortgage at a certain deposit % or to have achieved a certain level of mortgage by retirement. If you then need the lump sum to pay off the remaining mortgage at that point, that would seem sensible to me.

zAndy1

kimwp said:

It feels like you are trying to persuade everyone here that your initial thoughts are correct. 

Personally (if your age makes this possible), I'd be paying off the unsecured debt, highest interest first, and doing the 10% pension contributions (free money). Then overpaying the mortgage. I'd set the payments to have paid off the debt and mortgage by certain times eg to remortgage at a certain deposit % or to have achieved a certain level of mortgage by retirement. If you then need the lump sum to pay off the remaining mortgage at that point, that would seem sensible to me.

Ok, so I see what you're saying there, bide my time, pay off as much credit card debt as possible while also maxing out the pension contributions and wait and let the pension funds grow as much as possible and potentially use the tfls to pay off what's left on the mortgage at the point of retirement. Sounds like a good idea, only downside I guess is that it leaves us paying a lot of interest on the mortgage for the forseeable future , hopefully interest rates won't increase much more and will drop next year. Such a plan will rely on me being able to continue to get promotional rates on my credit card debt though , that sort of balance at 20% will be unsustainable