Pension to clear mortgage

MPPG

I have a pension pot of around £117,000.

Our Mortgage is around £62,000.

We are think about using the pot to clear or almost clear the balance off.  

Appreciate tax implications but health and job insecurity is dictating decision making.

8 years away from receiving full state pension.

I think still likely to be a balance in the pot.  How would that be better invested to hopefully attract a decent return to top up the state pension?

dunstonh

Appreciate tax implications but health and job insecurity is dictating decision making.

That is a very small pension pot to have at 58.   Using it up to pay the mortgage to allow early retirement is usually a bad move unless you have sufficient other means.   Otherwise you are effectively robbing your older years to pay for something you should have covered during your working life.

You have 8 years to fund the gap. What money are you going to use to do that?
Then you have 20-30 years of living off a state pension. Which is pretty close to the breadline and won't be much fun.

In situations like this, far more detail is needed.

MPPG

I know.  However i have been advised that due to a medical condition my life expectancy is reduced by 25%

I am looking into getting some work on a self employed basis or at worse a part time position.  I have worked all my life.

There will be a lot of equity in the property.

Just looking at the possibility of seeing whether if there is around £30-£40,000 left over that could generate a good return to top up the state pension to around £14-£15, 000 a year.  I'm not financially astute but understand when figures are there to look at if that makes sense.

Chances are by then We will will have down sized and have a chunk of equity to put away as well.





 

SouthCoastBoy

You say this is a very small pension pot, what would you view as an medium pension pot at 58?

Marcon

dunstonh said:

Appreciate tax implications but health and job insecurity is dictating decision making.

That is a very small pension pot to have at 58.   Using it up to pay the mortgage to allow early retirement is usually a bad move unless you have sufficient other means.   Otherwise you are effectively robbing your older years to pay for something you should have covered during your working life.

You have 8 years to fund the gap. What money are you going to use to do that?
Then you have 20-30 years of living off a state pension. Which is pretty close to the breadline and won't be much fun.

In situations like this, far more detail is needed.

....particularly as you will trigger the Money Purchase Annual Allowance if you take anything more than the tax-free 25% of your pot (which I gather you've already taken: https://forums.moneysavingexpert.com/discussion/6293203/feasibe-option-to-utilise-pension-funds#latest), so will be limited to a maximum contribution of £4K per annum, including tax relief on personal contributions and any employer contribution. You might currently wish you had £4K per annum to contribute, but if your situation changes, you could regret your decision to raid your pension pot now.

tacpot12

Job insecurity is no reason to raid your pension. If you have lost your job and are having your house repossessed, that's a different matter. Ill health is similar; if you can be ill, but still make your mortgage payments you don't need to raid your pension. Have you looked at what sick pay you will get and whether you can claim Employment and Support Allowance? 

xylophone

Have you both obtained state pension forecasts?

https://www.gov.uk/check-state-pension

What exactly do they say?

tacpot12

If you leave the £117,000 invested in your pension, I think you could withdraw £12,000 per year and still have £40,000 left after 8 years. Or you could withdraw £15,000 per year and still have a few thousand left. This assumes that you can acheive a return of 4% on your pension savings, which shouldn't be too risky.

Withdrawing the money slowly, and paying off the mortgage over the rest of its life will cost a little interest, but you haven't said what mortgage rate you are paying and how long it is fixed for, or whether it is linked to any bank rate. 

Your post suggests that you are panicking a bit, as a result of the prognosis you have been given. I would say that you need to review all your finances, such as your entitlement to the state pension, and come up with a plan to deal with your changed circumstances gradually. I'm sorry you have been told about your reduced life expectancy, but this still means that you  will probably live until you are 75 and it becomes more important that you leave your wife/partner some of your pension when you die. 

You should also factor in any life insurance, but I would not take out any more life insurance than you already have. Your prognosis will mean that any new life insurance will be prohibitively expensive. Don't worry about this, just formulate a plan to pay off the mortgage over the next 8 years.  

Albermarle

I think still likely to be a balance in the pot.  How would that be better invested to hopefully attract a decent return to top up the state pension?

If it could be better invested ( whatever that means) then it should be better invested now ( the £117K).

Just looking at the possibility of seeing whether if there is around £30-£40,000 left over that could generate a good return to top up the state pension to around £14-£15, 000 a year.  I'm not financially astute but understand when figures are there to look at if that makes sense.

You would hope it would generate a good return over the long term, but nothing like the amount you are suggesting. £40K could typically produce a sustainable income of around £1,500 pa., increasing with inflation

If you wanted to tolerate a greater risk of it running out before you die, you could up it a bit. However if you take £4K pa out of it , it will probably be gone in 10 years.

MPPG

I would be entitled to the full stste pension as ive been in full time employment for 40 years.

Really appreciate the comments.

Ideally Im just exploring options and figures.  If the dtate pension comes out at around £9500 I am looking to add to that with private pension withdrawals annyallt of around £5000 if that makes sense?

Brie

Assuming this is going to be done via drawdown have you considered how it limits the tax free amount you can pay into your current employment pension?

And what about your partner will they be able to manage without you and without anything left from your pension should you die as early as you are presuming??  (not meaning to be blunt but maybe it's not an issue if they have lots of pension they will be able to collect)