How's my plan?

Perksy5

This is a new concept for me using pension to repay mortgage.
Alot of previous reading on here has been just about clearing the mortgage as quick as possible given your circumstances. 
The only thing I worry about as a younger saver is that with 29 years to go until the new pension withdrawal age (57) this could increase several times by then and my hope of paying mortgage off sooner means I end up paying even more interest. 
That video by James Shack is really positive but it almost seems too good an idea to be feasible.

Albermarle

Perksy5 said:

This is a new concept for me using pension to repay mortgage.
Alot of previous reading on here has been just about clearing the mortgage as quick as possible given your circumstances. 
The only thing I worry about as a younger saver is that with 29 years to go until the new pension withdrawal age (57) this could increase several times by then and my hope of paying mortgage off sooner means I end up paying even more interest. 
That video by James Shack is really positive but it almost seems too good an idea to be feasible.

Yes on the mortgage forums, there are a lot of evangelists for clearing the mortgage asap. However on the Saving and Investments forum, we try to take a more measured view !

In fact we get regular posts/questions along the lines of ' Mortgage vs pension?' for example.

Obviously it depends on a persons situation but it usually boils down to, paying off the mortgage is the emotional answer, and instead investing for the future/retirement is the rational answer.
As humans are a mixture of the emotional and the rational, then it is best to do some of both.
Caveat would be if you had an insecure job, then it would favour paying the mortgage to keep a roof over your head.
Also you do not have to invest via a pension, although that is the most tax efficient way. You can invest also via a Stocks and Shares ISA, where the money could be available earlier .

Hopingforthesimplelife

Hi, your situation is similar to mine in many ways with a few small differences (our S&S and cash positions effectively are swapped and I have c. Double the pension pot, but I am 36).

I have c.£35k in cash but that is only so large as plan kitchen renovation in next 6 months. 

Agree with other posters your pension seems light and cash position heavy, but it seems like you aware of that and sounds like you have a reasonable plan. 

Edit: what is your salary? If you are higher rate I would suggest actually a higher pension contribution becomes a no brainer 

dunstonh

Alot of previous reading on here has been just about clearing the mortgage as quick as possible given your circumstances. 

The blind leading the blind is not a good source for what you should do.

The only thing I worry about as a younger saver is that with 29 years to go until the new pension withdrawal age (57) this could increase several times by then and my hope of paying mortgage off sooner means I end up paying even more interest. 

In 34 years, it has increased from 50 to 55, then to 57 and likely to go to 58 when the state pension goes to 68.

This is a new concept for me using pension to repay mortgage.

It isn't normally a good idea unless you already have enough in the pension and are looking at excess amounts.  Using your 25% as income in retirement is the most desirable option if you can afford to do so.  

consciousobservation

Thank you for the replies.

I am not a HRT (just) so the tax efficiency of pension contributions are not as great but I take on board that I am underweight and will probably put £9,000 of that £18,000 in to my pension instead which % wise is a pretty good increase.

I find pension contributions difficult as the calculators for how much of a pot you will end up with or need seem to vary so much. Vary the expected growth by 1% and over 35 years it makes a huge difference.

I disagree that the purely rational decision is to focus on pension at the expense of mortgage, going all in until you are 55 is not without risks. What happens if you need to reduce work hours due to ill health, or lose your job in your 50's and have to take a pay cut. If you had overpaid your mortgage you might have cleared it or reduced it to a manageable amount vs still having a large amount owed and not having access to the money you need to clear it for a number of years.

My job is about as secure as I could expect, I am fairly confident it would not be difficult to find something else if the worse did happen. But I'd still like to stay on the cautious side in terms of emergency fund.

Perksy5

Albermarle said:

Perksy5 said:

This is a new concept for me using pension to repay mortgage.
Alot of previous reading on here has been just about clearing the mortgage as quick as possible given your circumstances. 
The only thing I worry about as a younger saver is that with 29 years to go until the new pension withdrawal age (57) this could increase several times by then and my hope of paying mortgage off sooner means I end up paying even more interest. 
That video by James Shack is really positive but it almost seems too good an idea to be feasible.

Yes on the mortgage forums, there are a lot of evangelists for clearing the mortgage asap. However on the Saving and Investments forum, we try to take a more measured view !

In fact we get regular posts/questions along the lines of ' Mortgage vs pension?' for example.

Obviously it depends on a persons situation but it usually boils down to, paying off the mortgage is the emotional answer, and instead investing for the future/retirement is the rational answer.
As humans are a mixture of the emotional and the rational, then it is best to do some of both.
Caveat would be if you had an insecure job, then it would favour paying the mortgage to keep a roof over your head.
Also you do not have to invest via a pension, although that is the most tax efficient way. You can invest also via a Stocks and Shares ISA, where the money could be available earlier .

Haha good to know, thanks!

I've spent several years in banking but even the investment side of things boggles my brains.
I've not a clue where to start with s&s and what funds are best to choose for my circumstances its confusing, same with particular pension funds.

I do think there should be a happy medium between mortgage and pensions. For me, going balls to the wall on either makes me anxious I'd made the wrong decision!

jimjames

Perksy5 said:

Albermarle said:

Perksy5 said:

This is a new concept for me using pension to repay mortgage.
Alot of previous reading on here has been just about clearing the mortgage as quick as possible given your circumstances. 
The only thing I worry about as a younger saver is that with 29 years to go until the new pension withdrawal age (57) this could increase several times by then and my hope of paying mortgage off sooner means I end up paying even more interest. 
That video by James Shack is really positive but it almost seems too good an idea to be feasible.

Yes on the mortgage forums, there are a lot of evangelists for clearing the mortgage asap. However on the Saving and Investments forum, we try to take a more measured view !

In fact we get regular posts/questions along the lines of ' Mortgage vs pension?' for example.

Obviously it depends on a persons situation but it usually boils down to, paying off the mortgage is the emotional answer, and instead investing for the future/retirement is the rational answer.
As humans are a mixture of the emotional and the rational, then it is best to do some of both.
Caveat would be if you had an insecure job, then it would favour paying the mortgage to keep a roof over your head.
Also you do not have to invest via a pension, although that is the most tax efficient way. You can invest also via a Stocks and Shares ISA, where the money could be available earlier .

I do think there should be a happy medium between mortgage and pensions. For me, going balls to the wall on either makes me anxious I'd made the wrong decision!

There's no reason you need to do all in one option, you could overpay mortgage or pay into savings and split it with pension and/or S&S ISA.

dunstonh

I find pension contributions difficult as the calculators for how much of a pot you will end up with or need seem to vary so much. Vary the expected growth by 1% and over 35 years it makes a huge difference.

Garbage in, garbage out.    However, the returns on the pension wrapper would be identical to the ISA wrapper if you use the same investments (and both ISAs & pensions, along with most tax wrappers, offer the same investments).

So, favouring the ISA over pension because of assumptions used on a growth calculator is not a good idea.

Albermarle

I disagree that the purely rational decision is to focus on pension at the expense of mortgage, going all in until you are 55 is not without risks.

If you read the posts carefully, it is more that investing at the expense of mortgage, is usually the rational decision.

Investing can be in the form of a pension or a S&S ISA , which is more accessible in case of earlier need. ( or both ) 

InvesterJones

Firstly, well done - you're doing well, you have the basics sorted and you're planning. Everything else is somewhat marginal gains - yes, you will have to contribute more to a pension pot at some point and there's a small tax advantage for doing so - however there'll be a larger tax advantage when you become a higher rate tax payer so I wouldn't overly worry about extra contributions.

S&S ISA is more flexible, but of course, check your likely timeframe for investments - one of the advantages of an early pension investment is it forces you to be locked in for a long time, which makes them suitable for more volatile investments - I saw a slide yesterday which showed that to date, there was no equities investment (presumably in a particular index) that registered a loss in real terms after 23 years - even the worse timing came good eventually. Now of course, that's past performance, which is no guarantee of future, but the point being made was the long term nature.

Nothing stopping you staying invested in a S&S ISA for just as long mind you, but just bear in mind what you're planning to use it for when you're picking what assets to put in the wrapper.