Is putting lump sum into pension a 'no-brainer'?

MEM62

zoothornrollo_2 said:

MEM62 said:

zoothornrollo_2 said:

As I am 52, my instinct is that the best thing to do with a big chunk of it is to feed it into my pension over the coming few years (without hitting the £40k annual allowance). As then I will benefit from higher rate pensions tax relief, which will boost the sum significantly - and it can still be accessed tax-free at age 58 if we really need the money (possible investment losses allowing). 
Either that or pay down our mortgage, which is substantial. But surely we'd be better off taking the pensions tax relief (plus hopefully investment gains!) and paying down the mortgage with my tax-free lump sum at pension access age?

It doesn't have to be either/or.  You could look at a combination of both.  Your pension is about as tax-efficient as savings can get and therefore is probably most efficient use of the cash.  That is probably the direction in which I would throw most of it.  However, lowering your LTV on your next mortgage renewal may also bring benefits in lower interest charges and lower monthly payments.  It is very much a case of looking at your overall circumstances.         

We are about six months into a five-year fix. If we pay a lump sum (or more than one) into our mortgage now, will it reduce our payments immediately?

You may find that you can only pay off 10% off the outstanding capital.  You will need to speak with your lender to dicsuss whether they would reduce the monthly payments or reduce the overall term.    

zoothornrollo_2

MEM62 said:

zoothornrollo_2 said:

MEM62 said:

zoothornrollo_2 said:

As I am 52, my instinct is that the best thing to do with a big chunk of it is to feed it into my pension over the coming few years (without hitting the £40k annual allowance). As then I will benefit from higher rate pensions tax relief, which will boost the sum significantly - and it can still be accessed tax-free at age 58 if we really need the money (possible investment losses allowing). 
Either that or pay down our mortgage, which is substantial. But surely we'd be better off taking the pensions tax relief (plus hopefully investment gains!) and paying down the mortgage with my tax-free lump sum at pension access age?

It doesn't have to be either/or.  You could look at a combination of both.  Your pension is about as tax-efficient as savings can get and therefore is probably most efficient use of the cash.  That is probably the direction in which I would throw most of it.  However, lowering your LTV on your next mortgage renewal may also bring benefits in lower interest charges and lower monthly payments.  It is very much a case of looking at your overall circumstances.         

We are about six months into a five-year fix. If we pay a lump sum (or more than one) into our mortgage now, will it reduce our payments immediately?

You may find that you can only pay off 10% off the outstanding capital.  You will need to speak with your lender to dicsuss whether they would reduce the monthly payments or reduce the overall term.    

Yes am aware of the overpayment limit.
But if your monthly payments don't go down, it does beg the question, what is the point of overpaying on your mortgage if you are towards the start of a fixed-rate deal?

sheslookinhot

zoothornrollo_2 said:

MEM62 said:

zoothornrollo_2 said:

MEM62 said:

zoothornrollo_2 said:

As I am 52, my instinct is that the best thing to do with a big chunk of it is to feed it into my pension over the coming few years (without hitting the £40k annual allowance). As then I will benefit from higher rate pensions tax relief, which will boost the sum significantly - and it can still be accessed tax-free at age 58 if we really need the money (possible investment losses allowing). 
Either that or pay down our mortgage, which is substantial. But surely we'd be better off taking the pensions tax relief (plus hopefully investment gains!) and paying down the mortgage with my tax-free lump sum at pension access age?

It doesn't have to be either/or.  You could look at a combination of both.  Your pension is about as tax-efficient as savings can get and therefore is probably most efficient use of the cash.  That is probably the direction in which I would throw most of it.  However, lowering your LTV on your next mortgage renewal may also bring benefits in lower interest charges and lower monthly payments.  It is very much a case of looking at your overall circumstances.         

We are about six months into a five-year fix. If we pay a lump sum (or more than one) into our mortgage now, will it reduce our payments immediately?

You may find that you can only pay off 10% off the outstanding capital.  You will need to speak with your lender to dicsuss whether they would reduce the monthly payments or reduce the overall term.    

Yes am aware of the overpayment limit.
But if your monthly payments don't go down, it does beg the question, what is the point of overpaying on your mortgage if you are towards the start of a fixed-rate deal?

You will shorten the term. I always preferred to reduce the length of mortgage rather than reduce payments, when I was overpaying.

Pat38493

zoothornrollo_2 said:

MEM62 said:

zoothornrollo_2 said:

MEM62 said:

zoothornrollo_2 said:

As I am 52, my instinct is that the best thing to do with a big chunk of it is to feed it into my pension over the coming few years (without hitting the £40k annual allowance). As then I will benefit from higher rate pensions tax relief, which will boost the sum significantly - and it can still be accessed tax-free at age 58 if we really need the money (possible investment losses allowing). 
Either that or pay down our mortgage, which is substantial. But surely we'd be better off taking the pensions tax relief (plus hopefully investment gains!) and paying down the mortgage with my tax-free lump sum at pension access age?

It doesn't have to be either/or.  You could look at a combination of both.  Your pension is about as tax-efficient as savings can get and therefore is probably most efficient use of the cash.  That is probably the direction in which I would throw most of it.  However, lowering your LTV on your next mortgage renewal may also bring benefits in lower interest charges and lower monthly payments.  It is very much a case of looking at your overall circumstances.         

We are about six months into a five-year fix. If we pay a lump sum (or more than one) into our mortgage now, will it reduce our payments immediately?

You may find that you can only pay off 10% off the outstanding capital.  You will need to speak with your lender to dicsuss whether they would reduce the monthly payments or reduce the overall term.    

Yes am aware of the overpayment limit.
But if your monthly payments don't go down, it does beg the question, what is the point of overpaying on your mortgage if you are towards the start of a fixed-rate deal?

With a lot of mortgages you can choose whether overpayments will shorten the term or reduce the payments - e.g. with Nationwide you can make this selection in their online banking platform.

zoothornrollo_2

sheslookinhot said:

You will shorten the term. I always preferred to reduce the length of mortgage rather than reduce payments, when I was overpaying.

OK thanks - but then does it make any difference if you do the overpaying earlier rather than later into your fixed deal?

GrumpyDil

If you do the overpaying earlier then you reduce your overall interest. If you are on a good rate then I would personally look at maximising the pension contributions, assuming you have no other areas to spend the money.