Could it ever be a wise move to borrow to invest in your pension?

MallyGirl

I am not sure that £10k is enough to add the complexity/risk to your life.

I have increased my mortgage in order to sal sac £40k a year into mine and OH's pensions for the last couple of years but we are over 55 and the mortgage rate is fixed at 1.16% for 5 years. We will pay the mortgage off when we retire at the end of the fix (using PCLS). Previously I stoozed and fully exercised my offset mortgage to good effect with 0% cards.

RogerPensionGuy

My answer to the opening poster is yes in my opinion.

In my case between age 16 to 30 I only made minimal payments in to a good DB scheme and had plenty of spare cash.

Between 30 and 48, married, children and a moderate mortgage I was paranoid about debt so paid off mortgage in just 16 or 17 years and still only made minimal pension payments. 

Then at age 49 started to fill up pension inputs to high levels, 61 now.

I'm very happy with my pension position now but, in hindsight had I of paid off mortgage slower and routed that cash in to pensions and AVCs my pension position would of been much better so in my case my answers to the opening question is yes.

Anonymous101

I could definitely see a scenario where it could be useful. Obviously taking on risk but that could be mitigated largely?

Post / approaching pension access age, relatively high earner (40% tax relief). Take a large loan say a re-mortgage. Work value of the loan into pension over a couple of tax years investing largely in cash.

Would have been more beneficial when interest rates and inflation were much lower but still in theory could work now.
Need to think about covering major risks of access, servicing loan / covering living expenses, access to funds and market movements, inflation etc. which I think the above does for the most part.

If you think about it a lot of people who are paying increased percentages into pensions are choosing to do so rather than pay down a mortgage. Taking the loan specifically to pay into a pension is just a more extreme version of that.

Albermarle

RogerPensionGuy said:

My answer to the opening poster is yes in my opinion.

In my case between age 16 to 30 I only made minimal payments in to a good DB scheme and had plenty of spare cash. 

Between 30 and 48, married, children and a moderate mortgage I was paranoid about debt so paid off mortgage in just 16 or 17 years and still only made minimal  modest but slowly increasing pension payments. 

Then at age 49 started to fill up pension inputs to high levels, and then at maximum level from at 55 until retired at 62.

I'm very happy with my pension position now but, in hindsight had I of paid off mortgage slower and routed that cash in to pensions and AVCs my pension position would of been much better so in my case my answers to the opening question is yes. Also held too much in cash savings ( still do, but proportionately less ) 

Very similar scenario for me. with a few differences in bold.

DBdoobydoo

In the last week of tax year 2022-23 I overdrew my current bank account by £8,000 to pay into my SIPP. In the first week of tax year 2023-24 I drew £8,000 out of my SIPP to return to my bank account to pay off the overdraft. Last week I received the £2,000 tax rebate into my SIPP & will in due course get the higher rate tax paid refunded when I complete my Self Assessment tax return.

QrizB

DBdoobydoo said:

In the last week of tax year 2022-23 I overdrew my current bank account by £8,000 to pay into my SIPP. In the first week of tax year 2023-24 I drew £8,000 out of my SIPP to return to my bank account to pay off the overdraft. Last week I received the £2,000 tax rebate into my SIPP & will in due course get the higher rate tax paid refunded when I complete my Self Assessment tax return.

How does the tax you paid on the £8000 SIPP withdrawal figure into your calculations? And you're now subject to the MPAA?

IAMIAM

This is something I potentially might do nearer retirement age...maybe around the 55-60 mark. 
I am in TPS, I would be tempted to top up my pension to the absolute maximum I can before quitting work.

DBdoobydoo

QrizB said:

DBdoobydoo said:

In the last week of tax year 2022-23 I overdrew my current bank account by £8,000 to pay into my SIPP. In the first week of tax year 2023-24 I drew £8,000 out of my SIPP to return to my bank account to pay off the overdraft. Last week I received the £2,000 tax rebate into my SIPP & will in due course get the higher rate tax paid refunded when I complete my Self Assessment tax return.

How does the tax you paid on the £8000 SIPP withdrawal figure into your calculations? And you're now subject to the MPAA?

I am tax resident in France but come to UK to work part time. I had 25% tax free & then was taxed at 20%. I have however submitted my Form France Individual to HMRC so I will get all the tax back. Liquidating my SIPP I will only pay 7.5% tax in France.

The MPAA was raised to £10,000 in the last budget which is about as much as I could hope to pay into my SIPP each year. I'm just holding cash so I can get the tax rebate then i pay just 7.5% tax in France.

atush

RogerPensionGuy said:

My answer to the opening poster is yes in my opinion.

In my case between age 16 to 30 I only made minimal payments in to a good DB scheme and had plenty of spare cash.

Between 30 and 48, married, children and a moderate mortgage I was paranoid about debt so paid off mortgage in just 16 or 17 years and still only made minimal pension payments. 

Then at age 49 started to fill up pension inputs to high levels, 61 now.

I'm very happy with my pension position now but, in hindsight had I of paid off mortgage slower and routed that cash in to pensions and AVCs my pension position would of been much better so in my case my answers to the opening question is yes.

I agree.  Borrowing, no.  But paying more into pension rather than spending, or paying off mtg at s low rate?  Yes

BassmanasH

So if you borrow money, and put it in your pension, you still owe money. It needs to be paid with a fee/interest over time with other money (as you can't spend what is in your pension without huge penalty.)

So that begs the question why do it, surely just use the money you would be using to service your loan and put it in the pension.

A lot less messy. You'll probably sleep better too....