Pension or Mortgage overpayments

samps1973

Hi,

I'm not sure weather to put extra money into my pension with nest or pay overpayments to my mortgage.

The money I earn over £50,270 I've been putting into my pension as I will recieve 20% tax relief at source and 20% that I can claim back from hmrc which is quite good if the investment with the pension company goes in the right direction. I currently have 65k in my nest pension and has grown from about 53k sinse companies had to pay into a workplace pension, so quite a good growth.

Starting my mortgage quite late on I've also been overpaying my mortgage by 1k per month to knock the interest down otherwise I'll be paying until I'm 75. I pay this extra with what I earn below £50,270.

I'm not sure whether it will be worth paying everything I earn over £50,270 into my pension because i know you need a lot of money saved in your pension to benefit from it. Although 65k is a lot of money, pension wise it's nothing really as a monthly income for the future.

Myself and my employer pay in about £250 per month and I have recently been paying in gross £427.50 per month. Sometimes I put the money in the pension pot and it drops in value. Although I get the tax relief when the pot drops in value it can go down quite a bit in one day sometimes.

I'm wondering whether I should continue with the extra pension savings or to pay my mortgage instead.

Over the next few years my salary will be increasing and want to pay the extra to my pension or mortgage and dont want to make an expensive mistake.

Just wondering what your thoughts are about this? and maybe what people have done in similar situations to mine?

Thanks

ader42

What is your age?

samps1973

Sorry, I'm 50

penners324

What's the pension invested it? Nest's default fund isn't great.

I'm in the Sharia fund which is up 12% in the last 8 months or so

samps1973

I did move to the Sharia fund but it had quite a big drop over a few days and lost about 2k so went back to the 2040 default one. I'm thinking about trying it again but give is some time to see what happens, I read that although it's had the best 5 years the next could be the worst 5 years same as any investment I guess

samps1973

I just changed it back to Sharia, fingers crossed. Going to give It 6 months to see how it goes

Hoenir

When's your mortgage term currently due to end? 

When's the current mortgage product due for renewal? 

samps1973

My current mortgage is 23 years it started 2 yrs ago. I also used the governments help to buy scheme.my mortgage payments are about £530 per month but I also pay £1000 per month when I can to bring the term down by years.

I'm currently 2 years into a 5 year fixed deal at 1.59%

Kernowshep

Based on what you've said (assuming no other debts/major savings or investment/household income etc. etc.) I'd do the following:
1. Pay anything that falls into higher rate tax into the pension (or the amount that gets the greatest company addition if that's more).
2. Not overpay while on a 1.59% rate, but save it in a savings account/ISA paying 5%+ interest instead (to make an extra 3.5% or so).
3. Not change what the pension is invested in based on a relatively small percentage change in value.
4. Look at the situation again 3-6 months before the mortgage needs to be renewed (including H2B rate and repayment options).

dunstonh

I did move to the Sharia fund but it had quite a big drop over a few days and lost about 2k so went back to the 2040 default one.

£2000 needs context.  For many people with pensions, that is a daily move.    There hasn't been any big drops in the last 18 months.  So, when was this?

I read that although it's had the best 5 years the next could be the worst 5 years same as any investment I guess

Its above the risk profile of most consumers.  Its tech heavy and tech is priced higher than the general market at the moment.   However, with monthly payments going in, that isn't an issue.  If you have other pensions, you could always go a bit more defensive on them.

However, do remember that equities have doubled over the last 7 years.   Whereas bonds are just a bit lower than they were 7 years ago.  The losses from Nov 2021 to Sept 23 were not down to equities. They were down to bonds.   So, dropping to a fund that will increase bond exposure isn't necessarily a good idea to reduce your risk.

I'm currently 2 years into a 5 year fixed deal at 1.59%

So, its virtually free.   

kimwp

Have you considered that in seven (maybe eight) years time, you'll be able to take a tax free lump-sum from your pension? There's no certain answer because of stock market uncertainty and mortgage rates changes, but if you paid into a private pension, gaining the tax relief, you could use the lump sum to pay a chunk of your mortgage.