Mortgage or pension withdrawal ??

st2loon

Hi,
At the moment my wife and I are mortgage free but hoping to move soon, the houses we are looking at will require my to take 40-50k mortgage out. I have been thinking that I can access 25% tax free of my pension fund use this instead and then pay the money back into the pension each month before its taxed could it be this simple? or am I??

El_Torro

Using your 25% tax free lump sum from a pension to either pay off or avoid getting a mortgage is a valid strategy. Whether it's a good idea for you depends on your individual circumstances.

Remember that once a pension is crystallised any more money you take is taxable. Some people draw down from their pension and take 25% of their withdrawal as tax free every month. Taking it up front as a lump sum means you no longer have this option. Like I say this might be a problem or not for you, it depends on how you were planning to fund your retirement. 

I don't know what you mean when you say you can pay the money back into the pension each month before it's taxed. If you want to continue to pay into a pension that's fine. There are limits on what you can put into a pension once you start drawing down but as long as you're only taking the tax free lump sum those limits don't apply to you. They only apply if you make any taxable withdrawals from your pension.

I'm also assuming you're 55 years old or older. If not you can't take anything out of your pension yet.

FreeBear

My take on this - Keep paying in to your pension. Coupled with employer contributions, tax incentives via salary sacrifice, and returns on investments, you'll gain more than you would pay in interest rates on a mortgage. When you do eventually retire, the lump sum can pay off any outstanding mortgage.

If you decide to draw down the pension, do get some professional advice from an independent financial advisor. He/she could save you from making a very expensive mistake and perhaps point you towards other options.