Monthly adhoc payments - top up existing pension, or invest elsewhere in SIPP/ LISA/ S&S ISA instead

peglegseaking

Hi folks,

Looking for some advise as I can't seem to really set upon a definitive answer anywhere. 


- I recently purchased and moved into a new flat, mortgaged c. £340K over 30 years term.
- I've only recently started paying into a defined contribution workplace pension (long story, but never opted in, am now 35 years old, so a bit late starting, but better later than never I guess).
- The long-term plan here would be to make adhoc overpayments on mortgage (as my mortgage interest rate is higher than any savings rates I can currently get).
- I'm aiming in the long-term to reduce down the mortgage monthly payments over time (note: not seeking to reduce the term as I'd rather maintain the flexibility should my financial circumstances change over time, I place a certain value on knowing that if I semi-regularly make overpayments (within allowed 10% limites per year) that I will be 'rewarded' with a lower monthly mortgage payment, which will continue to reduce as the years go by assuming I can continue those overpayments).

My question to everyone here is, generally speaking, am I better off just making adhoc top ups to my workplace pension as and when I can afford to do so or should I instead but that money towards a retirement LISA /S&S ISA/SIPP?  I appreciate there's different restrictions across these, so let's say for sake of assumption that I'm not too concerned age withdrawal restrictions that comes with a SIPP (currently 57) or LISA (currently 60 y/o).  Alternatively, should I first just focus on the overpayment strategy?  

Presently speaking, the amount of money per month I'd likely be putting by for such investments would be pretty low to start with (£25 - 50 per month) but would aim to ramp that up over time. 

Appreciate any and all inputs anyone might have. 

Albermarle

It is a difficult balance between overpaying a mortgage and saving  for the future and a common question posed on this forum.
Basically due to the fact you must be paying >5% it makes sense to pay the mortgage down a bit quicker.
For the future/for money when you are older/retired, payments into a pension, or maybe a LISA, make more sense than a S&S ISA due to the tax relief/bonuses.
A SIPP and your workplace pension are bound to the same rules legally and tax wise, so probably easier just to increase your regular contributions to the workplace pension rather than opening a separate SIPP. Some employers will increase their contribution if you increase yours. You need to check.
Having said that it might be easier to make ad hoc contributions to the LISA. However it should be a S&S LISA as this should perform better in the long term than a Cash Lisa.

peglegseaking

Thanks for your comment.

Yep, my mortgage interest (fixed until end of 2027) is just shy of 5%, so for now remains better to make overpayments on the mortgage, I will obvious reassess that when I go to re-mortgage, and assuming I can remain consistent on this strategy, I'll have to be reasonably on the ball with not getting lax with how I'm redistributing the savings I'll make on the reduced monthly mortgage repayments. 

My employer will not increase their contributions above the max of 5%, but the point you make re: the workplace pension tax relief being superior is a good one. 

I do have a (cash) LISA, leftover from our flat purchase, but take your point re: using a S&S LISA in future given the probably better return.  Given any ad-hoc payments I'd be making into that (for now) won't go anywhere near the £4k per year limit, I'm assuming that's always going to beat the a 'normal' S&S ISA (again, I'm happy to ignore the restrictions on the LISA vs S&S ISAs).  At all times we're aiming to always maintain an emergency fund for 3 months regardless which will be kept in an easy-access account wherever the best interest rate is (within reason, really not arsed opening up accounts too regularly either).

Is there ever any scenario where it'd be better off investing adhoc payments in a S&S ISA/LISA vs topping up the workplace pension (beyond the regularly monthly contribution) given the employer match/tax relief?