Pay extra on mortgage or into a pension

DRS1

If the OP is claiming Universal Credit isn't that another point in favour of pension contributions?  They won't count as earnings.  Whatever income you take to pay the mortgage will.

GazzaBloom

We paid the mortgage off as a priority then switched to ramping up pension contributions significantly in last few years before retirement. It's a sweet, warm and cosy feeling knowing that you own the bricks that surround you and the grass you stand on when in the garden.

Letting the mortgage run and saving extra in your pension while working assumes you will keep earning at that level or higher. I was made redundant twice during my working life and it's not a lot of comfort having a big mortgage but a big pension when that happens.

After the 2nd redundancy at age 50, once I got back on my feet, we set about getting 100% debt free and looking back I have no regrets except wish I'd done it sooner.

Life has a funny way of not following spreadsheet calculations.

Notfarfromtheborder

GazzaBloom said:

We paid the mortgage off as a priority then switched to ramping up pension contributions significantly in last few years before retirement. It's a sweet, warm and cosy feeling knowing that you own the bricks that surround you and the grass you stand on when in the garden.

Letting the mortgage run and saving extra in your pension while working assumes you will keep earning at that level or higher. I was made redundant twice during my working life and it's not a lot of comfort having a big mortgage but a big pension when that happens.

After the 2nd redundancy at age 50, once I got back on my feet, we set about getting 100% debt free and looking back I have no regrets except wish I'd done it sooner.

Life has a funny way of not following spreadsheet calculations.

Totally agree. My first post on this forum (11yrs ago) was to ask what to do re extra cash as I had paid off the mortgage and was advised by many posters I shouldn't have paid the mortgage off so early.

At the time I had £80K in pensions and invested the surplus I had into pensions, now I have £600k. My aim 11 yrs ago was to be able to retire at 55. I am now at that age and could go if I really wanted.

Some people embrace debt, some don't. I'm one of the latter

ali_bear

I am also debt avoidant. I paid off what remained of my mortgage in 2019 but this was in the years of ultra low interest rates and before I twigged that I should be ramping up pension contributions and thereby avoiding higher rate income tax while making stronger gains on the underlying investment. 

Live and learn! 

artyboy

GazzaBloom said:

We paid the mortgage off as a priority then switched to ramping up pension contributions significantly in last few years before retirement. It's a sweet, warm and cosy feeling knowing that you own the bricks that surround you and the grass you stand on when in the garden.

Letting the mortgage run and saving extra in your pension while working assumes you will keep earning at that level or higher. I was made redundant twice during my working life and it's not a lot of comfort having a big mortgage but a big pension when that happens.

After the 2nd redundancy at age 50, once I got back on my feet, we set about getting 100% debt free and looking back I have no regrets except wish I'd done it sooner.

Life has a funny way of not following spreadsheet calculations.

Well that's pretty much a carbon copy of my own life and approach, including the 2 redundancies!

Mrs Arty has a pathological hatred of any debt, at all, ever. So whilst recognising a mortgage was a necessary evil, it was paid off in 7 years at the expense (at that time) of other investments.

Given that period covered several years after the 2008 crash, it's possible some big investment gains were missed. But who cares. We've got a big enough IHT headache now with our pensions as it is, but at least we don't have to worry about ever being repossessed...

barnstar2077

I took the balanced approach mentioned in the video, I greatly increased the term of my repayment mortgage, from 8 years back up to 25, and have been paying the extra into a pension and an ISA ever since.  The op is not in a position to do this, but for others it makes sense.  I found this also relieved my anxiety about the debt, as my monthly payments dropped dramatically, to a level that I could easily maintain under any circumstances.  It was a no brainer for me. 

kempiejon

3 redundancies for me. As a contrary view, I never had a mortgage, never had the fear of repossesion. never fancied the hassel of home ownership, it looked like spending decades in debt to live in the same place. I've lived all over the place. I defferred spending, scrimpt and piled all my money into investments. But I deliberately left work to have time off to do other things. In my 20s I went travelling, 30s to university and 40s for a career downsize. Finall I was set, no longer needing full time employment in my 50s. I doubt I could have managed that with decades of mortgages.
I didn't focus on my pensions, always used the employer matched contributions but used ISAs and unsheltered investments for the bulk.
When tax treatment of investment changed the pension looked better but had the unfortunate side effect of dragging future income from my investments into tax liability and locking my money away until later 50s.
Since the late 90s I've used debt to enhance my income, stoozing with other people's money and putting that and mine to work for me.
No pressing plan to buy a house but it is a discussion point.

ali_bear

Cobbler_tone said:

... we get a very volatile (and impossible to calculate!) annual bonus paid a week before the end of the tax year. It can be £0 - £10k and you are second guessing in the run up to avoid 40%. 2024/25 was the first year I targeted this and you can see I didn't do a bad job.

The trouble with putting a bonus into your pension is the big amount being invested in one go. I think you're better off only making regular contributions from monthly salary to properly smooth out the ups and downs in the underlying investment. And treat the bonus as unexpected but welcome additional income. 

kempiejon

ali_bear said:

Cobbler_tone said:

... we get a very volatile (and impossible to calculate!) annual bonus paid a week before the end of the tax year. It can be £0 - £10k and you are second guessing in the run up to avoid 40%. 2024/25 was the first year I targeted this and you can see I didn't do a bad job.

The trouble with putting a bonus into your pension is the big amount being invested in one go. I think you're better off only making regular contributions from monthly salary to properly smooth out the ups and downs in the underlying investment. And treat the bonus as unexpected but welcome additional income. 

Of course the slower you add money to an investement the slower it has he potential to grow. Whenever I had money that I could use for investment it was invest then. Without knowing what the amount is going to be in advance you can't predict how much extra to add each month in anticipation of year end bonus. I had a chum in a position where some years as much as 100% of their salary could come as a bonus - and some year 0%, they added it all to the investment pot.

Cobbler_tone

ali_bear said:

Cobbler_tone said:

... we get a very volatile (and impossible to calculate!) annual bonus paid a week before the end of the tax year. It can be £0 - £10k and you are second guessing in the run up to avoid 40%. 2024/25 was the first year I targeted this and you can see I didn't do a bad job.

The trouble with putting a bonus into your pension is the big amount being invested in one go. I think you're better off only making regular contributions from monthly salary to properly smooth out the ups and downs in the underlying investment. And treat the bonus as unexpected but welcome additional income. 

The frustration for me is that I have no idea what the bonus will be. We are a big, consistently high performing company but the bonus metric is extremely complex and impossible to guess as it covers European performance. If you knew it was say £5k you could budget to put another £400 a month in but it doesn't work like that. 
I have pushed for bonus sacrifice with no joy. I put as much as I am comfortable with to enjoy enough net pay (you can see no real increase in 5 years) and sometimes I might like a little boost and others I may want to put the lot in there. You can see from the table my real current motivation is avoid paying any 40% tax. As I approach my last couple of years I would much, much rather it went into my pension. 
This year I am also buying two weeks of extra holiday via SS, so the net cost of those is good and should help to bring my taxable income down, although the taxable BUPA costs have gone up 47% in two years! Pretty easy to make the correlation with the NHS performance there.
It certainly feels better to be paying £10k in IC/NI as opposed to £15-£20k.