Take Tax free amount out of Pension to pay off mortgage

Scruffy_Meee

I am 56 and currently have a 1.34% fixed rate mortgage until May then the fixed term stops and I go back to real world rates. I am currently overpaying the Mortgage and current payments are £900 a month. By the time I get to the renewal next year there will be around 50K left. I am debating if it is wise to take the 50K as a tax free lump sum out of my pension and pay the mortgage off. I can then up the payments I currently make from my salary into my pension pot and am thinking that I would get the 20% tax relief plus increased employer contributions on the increased payment.  I don't think it would take to many years to recoup the 50K. 

Or should I just re-mortgage at a higher rate... I am erring towards paying off the mortgage but am wondering if I am missing something.  I do have enough in my pension to take the 50K take free.

Cobbler_tone

This gets covered a lot. From a mathematical perspective you may save a few quid not paying it off.
However, being mortgage free at 56 and having £900 a month to increase your contributions, or just have some extra disposal income could be worth more than numbers on a spreadsheet. If you are currently missing out on employer contributions due to a low contribution rate, I would definitely make that a priority.
Just make sure you don't trigger pension restrictions by ticking the wrong box if you choose to go ahead!

In my experience, having no mortgage opens up a whole new world of opportunities and different thinking.

Aylesbury_Duck

Cobbler_tone said:

In my experience, having no mortgage opens up a whole new world of opportunities and different thinking.

Exactly mine, too.  I know that on paper, paying my mortgage off as quickly as I could instead of making greater overpayments into my pension wasn't the optimal strategy, but having no mortgage for the last eight years has transformed my attitude to savings and pensions, from which I'll almost certainly be better off in the long run. It also releases a lot of pressure arising from fear of redundancy, etc.

ali_bear

Well you have a year to think about it, and quite a few things could change in that time. 

MallyGirl

it would depend - for me - on what the interest rate is by then. Our 1.16% deal ends next October and I suspect that we will pay off the remaining £100k from a PCLS.
On the other hand, by then, we should both be retired so our ability to borrow would be restricted by having no earned income and the mortgage rate is likely to be cheaper than any loan rate we could achieve if we wanted to make a big purchase.

Albermarle

I am 56 and currently have a 1.34% fixed rate mortgage until May then the fixed term stops and I go back to real world rates. I am currently overpaying the Mortgage and current payments are £900 a month

I assume you mean May 2026 ?

Not sure why you are overpaying the mortgage, would it not be better to be paying more into your pension instead? Especially due to this >>

thinking that I would get the 20% tax relief plus increased employer contributions on the increased payment

poseidon1

Scruffy_Meee said:

I am 56 and currently have a 1.34% fixed rate mortgage until May then the fixed term stops and I go back to real world rates. I am currently overpaying the Mortgage and current payments are £900 a month. By the time I get to the renewal next year there will be around 50K left. I am debating if it is wise to take the 50K as a tax free lump sum out of my pension and pay the mortgage off. I can then up the payments I currently make from my salary into my pension pot and am thinking that I would get the 20% tax relief plus increased employer contributions on the increased payment.  I don't think it would take to many years to recoup the 50K. 

Or should I just re-mortgage at a higher rate... I am erring towards paying off the mortgage but am wondering if I am missing something.  I do have enough in my pension to take the 50K take free.

I think it would useful for you to review carefully your recent thread  and back in October 2024  on drawdown and the 25% TFC, to ensure you properly understand how this works and what it might mean by way of your continued contribution levels and  your ability to access future TFC sgain (if that remains your wish).  I sensed a degree of uncertainty on the mechanics of what is involved.

Scruffy_Meee

Albermarle said:

I am 56 and currently have a 1.34% fixed rate mortgage until May then the fixed term stops and I go back to real world rates. I am currently overpaying the Mortgage and current payments are £900 a month

I assume you mean May 2026 ?

Not sure why you are overpaying the mortgage, would it not be better to be paying more into your pension instead? Especially due to this >>

thinking that I would get the 20% tax relief plus increased employer contributions on the increased payment

Indeed I do its may 2026, I am paying quite a lot into my pension already to counteract the 40% tax band, but don't like to put all my eggs in one basket hence the overpayments as well.

Scruffy_Meee

poseidon1 said:

Scruffy_Meee said:

I am 56 and currently have a 1.34% fixed rate mortgage until May then the fixed term stops and I go back to real world rates. I am currently overpaying the Mortgage and current payments are £900 a month. By the time I get to the renewal next year there will be around 50K left. I am debating if it is wise to take the 50K as a tax free lump sum out of my pension and pay the mortgage off. I can then up the payments I currently make from my salary into my pension pot and am thinking that I would get the 20% tax relief plus increased employer contributions on the increased payment.  I don't think it would take to many years to recoup the 50K. 

Or should I just re-mortgage at a higher rate... I am erring towards paying off the mortgage but am wondering if I am missing something.  I do have enough in my pension to take the 50K take free.

I think it would useful for you to review carefully your recent thread  and back in October 2024  on drawdown and the 25% TFC, to ensure you properly understand how this works and what it might mean by way of your continued contribution levels and  your ability to access future TFC sgain (if that remains your wish).  I sensed a degree of uncertainty on the mechanics of what is involved.

poseidon1 said:

Scruffy_Meee said:

I am 56 and currently have a 1.34% fixed rate mortgage until May then the fixed term stops and I go back to real world rates. I am currently overpaying the Mortgage and current payments are £900 a month. By the time I get to the renewal next year there will be around 50K left. I am debating if it is wise to take the 50K as a tax free lump sum out of my pension and pay the mortgage off. I can then up the payments I currently make from my salary into my pension pot and am thinking that I would get the 20% tax relief plus increased employer contributions on the increased payment.  I don't think it would take to many years to recoup the 50K. 

Or should I just re-mortgage at a higher rate... I am erring towards paying off the mortgage but am wondering if I am missing something.  I do have enough in my pension to take the 50K take free.

I think it would useful for you to review carefully your recent thread  and back in October 2024  on drawdown and the 25% TFC, to ensure you properly understand how this works and what it might mean by way of your continued contribution levels and  your ability to access future TFC sgain (if that remains your wish).  I sensed a degree of uncertainty on the mechanics of what is involved.

thanks,
I have a meeting with a pension advisor next week but wanted to check a few points prior to the meeting.

ali_bear

Scruffy_Meee said:... I am paying quite a lot into my pension already to counteract the 40% tax band...

Just to point out that you can overdo this. Once your DC fund grows to the point where the TFLS is capped, any more money you put into the fund will inevitably be taxed at 20% or possibly 40% if you retire later. If this terrible situation comes about you may as well have the income and pay the higher rate tax before retirement. 

Qyburn

Scruffy_Meee said:

I am 56 and currently have a 1.34% fixed rate mortgage until May then the fixed term stops and I go back to real world rates. I am currently overpaying the Mortgage..

From a mathematical/financial point of view it would be better not overpaying, but putting the equivalent amount into savings paying a lot more than 1.34%. Regular savers for example, paying 6% or more.