Paying off mortgage from pension lump sum???

Debtdescendee

Hi,

I have come up with an idea and I’m sure there are draw backs and would appreciate your feedback. 

I’m currently 51 and thinking about increasing my mention contributions quite significantly. If you assume my pension pot is on track for where I want it to be at by the time I retire, my question is, I’m in a position where I can over pay my mortgage and get it paid off in the next 5 to 7 years. It’s not due to finish until I’m 67. So the question I’ve been asking myself, rather than over paying the mortgage, pay into my pension pot an additional 25% of my salary which gets me below the 40% tax bracket therefore saving me a significant amount of tax, which will end up in my pension pot. Then at 57 ish, take a lump sum out of the pension pot to pay off the mortgage. My simple maths says this has to be in right thing to do. Really would appreciate your thoughts. 

El_Torro

This is a strategy that many people take, so it could be a sensible approach for you.

One of the various things to consider is the growth of the investments in your pension. Investments can go down as well as up, you don’t want to cash in when the stock market is at a low point. 

Debtdescendee

Do I limit my pension contributions after taking up to the 25% tax free allowance?

QrizB

Pension-backed mortgages were quite popular 30-40 years ago. Less so now but the principle is still valid.

Here's a link to the pros and cons:

https://www.godirect.co.uk/mortgage-repayment-guide/pension-mortgage.php

Debtdescendee said:

Do I limit my pension contributions after taking up to the 25% tax free allowance?

You can take the 25% tax-free lump sum without falling foul of the Money Purchase Annual Allowance. That only comes into play if you take flexible benefits (eg. any taxable drawdown or UFPLS).

Flugelhorn

certainly it used to be a bit of a thing with colleagues getting  NHS pensions, I can remember people getting IO or Offset mortgages and the means to pay off the capital was put as "pension lump sum"