Financial Planning

Natnewb

Hello Group,

I would like advice about how to bridge my income until my state pension kicks in. I am 63 now with a mortgage left of £21,500. I have 7 years left to pay it off and have a monthly payment of £309. I am however claiming Universal credit (LCWRA) which provides me with insufficient income for my expenses. I have supplemented my income up until now by selling my own greetings cards to retailers but orders have dwindled a little so now I am thinking of drawing down 25% of what private pension I have, (52 K in total) and paying off a chunk of my mortgage. This will leave little in my pension pot, about 40K. I will receive a full state pension in 4 years time so I need to cover the shortfall in my income until then (about £350 per month) . I have my own house which I love so I don't want to downsize plus its too stressful. I should also add I have £3 k in debt on 0% credit cards and £19 K in over payments of my mortgage which I could use in emergencies but obviously this will means my monthly mortgage payment will rise again. Is the best option to draw down from my pension each year until my state pension starts in addition to drawing down the 25% now or do I just draw down what I need each year without paying a chunk off my mortgage. The former seems the better option but I maybe be missing something else. Also, at state pension age my income wont be great but I can live on it. And if I have any major expense then I could draw down from my mortgage over payments. I would like to clear the £3 k debt on my credit cards but as its 0% interest maybe its not too essential. I would be grateful for any of your thoughts as to how to juggle my finances. I have also thought about equity release in extremis. Thank you in advance.

LHW99

First thought is will drawing from a pension affect your UC? I don't know, but there is a benefits board here where someone probably will.

If your income has gone down, should your UC go up?

Also what interest rate is your mortgage? Could you get a cheaper one, or could you extend the term to reduce the payments, at least until SPA?

Markdavid1962

Can you claim any housing benefit with your UC? My son was renting and received housing benefit, they actually covered his rent. May be worth looking in to.

Drawing 25% private pension, is that the tax free portion or have you already taken the tax free 25%. If you pay any pension money in to your bank account it could pause your UC payment.

If you can clear the £21k mortgage using pension funds this would free up the £309 monthly repayment, so your shortfall will nearly be gone. Just be careful your mortgage may be limited to a 10% overpayment, if you pay more you could be penalised

itsthelittlethings

Have you looked into claiming PIP? If you're getting LCWRA you may be eligible for this.

Natnewb

Hello Both,

Firstly, thank you for your replies and I will answer one by one.

From what I understand, if I draw down regularly from my pension then it is considered as income so, yes, my UC payments would decrease. If it is drawn down irregularly then it is not seen as income, especially if the money is used for essential expenses/debts.

I am on the maximum I can receive and am not eligible for housing benefit as I own my own home.

My mortgage rate is 5.75% I cannot extend the term unfortunately.

Yes, I could pay off the mortgage but then I would very little in my pension which scares me. Though I can see the benefits of paying it off now as all the time interest is accruing and the interest on my pension would be less.

Regarding the 25% draw down, this would be my first so it would be tax free. I have checked with UC and they say that if the money was used to pay off a debt i.e, a mortgage it would not affect my benefits. Also, as long as don't have more than £6K in savings than my UC would not be affected. I am inclined to draw down the 25% in this case which will keep me going for a year. I know you cannot advise me as to whether this is the correct route but if I would be grateful for any feedback. Many thanks again.

Roger175

Have you checked what you can pay off your mortgage? You may have a problem paying that amount off, since you can usually only pay off a max of 10%/year. Given that your mortgage interest rate is quite high, it may be possible to take out a new mortgage for a lower amount and at a lower interest rate. This would however involve a level of fees and you might not actually be able to get a new offer based on you income. A difficult situation, best of luck sorting it out.

Xbigman

There are capital limits when on UC. Ideally you want to stay under £6k to maximise your benefits. Making a 12k withdrawal will effect your benefits negatively.

Further advice depends on your tax position. Do you have any tax free allowance available? If you do you can take out the maximum tax free you can each year using UFPLS withdrawals of a maximum of £5k each for safety. Keep enough back to live on, pay £2880 back into your pension then pay any remainder off you mortgage or credit card debt.

This is roughly what I do each year but there are a lot of specifics to consider. Your tax position for one. How flexible your pension plan is will be another (some don't allow drawdown like this).

Darren

Albermarle

Regarding the 25% draw down, this would be my first so it would be tax free.

Most modern pension offer various options, such as not having to take all the tax free cash in one go.

So you could just take part of it, or you can take a mix of tax free and taxable money- a UFPLS payment for example, as mentioned in the previous post.

An older pension may have less options.

In any case when/if you withdraw money from the pension, just be careful you make the correct request.

Yorkie1

I may have missed it, but do you have a plan to pay off the CC when the 0% comes to an end, if you can't transfer it elsewhere cheaply?

mlz1413

Is there a way to boost the greeting cards sales again?

Maybe a different online platform?

It seems the lack of income has made you consider your options, but if you can boost or replace that income would that mean you can wait the 3 years for SPA?

Natnewb

Hello All,

If I may answer questions in one message:

My mortgage is one where I can pay off a large amount if i wish. So paying off £10k would be fine.

12K withdrawal will not affect my benefits according to DWP: UC have informed me that 'taking the 25% tax-free lump sum from my private pension and using most of it to pay off part of my mortgage will generally not negatively affect your Universal Credit (UC) — as long as the remaining capital is below £6,000'.

Xbigman - this sounds a great idea. I need to get my head round the implications of UFPLS. I do not pay/am not eligible for tax, at the moment. If my card sales escalate then this will change but I can't see that happening for 6 months at least. Re my pension, it has no restrictions and so I can draw down what i want but I need 'understand this a little better.

Thanks Albermarle- there's a lot to think about. As mentioned, I need to understand the UFPLS aspect as its still not entirely clear to me. In general terms, I need to an unpredictable amount of extra income every year until state pension to supplement my UC though I have to take into consideration that regular draw downs from my pension would be treated as income and would affect my UC negatively. So am guessing if it were the same time every year? If every other year then not.

I am hoping card sales through social media will take off.

Thanks for your feedback everyone. Really useful