Pay extra into pension or overpay mortgage

dalek1969

I’m 57 and currently pay £500 extra into my pension every month. I’m a higher rate tax payer, so in reality only see a deficit of £300. My pension matures when I’m 60, which I will take and and carry on working and pay into another pension. I also have 10 years left on my mortgage. Is it better to keep paying extra into my pension, or should I pay off some of the mortgage instead?

Thanks

Sam_666

You are shy on details what kind of pension you have and how you contribute to it.
Anyway, maths are quite simple. Mortgage cost is say 5% (you also are shy with mortgage details), while pension instantly generate 40% (simple example) free return on contribution plus annual market growth say 10%.

Why would you want to take out pension while working? Do you understand tax and future contributions impacts?

El_Torro

Generally speaking you will be better off financially if you pay more into your pension and not overpay the mortgage. There is a "feel good" factor in paying off the mortgage but that won't make you financially richer. This is especially true if you get 40% tax relief on your pension payments and you will be a 20% tax payer in retirement.

Can't say much more than that since we know very little about your individual situation.

dunstonh

My pension matures when I’m 60, which I will take and and carry on working and pay into another pension.

Most defined contribution pensions do not mature any more. Some legacy pensions may have a maximum maturity age of 75, but that's easily resolved by moving them to a modern plan. A fixed maturity age of 60 would typically only apply to defined benefit schemes. With those, many continue to get a late retirement uplift if you don't commence them at the Scheme retirement age. Where the uplift terms are poor or there is no uplift, then taking it may be beneficial.

Is yours a defined benefit, and is that why you are taking it at 60 or is it defined contribution, in which case taking it would not be a good idea in most scenarios?

Is it better to keep paying extra into my pension, or should I pay off some of the mortgage instead?

Financially, if you are a higher rate taxpayer who would expect to be a basic rate taxpayer in retirement, then the pension would be far better than the mortgage. The Tax Relief Net of Tax Paid in Retirement equates to 33% gain. And that ignores any investment returns made over the period.

dalek1969

https://forums.moneysavingexpert.com/discussion/comment/82054600#Comment_82054600

I work for the railway and my normal retirement age is 60 with the company I work for. It is a defined benefit pension. On my work pension forum, it advises people to take their pension at their normal retirement age and restart a new pension with my employer to keep death in service benefit.

dunstonh

https://forums.moneysavingexpert.com/discussion/comment/82056356#Comment_82056356

Have you got any BRASS contributions? It's a valuable AVC as it allows the pension commencement lump sum from the main scheme to be diverted to the BRASS fund and not reduce the main scheme income.

With higher rate relief and the BRASS scheme, that makes the pension even more favourable.

dalek1969

https://forums.moneysavingexpert.com/discussion/comment/82057395#Comment_82057395

Yes, the £500 is going into BRASS