Mortgage free, maybe? Now what?

rpclarke

On 30th Nov, this year, my 5 year fixed rate deal of 1.14% runs out on my current mortgage deal. The balance will be £24,400. The payment has been £822 a month.

We have also been putting aside around £1200 a month into premium bonds that we've used for the annual 10% overpayment. This has also been building nicely and we will be in a position to pay off the balance in full come Dec 1st!!!!! (Very excited)

So my question is ......

Firstly, would you pay it off with the money we've saved up? Or could that money be better off invested somewhere and a new small deal taken out for the mortgage? (But ideally want to be mortgage free!!!)

Secondly, we are now going to have £2000 a month to play with. We're both early 50s, kids are working and both have a good pension coming in 10 years. We are already maxing out our work pensions and intend to finishing working in 10 years.

Our plan is to spend and enjoy £1500 a month on the usual more hols, new garden car etc but we do want to put £500 a month into something for 10years as an extra little pension pot.

Anybody suggestions out there? Many thanks for any advice.

El_Torro

The most tax efficient thing you can do is put more into your pensions. You say you are "maxing out" your workplace pensions. I presume you don't each currently have £60k going into your pensions every year? If you don't then there's scope to contribute more.

Stocks & Shares ISAs would also be good investments, though not as tax efficient as pensions.

kermchem

Questions I wished I had asked when I was in the same position. Congratulations on finishing with mortgage debt. You could either do this yourself or find an independent financial adviser to help you reflect at this point where mortgage is (or can be) paid off. Will you have enough pension? Will you have too much and find you got 40% tax relief on the way in and pay 40% on some on the way out. Is pension provision balanced between the two of you. When do you want to retire? There can be a point where ISA can be smarter than more into pension.

Jemma01

Yes I'd pay the mortgage and enjoy the 800 off my bills and live a happy life in my very own home. About time that you live in the moment while young than constantly worrying about the future.

Albermarle

 You say you are "maxing out" your workplace pensions. I presume you don't each currently have £60k going into your pensions every year? If you don't then there's scope to contribute more.

Depends on their earnings as well.

OP - What do you actually mean when you say you are 'maxing out' your workplace pensions?

rpclarke

Publiv sector pensions so don't think there's a benefit from putting extra into these as employer contributions don not go up if extra is added?

I'm no expert on pensions but I'm thinking I may get more with the £500 than using it as avc to my pension?

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/82098470#Comment_82098470

Employers matching contributions is undoubtedly a benefit where applicable, but one of the other benefits is the tax relief when you pay into a pension, so that's something worth familiarising yourself with - if you pay £500 into a pension then it'll be grossed up to £625 with the tax relief…

Albermarle

If you want to invest for growth, then you can do this outside or inside a DC pension . ( this could be an AVC to your main scheme, or a separate one). Doing it via a pension has tax benefits. The possible downside being it will not be accessible until your are 57.

AlanP_2

Each public sector scheme is slightly different so it may be worth looking in to your options in a bit more detail.

For example I was in the LGPS and benefited from tax relief on AVc contributions which could then be withdrawn entirely tax free at the point of taking the pension. That tbh, was a no brainer in our view.

An even better deal if you are a HR taxpayer.

El_Torro

Depending on what public sector pensions you have it might be possible to pay more to get an enhanced pension. The terms are usually very generous, more so than investing on your own.

AVCs are usually an option too, which is still a very tax efficient way to invest, as long as you are willing to wait until you are old enough to take the AVCs out again. Investing in a private pension is an option too, though probably not as efficient as making the most of your Defined Benefit pensions.

Yorkie1

Publiv sector pensions so don't think there's a benefit from putting extra into these as employer contributions don not go up if extra is added?

I'm no expert on pensions but I'm thinking I may get more with the £500 than using it as avc to my pension?

You're right that there's no extra employer contributions, but that's not really how DB public sector pensions work anyway,

If you have 10 years still to go, then AVCs are certainly worth looking at. Or buying the right to take the pension attributed to some years' contributions early without a reduction for early payment. The options will depend on your particular sector pension and whether you can take the AVCs separately from the main pension (again it will depend).

If you are planning to work for another 10 years, that will take you to early 60's. What is the normal pension date for your public sector pensions? Working beyond that date may have implications, depending on what the pension is.

Also check whether your state pension forecasts are on track to pay out when you reach SPA and how many more years you each need to contribute.

It also doesn't have to be all or nothing with the pensions. You could split money between various resources.

Will you have enough savings to meet any required gap between retirement and SPA? Start considering what your expenditure may be (do schedules of expenses) and how you will fill it.

On the mortgage, £822 per month on a 1.14% rate with only £24,400 left seems a high repayment. It would be worth seeing what your repayments would be for the remaining term at, say 4.5%, on that low balance. At less than £25K you are probably unlikely to be able to move lender, but you could stay with the current lender. Some people want the psychological benefit of no mortgate (I am one, having done lots of repayments over the years). Others are OK with it carrying on in the background and putting their money to use elsewhere. That's a personal decision.