Paying off Mortgage v Pension

Capricorn_One

Hi.

I'm looking for a little advice as sometimes I can't see the wood for the trees!

By overpaying on my mortgage, I've got it down from 83K to 66K, most of that in the last year.
I'm in the the Local Govt. Pension Scheme and pay £200pm into an AVC.
I've got £16K in an ISA.

I've just sold an endowment and that will give me £16K.

I'm wondering whether to cancel the AVC and overpay on the mortgage and should I use some of that endowment money to bring the mortgage down further?

Just wondering what others would do in this situation?

Thanks.

EdInvestor

I would use the endowment money to bring down the mortgage (what was it for?) and also increase the mortgage payment by the now redundant endowment premium amount so as to overpay more.

Your pension and ISA provision is good, keep it up, well done all round

jamesd

First thing to target is putting the maximum possible into the stocks and shares ISA each year. That will grow to produce tax free income in retirement and you can take it all at any time if you need to.

I'm assuming that the LGPS will combine with the basic state pension to produce an income of at least 10,000 a year and that it may come close to the 20,000 where the extra personal allowance for those over 65 starts to be reduced, producing an effective tax rate of 30% instead of 20%. That makes non-taxable ISA income more valuable above that point.

This probably makes the AVCs unhelpful for overall retirement planning because they will just increase the taxable income and looking for non-taxable income that's more flexible may pay. Unless the LGPS is going to take your income above 25k anyway, in which case you can't avoid the elimination of the age allowance by income (except by taking a 25% tax free cash lump sum, perhaps).

Beyond those it's your choice. There are investments available that produce little income but growth instead that are likely to grow at a rate above your mortgage interest rate, for example these two which grew at around 12% and around 8% last year:

BlackRock UK Absolute Alpha
CF Arch Cru Investment Portfolio (see details)

Given the availability of investments like those that use your CGT allowance to be almost tax free even outside an ISA or pension I don't see a great financial reason for paying off the mortgage, because it's more profitable to keep it and invest the money.

Capricorn_One

Thanks for the advice, folks.