Pension vs overpayments

zoco

[FONT=&quot]I think I know the answer to this, but would like your thoughts.

I'm about to buy a shared ownership flat, maybe not the best time but it's the first time I've been in a position to purchase a place and the mortgage+rent+service charge works out a little less than the rent I currently pay.

I have a mortgage offer (in principle) from the Halifax and going on past spending I can overpay about £50ish a month on the regular payments (I decided on longer term to give flexibility).

My question is, should I cut my pension (no employer contributions) each month and put into the mortgage instead?

I've spent a while reading these forums and I agree that paying off debts (I have no loans or credit cards debts that aren’t on 0%) > investment - but just wondered how others feel about mortgages vs. pensions.[/FONT]

UK007BullDog

Pensions are important too.

However your goal would be to be mortgage and rent free. So paying over to the mortgage and being able to buy the rest of the shares and then to completely be mortgage free would be the aim.

Can you not do both?

zoco

Maybe, I don't pay a lot into my pension atm, only about £50/month. Was thinking cutting that to £10 to pension and £40 to mortgage.

Once mortgage is paid off, I would have a lot of extra cash to think about pensions....but that is a long way off.

wymondham

This is my own opinion (and probably wrong!), but I'd work to be mortgage free rather than work at the pension - at least with this you KNOW it will benefit you - pensions seem to have a nasty habit of not being worth much unless you can throw money at them.

firesidemaid

have i got this wrong?

are the government going to be introducing a scheme from ?2009/2010 whereby if you don't have a pension in place already (or are not paying enough into one) then they will take a % of your wages and set one up automatically?

if this is correct, then you might want to find out the details and bear that in mind

dunstonh

£50pm into a pension is not worth the effort. You may as well stop paying now and aim to be poor in retirement.

If you put aside £50pm for say 25 years and your life expectancy in retirement is say 25 years then how much do you expect the pension to pay you? In real terms about £100pm. (if you start in your 20s then you could get closer to £150-175).

pensions seem to have a nasty habit of not being worth much unless you can throw money at them.

No. Pensions are just like any savings or investment product. They will grow the same as a savings account if you use a savings account in the pension. They will grow the same as an ISA if you use funds that are the same as the ISA.

What you really mean is that people have a misconception of what they think their contribution will give them back in retirement. Anyone thinking £50pm is enough is deluding themselves.

Once mortgage is paid off, I would have a lot of extra cash to think about pensions....but that is a long way off.

There is always an excuse not to put money aside. Typically those that do put it off do so until their 50s and then realise they dont have enough time to do anything about it.

are the government going to be introducing a scheme from ?2009/2010 whereby if you don't have a pension in place already (or are not paying enough into one) then they will take a % of your wages and set one up automatically?

2012/13 is when its due. You will pay 4%, Govt will add 1% and employer will add 3%. Higher rate taxpayers may be worse off with this scheme as there is no higher rate relief. We dont know yet if it will offset tax credits either unlike pensions (which is a major benefit for pensions).

Hopefully, most employers will go down the personal pension route and match those contributions (or better) rather than stick with the NPSS so that wont be a problem.

zoco

I agree, 50ppm isn't enough but have been saving to buy a place as well. Going to cut/stop pension payments when the morgage is setup I think as work on being mortgage free asap. Thanks for the replys.

happylife

unless your company are also paying into this pension then it is not worth the time.

If you are not getting company contributions then you may as well put into an self select ISA and manage it your self.

Everyone of my ISA's is performing better than my pension.. Let you work that one out.. :mad:

dunstonh

Everyone of my ISA's is performing better than my pension.. Let you work that one out.. :mad:

The classic statement from an inexperienced investor. ISAs and pensions are just tax wrappers that contain investments. If you put the same investments in both they will give the same returns. The fact it is a pension or an ISA has nothing to do with it whatsoever.

Kez100

But put it in a pension - doesn't the Government then enhance your contributions by adding 20% tax relief back? Also any higher rate taxpayer can save a bit more tax as well if they put it in a pension not ISA?

Does that not make a pension wrapping the same investments better than an ISA? (For growth purposes, that is. I appreciate ISA funds you can get your hands on which pension assets you can't)

dunstonh

It does Kez, however from a rate of return point of view whether the ISA is £80 or the pension is £100, the rate of return will be the same when the investments are the same.