to put all my money into pension.

[bedraggledmumoftwo]

I though this was a no-brainer, but dh is unconvinced so wondering what others think.

I am a civil servant, hopefully about to take voluntary redundancy and get a payout. Don't know when i will find another job, may be a sahm for a few years, but i am pretty sure i will never get a pension this good again. So i am thinking i will use half myy payout to increase my pension, and the other half to make the maximum overpayment on our mortgage. Dh is essentially worried about locking the money away in case we need to spend money on the house etc. But i view it as the last chance to get a good pension deal, and if we have overpaid on the pension we would be allowed to get that back or have a payment holiday if we did need to.

the pension is a guaranteed return- how much depends how long i live, but if i were to die early it would pay a lump sum plus pension to my kids and dh so there is no way it wouldn't pay out as much as was put in, and the contribution would get tax relief.

Voluntary redundancy is tax free generally anyway. How many extra years service will you be buying and what extra pension to you get from it and what age are you?

Would that leave you with anything just in case eg house roof collapsed, car died etc?
It's always best to have a bit available at short notice for unforeseen circumstances, but if you've already got that then I agree YANBU

I'm 35. It isn't added years per say due to the scheme im in but i would get an extra £2k pa plus inflation(or dh would get an extra £10k lump sum and 750 extra spouse pension and dds would get extra 600 each while minors if i died)

we have around £20k in other savings, plus our pension terms are clear that if you overpay you can reborrow it later- we are in £20k credit now and would be £40k in advance on mortgage if i overpay max this year too.

essentially there is nothing i think would be better use of money. Interest rates are shite atm, our best rate is by paying off mortgage but can't use whole payoff for that or would have early repayment charges.

redundancy money is tax free. However, if i pay extra contribution into pension i will get tax relief- eg i put in 80% and get other 20% free as tax relief.

Sorry meant mortgage terms not pension

If it were me, I would do 1/3 pension, 1/3 mortgage and a 1/3 savings.

Speak to an IFA, if you get a good one, they are amazing. I have a mixture of pension, critical illness, income protection (self-employed), 2mortgages (buy to let and main residence) and they tell me where I should pay more and what will serve me best long term. I have clear projections about what will happen and why based on the different possible decisions I could make, plus a breakdown of the risk factors involved.

If your mortgage is still within it's penalty period then I think you are restricted to being able to pay off 10% in any given year before having to pay the penalty. We are about to do that in the next few days. Check your terms and conditions though.

I'd be tempted to pay off what I could of the mortgage without incurring the penalty, then put most of the rest into the pension but split off a few grand contingency fund to go into something like an ISA, where you can still arrange to get at it if you need to.

Consider an independent financial adviser to help get the best deals.

How much would your redundancy be as only the first £30k is non-taxable? Then you'd have to decide whether to take 80% of the rest (after tax) immediately or save 100% for retirement.

I'm not that knowledgeable about the PCSPS (assuming that's what you're in) but would your DH's provision on your death definitely go up if you pay extra into the pension? Usually you just get a lump sum pay out on death in service.

The main motivation for paying into a pension instead of another savings vehicle is a) tax relief at source and b) additional employer contribution. In your case I'd ask if the extra £2k pa pension is self-funded by the additional contribution (in our scheme it is). Then you can decide if the tax relief is worth it.

Another consideration is that if the money is tied up in your pension and there are no dependants to pay a pension to if you die (ie your DH might not be around for any reason and your DC will only qualify up to a certain age), the liability will die with you. Whereas if it's in an ISA or property, your DC can still get it.

Thanks all.
after death the pcsps pays a pension to your spouse and minor children that includes any added pension you buy. And if you die before drawing it it pays a lump sum of five years pension- so buying an extra £2k pa would mean an extra lump of £10k if the worst happened.

I actually put all the figures in a table for DH- depending on when i died, the return on my £13.5k would be a minimum of £30k plus inflation(if i died soon after pension age) and a maximum of £90k (if i died now with two babies and a husband receiving it for the next 20/70 years instead). The only scenario in which it wouldn't pay back at least the amount put in is if we all die in a family accident. But in that scenario nothing really matters!

tax wise, my payout would be pretty much exactly £30k, so not taxed. However, i would not use the payout directly to buy more pension, i would buy some with a lump sum this tax year (before the newly improved degraded civil service scheme comes in) so i would get tax relief on the payment at 20% as that is how much tax i am paying this year.

yes, we are only allowed to make 10% overpayments on our mortgage each year so that is where the remainder of my payout would go.

What's the retirement age? It's a long time to lock money away.

I would reduce your mortgage with half and put the other half in something like premium bonds. Not that easy to get at but not impossible (and you could win £million )

Or I'd used it as a deposit on a BTL property. That way you'd (maybe) have a income and also could sell the property later.

If there were no tax benefits then I definitely wouldn't put the money into the pension. You're locking it away unnecessarily and it's very inflexible what you can do with it.

I was in a similar situation recently and am also in a DB pension. My IFA recommended putting money in a stocks & shares ISA in the Standard Life GARS fund which aims to achieve the same returns as equities without the volatility. In the interim open a Santander 123 account and earn 3% (gross) interest on it, while it lasts, and transfer your max into the ISA each year.

I'd also consider a BTL (you need 25% deposit and legal costs, including stamp duty) and reinvest the rental income or use it to overpay on the BTL mortgage so you've got a good asset at retirement. You can choose to sell or remortgage it at any point in your lives according to your needs. Unlike the pension. Half your redundancy in a BTL should yield more than £2k pa, will also broadly increase with inflation and you'll be getting it from now, not 65.

What are the penalties for mortgage overpayment? Sometimes the penalties may be worth incurring...

You sound pretty clued up to me. That's essentially what we have done and now we are old with no mortgage, lots of pension and savings yeehaa! You are correct in thinking a pension like this won't come your way again.

YANBU

It sounds a good payout and a good pension scheme so as you already have savings to cover most things I would definitely do what you propose. Especially as it will reduce debt with the mortgage payment and you can use that if difficult financial times occur.

In your shoes, I'd consider investing in stocks and shares, or similar, which is more flexible, and if you're sensible (you sound very sensible) you should be able to protect your initial investment with an option to draw money off on an ad-hoc basis too.

I'm assuming your pension is a final/average salary one and your extra contribution would buy you more years?

If so then it's an absolute no brainer to put the money into your pension.

I don't know the pension terms but I strongly suspect that putting extra money in would be a very good deal. Overpaying your mortgage is also a good way to build up some savings you might use in the shorter term. Though if you already have 20K in savings I'd think that was covered already. Your plan sounds pretty good to me. If anything, based on the available information, I'd consider putting more than half into the pension rather than less.

Something else to think about: if something did go wrong with your life/jobs, I think money in your pension and mortgage doesn't count against you for the purpose of being eligible for benefits, while you get back on your feet. (Not exactly sure what the rules are for flexible mortgages, but as long as you don't pay a whack off the day before you claim I'd guess it wouldn't be a problem.)

I didn't really consider the tax angle, forgot redundancy could be tax-free up to 30K. I suppose I would put the full amount available tax-free into the mortgage, and anything above 30K into the pension. I work on the assumption that money coming out of pension will be taxed at basic rate, so 20% tax on the 75% that is taxable, i.e. taxed on average at 15%. So if you get 20% tax relief and are taxed at 15%, you are not saving much on the pension from a tax point of view.

I guess the facts aren't clear enough to say anything conclusive, hopefully there were some useful thoughts buried in my posts.