To over pay mortgage rather than pay in to pension

[Jroseforever]

Thoughts?

Every month I overpay mortgage by 20%

Any bonus or windfall... I put straight in to mortgage.

I am late thirties and hoping to have paid off within 10 years, which is realistic. It’s a lovely property in very sought after area of SE England, valued at £600k.

But my pension... since stopping working (to retrain) I don’t pay in to and have never really prioritised.

Total fund of about £60k but not growing obviously.

Would really appreciate thoughts.

Thanks.

My first thought is that you are probably missing out on valuable employer contributions to your pension. To maximise this 'free money', I'd recommend paying in to your pension up to the limit of what your employer will match (but not beyond).

Above that or if they don't match your contributions at all I'd pay off the mortgage like you.

Might be worth getting some advice from a financial advisor who can calculate the potential tax benefits of pension vs mortgage too. But since it's the property you live in, you wouldn't (under current tax rules) be liable for capital gains tax when you sell it, so on that basis I suspect it's probably beneficial to be paying down the mortgage loan.

Pension first. Speaking as someone who's just retired, you'll regret it if you don't.

I think it depends on what you plan to do with the house. I bought a house and moved a few times and did them up and have enough houses let out now to provide me with a pension.
Had I put the money into a pension pot I would be way behind where I am now financially so to me it's not a yes no answer.

This thread has prompted me to check one of my old workplace pensions. My contributions totalled £30k. It's not in a particularly high performing fund and I have paid no attention to it since it was set up. Tax relief, investment growth and employer contributions mean the fund is worth £160k (investment growth making up the bulk). Don't neglect your pension. I have a separate sipp now that I pay much more attention to.

To clarify

I am not working
So no employer pension
And no tax benefit

When I do return to work, I will contribute to my pension.

My question is during this period when I am not working - pension or mortgage?

I receive an income not from employment

Sorry wasn’t clear

@Jroseforever

When I do return to work, I will contribute to my pension.

My question is during this period when I am not working - pension or mortgage?

I receive an income not from employment

Sorry wasn’t clear

Mortgage.

Especially if that income you get now is likely to continue.

I’m not convinced by pensions unless you’re a higher rate taxpayer which I’ll never be.

@Jroseforever

When I do return to work, I will contribute to my pension.

My question is during this period when I am not working - pension or mortgage?

I receive an income not from employment

Sorry wasn’t clear

Speaking as someone who works in the industry - always pension.

@Hufflypuf

Even if not working so no employee pension or tax relief?

Do you pay tax on your non employment income?

No

OP I completely understand why you might not want to share more information about your £ position

So I’d say

Be aware that pensions are products sold by a very lucrative industry

Think about what other savings and investments you can have instead of a pension

Look at that and act accordingly

I’m single and childfree so for example, I could consider equity release future.

All above board
Would just prefer not to go into it

I have always been a bit wary of Pensions, but I would say the tax breaks and allowances- as well as the fact that your employer should be (normally) paying into your pot makes them very attractive.
If I get a lump sum ( and I have some left over from paying debts built up during the year) I will normally use it for the mortgage.
I think if I had a lot of extra cash I may use it as a deposit to buy a second house (s) and rent it out. Using the rent to pay for the expenses / mortgage now and in years to come to provide an income for me.

Hi op

You will get tax relief on pension contributions up to £2800 even if no pensionable income. So basically you get £3600 in the fund for contributing 2800. I do this for each of my (primary school age) dds. So I would make that as a pension contribution with the rest to mortgage.

While you are not a taxpayer and do not have an employer, you don't get the gains most people do from putting the money into pension. If that's only going to be for a limited time, then there is an argument for focusing on the mortgage for now, but make sure you then switch to the pension once the situation changes.

However I think it might be well worth talking to a financial adviser - for instance, would it be worth keeping some in savings so you can put more into pension once you are earning and can profit from the tax breaks? (I don't know if they still exist, but we used to have connected mortgage/savings accounts, so interest was only charged on the balance - that meant we could put money in savings and reduce the interest added to the mortgage.)

The other thing to bear in mind is the possibility of something awful happening (eg critical/long-term illness) in the next while. In that situation, having more in the pension pot may be important (and if you have mortgage insurance, that would take care of the mortgage).

You haven’t said if you are sole or joint owner (mortgagee) as far as I could see, but if you’re sole owner/occupier/mortgagee and not working, pay off the mortgage all the way until you’re employed again, then up the pension contributions, too.

I used to do that when I was married and it was quite good because the additional equity allowed us to divorce!

However, it’s not really a good idea for most people because payments made to a pension early in life are worth a lot more due to compound interest.

That said, I joined the civil service around the same time as divorce, so I’m now paying a lot into a pension. The only private pension I have is tiny!

Pension. As others have said mortgage rates are 2%. Even our financial advisor told us not to focus so much on mortgage.

Although god knows when I’ll be able to take that pension!

[quote Jroseforever]@Hufflypuf

Even if not working so no employee pension or tax relief?[/quote]
You will still get tax relief on your personal contributions if you don't work but you are limited to the amount you can pay in each year.

Take advice from an IFA. My DH was an IFA. We sold the business 3 years ago.

But everybody's circumstances are different.
Take advice from an IFA. Do you know anyone who already has one? Word of mouth is a great recommendation - we never had to advertise!!!
Good luck.

When people say you should be paying x amount in to a pension (half your age formula) is that figure including employers contribution?

Also (sorry to be dense here) but when an employer says they will pay say, 3% towards your pension that is 3% of your annual salary before tax? So if you earn £15000 a year they will pay £500 in pension payments for you per annum?

I'd do half and half pension/mortgage. I went the route of concentrating on mortgage, which I paid off at 46 but had virtually no pension and have been catching up since. I would have done it differently, looking back, as I was clueless about tax relief.

OP, if — as you say — you have private unearned income from another source you should have mentioned it in the original post. That obviously changes everything. How many woman-hours have you wasted by not giving a full picture? Away with you.