Pay off the mortgage or invest in a pension? WWYD

[suebfg]

I'm mid forties and have poor pension provision - because I've paid off various mortgages, got cash ISAs etc - not because I don't save! I am self employed so wouldn't get employer contributions in a pension.

If I set my mind to it, I could probably clear the current mortgage in 2 -3 years - it has a 20 year term to run. My mortgage rate is 2.75% and is very manageable.

Should I pay it off or start paying into a pension?

PS I'm a 40% tax payer

I don't really believe in pensions. Make your own provision for the future by cutting down expenses and investing sensibly. So pay off the mortgage to free up income long term

MORTGAGE
then look at other investments like woodland or art

I too would say make your mortgage your top priority. Then start putting as much as possible into very long term savings intended as your pension.

I would start by maxing out your stocks & shares ISA allowance each year - currenlty £11520 - and only consider a 'proper' pension wrapper for any amount over that that you can save.

Only thing is that payments into pension are tax free aren't they? So every £60 you pay in from taxed money goes in as £100?

I'd still go for mortgage though.

Definitely put some money into a pension. You're losing out on 'free' money as a 40% tax payer, as purplewithred says, for every £60 you pay in you will receive an extra £40 which is tax relief.

Also your mortgage interest rate is very low and returns on investments in a pension should be much higher. Maybe you could do both?

I'd recommend posting your questions on the moneysavingexpert pension's forum.

Despite the "free" money going into pensions, it is taxed when it comes back out AND you have absolutely no control over it between now and when you are 70 - the fees on UK pensions are horrific.

Clear down ALL debt, then max out ISAs then if you are bored max out premium bonds (also tax free) then poosibly look at crowdfunding or peer to peer lending
only then consider locking your money away for 30 years

Talkinpeace is right - you get just as much tax savings in ISAs as pensions and a lot less rules, red tape and high charges.

premium bonds - ok just about for higher rate tax payers - a dreadful investment for anyone else!

The other thing which you should GRAB when they are on sale is NS&I indexed lined bonds - but they aren't on sale at the moment :(

:) this thread has made me happy as i do exactly what talkinpeace says (even the peer to peer stuff) and i get the feeling you might be qualified in this stuff somehow.

I second posting a message on money saving expert's pension forum.

The general rule of thumb is pay into a pension if you are a higher rate tax payer and/or if you have access to company pension scheme where your employer will also pay into it. But where this fits with whether to pay off your mortgage instead, I don't know.

But MSE will be able to help you more with that. There are qualified financial advisers on there.

I'm not an IFA, I'm an accountant.

But by utter complete and entrenched cynicism about Defined Contribution Pension funds is reinforced every time I read more of the financial press.

Unless an company scheme has a substantial employers contribution or is a defined benefit scheme I avoid them like the plague

I do not post on MSE very often but have the same name there

i dont like the complete lack of control over pensions. i prefer to have access to my money in the knowledge that i need to provide for the future.
also, the tax savings end up at nil by te time you get the money out.

I kind of agree with what's been said about not having a pension, but as a very old age pensioner I can assure you that you need MORE money when you are older, partly because you have more time to spend it, more people to spend on and also health care. So I would look for some kind of investment which gives a good return - avoid annuities like the plague.

the tax savings end up at nil by the time you get the money out

You get 25% of the whole benefit as a tax free lump sum at the end with 75% of it taxable at your marginal tax rate at that time. So unless you are likely to be receiving an income in retirement that takes you into the higher rate tax bracket, you'll be taxed at a lower rate when you take the money out, than if you were a higher rate tax payer when you paid it in. So there are tax benefits.

This highlights why you should get proper financial advice, not get it from mn.

I too don't believe in pensions, partly because I have known so many lose out through companies going bust, or bad investment advice etc.
Pay the mortgage off and save your usual mortgage payment in an isa.
Interest rates can only go up and sometime they will.
You will have no worries if your money is in savings and your mortgage paid off.

Isn't part of the point of a pension that you can't get at it, and therefore if everything else in life goes belly up, you won't be expected to use up all your savings before getting any state help?

Permanent optimist, me...

25% as a tax free lump sum : indeed, but the lump sums coming out of DC schemes are offensively small.
Higher rate taxpayers do indeed benefit more than basic rate taxpayers, but as they are only around 20% of the population, not really relevant to most people.

And YY to being wary of annuities.
A family member bought a £100,000 annuity and then died before a single month paid out.
NICE profit margin for the company.

charleybarley
I do not have a pension scheme and do not intend to get one.
I have other plans in place for when I am working less and less weeks in the year
I never plan to retire (common in my field)

pretty much what talkinpeace said

also

at the age of 35 i am not prepared to take a punt on what tax incentives may or may not be around in the event i decide to draw on my pension in 30 years time, having forfeited control of my money in the meantime

Thanks for the advice. FWIW, I would never again have Premium Bonds. DH and I both had maximum amount for a few years and barely got a bean in 'prizes'. Plus the prize fund has diminished over the years.

We do have quite a few NS&I savings certificates though which we keep renewing. I have a Stocks and Shares ISA and it is doing well. I might invest more in those than just bunging the max in the cash ISA every year.