Pension v mortgage overpayment?

[Dandynot]

I’m 50 and trying to decide whether to overpay £200 a month my mortgage or put the money into my pension. My pension at the moment is pretty worthless, I’ve got about £20k in there.

Most people might say pension, as interest rates are so low. I get that, but it doesn’t seem to match my circumstances. Can anyone see if I’m thinking clearly or missing something?

So, my plan is to reduce my mortgage as much as I can in the next 8 to 10 years with this £200 a month. Mortgage is currently £203k, I can get it down to £75k or so in 10 years with overpayment. I’d then have around £400k. The plan would then be to downsize, buy a small flat and have no mortgage. Plus money left over for savings, investment.

Pension wise, at my age, it seems too late to make a tangible difference. Whenever I do the sliding scale thing, it doesn’t add up compared to the difference I can make with the mortgage. I’d rather have the security of the lower debt I think.

I have a very small NESt pension ((only just started) which employer pays 3% into. They won’t match any extra contributions. I do pay into it and will continue to do so but because of the lack of years for it to grow now, I can’t rely on it for any meaningful retirement. Plus I’m aware pension values aren’t guaranteed, and can drop!

Seems like a no brainer to me but am I missing anything?

70. % to pension and 30 % to mortgage. Small amounts off mortgage make a big difference and 10 years into a SIPP will be worth a decent amount.

You get tax relief on your pension as well as the growth rate over the next 8 to 10 years should be better. So assuming you're a standard rate tax payer you're comparing £200 pm and an interest rate of less than 2% vs £240 into a pension plus what should be a significantly better growth rate.

Are you aware you can take a quarter of your pension as a tax free lump sump when you're 55? (or possibly slightly older, they're moving up to 57/58 but still in your 8-10 year window).

So in your case, that would be £5k from the £20k you already have in there, plus 25% of what you put in, in the next few years.

so when you come to downsize, you'll be able to take money out of your pension of a similar amount to to what you're planning to overpay the mortgage by so you should still be able to downsize and you'll have a better pension pot available.

You could also look at a S&S ISA. You don't get tax relief, but the growth rate should be higher than your mortgage rate and all returns are tax free, whereas pension income will be taxed, assuming your total income exceeds the personal tax allowance. Plus you don't have to wait until 55 to access it although that's not a huge factor when you're quite close to that age anyway.