Pay off mortgage or get a pension?

[artificialhells]

We have had an unexpected windfall of £90k. We have a £125k mortgage on a £400k property, no other debts, also no pensions. We are mid 40s and have one dc

Should we reduce our mortgage now, or invest the whole lot in a pension? Or a bit of both?

@artificialhells

We are both self employed, and we have tiny tiny pensions that we only started putting the minimum into about 5 years ago. We have substantial care costs for a disabled dc and don’t qualify for support because dh is a higher rate tax payer

So it sounds like putting some money into pensions now would be sensible - 40k before the end of the tax year? There is a penalty for paying off the mortgagee early but I don’t know whether it’s better to do this than risk huge interest rate hikes when our fixed rate comes up for renewal

Have you applied for DLA for your child? Eligibility is not affected by income or savings.

@Cocomarine

Here you go:

www.aviva.co.uk/aviva-edit/your-money-articles/ethical-investment-looking-past-profit/

Aviva is a go-to site for me, as I have one of my private pensions there and find the website clear.

Remember that with ethical investment, you don’t do anything different - just choose their ethical funds product. In all ways, it’s managed the same way with how you pay in / get tax relief.

One thing to watch - you say you’re both self employed. In some situations you can get your company to pay in for you, which saves something… (I’m hesitant to say what, as a little knowledge is a dangerous thing!)
But I’ll just flag: it’s worth looking into that.

For questions, I thoroughly recommend MSE Pension forum.

The OP would not be able to make this as an employer cont. as the money is outside of the business, and it not wholly and excluisve.

It would have to be a personal contribution and alos ensure that it is within the OP's annual allowance limits, as we have no idea of their relevant uk earnings.

@fromdownwest oh absolutely! But OP was also talking about setting up pensions (rates of return and ethical options) and I didn’t want to post a link to a personal pension and not flag that she should also be checking out the company contributing if that’s beneficial.

You’re right of course that she can’t contribute from the £90K as it’s outwith the business. But nothing to stop her making a large contribution from the company at the expense of wages, knowing she can take lower wages as they can be propped up by the £90K 😉 Devil is in the detail of course!

My main point to OP is: do you research, and don’t leave company contributions out of that research!

[quote Cocomarine]**@fromdownwest* oh absolutely! But OP was also talking about setting up pensions (rates of return and ethical options) and I didn’t want to post a link to a personal pension and not flag that she should also be checking out the company contributing if* that’s beneficial.

You’re right of course that she can’t contribute from the £90K as it’s outwith the business. But nothing to stop her making a large contribution from the company at the expense of wages, knowing she can take lower wages as they can be propped up by the £90K 😉 Devil is in the detail of course!

My main point to OP is: do you research, and don’t leave company contributions out of that research![/quote]
Totally agree there, but again annual allowances and confirmation of wholly and exclusive from your accountant is needed.

Just trying to ensure OP doesn’t assume pension is best, without the details being understood

@Rayna37

Mid 40s with no pensions, a proportionally small mortgage- the 90k should definitely go into pensions. If you have no savings keep some back for emergencies E.g. min 3 months of outgoings but if you're already ok for this and can still afford the mortgage if interest rates rise a bit then definitely the best return on your money would be to put it into the pension so it's got time to grow.

^ this. 40s is quite late to be starting on pension - also you get a good tax break for putting money in pensions

I would:

• max out cash ISA (think it’s around 20k)
• max out the tax free pension contribution for you both this tax year (before end March)
• same again in april for the next tax year

• Depending on what’s left, max out the 22/23 isa
• remainder (if any) goes on mortgage to shorten term (not reduce payments) - check if penalty for early redemption

Obviously keep a small amount (1-5k) for fun money after being so sensible!

Mid 40’s with no pension is worrying. I’d address that urgently in your shoes.

I would pay down your mortgage then start putting 15% of your income into pension.

@artificialhells

We are both self employed, and we have tiny tiny pensions that we only started putting the minimum into about 5 years ago. We have substantial care costs for a disabled dc and don’t qualify for support because dh is a higher rate tax payer

So it sounds like putting some money into pensions now would be sensible - 40k before the end of the tax year? There is a penalty for paying off the mortgagee early but I don’t know whether it’s better to do this than risk huge interest rate hikes when our fixed rate comes up for renewal

If DH is a higher rate tax payer, he should have a decent pension pot by now!!! At your ages, I’d put it in a pension split between the 2 of you, because the earlier you do this the more you’ll benefit in the long term. And up your pension contributions generally!

saleorbuoy

Why 'You have 18 days to put 20k into a stock and shares ISA for this tax year', can OP not put in 40k this tax year?

i think the interest rates are going up so i think mortgage would a great idea.

Thank you everyone for your replies and advice. I have tried to reply a few times but I don’t think my messages have been posted … am very aware that we are behind with pensions, but I am quite overwhelmed with all the factors to consider. I need to do a lot of research!

Actually if your dh is self employed why on earth has he structured the business so that it pays him a salary at the higher tax rate - that's hugely inefficient.

I think you should spend some of the windfall on proper financial advice, from someone who knows about self-employed arrangements as well. It's likely you could be much better off with some proper business advice.

Why 'You have 18 days to put 20k into a stock and shares ISA for this tax year', can OP not put in 40k this tax year?

£20K per person annual limit for ISAs

Total of £40K limit for OP and OH each year though.

For pensions it is usually up to £40K (unless higher earner), but not more than you have ear to that tax year (except if you earn nothing or v little when you can put in total £3600 gross.

Definitely worth getting financial advice on anything unsure of it doing a lot of research until you are sure.

@PiffleWiffleWoozle the £40K limit is for everyone, higher earners too.

Not for very high earners @Cocomarine but admittedly this does not apply to many people!

www.youinvest.co.uk/sites/default/files/AJBYI_Guide_to_annual_allowance_tapering.pdf

[quote PiffleWiffleWoozle]Not for very high earners @Cocomarine but admittedly this does not apply to many people!

www.youinvest.co.uk/sites/default/files/AJBYI_Guide_to_annual_allowance_tapering.pdf[/quote]
👍🏻 Thanks for the correction! I must admit, I was thinking “higher rate tax payer” for higher earner. Sadly I don’t much have to concern myself with rule for those on £312K+ 😭

Me neither sadly!