Paying off mortgage with private pension?

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Hi all. Just wondering what people think about this idea. I have a small private pension which is enough to pay off my £29000 mortgage with a bit left over. Struggling with the increase in bills and also have a works pension. I'm mid 50s. Is this a really bad idea?

At 55 you can take 25% tax free with any further payments taxed at your marginal rates. Are you still contributing to your workplace pension? If it is a defined contribution scheme you will then be limited to £4000 per annum.

Thanks @ForensicAccountant. Yes I'm still contributing to my work place pension. So I can't take out the majority and pay off my mortgage? Can you explain how much I can take at any ont time and how often?

I think if you take any of it your future contributions are limited to £4000/year. It’s not a good idea until you have finished contributing, unless you are sure you won’t put more than £4000/year in…

@ClarasZoo thank you. I'm no longer contributing to it and probably won't be due to not being able to afford it. In that case do you think it's worth using it to pay off my mortgage and can I do it in one lump sum?

Even if you could, why would you? You can still your mortgage at a pretty low rate. You’re actually below what some lenders would even be interested in lending! If money is too tight for current bills, I’d consider remortgaging over a longer term, bringing down your monthly outgoings.
Yes, that means paying even more interest (so over pay where you can) but still your private pension may yet outperform what you’d save on mortgage.

Chances are your mortgage interest rate is lower than growth on pension so I would avoid if you have other options.

What is your current work pension? The annual allowance (MPAA) rules are different if it’s a DB pension (as many NHS, teaching, civil service and local government pensions are).

You don’t always trigger the MPAA anyway - not if you take 25% tax free but no further income, and not if it comes under the “small pots” rules.

So you need to look into that carefully.

But really, I don’t think your future self would thank you for taking it now.

I have a small private pension which is enough to pay off my £29000 mortgage with a bit left over.

So this is not a Defined Benefit pension which pays out am amount for life. If you take this pension, then you would trigger the Money Purchase Annual Allowance, so could not pay more than £4k (gross) in the future into a pension scheme in a financial year.

Taking the pension, 25% is tax free but the remainder is taxable at your tax rate at the time. You therefore could be paying 20% tax on £21,750 depending on your tax situation. With mortgage interest rates so low as they are now, is it worth paying that tax hit?

It is lovely to have a paid off mortgage - I paid mine off quite some years ago. However I did it gradually and then did a final lump sum of a couple of thousand to clear it. Could you overpay it for a while? Are you in a fixed deal where you have an overpayment penalty? Many deals will let you overpay 10% each year without penalty so check the mortgage terms. If on a fixed deal, when that deal ends you could go on variable standard rate and pay as much off as you like.

What other things can you do if you are struggling with the increase in bills?

• Taking 25% of the pension and leaving the rest invested? Using some for an emergency fund, some to pay off any debts, some to pay down the mortgage a bit.
• Doing more hours at work?
• Making sure bills are as low as possible, shopping around for lowest cost providers?
• Paying off high interest unsecured debt (if any)?