Use pension to pay off mortgage reserve

[queenofthedryshampoo]

Hi I have a small pension from a previous employer many years ago (I also have two other bigger pensions including paying into a pension with my current employer). I have a mortgage reserve account which is currently approx £22,000 and I am paying £150 a month of which £100 goes to interest. For many years I was (stupidly) only paying the interest but have upped the payments recently to try clear balance. I'm supposed to pay this off by time my main mortgage is paid off in 8 years and at this rate it won't be. With interest rates going up, I'm wondering whether to cash in my small pension now and use the £16,000 I would get to pay off lump sum now...or wait until I have to pay it in 8 years and hope by then the pension pot is enough to clear it? I can't afford to up my monthly payments at the moment as I have a tracker mortgage also which is going up every month at the moment. Can anyone help with some thoughts/advice?

Go to a financial advisor with all your paperwork. They will be best placed to advise having all the paperwork and specialist knowledge. Plus they will know what questions to ask to get the info they need to make the best suggestion for your circumstances.

When you say “cash in” your small pension, do you mean take a tax free cash sum? Or is the value of the pot £16k (and is that before or after tax?).

There are lots of things to consider, including whether you will trigger the “money purchase annual allowance” - an IFA may be useful, but you could start with speaking to Money Helper who may be able to help you understand the options for free.

Hi yes thank you I can take £16,000 lump sum. I'll try money helper. I wasn't sure if IFAs offer free advice or if you have to take out products/services etc

No, an IFA won’t offer free advice. If the £16k is your tax free cash (it isn’t clear from your response) then it is may worth paying off part of the mortgage reserve - £100 a month is a lot of interest! But no one has a crystal ball to say which is “better”, as it depends on a few factors.

But do check, as triggering the money purchase annual allowance is probably not a good idea if you are still saving towards your pension.

@SlipperyLizard thank you

I believe that you have to be 55 or over to be able to take a cash free lump sum out of your private pension
I believe that you can access all if your pension, but anything over 25% is not tax free.

Your pension may not be accessible at 55, so check

Have a look at Pension Bee website

Have a look at money saving expert website

There is also some pension advice on www.gov.uk