Thinking about pausing pension payments to overpay mortgage

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Does this sound crazy? I'm thinking about pausing paying into my LGPS or going 50/50 so that I can save the money to overpay our mortgage while we have a good interest rate. I'm in my mid 30s have 9 years in the scheme and I figure once the mortgage is paid off (8 years left) I can rejoin and make additional payments to compensate for the years lost. I've recently found out about the 50/50 option, which feels a safer option to overpay and still build up my pension but as I don't pay a huge amount into my pension I wonder if it's better to just leave the scheme for a bit?

Does anyone have any thoughts on why this might be a bad idea please or things that I should consider before making a decision?

Crazy

you Will never in your life get a better return on your investment than the lgps - far better than overpaying your mortgage

If you only have 8 years left on your mortgage it must be quite small. So the interest rate increase should not really affect you so much. When does your current fix end and how much will be left?

Financial advice I've had says pension first mainly because of the compound interest. I get it, it somehow feels a bit counterintuitive because you want rid of a debt, but it makes sense to keep adding to your pension. I think taking time out of a pension would probably be regrettable because it relies on time which you'll have less of in 8 years.

That sounds like a terrible idea. Have you taken financial advice or even done the sums yourself? I think you'd invariably lose out on your pension for little gain. Why do you need to pay off your mortgage so quickly?

Leaving pension scheme appears to save you money BUT you loose your employers contributions so are effectively taking a pay cut to overpay your mortgage. Don't do it!

This makes no sense. There’s a huge employer contribution to LGPS, which you’d be missing out on. And it’s also the source of any death in service or survival benefits if you die while working for the council. It’s the sort of thing you should only do if you’re in really dire financial straits, not to overpay a mortgage which only has 8 years left on it anyway.

Plus you lose the tax benefit as pension is a cost before tax.

This. And you will never make up time lost.

Stay the course.

You'd be losing employer contributions for the sake of what must be a small gain on the short term you have left.

Keep the pension unless you're in a dire situation

Everyone always says they will make up their contributions later, but in my experience there is always a reason why they dont get paid.

And by not paying into a pension earlier in life people generally find it difficult later because they have gotten used to the extra money/ lifestyle inflation.

The reason you are stating is good, but it is too easy to fall into the trap of not making up the payments that I think it would be a bad idea to do this.

Definitely a bad idea. I take financial advice and it has always been to pay your mortgage off within the term, not by overpaying, and bulk up your pension. The tax benefits alone make it worthwhile.

I am managing mortgage payments such that I will be paying something off right up until I cash in my private pension at 58, and probably my workplace one too. I put the vast majority of the rest of my excess cash into my pensions. I should then have the flexibility to pay off whatever might be left on my mortgage by the time I cash in pensions, if I want to. We’re taught that debt is bad but it really, really isn’t in the case of a mortgage when your money will make you far much more in your pension.

No. And no again. For all the reasons above 👆

You would be mad to do this especially when you only have 8 years left on your mortgage.

If you still can't get your head round the comments above then you need to see an FA or spend an evening looking at pensions and how they compound over the years.

You will regret this if you do it.

Wow thanks everyone! General consensus is its a crazy! I'd just love to have it paid off and just have a bit more financial flexibility. Fix is up in May 2025 but good point @Callisto1 on the impact of rising interest rates.

I bought as a FTB this year and have a mortgage until I'm 68. Thankfully we took a 5 year fix and can in theory afford circa 6% repayments in 5 years time. My DH and I have increased our pension contributions since we bought rather than overpay the mortgage. I'm 40 so feel that I need to be increase the pension payments now so it has time to build up. If needs be I'll use the lump sum to pay off the mortgage.

Absolutely no way i'd reduce/leave a public sector pension(!) . I'm actively trying to find a public sector job for the pension (I'd never beat a public sector pension now working in the private sector)

The earlier you pay into your pension the more lucrative it becomes. It’s a bonkers idea to stop paying into it!

LGPS is a defined benefit pension and probably the best that’s still around.
It is for this that it would be mad to reduce your benefits to half, not because of compound interest or tax relief or employers contributions. That makes no difference in your case.

Depends on the details and i would get IFA

my husband is leaving his public sector pension for some time- otherwise he’ll have a massive tax bill to pay. He’ll use the extra take home pay to overpay mortgage

sometimes it makes sense

And that was FA advice too

@Lapland123 What tax bill is this? If his salary is over 100k and this is about losing his personal allowance, he should put as much as possible over the 100k mark into his pension, not stop contributing. Or are you referring to reaching the £1M pension pot mark?

Exceeding the annual allowance I imagine.

Yes, exceeding annual allowance

If you're fixed until 2025 and you only have 8 years left now then I think it's mad to stop the pension. I suggest you plug in the amount you'll owe in 2025 in a mortgage calculator and look at the effect of say 2% vs 7%. I doubt it'll be unaffordable.

www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/

And the extra you'll overpay on mortgage (say 6k or so) in 2.5 years by not paying pension won't make much of a difference to the mortgage. Have a look at how much interest you'll save.

LGPS is a great scheme. I’d only go 50/50 or leave if you literally can’t pay your mortgage & bills. Stay in the pension if you can.

@Lapland123 @ChessieFL ok, thanks! So in this case you can of course keep contributing but you lose the tax relief. So you (or your FA) would need to look at employer contributions and see if it was was still worth your while continuing to contribute and paying the tax due. Because of the gains of compound interest and the employer contributions, it seems like it probably would be?

I am getting quite close to that threshold between my private and workplace pensions but my FA hasn’t discussed it with me yet! 😬

If you come out of the scheme then you will lose the death in service benefit - do you have good life insurance?