ISA or pension for money set aside for mortgage overpayments

[TeaAndToastx2]

I am early 40s with a high mortgage. I currently save £300 a month into a stocks and shares ISA rather than overpay each month, with the aim of paying a lump sum off when it comes to remortgage in a couple of years time.

However, I am starting to think it would be better to pay more into my pension and then access this as a lump sum at age 55 to make one large overpayment on the mortgage. I am a higher rate tax payer so this seems like it would make much more financial sense. The downside is that I lose any flexibility and the money is then locked away for over 10 years should I need it.

I have some other savings but realistically these would only last 6-10 mths if I was to lose my job (reasonably secure over next few years but never know long term). I do currently save about £300 a month into rainy day savings as well so could build on these.

Has anyone been in a similar situation or can give advice? I have only been in a position to overpay the mortgage for the past 1-2yrs due to large childcare costs before this, so there is not a lot in the ISA. I would leave this there if I were to increase my pension contributions.

I do already contribute well into my pension so any further contributions would be solely with the plan on taking a lump sum at age 55 to go towards the mortgage (>20yr term left currently!)

Thanks for any thoughts.

Are you solely responsible for the mortgage?

In similar circumstances I prioritised an emergency fund of 2 years worth of essential bills and spending so I had an adequate backup in case of job loss or long term illness (or in a catastrophe, at least time to sell the house without panic). It was a mix of Cash ISA and S&S ISA in a Money Market fund. Probably it was overly cautious but it did give me peace of mind. I also ensured adequate life insurance to provide for my children.

Building up pensions has obvious tax advantages, particularly as a higher rate tax payer.
The age at which you can access a pension is rising to 57 by 2028. It appears to track the state pension age minus 10 years, so it might possibly shift again before you reach that age, depending on government reviews of life expectancy.

I think this comes down to your own risk tolerance. I wouldn't want to rely on a pension lump sum to pay off the mortgage - who knows what the pension rules might be by then on age, withdrawing a tax free lump sum, or how much you could subsequently contribute to the pension after a withdrawal.
For me, the longer the time frame on the pension and the mortgage, the greater the financial uncertainty.

Have you played about with Mortgage calculators to see whether putting some.or all of the £300 into your mortgage every month would have the benefit of reducing your costs more than doing lump sums sporadically? With a.long mortgage term, the sooner you get the capital down, and therefore reduce the level.of interest,.the better.

I would pay direct off the mortgage if no penalty. The sooner the mortgage is paid off, the sooner it is all yours. knowing no one can take your home no matter what happens is priceless
Then ISA for flexibility as you can use it when you like at the drop of a hat
Then top up pension as you may not be able to access it til age 57 and so much could happen between now and then.

Thank you all for the messages.

Very true that a lot can change regarding rules around withdrawals and at what age/how much tax free etc. This is a vet important consideration.

Perhaps the simplest approach of just overpaying the mortgage each month is best here, I would be well under the threshold for overpayments so no penalties. I thought there might be a smarter way of making any extra money work but maybe simple is better!

I have a husband so mortgage not solely my responsibility but neither of us could pay it and all living costs on one salary alone.

Not too worried about one lump sum every couple of years versus regular payments as interest rates on mortgage and savings are much and much, if not higher for savings where they are. Though psychologically a payment each month could be satisfying.

appreciate all the food for thought!