Pension advice for 39 year old freelancer

[mangoesforever1]

Hello, please could I have some advice. I'm feeling quite stressed about my pension; it's really something I've not thought of as I've been desperate to get onto the housing ladder and had no help so was funneling everything I earned into my deposit.

I have now bought a flat and have been working to reduce my mortgage by overpaying and suddenly have thought about my pension. I have £40k Ive saved in it in bits and bobs over the years.

I now don't know whether I should try and pay off my mortgage or save into my SIPP. I'm 39 and to complicate matters, I freelance in what is quite an unstable industry so my income is not really ever guaranteed - another reason I've been putting it into a mortgage.

I own a one bed flat so downsizing is not an option for me in the future but I guess I could sell and move somewhere cheaper.

What should I do?

Over time compound interest will be your friend above and beyond paying your mortgage off…. Assuming you’re on a 5% ish mortgage rate.

especially if you’re in an unstable industry paying your mortgage doesn’t seem the best plan. Do you have enough savings to keep you for 12 months of outgoings? Locking it straight into your mortgage as an overpayment seems very restrictive.

putting it in pension whilst you’re earning would get you good tax relief of 20 or even 40% depending on your earnings wouldn’t it?

I would think you should shift your focus from overpaying mortgage to just paying it, ensuring you have enough savings, and pension

Pension wins every time but the psychological effects of paying down your mortgage are a huge thing.
If you are a HR tax payer then you should absolutely be putting the max you can afford into your pension, 20% relief will go into your pension and the other 20% will come off your tax bill, are you a Sole trader or a Ltd. Company?
I’m assuming Sole trader with the info I’m giving.
Say you earn £55k, if you can put £5k into a Sipp, it gets made up to £6k with tax relief then you would claim the other £1000 as a tax refund, so it’s only actually cost you £4k.
If you are a BR tax payer then you get £6k in your pension for paying in £5k.
Unless your mortgage is at a mega high rate, a Pension is always the better choice.

Perhaps you need to go and speak to an Independent Financial Adviser, who will look at all your circumstances and your future plans, and will be able to suggest options for you.

In your position, I would aim for one year of cash accessible savings (based on your monthly outgoings), so that if you had issues with your job/work, you have money to tide you over. Needs to be accessible, just in case you need it to cover monthly outgoings.

then put the remainder into a pension - a SIPP in a global index tracker gives diversity and compounding will be so worth it, especially as you are only 39. Remember though, you cannot access that until at least 57 years old.

you could maybe put 80% off your available savings money into your SIPP and then save the other 20% for overpaying the mortgage too. But the compounding from pension savings will no doubt exceed what you’d save in mortgage overpayments.

I understand the thought process behind overpaying the mortgage, as then you have a roof over your head, but the money is tied up in property and not available to help you in times of trouble, which is why you need the emergency cash savings. Good luck!

£6k gross into a pension yearly, increasing contributions by 2% a year, with an average 8% growth over 20 years gives you £350,000. As stated by a PP, stick the money in a low cost Global tracker and forget it for 15 years then look at derisking part of it.

£5000 savings at 3.5% a year gives £178k over the same period,
for comparison.