Should I prioritise pension saving or overpaying my mortgage?

[lycheesalltheway]

I've just turned 39 and feel I really need to start taking control of my life and would like to put myself in a good position financially.

Just to say, I'm not married and no family so will never inherit anything. I am also a freelancer and my income is not particularly high although I'm working on that, I'm not sure how the next few years will pan out. I may end up having to pivot.

I'd like advice on what is best to do in my situation. I have a LISA with £32k in it and I own my flat that I live in and have £145,000 on the mortgage. At my current salary, it will take me 30 years to pay off probably.

Should I prioritise saving into a pension or pay off my mortgage?

I know no one can answer this but what is a good pension to have to be able to live comfortably? I grew up pretty poor but I'm more worried about the fact that I really will have to rely on myself when I'm older and whether I will be ok.

As you are a freelancer the Government will top up your pension by way of tax relief. Overall I would pay off mortgage first, you will always need a roof over your head. There is no way you need to see an IFA as with the amounts you have unless you are totally incompetent, which I’m sure you aren’t then you can just look at MSE and find out all you need to know online with that and other sites.

The issue is almost none of us know our death day unless we get a terminal illness and even then who knows when that illness will hit. But you always need a home. It is a bloody tragedy when people die young, I have had three friends die at 54 and under. One was a nurse and had been so for 34 years, no pension realised, no partner and no children so no one got a bean as far as I’m aware.

Could you explain how/why the new legislation affects me or will affect me, regarding pension? I'm not sure I understand.

I would 100% agree with this. You need advice tailored to your circumstances. You get tax relief on personal pension contributions (basic rate automatically & higher rate can be claimed via self assessment) so this may be more beneficial than the savings on mortgage interest. However an adviser will take into account other factors such as your employment, emergency fund, state pension entitlement, other savings, your attitude to risk etc. Definitely get some professional advice & at 39 it’s a good time to start putting plans in place 👍

I'm not sure what new legislation this poster is talking about so I'd be interested in that too.

The only incoming legislation re pension I can think of is it being taxable as part of your estate when you die. Which in my view it always should have been anyway.

Not sure I understand your point about a nurse dying young (other than it's very sad if anyone dies young) with no dependents and noone getting "a bean".

Would you suggest their pension went to a friend or something? If they were still working (in the NHS) there would actually have been a death in service payment which they would have been able to nominate beneficiaries for, who may be unknown to you (nieces/nephews etc).

You seem to be saying that paying the mortgage is important because you might die. But you need a house equally as much as a pension when you're dead!

I truly don't think people should make plans when they are alive with the purpose of benefitting others when they are dead. Unless they are multi millionaires of course.

Right now you can put up to 60k PA totally tax free in a pension (more if you have carryover from unused £60k in previous 3 yrs)

Starting in April 2029, the government will cap National Insurance exemptions for pension salary sacrifice at £2,000 per year.

That is because I am PAYE if you self employed it wont impact you irrespective of this I'd still prioritise the pension

I would do a combo of both. Put some into a pension and some off the mortgage. Best of both worlds

thank you everyone. I really appreciate the advice and comments and suggestions.

It as people say tricky because no one knows when one will die. I have a feeling I'm unlikely to live pst 60 anyway (too much stress, poor lifestyle choices etc) but knowing my luck, I may live till 99! I think I have decided I will prioritise my pension for now, certainly for the next 5 years and then reassess.

I don't think PPs have mentioned this so...
Are you self-employed and paying [class 4 or 2] national insurance? If so, I have nothing important to add.
At your age, I was in a similar position and prioritised a reasonable rainy day fund in a savings account first, and then divided any further spare income so that roughly half my assets were in my home and half in stocks/shares/pension. In my case (i.e. the past), it was house prices that massively out-performed shares over twenty years but no one knows for sure how the next twenty will go.

So few people use salary sacrifice, and even fewer know what it means, that's it's almost not worth mentioning.

And it doesn't impact the op anyway as she's not employed.

You need to speak to an IFA and take their advice.

Second this recommendation.

Also, I'd prioritise retirement investing over paying off a mortgage.

This is the best answer on here. No way is paying off the mortgage now better than 20 or 40% tax relief then 25% tax free at 57

There are calculators for this online. You have to look at a variety of factors to work out the best route.
things like mortgage interest rate vs savings or pension rate, projected property valuations etc.

@lycheesalltheway there was a very recent article on the Monevator website about exactly this, it may help you with your thinking on this;

https://monevator.com/paying-off-your-mortgage-with-your-pension/

The conclusion was that it depends on individual circumstances but it gives you a good idea of the pros and cons

It’s got to be pension. Even if you’re not a higher rate taxpayer, the tax incentives make it worthwhile

Second the suggestion of Rebel finance school.
i would consider asking AI rather than an IFA as your affairs are not massively complex.
depending on your tax position, age you are now and age you want to retire, pension may be a better financial bet as you get tax relief going in but agree you should definitely have rainy day savings to start with as a freelancer.
check out retirement living standards for a sense of how much you might want in retirement. It breaks retirement costs down with three illustrations.

I use Sprive to overpay my mortgage for free and then invest using my wages. It's a win win. I have a code for £5.00 free towards your mortgage. I don't think I can post it here but send me a private message if you want. They were recently on Dragon's Den if you've not heard of them.

as you re freelance you have no employee contributions to pension so you probably need to be contributing about 10-15% of gross income you do not pay tax on money going into a pension so it's a better use of your money for every 100 you put into pension government basically adds tax back so it's worth 125 there is nowhere you can put £100 where it turns into 125 in a year; a cash ISA might turn it into 105 a stocks and shares ISA might turn into 110 on a good year add in inflation at 3% and a pension is better
having beng self employed all my life you need a good emergency fund to cover time off ( holidays and sick 6 weeks a year) inabilty to work due to ill health etc
I would suggest 12 months of expenses ( this is not 12 months normal expenditure but 12 months bare bones ie mortgage utilities food insurance and transport and essential car/ house maintenace it doesn't include treats socialising etc)
I have 4 funds

1. the 12 months emergency fund half in savings account half in Cash ISA

2, sinking funds for expected but not regular expeniture like car maintenance house maintenance Christmas gifts replacement of an aging appliance in regular savings account 3 saving for futiure purchases, for me this is 2 items the next car and holidays in CASH ISA ( for someone else this might be a new kichen loft conversion 4 long term savings not in pension so I can access when I want stocks and shares ISA

I have an NHS pension and FSVC pension

Financial planning is not really just Maths in fact Maths is probably only about 30-40% the decisions are based on our values security matters more than best return or I am uncomfortable with risk so likely to panic if market drops and sell at worst possible time, I am comfortable with risk and able to stay the course dips in the roller coaster don't bother me. being in debt makes me feel insecure. I know I can handle xyz payments so am comfortable with some debt, I believe in living for the now not the future but realise this means my future needs might not be met. I need to know I'll always have enough so being frugal now to have financial security is more important than most things. After bringing up my kids my wealth is to insure I have a good retirement without depending on them fnancially , how concerned I am about being able to fund their college/ housing deposit now versus leaving an inheritance etc etc

The tax relief on pensions makes them almost always the give the higher return but they come with heavy restrictions such as no access until you reach a certain age

Pension. You’ll get 25% top up to it from Govt (called tax relief) and you really need time for it to grow.

Look for a SIPP with someone like Vanguard or Aviva or similar, check the charges aren’t above 0.8% and select to spread your money over about 4 medium risk funds.

I like spreading risk as well as being able to see a dent in my mortgage. So I split monthly savings towards pension and mortgage overpayment. Strictly speaking I know pension returns outperform mortgage reduction over time but peace of mind is also important.

I actually think you’ve already done something really positive here by having the LISA in place. At 39, that’s a useful account to already have open, you can continue contributing to it until 50 and currently get the 25% government bonus on contributions (up to the annual LISA limit). So I definitely wouldn’t overlook that when thinking about your retirement pot.

On pension vs mortgage, I wouldn’t necessarily see it as an either/or decision. I would first work out what you need to keep accessible, particularly as you’re freelance and thinking about changing direction, and then compare what putting an extra £X into your pension gives you after tax relief versus what the same £X saves you by reducing the mortgage.

You might find that the answer is actually some of both rather than choosing one and ignoring the other.

Also, from what you have written, I don’t think you’re starting from zero at all. You’ve got £32k in a LISA and you own your flat. It sounds more like you’ve reached the point where you want to make sure the decisions you make from here are the right ones for future you.

ChatGPT has ruined me as I can't read posts written in a certain way now without thinking "yep, sounds AI".

you think AI wrote my post?