Mortgage over payments vs pension contributions
Discussion
It depends on your age and priorities.
Rule of thumb is that if you are achieving a better return on your pension that your mortgage is costing you (gross), then paying into your pension is the better option. You obviously need to factor inflation into this as it works against your pension (and/or any savings) but works for you with the mortgage.
I hope that makes sense, happy to clarify though.
Rule of thumb is that if you are achieving a better return on your pension that your mortgage is costing you (gross), then paying into your pension is the better option. You obviously need to factor inflation into this as it works against your pension (and/or any savings) but works for you with the mortgage.
I hope that makes sense, happy to clarify though.
Is it a private one, or an employer?
If you've got a decent employer, and you're not at the limit where they match contributions, then that would seem the sensible thing to get up to. After all, they're actually giving you free money....
If it's a private one, then that's not going to be relevant.
If you've got a decent employer, and you're not at the limit where they match contributions, then that would seem the sensible thing to get up to. After all, they're actually giving you free money....
If it's a private one, then that's not going to be relevant.
JulianPH said:
It depends on your age and priorities.
Rule of thumb is that if you are achieving a better (risk-adjusted) return on your pension that your mortgage is costing you (gross), then paying into your pension is the better option. You obviously need to factor inflation into this as it works against your pension (and/or any savings) but works for you with the mortgage.
I hope that makes sense, happy to clarify though.
Rule of thumb is that if you are achieving a better (risk-adjusted) return on your pension that your mortgage is costing you (gross), then paying into your pension is the better option. You obviously need to factor inflation into this as it works against your pension (and/or any savings) but works for you with the mortgage.
I hope that makes sense, happy to clarify though.
sidicks said:
JulianPH said:
It depends on your age and priorities.
Rule of thumb is that if you are achieving a better (risk-adjusted) return on your pension that your mortgage is costing you (gross), then paying into your pension is the better option. You obviously need to factor inflation into this as it works against your pension (and/or any savings) but works for you with the mortgage.
I hope that makes sense, happy to clarify though.
Rule of thumb is that if you are achieving a better (risk-adjusted) return on your pension that your mortgage is costing you (gross), then paying into your pension is the better option. You obviously need to factor inflation into this as it works against your pension (and/or any savings) but works for you with the mortgage.
I hope that makes sense, happy to clarify though.
Thanks All,
I’m in my mid-50s and it’s a private pension. Like most I guess, my pension investments have done well over the last few years but have taken a bit of a dive more recently. Part of me just wants to rid myself of any debt ASAP particularly with interest rates on the rise. It’s hard to see through all the effects of fund charges and tax rebates on pension contributions and inflation etc. I will need to get the calculator out!
I’m in my mid-50s and it’s a private pension. Like most I guess, my pension investments have done well over the last few years but have taken a bit of a dive more recently. Part of me just wants to rid myself of any debt ASAP particularly with interest rates on the rise. It’s hard to see through all the effects of fund charges and tax rebates on pension contributions and inflation etc. I will need to get the calculator out!
It's difficult to compare the two, because they are likely to be of different risk categories. It also depends if you are a 40% tax payer too; if you are, it favours pension contributions a bit more. There's also the minor issue of fund charges on your pension, irrelevant on your mortgage.
Put simply (assuming you're a 40% tax payer):
£60 net income = £100 gross in to your pension, return perhaps 5% plus but who knows what stock markets will do? Tax when you withdraw later.
£60 used to pay down mortgage = a guaranteed return of your mortgage rate......3%? No tax issues.
If it was me I'd pay down the mortgage. You can live in a house, you can't live in a pension fund. You'll sleep more soundly too.
Put simply (assuming you're a 40% tax payer):
£60 net income = £100 gross in to your pension, return perhaps 5% plus but who knows what stock markets will do? Tax when you withdraw later.
£60 used to pay down mortgage = a guaranteed return of your mortgage rate......3%? No tax issues.
If it was me I'd pay down the mortgage. You can live in a house, you can't live in a pension fund. You'll sleep more soundly too.
Brave Fart said:
It's difficult to compare the two, because they are likely to be of different risk categories. It also depends if you are a 40% tax payer too; if you are, it favours pension contributions a bit more. There's also the minor issue of fund charges on your pension, irrelevant on your mortgage.
Put simply (assuming you're a 40% tax payer):
£60 net income = £100 gross in to your pension, return perhaps 5% plus but who knows what stock markets will do? Tax when you withdraw later.
£60 used to pay down mortgage = a guaranteed return of your mortgage rate......3%? No tax issues.
If it was me I'd pay down the mortgage. You can live in a house, you can't live in a pension fund. You'll sleep more soundly too.
Technically it is £80 of net income that equals £100 gross into your pension (just as with basic rate tax payers). The additional £20 goes back in your pocket via your tax return for higher rate tax payers.Put simply (assuming you're a 40% tax payer):
£60 net income = £100 gross in to your pension, return perhaps 5% plus but who knows what stock markets will do? Tax when you withdraw later.
£60 used to pay down mortgage = a guaranteed return of your mortgage rate......3%? No tax issues.
If it was me I'd pay down the mortgage. You can live in a house, you can't live in a pension fund. You'll sleep more soundly too.
I agree though, from the OP's last post - given the extra info provided - paying down the mortgage seems to be the best route.
For someone in their thirties who is a higher rate tax payer the answer may be different.
JulianPH said:
Technically it is £80 of net income that equals £100 gross into your pension (just as with basic rate tax payers). The additional £20 goes back in your pocket via your tax return for higher rate tax payers.
I agree though, from the OP's last post - given the extra info provided - paying down the mortgage seems to be the best route.
For someone in their thirties who is a higher rate tax payer the answer may be different.
Glad I’ve read that. I’m in this position. Got ~5k PA rental income I don’t “need” so paying into a SIPP rather than pay 40% tax on it and pay down my mortgage (I’m already over 60% LTV so can’t access any cheaper rates)I agree though, from the OP's last post - given the extra info provided - paying down the mortgage seems to be the best route.
For someone in their thirties who is a higher rate tax payer the answer may be different.
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