Pension or Mortgage

[edition]

Hi,

I've just changed jobs and my new employer runs a contributory pension scheme but only once you have been with the firm 2 years. I don't have a pension yet and am in my late 20's.

Instead of paying into a pension I have started paying 8% of my wage into overpaying my mortgage.

Is this an ok plan for the minute with an eye to joining the company one once they let me In or should I start my own private one in the meantime.

Thanks for any advice!

[fandango_c]

It's not a bad idea for the short term. Overpaying your mortgage should effectively give a decent risk free return (dependent on your interest rate) with no tax.

I became self-employed two years and have been offsetting my mortgage instead of paying into a pension over that time.

If your employers contributing into a pension scheme, then it's worth joining that when you can.

[aspender]

Are you sure that you cannot join until you've been there two years, or that you only get to keep the employer contribution after two years of service? The latter is what I've experienced in both places I've worked.

[craigjm]

aspender said:

Are you sure that you cannot join until you've been there two years, or that you only get to keep the employer contribution after two years of service? The latter is what I've experienced in both places I've worked.

this

[Cheib]

It really depends what interest rate you're paying on your mortgaage and what the outlook for property prices is in your area.

The higher the interest rate the bigger the argument for paying off your morgage. It's worth remembering that this is effectively a gross interest rate as far as you are concerned....i.e. 4% interest rate after say 25% income tax is net 3% to you.....so a 4% mortgage rate compares with a higehr savings/return rate.

Leverage is not a bad thing if it is on an appreciating asset...if you live in an area where property prices are expected to flatline for eternity you are better off paying into a pension (assuming it gets inveted in something that goes up in value!).

[fandango_c]

Cheib said:

It really depends what interest rate you're paying on your mortgaage and what the outlook for property prices is in your area.

The higher the interest rate the bigger the argument for paying off your morgage. It's worth remembering that this is effectively a gross interest rate as far as you are concerned....i.e. 4% interest rate after say 25% income tax is net 3% to you.....so a 4% mortgage rate compares with a higehr savings/return rate.

Leverage is not a bad thing if it is on an appreciating asset...if you live in an area where property prices are expected to flatline for eternity you are better off paying into a pension (assuming it gets inveted in something that goes up in value!).

Outlook of property prices is not relevant to the decision. The property is held in both options and hence potential change in value of the property is the same in both.