Using pension lump sum to pay off mortgage?
Discussion
Hi, in 12 mths time I will be eligible to take the 25% lump sum from my pension and intend to use this to pay off our mortgage. This will save around £1000 a month (likely more once our fixed rate ends next year). Mortgage will be around £60k and will have 5 years left to run once I am able to withdraw the lump sum.
Lump sum will come from a final salary pension I am still paying in to and will ‘mature’ (wrong term probably) at 65.
I also have another smaller final salary pension from a job I left 20 years ago, and that matures at 60.
Would welcome anyones thoughts on doing this as it seems the logical thing for us to do.
Lump sum will come from a final salary pension I am still paying in to and will ‘mature’ (wrong term probably) at 65.
I also have another smaller final salary pension from a job I left 20 years ago, and that matures at 60.
Would welcome anyones thoughts on doing this as it seems the logical thing for us to do.
I did this 14 months ago. Took financial advice albeit it seems quite sensible now we have higher borrowing rates . It has eaten into some of my tax free cash and I draw my pension with part of my tax free cash each month . The only consideration I suggest is just how much of you tax free cash does it use , does it leave you any . I used about 60% of mine when I paid off the mortgage
Edited to add I took a cash value for both my work pensions and now have a private pension . There was therefore no penalty at 55 as I was cashing out .
Nice to have no mortgage.
Edited to add I took a cash value for both my work pensions and now have a private pension . There was therefore no penalty at 55 as I was cashing out .
Nice to have no mortgage.
Edited by cliffords on Monday 31st July 17:36
Firstly if it’s a final salary pension it isn’t 25%. What is the commutation factor (ie what pension are you giving up to take say each 1000 of cash? You normally have to also take your pension when you take your cash which, you are penalised for, as you appear to be taking it before your normal retirement date.
You need to calculate how much you are giving up overall in your pension and compare to what your parents paying on your mortgage.
You need to calculate how much you are giving up overall in your pension and compare to what your parents paying on your mortgage.
Rick101 said:
How old are you now?
I assumed 12 months off the main pension putting you at 64 but you go on to say you have a 2nd pension that matures when you reach 60.
Are you intending to take them early and what age will you finish work?
Where he says in 12 months he will be eligible to take the 25% lump sum, that would suggest mid 50s (is it still 55 at the minute) so I would suggest he's looking to take the lump sum but carry on working mortgage-free and continuing to contributeI assumed 12 months off the main pension putting you at 64 but you go on to say you have a 2nd pension that matures when you reach 60.
Are you intending to take them early and what age will you finish work?
Pieman68 said:
Where he says in 12 months he will be eligible to take the 25% lump sum, that would suggest mid 50s (is it still 55 at the minute) so I would suggest he's looking to take the lump sum but carry on working mortgage-free and continuing to contribute
Which he is unlikely to be able to do.I've never known a FS pension where you can take your 'commutation' without starting to take the pension? The lump sum should be variable to a maxium so you can take up to that what you wish but sacrifice a portion of your monthly pension payments.
Most advise to take the maximum commutation to either in your case pay off any outstanding debt or spend/invest. You have to decide where your 'break even' point is. ie had you not commuted at what point would the extra pension payments have given you back more than what you took early as the lump sum. In my case it was 16yrs so I took the maximum commutation even though I didn't need it.
Most advise to take the maximum commutation to either in your case pay off any outstanding debt or spend/invest. You have to decide where your 'break even' point is. ie had you not commuted at what point would the extra pension payments have given you back more than what you took early as the lump sum. In my case it was 16yrs so I took the maximum commutation even though I didn't need it.
hepy said:
54 now, so 55 when I would plan to take the cash.
Likely work until 60, possibly do some part time after then.
Both pensions are final salary and I wasn’t aware I needed to take my pension at the same time.
Speak to your pensions company and ask them for your options at 55. I think you may be surprised !Likely work until 60, possibly do some part time after then.
Both pensions are final salary and I wasn’t aware I needed to take my pension at the same time.
craig1912 said:
hepy said:
54 now, so 55 when I would plan to take the cash.
Likely work until 60, possibly do some part time after then.
Both pensions are final salary and I wasn’t aware I needed to take my pension at the same time.
Speak to your pensions company and ask them for your options at 55. I think you may be surprised !Likely work until 60, possibly do some part time after then.
Both pensions are final salary and I wasn’t aware I needed to take my pension at the same time.
craig1912 said:
hepy said:
54 now, so 55 when I would plan to take the cash.
Likely work until 60, possibly do some part time after then.
Both pensions are final salary and I wasn’t aware I needed to take my pension at the same time.
Speak to your pensions company and ask them for your options at 55. I think you may be surprised !Likely work until 60, possibly do some part time after then.
Both pensions are final salary and I wasn’t aware I needed to take my pension at the same time.
Thanks to all who took the time to reply.
hepy said:
craig1912 said:
hepy said:
54 now, so 55 when I would plan to take the cash.
Likely work until 60, possibly do some part time after then.
Both pensions are final salary and I wasn’t aware I needed to take my pension at the same time.
Speak to your pensions company and ask them for your options at 55. I think you may be surprised !Likely work until 60, possibly do some part time after then.
Both pensions are final salary and I wasn’t aware I needed to take my pension at the same time.
Thanks to all who took the time to reply.
I looked at taking lumps sums from two DB pensions(and starting pension payments from age 55) as I was made redundant at that age and had a very generous settlement: I, too, would have looked to clearing the mortgage. My IFA advised if I was really intending to retire at 55 I should look to savings and SIPP to fund at least the first 5 year and, ideally, leave the DB pensions to maturity date (60 and 65 in my case) as the penalties were significant (loss of at least 10% of annual pension aside from the reduced value by taking 25% lump sum).
I ended up working, self-employed, for a further 6 years when the issue of retiring arose again. His advice hadn't changed during this period, however, my circumstances had and following a cancer diagnosis his advice changed to start the DB pensions and hold on to the SIPP! Three years on all is good atm but it does highlight how the right thing to do does depend very much on circumstances. The early start to my DB pensions, in the end, only cost me 4% of one of them.
In short, If you took independent financial advice, don't be surprised if they advised about not taking the lump sums until the pensions achieved their maturity dates unless you had some kind of reduced life-expectancy diagnosis.
I ended up working, self-employed, for a further 6 years when the issue of retiring arose again. His advice hadn't changed during this period, however, my circumstances had and following a cancer diagnosis his advice changed to start the DB pensions and hold on to the SIPP! Three years on all is good atm but it does highlight how the right thing to do does depend very much on circumstances. The early start to my DB pensions, in the end, only cost me 4% of one of them.
In short, If you took independent financial advice, don't be surprised if they advised about not taking the lump sums until the pensions achieved their maturity dates unless you had some kind of reduced life-expectancy diagnosis.
Sorry another question. My wife has some pensions (not defined benefit/final salary), could she take a lump sum from those but defer taking the pension until later?
She has other investments for her retirement (properties) so her pensions are smaller proportion of her retirement income. Her 25% might not repay all of the mortgage but would seriously reduce it.
She has other investments for her retirement (properties) so her pensions are smaller proportion of her retirement income. Her 25% might not repay all of the mortgage but would seriously reduce it.
Provided she is 55 then yes this option sounds far more feasible than trying to partially encash your DB benefits early.
If her pension is a DC arrangement then it's quite easy to arrange for it to be put into a personal pension of some sort and then elect to do draw down by way of taking the tfc and leaving the taxable benefit in situ until needed.
Sounds like you now have a plan !
If her pension is a DC arrangement then it's quite easy to arrange for it to be put into a personal pension of some sort and then elect to do draw down by way of taking the tfc and leaving the taxable benefit in situ until needed.
Sounds like you now have a plan !
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