Extra in pension or extra in mortgage?

[postiewhite]

My pension pot isn't great, im in my 40's now and recently have decided to pay extra into my RM Zurich pension scheme. If I pay £19 then RM will pay the 9% and put in £23 and on top Im starting to put in a further £30 in voluntary contributions which means im putting in £50 a week now.
On the flip side I owe £50k mortgage with 22 years left and although Iam starting to pay £100 per month more than the minimum to get the interest down I was wondering if I should sack the £30 per week extra im putting into my pension pot and put that towards the mortgage as well. Its a catch 22 situation because on one hand I could be paying my mortgage off a lot quicker but then i'd stilll have a rubbish pension pot or do I carry on balancing and sharing what I can afford into the pension and mortgage?

[DGH]

Maybe get some independent financial advice from an expert?

Personally I'd pay off the mortgage first but in fairness an extra £30 a month off the mortgage is only £360 a year, so given you're already making extra mortgage payments you might be as well sticking with your current plan.

Which is why I suggest expert independent advice.

[bustedflush]

Always get rid of debt first - it costs more than investments pay generally.

Depending on what mortgage deal you have savings can be colossal. If you overpay a 25-year mortgage by just 10% a month from the start, generally it knocks about 6-7 years off the end, saving you those payments (repayment mortgage) so if you were paying 500 a month you would save 30k +.

Remember pension investments it's always the last year that's the best, so if you were clear of mortgage at 60 you could whack up to the limit into your pension then, and that would cost you less than the mortgage (that you aren't paying by then).

Really you need to speak to an advisor and supply him with the exact details of your mortgage to work it out. You can also ask your lender to work out various permutations of overpayment and terminal date, and then compare with your RM pension forecasts. Remember the mortgage, bar a pretty substantial change in interest rates, is pretty stable to work with and forecast whereas pension investments are subject to plenty of assumption and projection forecasting and variables.

[SpongeBobPants]

Always get rid of debts as soon as possible. You'd then be able to put the mortgage repayments all into the pension pot once you've paid that all off. I would say check out if you'll have early repayment costs on the mortgage though.

[jetblack]

Would tend to go with the posters above who say get rid of debt first.

However, interest rates are at an historic low. Just googled it and you can get 4% on a 10 year fixed rate mortgage, less for shorter periods. 4% isn't much to outperform in investments, and a low interest rate environment usually does produce good returns on the stock market.
What i mean is, its a good time to be having debt, if you are going to have debt at all.

Depends on your individual circumstances ultimately - but yeah, get rid of the debt.

[stan_lers]

My parents paid off their mortgage by paying extra each month, and now keep paying the same amount into a savings account to use when they retire. The interest you save by paying the mortgage off early will probably always be more than the money you'd make on any kind of savings or investment.

[datasaint]

Your direct contribution pension won't buy you a decent fixed income when you retire, unless you make it to 200k.

You're better off paying as much as you can off your mortgage, and stick with the 6% + 9% pension contribution so you maximise what RM pay in.

[RobertT]

The first thing to do is make sure you’re putting into your pension whatever it takes to get the maximum employer contributions, which it sounds like you’re already doing.

You also have to factor in the benefits of tax relief and PSE on your pension payments. Which means that a £1 gross payment is only actually costing you £0.68, because your income tax will be reduced by £0.20 and your NIC’s by £0.12. So your £49 per week payment will only be costing £33.32, which means a 51% increase on your money straight away! Where else can you get returns like that? Plus you’re getting another £23 off RM too.

Overpaying the mortgage is obviously a good thing to do because of the savings in interest, but will it match the 51% I mentioned above? Probably not! And as interest rates are currently very low, it’s debatable whether the savings made will be worth it. Also is there a possibility of re-mortgaging at a lower rate and so effectively overpaying while continuing with the same monthly payments as now?

Ideally you won’t still want a mortgage when it comes to your retirement so overpaying that is a good thing to do, but there’s no point if you’ve not got enough pension to live on. I agree that it is a catch-22 situation, so personally I would say carry on doing both as they’re both important for your long term financial planning.

[bustedflush]

The first thing to do is make sure you’re putting into your pension whatever it takes to get the maximum employer contributions, which it sounds like you’re already doing.

You also have to factor in the benefits of tax relief and PSE on your pension payments. Which means that a £1 gross payment is only actually costing you £0.68, because your income tax will be reduced by £0.20 and your NIC’s by £0.12. So your £49 per week payment will only be costing £33.32, which means a 51% increase on your money straight away! Where else can you get returns like that? Plus you’re getting another £23 off RM too.

Overpaying the mortgage is obviously a good thing to do because of the savings in interest, but will it match the 51% I mentioned above? Probably not! And as interest rates are currently very low, it’s debatable whether the savings made will be worth it. Also is there a possibility of re-mortgaging at a lower rate and so effectively overpaying while continuing with the same monthly payments as now?

Ideally you won’t still want a mortgage when it comes to your retirement so overpaying that is a good thing to do, but there’s no point if you’ve not got enough pension to live on. I agree that it is a catch-22 situation, so personally I would say carry on doing both as they’re both important for your long term financial planning.

The problem with that is the yields when you buy a pension. He spends 10's of thousands over 20 years increasing his pension pot only to find that at retirement age the interest rates are low like now, and pro-rata his pension fund won't buy the annuity of somebody who had less than half of that amount but managed to buy an annuity say 10 years ago when rates were 4%.

His weekly net payment of £33.32 equates to 30k over 20 years whereas (depending on how much his mortgage costs per month) he would likely save far more if he knocked the last 7 or 8 years off of the mortgage. I still maintain capital repayments off the mortgage are far more appropriate for a person of his age.

[jetblack]

Agreed bustedflush - but if we are getting into it that far you would also have to factor in that on top of the low interest payments and relative tax/NI and (potentially) tax credits bonuses (of what,51% and 41% respectively ??) of his pension contributions, there is also the fact that the real value of his outstanding debt diminishes over time due to inflation

Instinctively I'd go with getting shut of debt. But I'm not 100% sure I'd be right just now.

For eg. - I personally do have some outstanding mortgage debt. And I have more than enough invested in bitcoins to pay it off. And maybe I should. However, I'm paying 3.5% on my mortgage - whilst my btc has increased by 26% in the last 6 weeks (could drop to zero next week BTW ).

When the economy picks up and interest rates start to rise, then go hell for leather on clearing the debt.
But just now money is so cheap

[bustedflush]

Agreed bustedflush - but if we are getting into it that far you would also have to factor in that on top of the low interest payments and relative tax/NI and (potentially) tax credits bonuses (of what,51% and 41% respectively ??) of his pension contributions, there is also the fact that the real value of his outstanding debt diminishes over time due to inflation

Instinctively I'd go with getting shut of debt. But I'm not 100% sure I'd be right just now.

For eg. - I personally do have some outstanding mortgage debt. And I have more than enough invested in bitcoins to pay it off. And maybe I should. However, I'm paying 3.5% on my mortgage - whilst my btc has increased by 26% in the last 6 weeks (could drop to zero next week BTW ).

When the economy picks up and interest rates start to rise, then go hell for leather on clearing the debt.
But just now money is so cheap

You must be a gambler with some balls to have enough to pay your mortgage off invested in the pseudo-currency of Paedo Pennies!! Their primary use is to enable US-based online gamblers to get paid (online gambling is legal in the US but domestic processing of payments for it is not in 47 states) or shady transactions.

Put it this way, your house won't collapse!

[RobertT]

The problem with that is the yields when you buy a pension. He spends 10's of thousands over 20 years increasing his pension pot only to find that at retirement age the interest rates are low like now, and pro-rata his pension fund won't buy the annuity of somebody who had less than half of that amount but managed to buy an annuity say 10 years ago when rates were 4%.

Who said anything about buying an annuity? Twenty years ago a pot of £100k would buy you an annuity of around £15,000 per year(level, single life) at age 60. These days it’s closer to £4,000. Therefore it’s not a great idea at the moment – but who knows what might happen in the future.

There’s lots more options these days with what we can do with our defined contribution pension pots. Info: https://www.moneyadviceservice.org.uk/e ... on-schemes" onclick="window.open(this.href);return false;

His weekly net payment of £33.32 equates to 30k over 20 years whereas (depending on how much his mortgage costs per month) he would likely save far more if he knocked the last 7 or 8 years off of the mortgage. I still maintain capital repayments off the mortgage are far more appropriate for a person of his age.

The two variables we don’t know is how much he pays per month or what the percentage rate is on his mortgage, so we can only make suggestions.
But there are plenty of mortgage overpayment calculators online so it’s fairly easy to see how the two options compare.

I still think a dual approach is best considering postiewhite says his 'pension pot isn't great'. Although a visit to an IFA will always be better than opinions on an internet forum.

[jetblack]

You must be a gambler with some balls to have enough to pay your mortgage off invested in the pseudo-currency of Paedo Pennies!! Their primary use is to enable US-based online gamblers to get paid (online gambling is legal in the US but domestic processing of payments for it is not in 47 states) or shady transactions.

Put it this way, your house won't collapse!

I should have said - I only have a very small mortgage (relative to the average).

Re. bitcoin. To describe a decentralised currency secured by cryptography, that is programmable (that can behave in certain ways under certain conditions), as you have above, is like the bloke on my run who assured me round about the year 2000 that the internet would never take off.

If you don't like the BTC example ( ), how about gold ? Much the same effect/experience.
If I had gold bullion growing at 15% pa, would I do well to sell it to pay off the mortgage at 3% ?

If I really were a gambler (there's a difference between gambling and spreading risk/having a balanced portfolio), I'd be taking out debt at 3% purely to invest.

edit. interesting advice here from moneyadviceservice.org. Even they are suggesting considering both pensions and saving might be a good idea before paying off cheap mortgage debt.
Ultimately its down to individual circumstances and priorities.

[bustedflush]

You must be a gambler with some balls to have enough to pay your mortgage off invested in the pseudo-currency of Paedo Pennies!! Their primary use is to enable US-based online gamblers to get paid (online gambling is legal in the US but domestic processing of payments for it is not in 47 states) or shady transactions.

Put it this way, your house won't collapse!

I should have said - I only have a very small mortgage (relative to the average).

Re. bitcoin. To describe a decentralised currency secured by cryptography, that is programmable (that can behave in certain ways under certain conditions), as you have above, is like the bloke on my run who assured me round about the year 2000 that the internet would never take off.

If you don't like the BTC example ( ), how about gold ? Much the same effect/experience.
If I had gold bullion growing at 15% pa, would I do well to sell it to pay off the mortgage at 3% ?

If I really were a gambler (there's a difference between gambling and spreading risk/having a balanced portfolio), I'd be taking out debt at 3% purely to invest.

edit. interesting advice here from moneyadviceservice.org. Even they are suggesting considering both pensions and saving might be a good idea before paying off cheap mortgage debt.
Ultimately its down to individual circumstances and priorities.

Gold is a tangible asset with an intrinsic value. Paedo Pennies exist until the Feds decide to prohibit card companies/banks to facilitate purchases of them, the companies decide to themselves or the server has a huge DDOS attack or hack. Never has an 'investment' been strung on such a fine thread.

So yeah, I'd take gold any day.

[jetblack]

What gives gold value ?
As an asset class Bitcoin is very similar to gold - with, however, distinct advantages over it.

You need to read more about the decentralised blockchain/distributed ledgers if you think it could succumb to a DDoS attack.
Bitcoin "banks" can get hacked yes - much like any other banks. The retail banks are losing so much to hacks that they won't reveal to us exactly how much !! And now, apparently, they've decided themselves to stock up on Bitcoin in order to pay off the hackers - this, they think, is a better bet than actually trying to defeat them.
Part of the beauty of Bitcoin is that it kind of negates the need for a conventional bank - you can be your own bank.

The Bitcoin/blockchain protocol is very secure indeed. You have about as much chance at guessing my private keys (the keys that mean I own and have access to my Bitcoin) as finding a particular grain of sand off the beaches of all the world (and then some). This is why it works.

When the commercial banks finally do away with cash (like they are proposing to do in some countries) what you going to do when there is a run on the bank and you can't get your money out for love nor , well, money ? You will be over a barrel son - much like we have all been to some extent to the banks for a long time now - only more so.

It's a shame you refer to Bitcoin as paedophile pennies cos I tend to like your posts, and tend to agree with you on a lot of stuff - and generally your outlook.

But I can see your mind is made up on Bitcoin, so I'll let it go.