Mortgages and Pensions.- pay more or stick

[tony.]

I,m no expert in finance, so i was wondering if anybody has any views on this.

I work full time, I have a company pension, that currently I dont contribute to and my employer pays in 5%, I have a private pension that I pay in about £400 per month into.

With the way the economy is at the moment, would I be better off paying this £400 into my mortgage for a few years and freezing the pension for a while.

My mortgage has the facility to pay extra without penalties.
I dont intend to leave this house unless in a box!!  as it is suitable for our current and future needs.

Does this make any sense

thanks in advance

Tony

[northern installer]

Tony,you really need to find a good financial adviser for this one;my personal(unqualified,might as well put it on lucky boy in the 2.30)view is that extra units purchased in a good pension scheme now,while prices are on the floor,will have an excellent growth prospect,and attract tax benefits,which if you are paying 40% are well worth having;paying off your mortgage will only give you the mortgage rate,but you dont run the risk of losing your savings in a bankrupt pension company...but like I said,get professional advice!!

[NickW]

I pondered this question and decided to pay more off the mortgage

Your house is a tangible asset - your pension electronic numbers.

I suspect most pensions / the bulk of their value will be vapourised in the next 10-15 years. Your Contributions now are just being used to keep some baby boomer on the golf course 3 days a week. You are not likely to see a penny of it if you are under 45.

[peter999]

 Tony
        In general the advice is to clear your liabilities as soon as possible, then plough as much in to your retirement plans as possible (Note i use the phase retirments plans not pension as a personal/company pension is not the only way to save for retirement. yes you get tax relief at 40% if you are a higher rate tax payer. but also remember that ANY income produced by a pension will almost certainly be treated as taxable income)

Once your mortgage is paid off your house (an asset) is yours and no one can take it away from you!! you will always have a roof over  your head, You may not be able to heat it or eat but a roof over you head you will have!!.

Yes now is a good time to buy in to unit linked investments as long as they are still around in 5 10 15 years time!!

Regards Peter

sorry i forgot   Cert PFS Cert LTM CeMAP etc

[excited]

Tony Good forum here

http://forums.moneysavingexpert.com/forumdisplay.html?f=98

Should tell you all you need to know.

regards

daz

[Richard Owen]

Hi Tony,

Everyone needs to be careful here.

Financial advice, which is what you're seeking, can only be given by someone registered by the FSA.

It is illegal for anyone else to offer advice.

Since you are interested in possibly paying your mortgage off early, here's a calculator to help your thinking.

http://www.fool.co.uk/mortgages/mortgage-calculator/overpayment-calculator.aspx

Obviously, I'm not advising you to use it.

[kristen]

"Obviously, I'm not advising you to use it."

Priceless!! Errmmm ... maybe not!

[wyleu]

That will be the advice from an individual registered with the FSA that cost us 6 months of heartache with HCE  about which the FSA did precisely nothing when we reported him would it?

[NickW]

Tony Good forum here

http://forums.moneysavingexpert.com/forumdisplay.html?f=98

Should tell you all you need to know.

regards

daz

If you want a good laugh and enjoy a bit of schadenfraude check out the frequent - help me threads. Usually some BTL slumlord mortgaged to the balls with a rapidly depreciating asset base.

The alternative is some bint who has spent £70K on credit cards, destroying the planet or having large amounts of plastic surgery. Following the credit crunch the supply of B/T options has dried up.....

Financial Darwinism

Alway good for a chuckle

[Amy]

Oh Nick

I adore your witisisms and anlogies.  So cynical and yet amusing.  Keep it up.


For what its worth, ......I have an friend............who would pay off the mortgage first at top speed and then see where the investment market lies in a few years. if its healthy, he/she could then make a more informed decision and not a shot in the dark. 

[NickW]

Oh Nick

I adore your witisisms and anlogies.  So cynical and yet amusing.  Keep it up.


For what its worth, ......I have an friend............who would pay off the mortgage first at top speed and then see where the investment market lies in a few years. if its healthy, he/she could then make a more informed decision and not a shot in the dark. 

At least I have one friend here

You get an extra applaud for that one

[tony.]

I would like to pay the mortgage off, as its the only noose around the neck.


Mrs Tony, would like to stay as is, unless the figures show her diferently, she would be the type of person to stick with a energy supplier for her whole life where as I would be changing all the time.

If things happen in threes, that means the market will go ars@ from elbow in around 18 years time, potentially a few years from when i plan to retire, knocking lumps off my portfolio.

Tony

[NickW]

I would like to pay the mortgage off, as its the only noose around the neck.


Mrs Tony, would like to stay as is, unless the figures show her diferently, she would be the type of person to stick with a energy supplier for her whole life where as I would be changing all the time.

If things happen in threes, that means the market will go ars@ from elbow in around 18 years time, potentially a few years from when i plan to retire, knocking lumps off my portfolio.

Tony

The housing market is almost irrelevant - no matter what the house is worth a debt is a debt (read my sig )

House prices are a matter of opinion - debt is a matter of fact

[dhaslam]

It is only necessary to be registered for financial advice on pensions if it is not for tax reasons and obviously pensions are a good investment for tax reasons.  Unfortunately many financial advisers have been recommending pension policies that are a pure gamble and you have to be careful with choice of adviser but how do you do this?

[Paulh_Boats]

I,m no expert in finance, so i was wondering if anybody has any views on this.

I work full time, I have a company pension, that currently I don't contribute to and my employer pays in 5%, I have a private pension that I pay in about £400 per month into.

With the way the economy is at the moment, would I be better off paying this £400 into my mortgage for a few years and freezing the pension for a while.

My mortgage has the facility to pay extra without penalties.
I don't intend to leave this house unless in a box!!  as it is suitable for our current and future needs.

Does this make any sense

I have been a Pension Trustee for a final salary scheme for the last ten years. Although I am not qualified to give you financial advice I can probably offer some sensible suggestions for you to investigate further.

If it was a final salary scheme you are almost certainly better off staying in it. But first the dreaded questions, whose answers are very important because your own personal finances dictate what is best for you.


How much is the mortgage, what interest rate do you pay and do you have any other debts?

What are you investing in? fixed interest gilts/bonds, shares etc.  

Have you diversified outside the UK? (which all advisers will recommend).

Do you pay higher rate tax? (tax benefits of pensions are very good).

Roughly how old are you and when do you plan to retire? (in 18 years you hinted)

What is your attitude to risk? Can you accept a roller coaster ride or do you want slow, but limited, growth?

Do you have alternative incomes and previous pensions in the pipeline?

Are you contracted into SERPS? Have you earned the basic state pension? (it can make sense to diversify into the Government second state pension, depending upon your circumstances).

Are all your investments tax free?


Easy isn't it?  


What we did was pay off the mortgage in the 90s at the high 9% rate and never dropped it as interest rates fell - we trimmed 5 years off the mortgage and saved £15k in interest.    
At the same time we made regular monthly payments into pension schemes and invested in Fidelity's Special Situation PEP/ISA which was a roller coaster ride but out performed the FTSE 100 over 10 years.

There are plenty of bargains at the moment, bank stocks down 60% from last year, so personally I would spread my risk by paying off the mortgage a bit faster AND making regular payments into stock based funds AND building up an emergency cash fund (ISA) of 3-6 months of essential payments so that I never have to sell shares at a low price.

I'm 49 so that is fine as I can wait 10 years for stock market recovery. But 5 years before retirement I will slowly switch to bonds/gilts and cash that are stable.

Of course the above might not be the right choice for you.

It has been said that the only free lunch is diversification - in other words don't put all your eggs in one basket.

cheers
Paul