Should I use my pension to pay off my mortgage

Should I use my pension to pay off my mortgage?

A common question from people who have reached age 55 and can therefore access their pensions is, should they use the tax-free lump sum to pay down their mortgage. It’s not any easy question to answer because it largely depends on your own personal circumstances.

From a purely financial viewpoint, mortgage interest rates are so low at the moment that it’s unlikely the interest you will save by paying down your mortgage will give you a better return than leaving the money invested in your pension to grow, therefore there is a strong argument for leaving your pension alone and just continuing to pay down your mortgage over time. Additionally, leaving your pension untouched preserves your tax-free cash giving you the flexibility to take a very tax-efficient retirement income in the future.

That said, it’s not just the financial considerations that are important. It’s hard to beat the feeling of security that comes with owning your home outright and not owing the bank anything. Additionally, if you’re looking to retire in the short-term, not having mortgage repayments to meet each month will reduce your outgoings and your need for income.

In summary, if you are about to give up work to retire it may well be in your best interest to pay down your mortgage to reduce your outgoings. In contrast, if you are some way off retirement you could potentially get a better return (and a higher future income) by leaving your pension untouched until retirement.

Nothing in this article constitutes financial advice. You should see a regulated financial adviser for advice specific to your own circumstances. If you’d like more information on anything covered in this article or want to speak to one of our advisers for advice tailored to your circumstances, please head over to the Contact Us section to book your free, no obligation consultation.

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Sam Secomb

Chartered Financial Planner and Managing DirectorSamantha Secomb joined Pentins as their Chartered Financial Planner 2015 and is now a shareholder and director of the business.Samantha is a Fellow of the Personal Finance Society which is widely accepted as the premier qualification standard for advisers in this country. Having reached the top in her professional qualifications she is currently studying with Warwick Business School for her Master’s in Business Administration (MBA).

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