Lots of good views and academic ways to look at spending v saving here.
I'd propose one other way, probably simplistically but sometimes if feel that approach works better month to month in the real world. I see a couple of issues in the OP's commentary;
- There appears to be a cashflow issue
- Mentally there is anguish about "eating into savings" yearly, even if as Brendan mentioned it is technically "saving" other cost
- It is hard to plan beyond a very short term horizon because of the acute issues of cashflow problems
- You are trying to anticipate what life will be like too far into the future, with a view to influencing actions today
I would consider:
- Leaving savings to mature in Nov 22, don't touch until then
- Clear mortgage once they mature; this "frees up" 875 per month. It also reduces the risk of "losing" money due to inflation.
- SAVE the 875 per month; Now you are no longer eating into savings monthly/yearly by 5k, but increasing them by 10k.
- Split the savings into 2 pots - long term and short term. Many people will argue money should be viewed as one pot and dont mentally separate them, however the reality is people compartmentalise and are good at it, so lean into that reality. Short term becomes your buffer to draw down on for kids activities / accidentally expensive dinner / holiday, with no mental anguish. Long term can be directed as best seen fit (future car replacement, future child supports etc.)
- I can't comment on the pension as not familiar with public sector set ups, however if you achieve the above you might be better able to see pension options with less "other" money worries. Maybe you could add an AVC, or maybe the new government pension changes will help (I've read nothing on them to date, maybe they dont apply to public sector)
It might not be the most efficient way of doing it, but in my view it could simplify things