Pay off Mortgage w/ lump sum and then top up pension?

H

Heyho1

New Member
Messages
4
Age:
52
Spouse’s/Partner's age:
56
Annual gross income from employment or profession:
E110,000
Annual gross income spouse:
E0
Type of employment:
Full time, private sector employee - partner full time carer of 2 children with extra care needs
Expenditure pattern:
Lurching from one mess to the next since the recession in 2007 when partners business went under, and then due to some ill advised job moves on my part, but have always had a good pension, and now in a solid situation to finalise prep for the long term.
Rough estimate of value of home
E900k
Mortgage on home
E315k with 10 years remaining, payments are roughly 2300 p/ month.
Should point out that we have old arrears from a period of unemployment about 8 years ago that we have never cleared and the bank are now selling our mortgage off. We have been making our full regular payments monthly for about 7 years now.
So reducing the mortgage balance would be a big weight off our minds.
Mortgage provider:
AIB
Type of mortgage: Tracker, interest only, fixed rate
Variable rate
Interest rate
Currently 3.15%
Other borrowings – car loans/personal loans etc
Car - borrowed from relative to buy, will pay off by end 2022 with vested shares from work or annual bonus (balance owed is about 7k).
Do you pay off your full credit card balance each month?
No credit cards
Savings and investments:
No savings
Do you have a pension scheme?
Yes, current balance of combined pensions is approx 415k. Currently employer is paying 7% of my salary monthly and I am matching that.
Do you own any investment or other property?
No
Ages of children:
13, 15
Life insurance:
Yes, through work. None on partner.
What specific question do you have or what issues are of concern to you?
I am considering taking a tax free lump sum from my pension (I believe I can take out 200k) to pay off a chunk of my mortgage, then replace the mortgage payments with payments into my pension to recoup the lump sum using the tax free contributions scheme.
My understanding is that I can pay 30% of my income into my pension tax free and once I am 55 I can do 35%.
My income is likely to grow by approx 3% annually and I also receive an annual bonus of 15%, and stock on a regular vesting schedule - so I am not concerned about future earning potential right now.
I am struggling to figure out the figures re how much I should pay and how much more cash I would have in hand a month (if any?) if I made this change.
Do I need to reduce that amount by the 14% already paid by my employer and myself?
Is my thinking making sense - what do I need to consider?
I will talk to my pension advisor guy but wanted to get my head straight on this myself first before approaching him.
Appreciate any advice you can offer.
 
If you are thinking of taking a lump sum out of your current pension arrangement, that's only possible if you leave that employment ("retire"). Even then, your lump sum is limited to 25% of the fund value. The €200k would only apply if you had a fund of €800k.
Based on your post I don't think your strategy works.
 
Thanks for your reply - I should have pointed out that I have 2 pensions, one with my current employer, the other was a previous employer, I left that role and I 'retired' at 50 and put the pension into a private fund. So I have access to draw down money from it if I wish.
 
Ok.
But you are still (probably) limited to taking 25% as a lump sum. Any such amount up to €200k is tax free, but as I mentioned earlier, you would require a fund of €800k to get a lump sum of €200k.
 
Heyho1 said:
Do you have a pension scheme?
Yes, current balance of combined pensions is approx 415k. Currently employer is paying 7% of my salary monthly and I am matching that.
Click to expand...

The combined balance is €415k, Assuming most of that is in your old pension, the most you could take out is €100k.

But even if you can do that, it's not a good idea.

The fund is growing tax-free so you should leave it until you do actually need it.

Heyho1 said:
E315k with 10 years remaining, payments are roughly 2300 p/ month.
Click to expand...

Heyho1 said:
Annual gross income from employment or profession:
E110,000
Click to expand...

The first thing you should do is to fix your mortgage rate. You qualify for this rate.



You will not be able to avail of a fixed rate after AIB sells your mortgage, so do it immediately.

Brendan
 
I guess my calc on the mortgage doesn't include the arrears then, I am not clear on the situation as the arrears are years old and I haven't had any contact from the bank about it other than standard automatic letters. Until the letter saying they were selling my mortgage.
Shares vest regularly every couple of months usually a couple of grand (depending on share price obv) every couple of months (I have had a few awards and they all vest at different times). So I have no big vest coming up as such.
 
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