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The i Paper - should you use your pension tax-free lump sum to pay off your mortgage?

Journalist: Sarah Davidson, Freelance

ended 07. February 2024

Writing a feature for the i - need some comment from both a pensions specialist and from a mortgage broker. 

Critically, I need to speak to a case study of someone who's either done this or looked at it and decided against. Ideally one of each. 

Case study needs to be comfortable being named and pictured in the paper. 

If you can put me in touch with someone, I'm very happy to include comment. 

Let me know!

Thanks.

5 responses from the Newspage community

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Editor
Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Clearing a mortgage is one of the most popular uses of pension commencement lump sums and those planning to use it in this way has increased significantly over the last 2 years as interest rates have risen and mortgage terms extended. Thoughout the working life of the majority of people, they will get wealthier, accumulate more assets, and pay down debts. This scenario has been challeneged over the last 2 years as inflaiton has made people feel poorer, higher rates have made it more difficult to pay down debt and increased taxes have made pension planning more difficult. This has challenged peoples assumptions that their mortgages will be cleared by retirement, and more are thinking that their pension can be used as a final repayment vehicle.
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Editor
Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
For some people this is a good option, and potentially something that was always factored into their financial plan. It's very important though to make sure that by doing this, the remaining pension is sufficient to provide the income needed in retirement.

There are also opportunities for some people to take taxable income out of their pension to make use of their personal allowance if they aren't receiving income from other sources. We have clients taking £16,760 out out their pensions where 25% is tax free, and the remainder taxable. They don't pay any tax though as the income sits fully within their personal allowance.
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Joshua Gerstler
Chartered Financial Planner at The Orchard Practice
The simple answer is that "it depends". If this is the only way to pay off your mortgage then yes you should use your Tax Free Cash rather than default on your mortgage. This assumes you have explored all other options such as extending the term of your mortgage. In addition, you need to be aware that if you were also relying on your pension for your income in retirement, you are likely now to have only three quarters of what you previously thought you would have.
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Gary Bush
Financial Adviser at MortgageShop.com
It's the million-dollar question or indeed pound. Full analysis of an individual's complete circumstances is required to even begin to look at the benefits of utilising valuable tax-free pension lump sums to repay residential mortgage debts.
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Samantha Lewin
Director at One Finance Group
I have looked at this on behalf of a client, and they decided to utilise a portion of their pension, whilst leaving enough in for a comfortable retirement, but were unable to pay the entire balance off. They have had to go down the lifetime mortgage route for the remainder of the balance.

It’s definitely a good option and something we look at for clients, especially if they are unable to continue with a regular mortgage due to age and, or, income. It’s a good alternative option, if they have the funds available, to taking out a more expensive lifetime mortgage – especially if this will then leave them with enough funds into retirement.

Ultimately, it doesn’t work for everyone, and it depends on what type of mortgage you currently have, the balance, term and your age.