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pension lump sum or Equity release mortgage

Help and discussions for strategies to get out of debt
moneychatter
Posts: 4
Joined: April 19th, 2022, 1:28 pm

pension lump sum or Equity release mortgage

#495199

Postby moneychatter » April 19th, 2022, 1:44 pm

I am undecided on whether to take an equity release mortgage or to transfer my DB pension which has a 300k pot and take the Maximum lump sum (75k) to help clear my debts

My circumstances are I am 59 with a mortgage balance of 47k with 6 years remaining and credit card and loan debt of 39k
-Monthly loan and mortgage payments equal around £1400 (I have minimal monthly credit card interest as most on temporary interest free or low interest deals)

I feel my finances need restructuring and see it as a logical step to clear them and free up that monthly payment burden but need advice/assurance on which of these 2 options would be best . Your opinions would be appreciated

mc2fool
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Re: pension lump sum or Equity release mortgage

#495203

Postby mc2fool » April 19th, 2022, 1:57 pm

moneychatter wrote:I am undecided on whether to take an equity release mortgage or to transfer my DB pension which has a 300k pot and take the Maximum lump sum (75k) to help clear my debts

An equity release mortgage doesn't clear debt, it adds to it, just in a different form and repayment schedule. ;)

When you say "transfer my DB pension", do you really mean DB, and if so do you mean out to a SIPP or similar? If so, be aware that you must take professional advice on doing so (by law), and you'll be very lucky indeed to find any IFA that will give that advice for even as little as 1% (£3k), most likely more, and that after paying for the advice the advice may well be not to transfer, and if so you will find it difficult to find a SIPP that'll accept it.

But do you really need to transfer? You're 59 and most schemes will allow access by 60, if not by 55.

P.S. Welcome to The Lemon Fool. :D

moneychatter
Posts: 4
Joined: April 19th, 2022, 1:28 pm

Re: pension lump sum or Equity release mortgage

#495212

Postby moneychatter » April 19th, 2022, 2:30 pm

HI -thanks for your reply .
When I said about considering equity release, I do understand that is adding to my debt, but a sum borrowed to clear the existing credit cards and loans ( approx. 39k) would be paid off once I sell my house and no monthly payment is required until then – I should have explained I plan to do this within the next year or so. I thought this option would leave my pension intact rather than taking a 75k lump sum which would greatly reduce its value .
No, I mean a defined benefit pension scheme I have been paying into a works pension for over 20 years and would like to retire ASAP most of my colleagues have taken the option to transfer their pension a big plus being that once transferred the investment can be passed on to my children otherwise once myself and my wife die the pension expires. This plus the financial benefits exceed keeping it as it currently is and yes I can access it now

Gerry557
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Re: pension lump sum or Equity release mortgage

#495256

Postby Gerry557 » April 19th, 2022, 6:23 pm

What interest rates are you paying on each type of loan?

Are you trying to reduce the monthly cost or just get rid of all loans altogether

You mention retiring ASAP and selling your house. Do you have somewhere else to live.

You could consolidate say into the mortgage or cheaper rate loan but you would still have outgoings. The difference could be used to pay down the outstanding loans. Obviously working would add to that. I assume you can pay down some of the loan from surplus salary.

Selling the house should free up capital and reduce mortgage payments. The interest free loans can then be paid down hopefully within the period of the free part.

Would you reconsider continuing working to reduce the loans

mc2fool
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Re: pension lump sum or Equity release mortgage

#495299

Postby mc2fool » April 19th, 2022, 8:57 pm

moneychatter wrote:When I said about considering equity release, I do understand that is adding to my debt, but a sum borrowed to clear the existing credit cards and loans ( approx. 39k) would be paid off once I sell my house and no monthly payment is required until then – I should have explained I plan to do this within the next year or so.

Ahh, now that does add a significant factor. :D

But if you're paying "minimal monthly credit card interest as most on temporary interest free or low interest deals" and you're selling the house in a year or so, why bother to do anything to clear the debt now? You can just pay the minimum each month (a fiver per card?) and pay them all down when you sell the house. You should absolutely do the relatively simple comparison of the cost of that (interest, etc) vs the overall cost of the equity release, which according to MSE generally incurs initial fees of £1500-£3000 as well as the cumulated interest.

moneychatter wrote:No, I mean a defined benefit pension scheme I have been paying into a works pension for over 20 years and would like to retire ASAP most of my colleagues have taken the option to transfer their pension a big plus being that once transferred the investment can be passed on to my children otherwise once myself and my wife die the pension expires.

Yep, that's one of the advantages of transferring a DB scheme to a SIPP or other DC system. Indeed, I did that with mine but that was a few years ago and the FCA has tightened up greatly since then and it is much more difficult (and expensive) to do so now. Have your colleagues done so recently, and how much did it cost them?

moneychatter
Posts: 4
Joined: April 19th, 2022, 1:28 pm

Re: pension lump sum or Equity release mortgage

#495406

Postby moneychatter » April 20th, 2022, 1:08 pm

@MC2Fool and Gerry 557.
Thanks again for your input guys what a valuable and helpful forum this is

I have had a thorough think over on this and the sensible thing I believe is to bring forward my plans on moving/ downsizing my house and clear my debts with the excess equity raised.


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