Getting your mortgage paid off while you are still in your 50s could see disciplined savers boost their pension pots by £200,000 or more, according to numbers crunched by Hargreaves Lansdown.
With an average monthly mortgage payment of £633, the financial provider has calculated that a 50-year old who has paid off this loan, could boost their retirement savings by £218,548 by age 65, if they redirected this money into their pension.
Somebody who finishes paying their mortgage at age 55 could boost their pension by £125,676 over 10 years by doing the same.
Commenting on the findings, Nathan Long, senior pensions analyst at Hargreaves Lansdown says: “To spend or to squirrel, that is the question facing those on the cusp of repaying their mortgage. There are a million and one fun ways you could spend the amount you were paying on the mortgage when it is finally repaid. Re-directing the monthly payments to your pension may not seem fun but can supercharge your retirement by scooping up valuable tax relief.
“Most people repay their mortgage in their 50s, reinforcing the decade between age 50 and 60 as the most important for pension planning. Decisions made here can still have a big impact to your pension, keeping you firmly in control of your passage from work to retirement.”
If you are in an employer’s defined contribution scheme, topping up your own payments into your pension may also see you get more paid in by your employer.
Those savers that pay the higher or additional rate of tax must also check that they are getting this level of tax relief. Basic rate tax relief is applied automatically but anything beyond this may need to be reclaimed by completing a tax return.
Even if you don’t repay your mortgage until you are 60, it’s still possible to make a real difference to your eventual retirement income. Paying £633 into a pension every month for five years would boost your pot by just over £54,500. Based on current annuity rates, that would provide a single person with a level income of £2,924 a year. After tax, that is enough to cover the £42.50 that the Office for National Statistics reckons is the average amount households spend eating out each week.