So, if your mortgage has an interest rate of 4 per cent, then your investments would need to deliver returns of at least this amount post-charges for the decision to pay off. Historically, this hasn’t been a high bar for a diversified portfolio or fund to achieve over the long term, although there are no guarantees when it comes to investing.
There are a few tax limits you need to be aware of when contributing to a pension. The amount you can personally contribute to a pension each year is limited to 100 per cent of your earnings, with a cap on total annual contributions – including any contributions you receive from your employer and tax relief – set at £60,000. If you have no taxable earnings, you can still contribute up to £3,600 a year, inclusive of tax relief, into a pension.
Similarly, those with very high earnings may have their annual allowance “tapered” from £60,000 to as low as £10,000.Provided you are happy to wait until age 55 to touch your money and have sufficient annual allowance to make a £3,000 contribution, the upfront boost provided by tax relief means money invested in a pension is likely to deliver a bigger bang for your buck from a purely financial perspective than paying off your mortgage early.
However, if you access the money before age 60 for any other reason, you will be hit with a 25 per cent early withdrawal charge, meaning you might get back less than you initially put in.