Overpay the mortgage or invest for retirement

Britons risk missing out on ‘free money’ if they stop paying into their pension to overpay their mortgages. As interest rates remain high, overpaying the mortgage may save thousands in interest compared to putting spare care in one’s pension. On BBC Money Box, Jackie explained her financial worries as she heads for retirement. The 57-year-old is planning on getting a new mortgage which will run for 13 years until she’s in her 70s. As she has a modest income, she wondered if she should overpay her mortgage or keep paying into a pension, or do both. Britons risk missing out on ‘free money’ if they stop paying into their pension (Image: GETTY) Over the past year, the money in her pension has dropped and the fund is invested in a medium-risk category. Alice Guy, finance expert at interactive investor explained that as interest rates rise, this continues to be a very live issue for some. She said: ‘Something significant here to think about is your employer contributions if you’re still working. You get employer contributions as well as your own contributions into your workplace pension. For higher rate taxpayers it costs £60 to get £100 in pension (Image: GETTY) ‘You get free money and often if you reduce your contributions your employer might not pay in anymore so be careful. ‘But if we’re talking about on top of your minimum contributions – it’s dependent on your view on interest rates and investment returns.’ Britons who are cautious and believe interest rates will go even higher may choose to overpay their mortgage. Ms Guy stressed the importance of tax relief as a consideration. When people pay into their pension it gets topped up by the government. For higher rate taxpayers it costs £60 to get £100 in pension. For basic rate taxpayers, they pay £80 to pay £100 into their pension. She said: ‘[With a pension] you get that extra boost which you won’t get elsewhere.’ Episodes of Money Box are available on BBC iPlayer.