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Should you take your tax free pension lump sum to pay off mortgage as interest rates rise? | Personal Finance | Finance
Although owning one’s property outright can release certain pressures in retirement, taking out a lumpsum from pensions can cost people thousands and lessen their annual retirement income.
The Bank of England is predicted to raise rates yet again to 5.5 percent (according to a recent poll by Reuters) this coming September and with no signs of slowing down, Penfold is calling on Britons to make informed decisions on their mortgage repayments.
According to the UK House Price Index 2022, house prices rose on average 10.3 percent over the previous year.
This kind of interest is an excellent return on investment, and at first glance, looks to beat Penfold’s estimated yearly pension interest performance of 8.58 percent.
However, what property values do not benefit from, and which pension funds do, is compounding interest.
Assuming an annual price increase of 10.3 percent, the average house valued at £286,000 (source: ONS) today, will be valued at £610,038 after 11 years.
Meanwhile, if someone’s pension pot is valued at £286,000 when they are at the normal minimum pension age of 55, and they leave it completely untouched until they reach the state pension age of 66, they should have access to £707,317 in their pot.
This extra £100,000 is thanks to the power of compounding interest and does not account for typical additional monthly contributions which would push that number even higher.
However, if they were to withdraw 25 percent of that £286,000 pension pot at 55, they would miss out on a significant amount of compound interest, and retire with only £530,488 in their pot – far less than the £707,317 they could have had, according to Penfold.
As mortgage interest rates and yearly repayments continue to rise for the average household, British homeowners may be tempted to dip into their pension pots to pay off their mortgage debt early. However, doing so could have serious implications for your retirement income.
Britons with defined benefit pension schemes are eligible to withdraw up to 25 percent of their total pot tax-free once they reach the normal minimum pension age, which is currently 55. Any withdrawals beyond that are taxed as regular income.
Upon withdrawing this tax-free lump sum, it can be used for any purpose, including paying off one’s mortgage.
While there are certainly benefits to reducing the amount left on one’s mortgage, or even paying it off completely, there are also major benefits in leaving the tax-free lump sum in one’s pension pot to grow for as long as possible.
Pete Hykin, co-founder and CEO of Penfold says: “Owning your home outright is one of the best ways to live comfortably and reduce your outgoings during retirement. However, your pension is your replacement for your salary, so it is also vital to maximise your retirement income by investing in your pension throughout your career.
“We welcome the flexibility afforded by defined contributions and the ability to withdraw a lump-sum at the age of 55 to help pay off your mortgage, but we also want Britons to be fully aware of the missed opportunity to accrue compound interest on that lump-sum, so that they make informed decisions which are right for their own personal circumstances.”
Honda is recalling more than 8,00,000 vehicles in the US because rear suspension components may fail and cause drivers to lose control, increasing the chances of a crash or injury.
American Honda Motor Co said the recall covers certain 2016-2022 Honda Pilot, 2017-2023 Ridgeline, 2019-2023 Passport and 2014-2020 Acura MDX vehicles. The recall includes 880,514 vehicles that were sold in Connecticut, Delaware, District of Columbia, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Vermont, Virginia, West Virginia, or Wisconsin.
The problem centres around the rear subframe, which can corrode at suspension mounting points and cause the rear suspension to fail. Honda estimates that just 1 per cent of the vehicles listed have the defect.
Honda has had no warranty claims and no reports of an injury or death related to the problem.
As a remedy, Honda and Acura dealers will inspect the rear subframe and install a reinforcement kit if necessary, or repair or replace the rear subframe components at no cost to vehicle owners.
Owner notification letters are expected to be mailed July 7.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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American financial services company Fidelity Investments on Wednesday divested a 1.3 per cent stake in e-commerce firm Meesho for Rs 988 crore through open market transactions.
Fidelity Investments, through its two affiliates, FID FDI 2117 LLC and FID FDI 312 LLC, offloaded a total of 5,98,16,300 shares representing a 1.31 per cent stake in the Bengaluru-based e-commerce firm, according to the bulk deal data available on the National Stock Exchange (NSE).
The shares were sold in the price range of Rs 165.18-165.21 apiece, taking the combined transaction value to Rs 988.15 crore.
At the end of the March quarter, FID FDI 312 LLC owned a 1.13 per cent stake in Meesho, as per shareholding data available on the BSE.
Details of the buyers of Meesho’s shares could not be ascertained on the exchange.
Shares of Meesho fell marginally to close at Rs 166.16 apiece on the NSE.
Last month, Meesho said its consolidated net loss narrowed to Rs 166.34 crore for the fourth quarter ended March 31.
The company had posted a net loss of Rs 1,391.38 crore in the corresponding quarter of the previous financial year, according to a regulatory filing.
ALSO READ | Meesho Q4 Results: Net Loss Narrows 88% As Revenue Tops Rs 3,500 Crore
Its consolidated revenue from operations for the quarter under review increased 47.13 per cent to Rs 3,531.21 crore compared to Rs 2,399.97 crore in the year-ago period, the company added.
During the same month, Meesho announced that its board has approved an investment of up to Rs 100 crore in its subsidiary Meesho Payments Pvt Ltd.
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The Reserve Bank of India (RBI) on Wednesday said it has cancelled the certificate of registration of 135 non-banking finance companies.
These include companies such as Express Fincap House, Akshay Fiscal Services, Times Finance (P), Jupiter Projects (P), Jupiter Finvest, Essel Finance Business Loans, and Citiwide Financial Services.
The majority of the NBFCs, whose certificates of registration were cancelled, had a registered office address in West Bengal, an RBI release showed.
Separately, 13 non-banking finance companies have surrendered their certificates of registration to the central bank due to exiting the business or ceasing to be legal entities following amalgamation/merger/dissolution/voluntary strike.
J. Thomas Finance, Econ-Super Sales, Hitesha Finance and Investment, Tinnevelly Tuticorin Investments, Carnex Vinimay, and Impact Leasing surrendered their licences due to exit from Non-Banking Financial Institution (NBFI) business, the release said.
Further, Forerunner Capital Investments’ licence was surrendered due to meeting the criteria prescribed for unregistered Core Investment Company (CIC) that do not require registration.
NBFCs such as Caspian Impact Investments, Hari Darshan Sales, Ivory Consultants, SKA Consultancy Services, Trishita Management, and Suban Trades surrendered their licence due to the NBFC ceasing to be a legal entity due to amalgamation/ merger/dissolution/ voluntary strike-off, etc, the release added.
ALSO READ: Let’s Rethink Risk-Free Assets | The Reason Why
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