Money Matters by Scott Woods: Many plan to use pension pot to repay mortgage

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Over half a million people (631,000) in the UK intend to use all or part of their pension to help repay their mortgage balance, according to Partnership.

The specialist insurer surveyed people aged 40 to 70 in 2014 and 2015, about how they intended to repay their mortgage. It found that while 71% will meet their obligations via monthly repayments, with 25% opting to do so via additional lump sum contributions, up to 9% plan to use either their entire pot or tax-free cash.

Andrew Megson, managing director of retirement at Partnership, said that while it is still surprising that over half a million people in the UK intend to use all or part of their retirement savings to repay their mortgage, it has fallen from over a million in 2014.

“This is fascinating as it suggests that the pension freedoms which allow people to access their entire pension in cash have encouraged people to take a more holistic view of how they use their pension rather than focusing on one-off expenditure. The work that the lenders have done in communicating with interest-only mortgage customers about their options and obligations is also likely to have had a positive impact as it will have encouraged more people to move to capital repayment.”

This follows research by Old Mutual, published earlier this week, which revealed almost one-third of retired people were still carrying debt at the point they gave up full time work. Research conducted on their behalf by YouGov amongst 1,649 UK adults found that the average amount of debt held at the point of retirement was £34,500, but almost 1 in 5 had debts of over £50,000 and almost one in ten had debts of over £100,000.

Mortgage debt is most common, with 21% of people still owing money on their house when they retire, while 14% owed money on credit or store cards.