A Guide to Using Your Pension to Help Service Mortgage Payments

Some borrowers approaching or in retirement consider drawing on a private pension to help meet mortgage payments — for example, where a mortgage term extends into retirement, or on an interest-only basis. This guide sets out the basic mechanics; it is not a suggestion that this is right for you.

Accessing your pension

Most private pensions can currently be accessed from age 55, rising to 57 from April 2028. The first 25% of your pension pot can normally be taken as a tax-free lump sum, subject to a cap of £268,275.

Using pension funds for mortgage payments

The tax-free lump sum can be used towards mortgage payments, or to reduce or clear a mortgage balance. Taking only the 25% tax-free cash, without drawing further taxable income, does not trigger the Money Purchase Annual Allowance (MPAA).

The Money Purchase Annual Allowance (MPAA)

As soon as you draw any taxable income from a flexible drawdown pension, the MPAA is triggered. This caps the amount you can pay into a money purchase pension with tax relief at £10,000 a year, for every future tax year — this cannot be reversed.

The trade-off

Using pension funds now means less is available later in retirement, which can affect long-term income sustainability. Lenders assessing mortgage affordability into retirement will also want to see evidence of sustainable income, which is a specialist area of later-life lending.

This needs regulated advice

Decisions about accessing a pension have long-term, often irreversible, consequences. This guide does not replace regulated pension advice or a full affordability assessment, and any course of action should be considered alongside a qualified pension adviser as well as your mortgage adviser.