Answers · UK 2025/26
Is it better to overpay my mortgage or contribute more to my pension?
For higher-rate (40%+) taxpayers, extra pension contribution usually wins because of marginal-rate tax relief (effective 67% boost). Basic-rate taxpayers near retirement may prefer mortgage overpayment for guaranteed return at mortgage rate.
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UK mortgage overpayment vs extra pension contribution 2025/26. Pension contribution: instant marginal-rate tax relief. £100 net cost = £125 in pension for basic-rate (25% uplift), £166.67 for higher-rate (66.67%), £181.82 for additional-rate (81.82%). 25% tax-free lump sum at retirement; rest taxed at marginal rate at withdrawal. Mortgage overpayment: pre-tax money, guaranteed return equal to mortgage rate. Higher-rate now, basic-rate in retirement: pension dominates (40%→20% arbitrage). Additional-rate now: pension overwhelmingly wins. Best strategy: maximise employer pension match (free money), then balance pension top-ups + mortgage overpayments based on bracket. Don't over-fund past LSA £268,275.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.