2 smaller pensions or 1 larger one?

whybelieve

Hi I wonder if anyone can help us with this little decision problem!

My wife and I are both on a low self employed income.
I have paid some money into a pension for about 4 or 5 years but we have just decided that we could pay in a bit more.

Assuming we stay together until beyond retirement are we best to put the extra money into the existing retirement pot (ie my pension) so that it will be bigger or are we best to use the extra money to start another retirement pot for my wife.??

At the end of the day what will be the advantages of having 1 larger pot or 2 smaller ones??

Thanks

Andy_L

If you both have a pension you can both use your tax allowances to avoid paying income tax
1 large pot may have lower charges than 2 small pots

whybelieve

Thanks...

use your tax allowances to avoid paying income tax

do you mean when we cash it in at retirement age we will both have an "income" rather than just one of us?

1 large pot may have lower charges than 2 small pots

so these are running costs until we retire?

EdInvestor

whybelieve wrote: »

do you mean when we cash it in at retirement age we will both have an "income" rather than just one of us?

You both have tax free allowances at age 65, currently £9460 each, and pension income within this level is tax free.If all the money is in one pot, it may be too big to be covered by that individual allowance and thus attract tax, while the individual with no pension would have wasted part of that allowance.

1 large pot may have lower charges than 2 small pots

so these are running costs until we retire?

Yes

whybelieve

That makes sense thanks very much...

One last question...

- will 1 larger pot be able to buy a better income later than 2 smaller pots that added up to the same amount?

Thanks

bendix

whybelieve wrote: »

That makes sense thanks very much...

One last question...

- will 1 larger pot be able to buy a better income later than 2 smaller pots that added up to the same amount?

Thanks

If a pie costs £1, how many can pies can you buy with a pound coin, compared to two fifty pence coins?

whybelieve

Thanks - I didn't know it was like buying pies.

I thought it was maybe like posting a letter...

- you pay 30p each to post 2 letters but you can post something much heavier than 2 letters if you put the money together and paid 60p

bendix

If that was the case, i would split my pension arrangements into a hundred thousand different schemes.

At the end of the day, it's all about how big the pot of cash is at the end of your saving life.

Ten pots of £20,000 will buy no more and no less than one pot of £200,000.

EdInvestor

whybelieve wrote: »

That makes sense thanks very much...

One last question...

- will 1 larger pot be able to buy a better income later than 2 smaller pots that added up to the same amount?

Thanks

Again that's possible but unless the amounts are very high, it probably wouldn't make much of a difference.

Here's another thought: What if one of you at retirement has suffered a health reversal and is thus eligible for a much higher impaired life annuity rate? Trouble is, the savings (or most of them) went into the pension pot of the healthy partner.

Assuming we stay together until beyond retirement are we best to put the extra money into the existing retirement pot (ie my pension) so that it will be bigger or are we best to use the extra money to start another retirement pot for my wife.??

Instinctively one feels that in your case the best thing to do is to equalise provision if possible.

zygurat789

Bear in mind that a male aged 65 gets a better pension than a female because he will probably die first so you will probably receive less for two pensions than on one (male) life, however, the tax benefit of having two pensions will is far greater than this.
Also bear in mind when one of you dies how will the other cope without the income from the pension, which also dies. Consider joint life annuity it will be a little smaller but the survivor doesn't lose everthing.

whybelieve

Thanks everyone for all your great advice