Split Pension with Wife - Possible?

BeatTheSystem

Hi

I am 42 and will have currently about 600K in a SIPP. My Wife will end up with a final salary pension of 30/80th of around 35K - say 13K pa in todays money. She is 43.

My SIPP should grow to around 1650K @ age 55, assuming 1K/month employer contributions and 7% PA Growth. It may be much more if my employer is able to make good end of year contributions.

The income from this at 5% draw down will be over 80K PA, and likely to be in the higher rate tax bracket when I start drawing on it at age 55.

I know that pension splitting is possible on divorce but can a portion of a pension pot be transfered to a partner whilst being married?

If so, I would like to transfer 200K to an account in her name such that she is able to retire at 55 also and neither of us end up being in the 40% tax band.

Thanks

jem16

No you won't be able to do this.

BeatTheSystem

jem16 wrote: »

No you won't be able to do this.

Thought so, seems unfair. Perhaps things will change when the tories get in.

Yes I could draw down less, but as we have 3 children that will all be debted up with student loans by that point we will want to help them as much as possible.

One idea is to split the SIPP pot into several draw down tranches taking say 30-40K PA tax free and leaving the 75% portion of the tranches invested with a modest drawdown to give us maximum tax free income.

Thanks for your reply

jem16

BeatTheSystem wrote: »

Thought so, seems unfair. Perhaps things will change when the tories get in.

I doubt it. The pension is seen as an individual retirement account.

Only way to build up your wife's pension is to pay into a pension for her but as most of your contributions seem to come from your employer I doubt this would be possible. Pretty good employer contributions at £1k per month!

dunstonh

Thought so, seems unfair. Perhaps things will change when the tories get in.

Its not unfair. Its based on your NI number and your tax position when you contribute. If you could move the money around you could get higher rate tax relief then move it to a non taxpayer.

One idea is to split the SIPP pot into several draw down tranches taking say 30-40K PA tax free and leaving the 75% portion of the tranches invested with a modest drawdown to give us maximum tax free income.

Phased drawdown is not uncommon for larger pots.

jamesd

Explain to your employer and ask if they would be willing to split the contributions between you, to increase the benefit to you at no extra cost to them. There may be some company tax cost differences, it'd probably be worth your paying those costs.

Or get divorced and remarry later.

BeatTheSystem

jem16 wrote: »

I doubt it. The pension is seen as an individual retirement account.

Only way to build up your wife's pension is to pay into a pension for her but as most of your contributions seem to come from your employer I doubt this would be possible. Pretty good employer contributions at £1k per month!

Our bonuses gets paid in the form of pension contributions but I could have it as gross pay and lose 12.8% NI and 40% tax. I also salary sacrifice 1K / month - and get the full 12.8% uplift. The company has had had good contributions in the last few years but I cant expect it to go on on forever but willing to build up the SIPP whilst the tax advanatges are there. I would probably have a different view if there was no higher rate tax relief.

Part of me is thinking that if the SIPP grows to an extent that 40% tax is likely then I should perhaps consider biting the bullet and paying 40% tax now and build up our ISA's.

BeatTheSystem

dunstonh wrote: »

Its not unfair. Its based on your NI number and your tax position when you contribute. If you could move the money around you could get higher rate tax relief then move it to a non taxpayer.

Phased drawdown is not uncommon for larger pots.

Thanks for your reply.

I sort of understand your response, however in a marriage all other assets can be swopped around and I think that it is discrimination against marraige that the only way to share out a pension asset is to divorce her. I suppose it is just wishful thinking that the tories would be any different, but they do go on about supporting marriage.

BeatTheSystem

jamesd wrote: »

Or get divorced and remarry later.

High risk strategy - she might not follow through on the remarry bit!:D

jamesd

Would that be a cost or a benefit, looked at purely financially?

There are already marriage benefits like moving assets to avoid CGT, moving savings and investments to avoid income tax, inheritance tax reduction and lower per person council tax. This is one of the exceptions where being married can't be so readily exploited to get a windfall tax gain just for being married.

marklv

BeatTheSystem wrote: »

Thanks for your reply.

I sort of understand your response, however in a marriage all other assets can be swopped around and I think that it is discrimination against marraige that the only way to share out a pension asset is to divorce her. I suppose it is just wishful thinking that the tories would be any different, but they do go on about supporting marriage.

I would stop making an issue out of this if I were you - you won't get much sympathy from most people here. If your wife needs money in retirement, your massive pension of £80k a year plus her much smaller one should be plenty for both of you, regardless of children's university fees, golf club subscriptions or anything else. Consider yourself very fortunate to have such a colossal pension fund at your relatively tender age.