What about my wife ...

deadparrot

I've got a decent pension arrangemnt for myself, employer stakeholder type scheme, I pay 10% + employer match ... although I don't see this as a job for life ... what jobs are these days, so a future employer may not be so generous.

at 38 my pension pot is ~30K now, (I started late but now catching up)

My wife however is self employed, part time, low income, but manages to contribute £100/month in to a private scheme, she has been doing this for 2 years, so only has <3K saved at 32. She also manages to save 1 to 2K into a cash ISA most years.


My question is, should she keep paying £100/month into her pension? would paying more into an ISA or mortgage over payments make more financial sense?

It's quite likey she will have to take a break from work for a few years if nature allows, so we're thinking having the money in an isa or making mortgage overpayments might make better use of her £100/month.

ReportInvestor

Hi dp and welcome to the site .

She ought to be building up her own retirement savings in one form or another. It's only fair!

The problem with the cash ISA route is that she could be missing out on the possibility of greater compound growth via the stock market over a significant period of time. You would get this via a pension (although there's no need to be bound by that particular wrapper to use the stock market).

The problem with the mortgage route is that you end up with retirement savings and she doesn't!

Re a pension for her as a low earner. You may have read stories about possibly mis-selling of pensions to low earners. That might only apply if you separated, and it doesn't sound as if you are planning that! [Good luck with trying for a family in due course.]

Hopefully you'll find a happy compromise between doing the best thing as a couple and providing for her as an individual. Don't forget you can always give her money - she doesn't have to earn it herself to save/invest .

deadparrot

Thanks for the reply

I currently top up her cash isa allowance each year, but you're right in that this money would be better invested in a S&S ISA. As well as performance there would be less temptation to dip into the fund if it's not two clicks away from an online bank

I guess my concern with the £100 /month pension is too little and any income from an annuity would not make her any better off than means tested benefit? but then would my pension income rule her out from benefits regardless?

ReportInvestor

That's right.

It's a funny system as the state catches up with individualism.

You could always divorce & separate in retirement so she could get means tested benefit - but there are certain costs involved in that too .

margaretclare

ReportInvestor wrote:

That's right.

It's a funny system as the state catches up with individualism.

You could always divorce & separate in retirement so she could get means tested benefit - but there are certain costs involved in that too

What a horrible thought. I agree that there *should* be means-tested benefits, but I personally would HATE to be on them, especially in the retirement years when you have no hope of ever getting any better (financially).

Actually I disagree, although I'm no expert and I would never ever dream of telling anyone else what to do. But the thinking nowadays is that everyone should have their own pension 'pot' by whatever means, and just because a woman gets married this principle remains - which is far different from the thinking as it was when I got married for the first time in 1957. Then, it was very much the expectation that a woman wouldn't have a pension in her own right but would get it through her husband. I was one of the few who 'swam against the tide' in those days, kittie who posts here was another.

Just on a personal note - would you mind not referring to your nearest and dearest as 'the wife'. Your wife, his wife, my wife, not just 'any' wife! Sorry, I just think it sounds slightly insulting, and I don't think that was your intention.

Margaret

deadparrot

I'm not really intrested in the politics and morals of benefits, I'm just intrested in what makes best financial sense for the both of us, After expences my wife earns 7K per annum, saving £1.2K per annum in a pension is quite impressive as a proportion IMHO, but if at the end of the day being so frugal makes her no better off financially then we need to know.

It sounds like that as long as we stay married, this money will increase our standard of living in retirement.

ReportInvestor

That's my understanding, dp, & I can't see it changing.

After all the Treasury hasn't budgeted enough money as it is to keep up with the state pension bill / means tested allowance bill for 2050.

So future governments - who will have to tell us about ever higher retirement ages in any case - are hardly likely to create a new policy of paying extra unnecessary means tested benefits to people whose husbands/civil partners/ other partners are able to support them. How are they going to sell that , along with a higher tax bill, to fugure generations of £30K indebted students?

Individualism has its limits - and here it's facing a Treasury / economic reality / political reality brick wall.

So what about the practicalities
Obviously you don't change your pension because of your employer's generous matched contributions .

Cash ISA v mortgage repayment?
Your wife is currentlyjust a basic rate taxpayer - so there's not much in it as long as she's getting 5%+ and your mortgage rate is similar. You could always use the money to overpay the mortgage at a later date.

Cash ISA v pension for a basic rate taxpayer?
There's not a great deal in it. She will get a big more income from a pension but if she goes the ISA route then she keeps control of her capital. Something to think about post-A-Day is that if she saves via an ISA, has children and subsequently goes back to work and earns more, then she will be able to put the ISA money into a pension at a later date. If the ISAs and pension investments had grown at the same rate, then there would be no loss on the pension fund by getting the tax relief at a later date. [You might need to think of say 50%+ of the future ISA saving into equities to keep pace with a pension fund.]

If it was me, I'd be tempted to let my wife save in ISAs, keeping her options open about repaying the mortgage or adding to her pension fund at a later date if priorities change.

margaretclare

Don't forget that if/when your wife takes time out to have children, assuming that Child Benefit continues to be payable and the gubbmint doesn't change it, she can be credited with Home Responsibilities Protection which will help towards her own state retirement pension, assuming that continues to exist!

Don't deride SRP. I've read that if you were to amass the kind of money that would pay full SRP now would require a pot of about £100K. A good deal that so many women have missed out on!

Margaret

Margaret