Pension For Spouse From AVC's?

gaggyball

I have been paying into an AVC with Standard Life from my salary to boost my Civil Service pension for when I retire. However, if I was to die first my wife would have very little income and does not have a pension of her own.

Is it possible to carry on paying into the AVC but transfer all benefits to my wife so that she has a pension as well? If she dies first I should be able to live on just on my final salary pension.

Any advice would be appreciated!

jamesd

You'll have to check the AVC rules.

A personal pension in her own name is also an option and since she gets her own tax allowance this can be very tax-efficient until it plus any state pension she gets reaches 8-10000 or so and tax starts to be paid. Beyond this a stocks and shares ISA of her own is useful, since this doesn't count as taxable income and won't reduce the age allowance addition to the personal tax allowance.

If your own income is going to be between 20000 and 25000 you should also consider the age allowance effect on your own situation, since it causes an effective tax rate of 33% on taxable income in this approximate range. Taking a lump sum to get below this can be useful sometimes, though it needs to be evaluated individually since the deals offered vary significantly.

It's very likely that the best option is a personal pension for her to top up her pension income to the 8-10000 range plus stocks and shares ISA for more than that. In both cases care in selecting a range of excellent funds to invest in is absolutely vital and the most important part of the job.

You might also consider stocks and shares investing with your own ISA allowance, since this money is readily inheritable, unlike many pension arrangements. This may make it preferable to AVCs even if the AVCs are on quite generous terms.

EdInvestor

gaggyball wrote:

I have been paying into an AVC with Standard Life from my salary to boost my Civil Service pension for when I retire. However, if I was to die first my wife would have very little income and does not have a pension of her own.

Why? Does the civil service pension not pay a decent spouse's pension? Will there be no tax free cash at retirement that could be put in her name?Can you not buy a 100% joint life annuity with your AVC, which will mean her income will continue at the same level if you die first?

What about the state pension? She will be eligible for 60% of your state pension when you retire, which will go up to 100% if you die first.

Check your state pension forecasts here:

https://www.thepensionservice.gov.uk

dunstonh

Why are you contributing to an AVC which you are going to have to pay tax on when your wife could be paying into a pension which she wouldnt have to pay tax on?

EdInvestor

From retirement age at 65, each person has a personal allowance of 7,550, and additional band of 2,150 which only pays 10% tax, total 9,700.

So ideally each spouse should keep pension income (which is taxed) at this level of max around 10k each, so it is paid almost tax free.All other capital and income should be accumulated in tax free ISAs (or tax free direct investments).

If all the money is in taxable pensions in one person's name, thousands will be wasted in paying unnecessary tax and if the income is in the 20-25k area, the person may even lose their age allowance. .

dunstonh

Plus, if all in one name and that person dies, the whole pension (or 50% in this case) dies with them. Splitting it between you means reduces the amount lost.