Retirement income planning for a couple?

nicknameless

Our situation.

Early 40s. Aim to retire somewhere between 55-60.

Me - higher rate tax payer with decent public sector pension.

She (my long term partner) - basic rate taxpayer with poorer pension.

Mortgage - 16 years left and currently on very good base rate lifetime tracker.

Rainy day fund in place and now building a passive investment portfolio to support early retirement. Have just over 1k a month to invest at the moment.

My projected retirement income will hit basic rate tax but my partner's will not even if and when state pension kicks in.

At the moment the plan is to build up an investment portfolio to support our goals but I am wondering if some extra pension provision for my partner would be sensible and beneficial financially, especially considering her likely retirement tax position?

Investments appeal as we have the choice of when and what to do with these BUT we want to make sure we are getting the most out of our resources and wondering whether additional pension provision for her (with the tax relief and probably no tax at the other end) makes sense for a portion of our savings? I also want to ensure she is financially taken care of should anything happen to me.

I have little knowledge about pension options for her though and whether this is something to start now as well as our investments.

Thanks all in advance.

Linton

I assume from your wording that your "long term partner" is not your wife. If that is the case what happens to your pension on your demise, both before and after your retire?

mania112

nicknameless wrote: »

Our situation.

Early 40s. Aim to retire somewhere between 55-60.

Me - higher rate tax payer with decent public sector pension.

She (my long term partner) - basic rate taxpayer with poorer pension.

Mortgage - 16 years left and currently on very good base rate lifetime tracker.

Rainy day fund in place and now building a passive investment portfolio to support early retirement. Have just over 1k a month to invest at the moment.

My projected retirement income will hit basic rate tax but my partner's will not even if and when state pension kicks in.

At the moment the plan is to build up an investment portfolio to support our goals but I am wondering if some extra pension provision for my partner would be sensible and beneficial financially, especially considering her likely retirement tax position?

Investments appeal as we have the choice of when and what to do with these BUT we want to make sure we are getting the most out of our resources and wondering whether additional pension provision for her (with the tax relief and probably no tax at the other end) makes sense for a portion of our savings? I also want to ensure she is financially taken care of should anything happen to me.

I have little knowledge about pension options for her though and whether this is something to start now as well as our investments.

Thanks all in advance.

The death benefits in your final salary scheme (assuming it is final salary) are only a benefit to a spouse, so you'd need to be married for her to benefit from the main pension provision you have.

Further to that, personal pensions (or any other non-final salary, money purchase arrangements) pay 100% of their value on death - to a nominated beneficiary, so this can be your partner, but with that you need to make sure your Will is uptodate and you don't have an ex-wife who could make something out of it, if that's not what you want (forgive me for giving examples that may not be true).

Currently state pension is around £5k pa and the nil rate tax band is £8105pa - so i'm assuming your partners pension currently pushes close to that line (under £3k projected pension)?

If you contribute to her pension, she will surely be into the next tax bracket come retirement.

So perhaps what would be more valuable would be for you to contribute to a new personal pension, receive 40% tax relief as you're a higher rate tax payer, and come retirement only pay 20% income tax.

Obviously if you will also be close to 40% with your various income at retirement, you'd need to weigh-up the sums.

... i've probably muddied the waters further, and you could possibly benefit from speaking to a local IFA, they can be found here: https://www.unbiased.co.uk

StephenM_2

mania112 wrote: »

The death benefits in your final salary scheme (assuming it is final salary) are only a benefit to a spouse, so you'd need to be married for her to benefit from the main pension provision you have.

Not necessarily. My scheme (private sector final salary) says that if you aren't married, the spouse's pension can be paid with the trustees approval to another person who was financially dependent on you. Then there's the death in service lump sum for which we are asked to fill in an "expression of wish" form, to nominate who we would like to get it.

kidmugsy

1) Invest in some pension for her to exploit her personal allowance, especially in the years when you are both (I'll assume) retired and neither of you drawing state pension.

2) Buy yourself some more pension to avoid 40% tax, in a SIPP for example, remembering that if you die before you crystallise it that pot can be passed tax-free to your partner as long as that's what you've asked for (hold on: that's true of your wife - perhaps not your partner. Checking required). If you want to crystallise it you may find that such a pot will be available to you by Flexible Withdrawal in retirement.

Of course the "avoid 40% tax" advice fails if you might find yourself paying 40% tax in retirement. Then it would be S & S ISAs (for you both?).

nicknameless

We are both nominated beneficiaries for death in service benefits for our respective pensions. TBH I'm not sure on the position post retirement and will need to check. We will have been together for 38-43 years by then but if a ring on a finger is required .........

nicknameless

P.s. my partner has worked part time for a portion of her working life and so just under 3k projected at our earliest target date of 55 with 12 years then to state pension (if things stay as they are at the moment).

xylophone

will have been together for 38-43 years by then but if a ring on a finger is required .........

The joints might be a bit stiff for getting down on one knee as you proffer the 2 carats with shaking hand...

Is your partner planning on bring her pension into payment at 55?
Have you factored in the actuarial reduction if you access your FS pension at this age?

nicknameless

xylophone wrote: »

The joints might be a bit stiff for getting down on one knee as you proffer the 2 carats with shaking hand...

Is your partner planning on bring her pension into payment at 55?
Have you factored in the actuarial reduction if you access your FS pension at this age?

They may well be. And I would be proffering carrots not carats:D

Yep estimates factor in actuarial reduction.

nicknameless

kidmugsy wrote: »

1) Invest in some pension for her to exploit her personal allowance, especially in the years when you are both (I'll assume) retired and neither of you drawing state pension.

2) Buy yourself some more pension to avoid 40% tax, in a SIPP for example, remembering that if you die before you crystallise it that pot can be passed tax-free to your partner as long as that's what you've asked for (hold on: that's true of your wife - perhaps not your partner. Checking required). If you want to crystallise it you may find that such a pot will be available to you by Flexible Withdrawal in retirement.

Of course the "avoid 40% tax" advice fails if you might find yourself paying 40% tax in retirement. Then it would be S & S ISAs (for you both?).

Many thanks.

I definately wouldn't be a higher rate tax payer in retirement unfortunately!

I know there are many debates about pensions vs investments (for those who have some pension provision already). In general would the above tend to make the most of our spare investment cash? My only worries are the lack of flexibility with pension pots and how much value is achieved via annuities.

As you can see I'm not well versed in the options and pros and cons.

Perhaps some IFA help might be called for?

xylophone

carrots

A cheapskate!:D better not mention this to her or she might be off tomorrow!

Is it possible for your partner to increase her contribution to her existing pension? Would this bring an increased employer contribution?