Need advice on wife's pension

brianq

Hi Everyone,

I haven't been very careful with my own financing but think now is high time to sort it out.

I'm a higher rate taxpayer while my wife has been out of employment for many years. I stopped paying into a private pension after joining the current company because the scheme available is rubbish.

Now after the change to child benefit, we are to lose most of it one way or another (my income is close to but not beyond 60,000). But this has also prompted me to look for a better way to make use of the tax relief available to me and my wife.

What options do I have?

Should I pay a lump sum of money to buy back the missing years of NI contributions for my wife, and continue paying NI for her from now on?

Or should I help build a private pension for her? The only fund to do this is to come from my salary.

Any suggestions?

Thanks a lot for your help!

seven-day-weekend

If your wife is receiving Child Benefit in her name, she will be credited with her NI. She needs 30 years for the full State Pension.

Get her a Pension Forecast here - she may not need as many years as you think.

https://www.gov.uk/state-pension/what-youll-get

Others will be along to answer your other questions.

jem16

brianq wrote: »

I stopped paying into a private pension after joining the current company because the scheme available is rubbish.

Does your employer contribute to the scheme and if so how much?

Now after the change to child benefit, we are to lose most of it one way or another (my income is close to but not beyond 60,000). But this has also prompted me to look for a better way to make use of the tax relief available to me and my wife.

What options do I have?

The only option for tax relief is via a pension. As a higher rate taxpayer you should be taking advantage of the 40% tax relief, especially if you will only pay basic rate tax in retirement. If you were to pay £10k into the pension you would get back your Child Benefit.

Should I pay a lump sum of money to buy back the missing years of NI contributions for my wife, and continue paying NI for her from now on?

May not be necessary as your wife should have been receiving credits towards the basic state pension. As suggested get a state pension forecast for her.

Or should I help build a private pension for her? The only fund to do this is to come from my salary.

Yes, but as a non-taxpayer she can only pay in £2880 net and receive 20% tax relief to make it up to £3600. It will certainly be a good idea to give her some pension provision as it will be better for tax later on but it's your 40% tax relief that will be best but only on your pension contributions.

brianq

seven-day-weekend wrote: »

If your wife is receiving Child Benefit in her name, she will be credited with her NI. She needs 30 years for the full State Pension.

Get her a Pension Forecast here - she may not need as many years as you think.

Others will be along to answer your other questions.

Thanks for the link!

brianq

Does your employer contribute to the scheme and if so how much?

That's the problem. My current employer does not contribute anything. (I don't remember what exactly it is.)

The only option for tax relief is via a pension. As a higher rate taxpayer you should be taking advantage of the 40% tax relief, especially if you will only pay basic rate tax in retirement. If you were to pay £10k into the pension you would get back your Child Benefit.

You mean £10k pre-tax? So it's like £500 after-tax per month? I wouldn't be able to afford that but I might have to consider getting a pension of some kind and start paying some money into it again.

May not be necessary as your wife should have been receiving credits towards the basic state pension. As suggested get a state pension forecast for her.

Will get a statement. But I suspect I might have to top up her missing NI contribution for one year or two just in case. If I did this, would the money I paid for her past NI be taken into account when mean-testing Child Benefit?

Will the government(s) be allowed to increase the current qualifying years in future? Currently it's 30 years, is it possible for a future government to increase to, say, 40 years?

Thank you for the help!

seven-day-weekend

brianq wrote: »

That's the problem. My current employer does not contribute anything. (I don't remember what exactly it is.)


You mean £10k pre-tax? So it's like £500 after-tax per month? I wouldn't be able to afford that but I might have to consider getting a pension of some kind and start paying some money into it again.


Will get a statement. But I suspect I might have to top up her missing NI contribution for one year or two just in case. If I did this, would the money I paid for her past NI be taken into account when mean-testing Child Benefit?

Will the government(s) be allowed to increase the current qualifying years in future? Currently it's 30 years, is it possible for a future government to increase to, say, 40 years?

Thank you for the help!

They have only just REDUCED it from 40 years (well 39, for a female, to be precise, in 2010

Until then it was 39 for a woman and 44 for a man, and there were different terms and conditions for each gender too, it is much more fair now.

I speak as a woman who needed 39 years as I reached retirement age before April 2010.

jamesd

Money she pays to buy past years of NI contributions is ignored for your child benefit situation. You can give her the money to buy them and it makes no difference.

It's unlikely to be wise to buy past years for her, since it's likely that she will end up getting to thirty years more easily by buying additional current years as she approaches retirement. That's generally cheaper than buying past years, though there are sometimes exceptions. It's more likely to be best to check her state pension age and buy years as you go along once she reaches the age where she has just enough time to get to a total of thirty years when she reaches state pension age.

The government is allowed to completely change the rules and is answerable to the electorate if necessary. In practice, governments tend to avoid retroactive changes like an increase above 30 years. Except perhaps in line with life expectancy and retirement age increases, which might make it politically acceptable if in conjunction with an increase in expected working years.

You can expect a proposal to change state pension entitlement rules early in 2013 but it's too soon to say what it'll contain, other than some sort of move towards a flat rate equal amount pension or all. This is likely to reduce your own state pension future entitlement and increase your wife's.

In general terms, your retirement planning seems troubled unless you have large amounts of non-pension savings and investments that could replace the lack of the same within a pension. The state pensions are not likely to be considered by you to be adequate to support a desirable lifestyle. Hopefully whatever it is that is blocking you making better provision is transient.

jem16

brianq wrote: »

You mean £10k pre-tax? So it's like £500 after-tax per month? I wouldn't be able to afford that but I might have to consider getting a pension of some kind and start paying some money into it again.

Yes I do mean £10k pre-tax. How much Child Benefit do you stand to lose?

As to your pension provision - what age are you and how much pension provision (if any) do you currently have?

Will get a statement. But I suspect I might have to top up her missing NI contribution for one year or two just in case. If I did this, would the money I paid for her past NI be taken into account when mean-testing Child Benefit?

No. Only pension contributions are going to make a difference.

brianq

jamesd wrote: »

It's unlikely to be wise to buy past years for her, since it's likely that she will end up getting to thirty years more easily by buying additional current years as she approaches retirement.

Does "additional current years" mean that you could buy more years then left before retirement age?
Would someone approaching retirement be allowed to buy any number of years to make up for the 30 years? The problem is my wife, in her late 30s, has not got many years eligible for basic state pension (due to various reasons). She might not have had the 30 years when she reaches 67 even if she starts paying NI now.
Another question is, how could I pay for her NI when she could not longer claim Child Benefit (when kids grow up)? I only see information about buying back past years.

jamesd wrote: »

In general terms, your retirement planning seems troubled unless you have large amounts of non-pension savings and investments that could replace the lack of the same within a pension.

I haven't really thought about a retirement plan though paying back the mortgage has been the top priority. Since my current employer does not have a good (or any) pension scheme I no longer have any personal pension.
I don't have a plan partly because I'm not good at investment (lost more than half of the money I invested in shares during a three-year investment experiment), and partly because, as mentioned, I wanted to pay off the mortgage as soon as possible. It was and still is a difficult decision for me to make on what to do next.

jem16

brianq wrote: »

She might not have had the 30 years when she reaches 67 even if she starts paying NI now.

Before you start planning this, you should really check how many years she has got. With automatic credits for getting Child Benefit for children under 12 and perhaps your wife going to work when the children are older, she may have more than you think.

https://www.gov.uk/boost-state-pension/check-your-national-insurance-record

Another question is, how could I pay for her NI when she could not longer claim Child Benefit (when kids grow up)? I only see information about buying back past years.

You can pay voluntary contributions.

https://www.gov.uk/voluntary-national-insurance-contributions

I haven't really thought about a retirement plan though paying back the mortgage has been the top priority. Since my current employer does not have a good (or any) pension scheme I no longer have any personal pension.
I don't have a plan partly because I'm not good at investment (lost more than half of the money I invested in shares during a three-year investment experiment), and partly because, as mentioned, I wanted to pay off the mortgage as soon as possible. It was and still is a difficult decision for me to make on what to do next.

You need to start thinking about it and soon. The older you are the more you will need to pay to make up for the earlier lost years. Your house will give you somewhere to live but unless you plan to sell it, you won't have any income other than state pension.

brianq

jem16 wrote: »

Yes I do mean £10k pre-tax. How much Child Benefit do you stand to lose?

I think we'll lose more than half of Child Benefits for two kids.

jem16 wrote: »

As to your pension provision - what age are you and how much pension provision (if any) do you currently have?

We're both in our late 30s. I probably have, from my previous employments, close to £10,000 of pension provision which is mainly with Scottish Widow and which I'm no longer paying anything into.

What I was planning to do was to make sure my wife could still get a full basic state pension (buying back missing NI for her if necessary), and paying off the mortgage as soon as possible.

After spending sometime on this forum, I now think I should go back paying into a personal pension again (and set up one for my wife too).

Given my situation (I understand I'm not really doing well financially, far from being middle class but squeezed middle for sure), what would be a better strategy to make our retirement a little bit more comfortable?

Is getting a SIPP pension for each of us the simplest way?

I'd want to talk to a financial adviser of some kind if necessary. What would you recommend?