Married couples and pensions

HMTrott

I was hoping someone would be able to help! I am a high rate tax payer and my wife is a low rate tax payer. I have a work final salary pension which I contribute to (7%) and a small personal pension. My wife makes very small contributions to a work stakeholder pension. My questions are:
1) Is it better for me to increase my personal pension payments so when we finally retire (which wont be for a long time!) we share the pension with a joint annuity
or
2) For me to keep my personal pension contributions low and my wife to start a new personal pension (with her only getting 20% tax relief) so I will have my work final salary pension and she will have her own personal pension
3) For my wife to increase her work stakeholder pension contributions.
I would appreciate any suggestions/advice.
Thanks

Linton

The most efficient could be for you to put sufficient into your pension to gain maximum 40% tax relief. Then if your FS pension + your State Pension > £20K you will be able to access your private pension through flexible drawdown. If you die first the remainder of the drawdown pot would pass to your wife's pension. Of course this is under current rules - who knows what the rules will be when you retire.

dunstonh

1) Is it better for me to increase my personal pension payments so when we finally retire (which wont be for a long time!) we share the pension with a joint annuity

Possibly but it may not be. You need to look at your position in retirement as well as current. e.g. if your wife is a non taxpayer in retirement then using up her personal allowance would be a good idea. So, pension contributions get 20% relief now but tax free in retirement. Your higher rate tax contributions but paying 20% tax in retirement equals the same. You also need to consider joint annuity rates vs single life. Or if you are going to use the unsecured pension income option.

We cant answer it without knowing your tax position now and in retirement.

HMTrott

Many thanks for the replies. Just one more question! If at retirment a joint annuity was choosen - who pays the tax on the pension income?
Thanks

dunstonh

If at retirment a joint annuity was choosen - who pays the tax on the pension income?

It is the income of the pension holder until they die. Then it becomes income for the survivor. (hence why you should look to balance pension provision to use age allowances up)

atush

Maximise your pension contribs to gain max 40% releif AND make sure your wife's contribs are larger so that not only can she get BRTax relief but also have enough income in retirement to use her personal allowances.

Make sure now (and in retirement) you pay the lowest tax possible on savings outside of ISAs by putting them in your wife's name.

gadgetmind

atush wrote: »

Make sure now (and in retirement) you pay the lowest tax possible on savings outside of ISAs by putting them in your wife's name.

And use these savings and investments first while preserving and even growing your ISA holdings. This way, when state pension kicks in, you should have pretty much everything else sheltered.