Pension catch-up

kidmugsy

Be sure to keep yourselves a decent "emergency fund" in cash - perhaps in Cash ISAs or perhaps in your wife's name in one of those interest-bearing current accounts. The usual suggestion is enough to pay 6 months or more of your outgoings.

jennifernil

For example......your wife could be earning 3% gross on up to £45k by opening 3 Vantage/Enhance accounts at BOS,TSB and LLoyds.

kidmugsy

jennifernil wrote: »

For example......your wife could be earning 3% gross on up to £45k by opening 3 Vantage/Enhance accounts at BOS,TSB and LLoyds.

And 3% gross on £45k = £1350, so you could use that income to contribute to a pension and so avoid your little bit of 40% tax exposure.

The other thing to do is get the official prediction of your wife's eventual State Retirement Pension. If it then looks as if she'll be a non-taxpayer in retirement it could be very profitable for her to start contributing to a personal pension of some sort now: even as a non-earner she's allowed to contribute a net £2880 (= gross £3600) per annum. Come to that, get the prediction for yourself too: is there a possibility that you'll be a non-taxpayer?

My own feeling is that if you can currently get neither an employer's contribution nor salary sacrifice, then once you've avoided 40% income tax on yourself, and made your wife's contribution, pensions may not be the best way to save for your old age, unless you too are looking at being a non-taxpayer when you are old. They are so inflexible that you'd want an extra incentive to use them. Consider, for instance, the possibility that the standard rate of income tax has gone up by the time you retire. That might hit you (but presumably not your wife) on your pension income but not on ISA income (if ISAs survive). When, eventually, your employer is obliged to offer you a pension with an employer's contribution - that would be the time to contribute more.

But if you can negotiate salary sacrifice, then you may well be right and pension contributions for yourself become more attractive.

The other possibility is the wisdom of not rushing. There's already talk of making the contribution tax rebate 30%, rather than the current 20% and 40%. Since most of your income tax is paid at 20% that would give you a bigger rebate if the change were made. It might be worth hanging back until after the election of May 2015 to see what happens. You can put most of the capital into ISAs in the meantime.

It must be admitted that there could also be losses from "not rushing": some day a government is going to decide that Salary Sacrifice is madness, and abolish it. Perhaps the introduction of a 30% rebate might be the natural time to do that.