Husband and Wife Pensions

huttonshonley

I am a 40% tax payer and thus benefit from a healthy tax allowance when paying into a pension, my wife is not but we would like to ensure we have a pension sufficiently large for both of us. Should I pay more into my pension or, set up a separate pension for her even though it won't benefit from the same tax benefits. Help?!

Linton

For maximum tax efficiency you need to put sufficient into your own pension to get your taxable income into the 20% tax band.

The best action for your wife depends on whether she is working, employed or self employed, how much she is earning and her tax status.

Of course tax efficiency isnt everything, you may have other reasons for doing things.

kidmugsy

huttonshonley wrote: »

I am a 40% tax payer and thus benefit from a healthy tax allowance when paying into a pension, my wife is not but we would like to ensure we have a pension sufficiently large for both of us. Should I pay more into my pension or, set up a separate pension for her even though it won't benefit from the same tax benefits. Help?!

One attraction with pensions is tax deferral. For you to avoid 40% tax, in hopes of paying 20% when you draw the pension, is much the same as your wife getting 20% "tax relief" on contributing to a pension, and hoping not to be a taxpayer when she draws it out.

As Linton says, to go any further we'd need to know more.

green_man

It depends what " pension sufficiently large for both of us" actually means.

If you think you can both live happily in retirement with one pension below the Higher rate tax threshold then I would just continue with your pension contributions. If you think you need more than this you need to work out what pot size to aim for to give you a pension just below the Higher rate limit and put any additional funds into a pension for your wife (depending on you wifes current work status), who can then draw 10K tax free.

drumtochty

You also have to look at what happens if you pop off first and have you reasonably maximised your wifes pension rather than her only having say half of your pension.

It's not just about your tax relief there has to be give and take to optimise both parties pension.

PeacefulWaters

My wife pays 32% tax and NI. There will be no tax liability when it's drawn, assuming no radical investment performance or lowering of the personal allowance.

I pay 42% tax and NI. Just. I will pay 20% tax when it's drawn, assuming no changes to tax rates.

We both benefit from salary sacrifice on pension contributions through our respective employers.

We are prioritising her pension because she effectively gets a 32% kicker from the financial system compared to my 22%. If her pension was likely to push her into income tax this wouldn't be the approach. As it is, she's going to be short of using up her personal allowance. I'm not.

Equally, as I don't like the idea of paying for a Michael Parkinson old fogey life assurance plan, a key part of the planning is to make sure that whoever dies first the survivor has enough income to continue living in the same home.

Maximising matching employer pension contributions, employee share schemes and a modest stocks and shares ISA make up the rest. I doubt we will progress to SIPP.