Pension advice for spouse please?

mrje103

I was hoping people would offer some advice regarding my wife and her lack of a pension.

She is 32 and for the last 4 years has been working two days a week, and not earning enough to pay tax. She has no pension, although was previously full time and building NI contributions for the state pension. Since going part time she has been receiving child benefit. I believe this counts toward the state pension but not sure how. If she doesn’t end up going back to work full time presumably she won’t build enough entitlement to a full state pension.

I have a civil service alpha pension. She will receive this when I die and, based on current calculations, would I think receive about £15,000 pa from this.

My question is should we open a SIPP for her and pay into it each month using my salary? Or should I open a SIPP in my name? I believe she can inherit this if I die before her. I am a 40% tax payer and would stand to gain much more tax relief than her. Indeed I am not even sure if she receives tax relief if she doesn’t pay tax.

Grateful for any thoughts or advice. Is there anything I have misunderstood or should consider exploring?

Dazed_and_confused

She almost certainly wouldn't benefit from tax relief under a net pay scheme (assuming she doesn't have other taxable income you haven't mentioned) but could contribute to a relief at source scheme and receive tax relief (which gets added to the pension fund).

If she earns say £6,000 she can pay £4,800 in and the pension scheme, courtesy of HMRC, top it up to £6,000.

If she opens a SIPP (other pension types are available!) why wouldn't she pay into it from her salary?

If you open a SIPP and contribute you will get the same basic rate tax relief added to the pension fund as your wife would but you may be eligible to claim some higher rate relief from HMRC. This depends on how much higher rate tax you pay. You do not get a fixed extra 20%. The pension contribution increases the amount of basic rate tax you can pay which in turn reduces the amount of higher rate tax you might need to pay.

dunstonh

I am a 40% tax payer and would stand to gain much more tax relief than her.

Although the net result at the end of the day may be similar.

If she contributes enough to at least use up her personal allowance then she gets 20% tax relief now but no tax later.

You get 40% tax relief now but 20% tax later. In both cases, the difference is 20%. Once you have contributed enough to use up her personal allowance in retirement (and any planned earlier than state pension age retirement) then it favours yours again.

So, it is worth her doing some.

p00hsticks

mrje103 wrote: »

Since going part time she has been receiving child benefit. I believe this counts toward the state pension but not sure how. If she doesn’t end up going back to work full time presumably she won’t build enough entitlement to a full state pension.

While she is claiming child benefit she gets NI credits towards her state pension until the youngest child turns twelve, just as if she was working full time

https://www.gov.uk/national-insurance-credits/eligibility

xylophone

She can get a state pension statement to show her current position.

https://www.gov.uk/check-state-pension

https://www.gov.uk/child-benefit/what-youll-get

Are you subject to High Income CB charge?

https://revenuebenefits.org.uk/child-benefit/guidance/how-do-child-benefit-and-guardians-allowance-work/high-income-child-benefit-charge/

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/reduce-high-income-child-benefit-charge/

Does your wife's employer offer a workplace pension?

https://www.gov.uk/workplace-pensions/joining-a-workplace-pension

In a ''relief at source" pension scheme your wife would receive tax relief on her pension contributions even if she did not earn enough to pay tax.