Contributing into wife's pension - pitfalls

Ciprico

...am I right in thinking as below.

My wife has no pension provision, (apart from state pension)

She earns about £20k and is about 50 years old

When she retires (using today's figures which I appreciate will change, I'm just testing the principle here)

State pension @ £6k7
Zero tax band @ £12k

Is it a no brainer I should be contributing into her pension on the basis of getting tax relief going in, and for the first £5k a year no tax coming out - so a 20% no risk instant saving.

(I will be basic rate tax payer when I retire and I am still contributing significantly to my pension - I am thinking I should steer my new contributions from my pension to hers...)

Is my line of thought correct -

Many Thanks

NedS

The full state pension is currently £168.60/week, or £8,767 per year. With a current tax allowance of £12,500 per year, that gives her £3733 of unused allowance per year. You could transfer some of it to yourself under married persons tax allowance, but there would still be some unused allowance so it indeed makes sense to start saving into her pension. You will get tax relief on the way in, and if you are prudent may pay no tax when taking it out again, depending upon how much you save and at what age she wishes to retire and start drawing upon it.

lisyloo

Yes you are correct but with one caveat.

Do you pay into your pension via salary sacrifice?
Does your employer pass on their NI savings in whole or in part?

This could be worth 12% + 13.8% = 25.8%

So how is your pension paid?

DT2001

My initial thought is why does your wife not have a works pension?
Is she self employed, if not her employer could/should be contributing something.

Has your wife obtained a state pension forecast? Will she get a full SP? Maybe advantageous to buy extra years if not full.

Is your pension a SIPP as what income will your wife have if you die first?

I’d say from the information you’ve given then definitely a no brainier to get a pension in her name.

If you come back with more info the worksheet wizards on here will assist you further.

xylophone

My wife has no pension provision, (apart from state pension)

She earns about £20k

No employer pension scheme?

No deferred pension from previous employments?

Has she (and have you) obtained state pension forecasts?

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

Ciprico

Many Thanks for responses

....OK, she does have the legal minimum pension paid for last year or so by her employer, but it's pretty minimal and I was ignoring it.

I haven't done the calculations but I think it will be pretty inconsequential..

Will look at the calculator

She would be able to salary sacrifice, but not sure if company would pass on their share of NI savings to her....

MallyGirl

even without employer NI she would be saving her own NI. You - as a couple - should be contributing more to her pension. It will enable you to smooth things, tax wise, a bit in drawdown.

lisyloo

123mat123 wrote: »

She would be able to salary sacrifice, but not sure if company would pass on their share of NI savings to her....

What about your pension?

If you pays into hers instead of yours, then you could lose up 25.8%

If she gets the 12% then you are probably onto a winner.

Ciprico

Thanks for the advice - we have set up a SIPP with Interactive Investor, with company paying by salary sacrifice, including passing on company 13.8% NI. Will probably invest in VSL once the money starts to flow...

Ciprico

lisyloo wrote: »

What about your pension?

If you pays into hers instead of yours, then you could lose up 25.8%

If she gets the 12% then you are probably onto a winner.

Lisylo

I think you got this wrong ?

Referring to:

https://www.gov.uk/national-insurance-rates-letters

Salary sacrifice automatically gets the employee their NI reduced by 12% as their salary is essentially reduced....

The company may or may not pass on their 13.8%

(So there is no "if" about getting the 12%)

I hope I got this right otherwise I have some forms to alter!

Albermarle

Salary sacrifice automatically gets the employee their NI reduced by 12% as their salary is essentially reduced....

The company may or may not pass on their 13.8%

Yes this is correct . Only caveat is that as your salary increases you only pay 2% NI over £50K .
In which case salsac only gains you 2 % + whatever employer gives back