Paying into Spouse Pension to try build it up

Mick70

jamesd wrote: »

For others, Mick70 has a pension transfer of £1.7 million pending so all money paid into hiss pension is ineligible for a pension 25% tax free lump sum and has either 55% or 25% plus income tax lifetime allowance charge. 40% relief gets 100% into a pension at 60% cost but on the way out it's reduced to 45% (55% charge) or 35% (25% + 40% income tax). Basic rate tax on the way out is impractical at current ranges, it'll be needed to avoid the lifetime allowance charge on growth at age 75.

Mick70, I suggest gross pension contributions of 100% of her pay. But only taking out up to her personal allowance. Then, later, the rest can be used to buy a single life annuity in her name.

Thanks James , by way I have stopped using the financial advisor regarding this transfer , he wasn’t explaining any risks involved , nothing in writing , no analysis , just one phone call on speaker phone so wife could be involved , just pushing to do it , his fees also 2% upfront and 0.75% going forward . I now need to find a trusted local IFA who won’t be putting his own interests before ours , I may have left it too late to meet the 3 month cut off now (only 6 weeks left now) and may need to trigger a new valuation after that date and hope not changed much . Went into this process a bit naive regarding advisors and fees etc

Dazed_and_confused

yes the "plan" is so that she can have a pension pot of £200k , to get an annual pension of £10k p.a over a 20 year period (60-80) , so yes should be no tax on withdrawls either way

I may have missed this somewhere but why will she have such a low State Pension as to not pay tax from SPA?

And it's a 25% boost not 20%.

ffacoffipawb

jamesd wrote: »

For others, Mick70 has a pension transfer of £1.7 million pending so all money paid into hiss pension is ineligible for a pension 25% tax free lump sum and has either 55% or 25% plus income tax lifetime allowance charge. 40% relief gets 100% into a pension at 60% cost but on the way out it's reduced to 45% (55% charge) or 35% (25% + 40% income tax). Basic rate tax on the way out is impractical at current ranges, it'll be needed to avoid the lifetime allowance charge on growth at age 75.

Mick70, I suggest gross pension contributions of 100% of her pay. But only taking out up to her personal allowance. Then, later, the rest can be used to buy a single life annuity in her name.

Its reduced to 45% in both scenarios, not 35% because 0.75 x 0.60 = 0.45 i.e. 45%.

Mick70

Dazed_and_confused wrote: »

I may have missed this somewhere but why will she have such a low State Pension as to not pay tax from SPA?

And it's a 25% boost not 20%.

Yes you right of course , so once state pension kicks in would just use the pension pot to take out difference to whatever the bottom tax bracket is i.e if tax limit was 15000 by then and state pension 8000 then would only need to drawdown 7000 pa once reach that age

Mick70

I thought the hmrc boost into
Pension was 20% so something else I have learnt this week

Dazed_and_confused

It is 20% tax relief which equates to a 25% boost/top up from HMRC.

For example you contribute £4,000. The pension company adds £1,000 basic rate tax relief (courtesy of HMRC) giving you a fund of £5,000.

The tax relief is 25% of your (net) contribution but 20% of the (gross) amount.

Dazed_and_confused

Yes you right of course , so once state pension kicks in would just use the pension pot to take out difference to whatever the bottom tax bracket is i.e if tax limit was 15000 by then and state pension 8000 then would only need to drawdown 7000 pa once reach that age

Although only examples they are a little pessimistic!

The full new State Pension is currently c70% of the Personal Allowance. Although there is no direct link between the two a similar ratio would make State Pension, which is currently guaranteed to increase as a result of the triple lock, more like £10,500 when PA is £15,000.

jamesd

ffacoffipawb wrote: »

Its reduced to 45% in both scenarios, not 35% because 0.75 x 0.60 = 0.45 i.e. 45%.

Thanks, you're right, of course.

jamesd

Mick70 wrote: »

I may have left it too late to meet the 3 month cut off now (only 6 weeks left now) and may need to trigger a new valuation after that date and hope not changed much . Went into this process a bit naive regarding advisors and fees etc

No problem, though, there's a lot to learn and you have been.