Should my wife contribute into a pension?

lcfcstephen

Hi all,

I work full time in an averagely paid job and contribute 10% to my pension with my employer contributing 5%, and have been contributing at least 15% since I was about 22 (now 25).

My wife has been doing a masters and has started working part time since that finished a few months ago, she's unlikely to want to work full time for a number of reasons. (Shes now pregnant, but not relavent for the decisions) she contributes around 20% to her pension

My wife is my beneficiary for my pension so last night I wondered if its worth my wife contributing to her pension as it takes money out of our take home money whilst not adding much in terms of pension benefit. Is it worth me contributing a bit more and my wife contributing none? Therefore reducing my tax bill, and perhaps increasing take home pay?

If I died, would she get the benefit of my pension? Would it be worth doing this? Obviously, I'm ignoring the (hopefully) very slim possibility that we got divorced and presuming that we stayed together until death.

Would this strategy make sense? Please let me know if theres anything else I should add to help aid suggestions of a decision?

Thank you

p00hsticks

lcfcstephen wrote: »

Please let me know if theres anything else I should add to help aid suggestions of a decision?

Does she earn enough to pay income tax ? And pay NI / get NI credits ?
Are you a basic or higher rate tax payer ?

[ regardless of the answers to these, personally I'd say that it's always worth trying to build up both partners pensions rather than have one fully relying on the other ]

lcfcstephen

Apologies, realised I should include that. Currently she doesn't earn enough to pay either income tax or national insurance.

xylophone

Is your wife's current scheme defined benefit or defined contribution?

Is the workplace pension contribution on a "net pay" or "relief at source" basis?

In her position RAS is more beneficial but either way she is presumably benefiting from an employer's contribution?

https://www.litrg.org.uk/latest-news/news/181214-do-you-understand-how-tax-relief-your-pension-contributions-works

Does your wife earn enough to benefit from the NI credit?

https://www.litrg.org.uk/tax-guides/employment/what-national-insurance-do-i-pay-employee

Re Child Benefit

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

Are you a higher rate tax payer? if so, see

https://adviser.royallondon.com/technical-central/pensions/state-benefits-pension-manuals/child-benefit-avoiding-the-tax-charge/

NedS

lcfcstephen wrote: »

Apologies, realised I should include that. Currently she doesn't earn enough to pay either income tax or national insurance.

Even though she pays no income tax, she could still open a SIPP and contribute to that and receive tax relief (i.e, for every £800 she pays in, the government would top it up with an additional £200, making £1000 gross).

Of course the benefit of contributing to an employer scheme is that the employer is also contributing, and that could be worth more than the tax relief.

Financially, divorce is probably not an issue, as if you only build up your pension and neglect hers, she would take 50% of your pension anyway (or vice versa) as part of any settlement, assuming she has a decent lawyer.

If you both look to build pensions for retirement, hopefully you will be able to maximise your tax free income in retirement by both fully using your allowances. If all (or the large majority) of your income is for one person, it is less tax efficient which ultimately gives you less income to live on.

lcfcstephen

xylophone wrote: »

Is your wife's current scheme defined benefit or defined contribution?

Is the workplace pension contribution on a "net pay" or "relief at source" basis?

In her position RAS is more beneficial but either way she is presumably benefiting from an employer's contribution?

https://www.litrg.org.uk/latest-news/news/181214-do-you-understand-how-tax-relief-your-pension-contributions-works

Does your wife earn enough to benefit from the NI credit?

https://www.litrg.org.uk/tax-guides/employment/what-national-insurance-do-i-pay-employee

Re Child Benefit

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

Are you a higher rate tax payer? if so, see

https://adviser.royallondon.com/technical-central/pensions/state-benefits-pension-manuals/child-benefit-avoiding-the-tax-charge/

Defined Contribution, based on net pay, rather than RAS. No, at the moment she has a 1.5 day job and a just larger than 0.5 day job, so she doesn't pay any National Insurance.
I'm a 'normal' tax payer and use some of my wife's tax free allowance.

I had forgotten that the Employer was contributing and so that would make it more worthwhile even though it is small amounts.

Dazed_and_confused

Even though she is effectively getting no tax relief on the company scheme the employer contribution probably makes it sensible to continue in this scheme.

But that doesn't stop her contributing to a personal pension, stakeholder pension of SIPP under a relief at source scheme.

If she contributed say £2,000 then the pension company, courtesy of HMRC, would add 25% giving her a fund of £2,500.

ian1246

What happens if you only contribute into a pension and then you get dementia and have to go into a home, funded by your pension? What will your wife live off?

atush

if she qualifies to get employers contributions she should 100% pay into the pension. prob shold even if not as she will still gt BR tax relief.

If you are married, are you claiming the pension allowance?

LHW99

Have you checked you wife's projected state pension?
She will get NI credits if she registers in due course for Child Benefit (even if you have to refuse actual payment because of earnings level). However you need a minimum number of years for a full NSP, so it may be worth calculating whether buying her any additional years now / in the future would be beneficial.

DairyQueen

NedS wrote: »

Even though she pays no income tax, she could still open a SIPP and contribute to that and receive tax relief (i.e, for every £800 she pays in, the government would top it up with an additional £200, making £1000 gross).

Of course the benefit of contributing to an employer scheme is that the employer is also contributing, and that could be worth more than the tax relief.

Financially, divorce is probably not an issue, as if you only build up your pension and neglect hers, she would take 50% of your pension anyway (or vice versa) as part of any settlement, assuming she has a decent lawyer.

If you both look to build pensions for retirement, hopefully you will be able to maximise your tax free income in retirement by both fully using your allowances. If all (or the large majority) of your income is for one person, it is less tax efficient which ultimately gives you less income to live on.

+1 to this suggestion.

Far too many women of my generation (50s/60s) have reduced pensions for the reasons you describe. Caring responsibilities and part-time working result in unequal pension provision which, at the very least, prevents the under-pensioned spouse from using their tax allowances in retirement.

Don't just concentrate on the cheapest way to accrue between you. Also, consider the tax benefits you may be foregoing in drawdown by creating unequal pots.