Boosting a married couples pension....

pensionpawn

Just checking with the community that this idea does not fall fowl of any rules and regulations. Married couple A and B are approaching 55 in the next 8 - 13 months. A knows that if they take their 25% TFLS to pay off some loans and then increase their salary sacrifice, unless planned carefully this could trigger pension recycling penalties. However if A dumps part of their TFLS into B's SIPP to take her 20% (combined employee and employer contributions) up to 100% of salary (well below £40k) then B would benefit from the tax rebate on contributions, e.g £8k from A would result in £10k added to B's pension, and no rules / regulations would have been contravened? This can be done over successive years as required. In this scenario B has not accessed their pension because even if they also took their TFLS this would then leave them vulnerable to pension recycling rules and regulations too.

Not trying to beat the system, just trying to make the most of it whilst staying within it!

crv1963

That makes sense to me, but more knowledgeable people will be able to comment.

We're planning something similar.

Albermarle

It seems that the chances of an individual being fined under these recycling rules is very unlikely anyway .
By doing it indirectly , via a spouse, then the probability must be zero .

However it is against the spirit of the rules , which is to deter people from doubling up on already generous tax relief on pensions. So there is a moral case against it , depending on your viewpoint.

bhjm

not sure if you can sacrifice salary to 100% , as you would fall under the minimum wage?

OldBeanz

Nothing wrong with the proposal at all. There is nothing in the rules stating you are not allowed to support your spouse by using your pension thus allowing them to maximise their pension.
You should be planning to ensure that your spouse has sufficient pension income to ensure she can use all her personal tax allowance in retirement.

bluenose1

From what I have read HMRC are not interested in individuals recycling.
You can only salary sacrifice up to National Minumum Wage, so you would have to have remaining salary of approx £15k. Though you could have a SIPP for additional contributions if necessary.
Does your wife have salary sacrifice for her Pension? If so same rules.
Have you considered who of you would have the best tax advantage for withdrawal? If you already have a decent pot then you may be paying tax on withdrawal of additional amounts whereas your wife may be able to withdraw tax free because of 25% tax free and £12,500 personal allowance.

pensionpawn

bluenose1 wrote: »

From what I have read HMRC are not interested in individuals recycling.
You can only salary sacrifice up to National Minumum Wage, so you would have to have remaining salary of approx £15k. Though you could have a SIPP for additional contributions if necessary.
Does your wife have salary sacrifice for her Pension? If so same rules.
Have you considered who of you would have the best tax advantage for withdrawal? If you already have a decent pot then you may be paying tax on withdrawal of additional amounts whereas your wife may be able to withdraw tax free because of 25% tax free and £12,500 personal allowance.

Thanks for all the comments everyone.
Her company doesn't allow SS in excess of the level that they will match (10% which is much better than my company!) so the additional contributions would be made via her SIPP. As 'OldBeanz' said we are planning to maximise both of our personal allowances (and hers via UFPLS) and I suppose it's a matter of opinion whether I am directly paying into her SIPP (which I think we've agreed is OK) or she is living off my finances for a couple of years whilst she contributes all of her income into her SIPP. My pot is around 6 times the size of hers, having the higher salary (and not going on maternity leave) over the years, so we've been actively boosting her contributions over the last 6 years to get her to a position where she can take the maximum tax free pension each year. Between the two of us a tax free income of just under £30k pa will keep us quite happy. Just a few more years to go hopefully.

Bemma

I find this thread interesting, as I seem to be in a similar position to PensionPawn and have looked closely at the recycling rules and boosting my partners pension, which is much lower than mine.
I'm 50 and have a good SS scheme, I currently contribute enough to get down to 20% tax band. I will pay tax in retirement.
My wife (48 years old, £40k salary) has a poor auto enrolment scheme. We have been considering a SIPP or additional contributions for my wife and making large contributions over what we could normally afford into her pension, by depleting savings and possibly my TFLS (post 55), to be able to utilize her personal allowance when we retire for tax efficiency.

But doing some calcs, it looks like my SalSac scheme (even paying tax in retirement), beats contributions for my wife even though she will likely pay zero tax in retirement!

Me:
Net £1 in -> Grossed up to from 20% tax and 12% NI = £1.47 + 7% Employer NI = £1.57 in my pension
On the way out (eff 15% tax) £1.57 less 15% = £1.34ish

Partner
Net £1 in -> Adding 20% tax only = £1.25
On the way out £1.25 if not paying any tax (likely)

So even though I will be paying tax and my wife will not, for each £1 put in our pensions… contribution to my pension win out by an extra 9p added.

(There are other non financial arguments, such as each maintaining a certain amount of independence, but on a financial basis, contributing to my pension is the best thing to do).

I'm still planning and things will change, particularly if my wife breaks the HR tax threshold and how fast we are prepared to deplete our savings running in to 55 and beyond. But for now, SalSac to my scheme wins out.

LHW99

But doing some calcs, it looks like my SalSac scheme (even paying tax in retirement), beats contributions for my wife even though she will likely pay zero tax in retirement!

Worth also running the calculations on what each would inherit in terms of pensions if one passes before the other, both before and after pensions are in payment.
For example, state pension is decreasingly inheritable now the NSP is underway.

pensionpawn

Everyone's circumstances differ slightly. My employer does (will) not put their NI savings into your pot, and it's only this year that they've raised their contribution level to 4.5%! On withdrawals above the personal allowance I would be paying 20% tax so the maths supports increasing my wife's pot, however your arithmetic suggests you are correct for your circumstances. However bear in mind that you can only SS down to the living wage at which point adding to your wife's pot (if you can afford it) then becomes an option? One other thing to consider, which pension is the better performer? My wife's SIPP is presently outgrowing my employers scheme by a country mile!

Just a final thought on balancing pots as much as possible. As I'll be drawing less out of my much larger pot as a consequence, should I require to take a considerable unexpected, though comfortably accommodated, withdrawal out of my pot, I will have maximised my 20% tax headroom and minimised my exposure to 40% tax.

Albermarle

One other thing to consider, which pension is the better performer? My wife's SIPP is presently outgrowing my employers scheme by a country mile!

A SIPP or a workplace pension do not in themselves 'perform' . It is the investments within the pensions.
It is probable that the investments in the SIPP are more high risk/high growth , which will have done well in recent years but will suffer more in any market crash . So you are comparing apples with pears.
Of course in a SIPP you have more choice of investments and some workplace pensions have a very restricted choice ( especially some of the newer auto enrolment ones ) but it is not so straightforward to compare investments performance over the long term.