Contributing for someone else.. Benefits?

Linton

ChilliBob said:

Hey guys,
An idea has been suggested to me that sounds pretty good, but I just want to run it by the crew in here for their views. 

My partner earns circa 40k and is a basic rate tax payer. She contributes to a pension as does her employer.

I have been told if I make a contribution to her pension, which means her contributions match her earnings she will pay no tax. 
So, theoretically, let's say
1. She earns 40k, contributes 10k go her pension.
2. I contribute 24k
3. Government tops it up to 30k
Does this mean:
1. She pays no tax, saving perhaps 6k?
2. Gov contributes 6k
3. Resulting pension pot is iht free for each other our our son?

This sounds like a good idea I just want go make sure I have my facts straight before making any decisions. 
Thanks

Not quite - the £6K that HMRC put into a personal pension is how your wife receives a £6K tax refund so the money deducted by her employer for tax will be unchanged.  It does not matter whether you happen to provide the money for the contribution or your wife does.

ChilliBob

So in effect it makes no difference to her say to say right now, just means she gets 30k into her pension and only pay 24k for the privilege .

Now if she was a higher este tax payer, different ballgame, but she's not. 

So, still a worthwhile exercise by the sounds it but not quite as good as I had first thought, which tbh seemed too good to be true. 

Cheers guys, something for me to consider for sure. With my pension, ISAs and my son's Jisa maxxed out its that or GIAs. 

Dazed_and_C0nfused

How much tax do you expect her 2020:21 P60 to show?

You can get a good idea by looking at her February payslip and whatever the cumulative tax on that is just add the same amount as was deducted in February to give a decent estimate.

ChilliBob

Dazed_and_C0nfused said:

How much tax do you expect her 2020:21 P60 to show?

You can get a good idea by looking at her February payslip and whatever the cumulative tax on that is just add the same amount as was deducted in February to give a decent estimate.

Not too sure, I'll have to ask. She moved jobs in late April which doesn't help! I can do as above but add twice, once to cover all of April. The salary between jobs would be pretty similar. Cheers

pensionpawn

Steve182 said:

Dazed_and_C0nfused said:

That is a perfect real life example, Mrs Steve182 is likely only paying c£700 on income tax.

But getting £3,250 in pension tax relief added to her pension fund.

Furthermore, she will only have a modest sized pension pot, and we both plan to retire well before our SP age.

Using her full £12.5K personal allowance in the years between her retirement and her SP, it should be possible to drawn down the whole pot completely tax free, and reinvested what we don't spend in ISAs, so it really is a "no-brainer"   

This is exactly what we are planning to do (although bumping it up to £16k8 via UFPLS). Also, we're now able (due to other recently arrived funds) to plough 100% of her salary into her company pension / Sipp for her last three years!

ChilliBob

So effectively it's just a case of maximising contributions to get the maximum government contribution. If you're standard rate tax payer no further benefits to doing this, if higher rate, further benefits. As regards how much tax NY partner has paid in this tax year, how is that relevant actually? I would have thought contributions were the most relevant, and how the scheme works. She works for the local council as a social worker, not sure if that means her pension is different to say my salary sacrafice Scottish Widows one I had when working in the corporate sector. 

Dazed_and_C0nfused

You started this thread by suggesting she might be able to get all the tax back she had paid.

When in actual fact the "relief at source" of £6k could easily be more.

LGPS is probably a net pay contribution which means no pension relief gets added but it reduces her income for tax (but not NI) purposes, for example salary £40k and 10% contributed = taxable pay of £36k (the amount shown on the P60).

ChilliBob

Yeah, it seemed (and was!) too good to be true to obtain gov payment and no tax for basic rate!

I shall find out what she's paid in tax, and the contributions.

Do you think the type of scheme would impsct what I'm thinking of doing, or the benefit of doing so?

Dazed_and_C0nfused

The two main choices could be as straightforward as a personal pension/SIPP where she could get basic rate tax relief added to the contribution and there is flexibility to maybe use the pot as a bridging pension.

The other would be to consider a lump sum contribution to her employers scheme (LGPS?) to buy added pension but you would need to read up on the options for her scheme.  And that type of contribution works a bit like the Personal Allowance so I'd she had taxable pay of say £30k and contrinuted £30k as a lump sum the tax relief is limited to the tax she has paid.  Which I very much doubt is £6k.  But the extra pension is guaranteed unlike with a personal pension/SIPP.

ChilliBob

Thanks for all your replies ifs much appreciated. Ironically your username is sort of how I feel at the moment! (since I woke up, not because of this thread!) so I'm not overly with it today. Probably best if I get her to dig out as much info as she can on Monday when she logs in. I'd rather get it right than rush it for this year and mess it up.
Cheers again, I'll hopefully update next week