paying into my pension, wife has no pension. Would setting up a pension for my wife be more tax eff

pete1975

thankyou so much for all the replies,   its alot to take in,  Ive spent lockdown trying to work out the optimum wage i get paid , plus increase pension contributions but have lost a friend very quickly to cancer who only found out on christmas eve and then died last week so im also mindful that saving everything for later on might not come.  I thin this currently is clouding my judgement at the moment as he was only 49 .

I have 3 teenage daughters that i would like to help out aswell when they are older, i just want to make sure whatever happens to me that my wife has enough to live on.

Clive_Woody

pete1975 said:

thankyou so much for all the replies,   its alot to take in,  Ive spent lockdown trying to work out the optimum wage i get paid , plus increase pension contributions but have lost a friend very quickly to cancer who only found out on christmas eve and then died last week so im also mindful that saving everything for later on might not come.  I thin this currently is clouding my judgement at the moment as he was only 49 .

I have 3 teenage daughters that i would like to help out aswell when they are older, i just want to make sure whatever happens to me that my wife has enough to live on.

You might also want to consider ISA savings which could be accessed before you reach an age where you could access your pension funds. Doesn't hurt to have some flexibility and obviously no tax on funds withdrawn from an ISA. 

SomeMadeUpName

pete1975 said:

ive checked the state pension and it says for my wife as long as she contributes another 5 years NI then she will get £175 a week

wife has:

• 28 years of full contributions
• 20 years to contribute before 5 April 2040
• 3 years when you did not contribute enough

I've got a niggle in the back of my head saying that those on carers allowance get a credit to SP (much like one parent does whilst a child is under Xyrs of age). So check on that, she may be moving towards that £175pw. 
Regards max tax eff for your (as a couple) pension. I think maybe what you are getting about in the OP is both tax on the way in and on the way out? Ideally your other half would get enough into a scheme to have an income in retirement of the tax threshold (some of which will be used up by SP after SPA). However you've got to balance that with max tax eff on the way in, ie if you are a 40 or 45% tax payer then claiming that back for you is a big deal. Lots of maths basically I'm afraid (plus a crystal ball).

Albermarle

I've got a niggle in the back of my head saying that those on carers allowance get a credit to SP

I think you are right !

pete1975

SomeMadeUpName said:

pete1975 said:

ive checked the state pension and it says for my wife as long as she contributes another 5 years NI then she will get £175 a week

wife has:

• 28 years of full contributions
• 20 years to contribute before 5 April 2040
• 3 years when you did not contribute enough

I've got a niggle in the back of my head saying that those on carers allowance get a credit to SP (much like one parent does whilst a child is under Xyrs of age). So check on that, she may be moving towards that £175pw. 
Regards max tax eff for your (as a couple) pension. I think maybe what you are getting about in the OP is both tax on the way in and on the way out? Ideally your other half would get enough into a scheme to have an income in retirement of the tax threshold (some of which will be used up by SP after SPA). However you've got to balance that with max tax eff on the way in, ie if you are a 40 or 45% tax payer then claiming that back for you is a big deal. Lots of maths basically I'm afraid (plus a crystal ball).

thankyou, yes you are right she does receive a credit for her state pension for being a carer.   But yes as you say lots of maths,  something im hopeless at and something i've spent the last few months trying to get my head around, both in tax and self assessment with taxable benefits, adjusted net income its been a learning curve and I think i have more questions than answers. But yes i was referring to if i put into wifes pension then i would be taxed at 40% whereas I put the money into pension it is tax free and therefore when i draw it out I could take 25% lump sum out tax free and then the rest hopefully would be either taxed at basic rate 20%      
I need to create a simple spreadsheet to look at the amounts

Albermarle

I will try to do the maths for you .
If you put £100 in your pension it only costs you £60 . When this pension is taken you take 25% tax free and the rest at 20% , so you will get £85 . 
If you pay 40% tax on the £100 , you will have £60 . If you give this to your wife to put in her pension , she will get tax relief of £15 - so making £75. If she can draw it all out without paying tax then she will have £75 . So £10 less .
So from a financial point of view , you should max out your pension contributions before adding to hers .
Unless you might be a 40% taxpayer in retirement , or if your pension gets so large that you start to get close to the Lifetime Allowance.. Then it moves the other way around.

LHW99

Albermarle said:

I will try to do the maths for you .
If you put £100 in your pension it only costs you £60 . When this pension is taken you take 25% tax free and the rest at 20% , so you will get £85 . 
If you pay 40% tax on the £100 , you will have £60 . If you give this to your wife to put in her pension , she will get tax relief of £15 - so making £75. If she can draw it all out without paying tax then she will have £75 . So £10 less .
So from a financial point of view , you should max out your pension contributions before adding to hers .
Unless you might be a 40% taxpayer in retirement , or if your pension gets so large that you start to get close to the Lifetime Allowance.. Then it moves the other way around.

But do work out what each of you will be left with if the other happens to go under the proverbial bus. It can be worth evening up the provision between you sometimes, even if its not quite as tax efficient.

pete1975

I’ve been playing around with some maths this afternoon after lots of advice on here.  

So my plan from April 2021 payslip is to reduce my taxable wage to £42,500 from £62,185 (I also get taxable benefits of £6200 for medical benefits and im also allowed a fuel card which I have to work out on the tax on self assessment).

So that would give me £19,685 per year into my pension or £1640 a month (it might actually be a little more than that as we are on salary sacrifice and I get some NI contributions back

Plus my employer pays 10% max into pension as long as the employee does,  so that’s £518 a month

This wage allows us to still keep the majority of Child benefit ( originally we were claiming it for the credit for my wifes state pension but then I found out that she gets that from getting the carers allowance.

 A lot of the online pension calculators suggest that I should be aiming for about 30k a year.

 I’ve been trying to work out the most tax efficient wage that also allows me to save into a pension. Its scar stuff to be honest.

 And provided me with the following based on me retiring at 57 (im 47 this year)

Taking 25% of your estimated total pension pot of £611,840 provides a cash payment of £152,960.

Which the calculator tells me I will be short by 12k at the age of 57. 

Albermarle

These pension calculators are usually very pessimistic . They use low growth figures and assume you buy an annuity .

pete1975

Albermarle said:

These pension calculators are usually very pessimistic . They use low growth figures and assume you buy an annuity .

yeah i dont want to get over excited and think im ok then find out im not.  the aviva app shows that the pot should be about 750k based on what i have now, but again I dont know how good that app is.