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

SomeMadeUpName

LHW99 said:

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.

I had evening up provision between myself and the OH as one of my early goals, but now I'm not sure it's relevant. Given that any contribs go into DC and will then go into drawdown: Doesn't everything pass from one to the other on death anyway??
If I'm right on that then I will remain focussed on max tax eff on way in.

AlanP_2

SomeMadeUpName said:

LHW99 said:

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.

I had evening up provision between myself and the OH as one of my early goals, but now I'm not sure it's relevant. Given that any contribs go into DC and will then go into drawdown: Doesn't everything pass from one to the other on death anyway??
If I'm right on that then I will remain focussed on max tax eff on way in.

Why are you not sure it is worth it? If one person will not be able to use all of their Personal Allowance in retirement then it could make sense.

On death the DC pot passes to whoever is on the beneficiaries nomination with the provider (all things beiong equal), that is normally the OH for most people I would suggest.

So, you are right on what happens on death, and based on that you don't think there is any benefit on evening up the provision and hoping you are both alive? Or, will you both be Basic Rate taxpayers in retirement anyway in which case it is a non-issue as you suggest.

LHW99

SomeMadeUpName said:

LHW99 said:

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.

I had evening up provision between myself and the OH as one of my early goals, but now I'm not sure it's relevant. Given that any contribs go into DC and will then go into drawdown: Doesn't everything pass from one to the other on death anyway??
If I'm right on that then I will remain focussed on max tax eff on way in.

Although as I mentioned on another thread. SIPPs are "personal" so if one partner has to go into care, their pot may be used up leaving not much in it to pass on. Only relevant for a small proportion of couples, but another aspect to add to the planning.

SomeMadeUpName

AlanP_2 said:

SomeMadeUpName said:

LHW99 said:

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.

I had evening up provision between myself and the OH as one of my early goals, but now I'm not sure it's relevant. Given that any contribs go into DC and will then go into drawdown: Doesn't everything pass from one to the other on death anyway??
If I'm right on that then I will remain focussed on max tax eff on way in.

Why are you not sure it is worth it? If one person will not be able to use all of their Personal Allowance in retirement then it could make sense.

On death the DC pot passes to whoever is on the beneficiaries nomination with the provider (all things beiong equal), that is normally the OH for most people I would suggest.

So, you are right on what happens on death, and based on that you don't think there is any benefit on evening up the provision and hoping you are both alive? Or, will you both be Basic Rate taxpayers in retirement anyway in which case it is a non-issue as you suggest.

Hi, no I'm mindful of the income levels in retirement and trying to equalise those so that it's max tax eff on way out. I was just curious to ensure I was right about the pot passing at death. We have egual SP projections, so I guess that does point to equalising DC pots too.

SomeMadeUpName

LHW99 said:

SomeMadeUpName said:

LHW99 said:

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.

I had evening up provision between myself and the OH as one of my early goals, but now I'm not sure it's relevant. Given that any contribs go into DC and will then go into drawdown: Doesn't everything pass from one to the other on death anyway??
If I'm right on that then I will remain focussed on max tax eff on way in.

Although as I mentioned on another thread. SIPPs are "personal" so if one partner has to go into care, their pot may be used up leaving not much in it to pass on. Only relevant for a small proportion of couples, but another aspect to add to the planning.

Not something that was on my radar, but as you say, now another reason to equalise the pots.

Just now need to figure out how to generate the income to be able to afford to boost the OH's!!

jamesd

pete1975 said:

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.

If you die before your 75th birthday your beneficiaries inherit a completely tax free pension pot, accessible at any age. No tax at all on the way out. If your death is after 75 it's taxable income on the bits withdrawn as they take it.