How best to fund pension / protect wife

NoMore

NedS said:

getting_better_2 said:

My wife is 46, currently not working, has effectively no personal pension pot (maybe £5k) and has around 16 years of NI contributions therefore well short of full state pension with (at least currently) no intention of returning to work

The £40k figure above is comfortable for us both to live off in retirement so as long as we are both still here, all will be well

My questions have 2 motivations behind them:

1) Can we be more tax efficient in saving / funding pensions now (predominantly thinking of £2,880 pension contribution for my wife plus any "buying" years of NI contributions)

getting_better_2 said:

Thank you very much for the reply Albermarle

Slightly embarrassingly, I hadn't even considered the tax allowance when drawing pensions

In very round numbers and using todays allowances, I guess we should be ensuring she is drawing a personal pension of at least £3k (£12.5k allowance less £9.5k full state pension) and possibly more prior to reaching state pension age

As previously discussed, you should definitely be assisting your wife to fully utilise her personal tax allowance. At today's figures, she will be able to draw £12,570 a year tax free from 58?, so that's potentially 10 years of tax free withdraws before she hits state pension age, (roughly £125k tax free) plus however much she can withdraw after SPA in addition to her state pension. So I would be helping her to contribute £2880 net (3600 gross after tax relief) each year until her pension is at least large enough to fund that £125k tax free withdraw (and don't forget the 25% tax free she can take too making it more like a pot of £167k). She should probably get close to £200k out of her pension tax free over her lifetime - once her pot exceeds £200k, it will likely become less tax efficient.

The tax efficiencies for you/your wife are probably broadly similar in that you are (presumably) saving 40% tax now to pay 20% tax in retirement (20% saving) whereas your wife is getting 20% tax relief now and will be paying no tax in retirement giving an equivalent 20% tax saving - but it will allow you to split your assets more evenly in retirement.

Are you currently using your marriage allowance - i.e, has your wife given you 10% of her (unused) allowance? If not, you should get onto that now:

https://www.gov.uk/marriage-allowance

I thought both parties had to be basic tax payers for you to transfer unused allowance ? As he earns >£100k then he can't do this.

getting_better_2

Thanks once again for the further replies

NedS - I like the your way of putting it...either I save 40% now and pay 20% when I draw it or wife gains 20% (on £2880) now so no difference on that amount - I guess the issue is we'll never get to the £125k or £167k figures at £3,600 a year

Then again, we could potentially do this until she's 68 (ignoring missing out on her tax free allowance from 58-68 - we're missing out on it now too)...that gives 22years at £3,600 = £80kish (plus growth) so even taking a 25% lump sum then £3k drawdown from that point would bulk out her guaranteed income in her own name from that point which is half the reason for doing it

Marriage allowance - we did claim for a year or 2 but I believe higher rate tax prevents this now

getting_better_2

On another note...Life insurance was mentioned yesterday which I briefly looked into last night...

I appreciate this is the wrong board for this question and nobody can answer specifics but roughly the quotes I was getting were around £30 per month for £500k single cover for me (currently 41) for 15 years...does that seem about right (very roughly)

I didn't really have an expectation of the cost as such but I think I was surprised that it was that much...even more surprised that it more than doubled (to about £75) for joint cover on the same basis (I guess because my wife is a few years older?)

Just as an fyi, the reason for looking at 15years is that would (roughly) take us to the point I'm aiming to retire by which time (in theory) there will be sufficient savings/pension funds to support my wife for life anyway - feel free to point out if this is flawed logic!

QrizB

getting_better_2 said:

Just as an fyi, the reason for looking at 15years is that would (roughly) take us to the point I'm aiming to retire by which time (in theory) there will be sufficient savings/pension funds to support my wife for life anyway - feel free to point out if this is flawed logic!

That's similar to the logic I used; now I'm in my 50s, my life insurance is enough to make up for the salary that my wife would miss out on if I was to die before retiring. (That's probably higher than I need it to be, but there's a psychological barrier to reducing it that I've yet to overcome.)

Albermarle

getting_better_2 said:

On another note...Life insurance was mentioned yesterday which I briefly looked into last night...

I appreciate this is the wrong board for this question and nobody can answer specifics but roughly the quotes I was getting were around £30 per month for £500k single cover for me (currently 41) for 15 years...does that seem about right (very roughly)

I didn't really have an expectation of the cost as such but I think I was surprised that it was that much...even more surprised that it more than doubled (to about £75) for joint cover on the same basis (I guess because my wife is a few years older?)

Just as an fyi, the reason for looking at 15years is that would (roughly) take us to the point I'm aiming to retire by which time (in theory) there will be sufficient savings/pension funds to support my wife for life anyway - feel free to point out if this is flawed logic!

Do you not have 'Death in Service' cover at work ? 

getting_better_2

Albermarle said:

Do you not have 'Death in Service' cover at work ? 

No, or at least possibly minimal cover as part of health insurance but not proper cover - I'm double checking but at the very least I'm going to need to top it up

LHW99

You could look at the insurance types they (used to) call Family Income benefit. They pay a specified annual amount from death to the end of the policy, so as the total paid out reduces as the insured survives beyond the first year, the cost is often less.

NannaH

£30 a month for £500k seems good value to me.
We took out £150k of cover at age 50 to take us to 65/70 and that costs us £30 monthly.