Married and recycling

Delacorta

Hi everyone, hopefully not too complicated a question!  My wife and I are looking to retire in May 2026 when I am 61 and she 63.  I have a range of mostly DB pensions and she only has a historic Civil Service Classic pension which it is expected she will access at 60, i.e. next April.  She is still working and expects to continue until retirement.

We were hoping to save the taxable element of this pension (c. £5.5k a year) to go towards 'bridging' us to the state pension age - utiilising it in the relatively short term, 2026-2030.  She is a basic rate taxpayer so the tax 'loss' wouldn't be so bad, but every penny counts and I was wondering if there is a more tax effective route to save her annual taxable pension that doesn't involve getting into trouble over recycling?  I was wondering if she could pay it into my current workplace pension (a NEST DC pot) as we have shared bank account etc. At worst it would be an ISA from the amount net of tax, I guess.

Am I missing something obvious?  TIA

Linton

Recycling is not an issue with taxable income from a DB pension.  Your wife could set up a SIPP for herself and put the money there,  getting the tax rebate from HMRC.  Presumably in 4 years time she will no longer be a tax payer and so could drawdown the SIPP money tax free.

Alternatively she could give you the money for you to use to finance an increase to your Nest pension contributions with you getting the tax rebate.  Though it would be more tax efficient if you could arrange for both of you to make maximum use of your tax allowances in 2026-2030.

The only limitations are the employment earnings limit and the £40K limit to the amount either of you can put into your pensions in a tax year..

xylophone

she only has a historic Civil Service Classic pension which it is expected she will access at 60, i.e. next April.  She is still working and expects to continue until retirement.

Do you mean that she has a deferred CS pension and is working elsewhere?

If so, does her employer not provide a workplace pension?

Or is she still working for the CS?

Have both you and your wife obtained State Pension Forecasts?

https://www.gov.uk/check-state-pension

Dazed_and_C0nfused

Delacorta said:

Hi everyone, hopefully not too complicated a question!  My wife and I are looking to retire in May 2026 when I am 61 and she 63.  I have a range of mostly DB pensions and she only has a historic Civil Service Classic pension which it is expected she will access at 60, i.e. next April.  She is still working and expects to continue until retirement.

We were hoping to save the taxable element of this pension (c. £5.5k a year) to go towards 'bridging' us to the state pension age - utiilising it in the relatively short term, 2026-2030.  She is a basic rate taxpayer so the tax 'loss' wouldn't be so bad, but every penny counts and I was wondering if there is a more tax effective route to save her annual taxable pension that doesn't involve getting into trouble over recycling?  I was wondering if she could pay it into my current workplace pension (a NEST DC pot) as we have shared bank account etc. At worst it would be an ISA from the amount net of tax, I guess.

Am I missing something obvious?  TIA

Your wife seems to be!

She is missing out on free money from her current employer and could be either paying more tax than she needs to or missing out on pension tax relief under RAS.

Delacorta

Sorry should have made it clear - she has a deferred penion with the Civil Service.  She left in c.2005.

The current employer is a social enterprise we/ she set up 10 years ago that she takes a salary from (and is a Director of).  There is a NEST Employer pension scheme (other employees utilise it but she doesn't pay into it!).  I know!! This pension is employee contributions only (it is a small business really and can't afford employer contributions).  I guess that opens up an alternative approach.  

xylophone

The current employer is a social enterprise we/ she set up 10 years ago that she takes a salary from (and is a Director of).  There is a NEST Employer pension scheme (other employees utilise it but she doesn't pay into it!).  I know!! This pension is employee contributions only (it is a small business really and can't afford employer contributions).

I am very puzzled by this.

Does your wife have a business accountant/ financial adviser?

It seems astonishing that she has missed the opportunity to make pension contributions.

MX5huggy

A small business does not have the option of not “affording” employer contributions they have to pay the 3% on income over the threshold unless employees opt out. 

I hope you’re just confused by what is going on. 

Does she get a sensible wage? (More than NMW) if she set up Salary Sacrifice for the business to make pension contributions she would save NI as would the business. 

Delacorta

xylophone said:

The current employer is a social enterprise we/ she set up 10 years ago that she takes a salary from (and is a Director of).  There is a NEST Employer pension scheme (other employees utilise it but she doesn't pay into it!).  I know!! This pension is employee contributions only (it is a small business really and can't afford employer contributions).

I am very puzzled by this.

Does your wife have a business accountant/ financial adviser?

It seems astonishing that she has missed the opportunity to make pension contributions.

My wife, how shall I put it, knows her own mind 😬!

QrizB

Delacorta said:

xylophone said:

The current employer is a social enterprise we/ she set up 10 years ago that she takes a salary from (and is a Director of).  There is a NEST Employer pension scheme (other employees utilise it but she doesn't pay into it!).  I know!! This pension is employee contributions only (it is a small business really and can't afford employer contributions).

I am very puzzled by this.

Does your wife have a business accountant/ financial adviser?

It seems astonishing that she has missed the opportunity to make pension contributions.

My wife, how shall I put it, knows her own mind 😬!

Putting your wife's own tax & pension arrangements to one side for a moment, if her business is not paying employer's contributions to the employee's pensions (and the employees haven't all freely chosen to opt out) it's likely that the business is breaking the law.

xylophone

My wife, how shall I put it, knows her own mind 

Crumbs....the iron lady?

https://www.gov.uk/government/publications/automatic-enrolment-review-of-the-earnings-trigger-and-qualifying-earnings-band-for-202223/review-of-the-automatic-enrolment-earnings-trigger-and-qualifying-earnings-band-for-202223-supporting-analysis

https://www.unbiased.co.uk/life/small-business/contributing-to-your-pension-via-a-limited-company-explained

And have you both obtained those SP forecasts?

Delacorta

Quite the opposite 😂