Paying in to spouse's Pension

jpfrost

I have just got a new job and need to give my employer my new pensions details.

My wife is a 40% taxpayer and myself a 20% taxpayer.

I understand that it is possbile for me to pay in to my spouse's pension and therefore she will get higher tax relief than if I set up a new pension for myself? Firstly, is this actually legal and what are the benefits / drawbacks to doing this, perhaps when drawing the pension?

NoMore

Your employer won't pay into your wife's pension.

Although for any of your take home income you could do what you want but, why wouldn't your wife just increase her contributions and you use your own money to make up the shortfall. Especially if she uses Salary Sacrifice for her contributions.

EDIT: Just to make clear, you should still choose to pay into your own employer pension and get the employer match before you consider anything else.

Marcon

jpfrost said:

I have just got a new job and need to give my employer my new pensions details.

My wife is a 40% taxpayer and myself a 20% taxpayer.

I understand that it is possbile for me to pay in to my spouse's pension and therefore she will get higher tax relief than if I set up a new pension for myself? Firstly, is this actually legal and what are the benefits / drawbacks to doing this, perhaps when drawing the pension?

It's perfectly legal for you personally to pay into your wife's pension (assuming it is a group personal pension of some description) and she is then entitled to tax relief as if the contributions had been her own.

No impact on drawing her pension; the contributions are just part of her 'pot'.

As NoMore says, why would you want to do so rather than letting her make the payment and you reimbursing her? There's no tax advantage to you or her in doing as you suggest.

jpfrost

Thanks both.

If my wife contributes more then her company won't contribute any more (as they are contributing to their max). However, my company will match my contribution (upto 5% or whatever it is) and if I could pay that in to my wife's pension then she would get tax relief at the higher rate.

But it sounds like my company are not allowed to pay their contributions in to someone else's pension? Or am I missing something else?

NoMore

Your wife will and can still get tax relief beyond the employer matching, so her upping her contributions can still be worthwhile.

dunstonh

I understand that it is possbile for me to pay in to my spouse's pension and therefore she will get higher tax relief than if I set up a new pension for myself? 

Technically, only the pensionholder and their employer can pay into a pension.  The source of the funds is less important (i.e. money in a joint account built up from spouses income or a gift from a parent).  So, some third party payments are allowed in certain circumstances. 

 Firstly, is this actually legal and what are the benefits / drawbacks to doing this, perhaps when drawing the pension?

The way you have described it would be tax fraud. i.e. your employer cannot pay into her pension.   

However, nothing stops you getting the maximum employer contribution you can in your pension and then any excess above that you can then pay from your current account by direct debit into her pension.

xylophone

https://techzone.abrdn.com/public/pensions/3rd-party-pension-conts#:~:text=What is a third party,- for example, a trust.

A third party can contribute to a pension in the name of another person (parent for minor child. for example), if the scheme agrees.

With regard to your company's making a contribution to your wife's pension, see the above.

• A company can, in theory, make a third party pension contribution for an individual who isn't an employee. But in practice, this would be very unusual. It's unlikely that the company's articles of association would allow it to make pension contributions for someone who isn't an employee or former employee. Also, it's unlikely that such contributions would be allowed as a valid business expense and, therefore, the contributions wouldn't be deductible for tax purposes

Marcon

jpfrost said:

Thanks both.

If my wife contributes more then her company won't contribute any more (as they are contributing to their max). However, my company will match my contribution (upto 5% or whatever it is) and if I could pay that in to my wife's pension then she would get tax relief at the higher rate.

But it sounds like my company are not allowed to pay their contributions in to someone else's pension? Or am I missing something else?

You're missing the fact that your company quite simply won't agree to do that, not least for the reasons outlined in the post above.

penners324

Your new company will pay into the pension scheme they already have set up, creating an account for you.

They won't pay it any other way

Albermarle

So in summary.

Join your new employers scheme and contribute the minimum needed, to get the maximum employer contribution.

Between you and you wife make some adjustment to your finances, so she can increase her contributions to her scheme and gain more from generous 40% tax relief. The fact her employer will not increase their contributions further is not relevant. Be aware that she can not get more higher rate tax relief, than higher rate tax she actually pays.

Nebulous2

You're letting the tax relief influence you unduly here. 

Think about drawing the pensions. If all the pension sits with one person, then they could be paying 20% tax, or if fortunate enough, even 40% tax in retirement, while the other person has a tax allowance they cannot use. 

That is particularly the case if retiring before state pension age. 

It may well be worthwhile building up a pension for the person with very little, despite the disparity in tax relief.