Unbalanced DC Pot Values Between Couple

Qyburn

Hi,

For various reasons although we have plenty of value in our pension savings between us, I have a much larger DC pot than my other half. 

Once everything is up and running it won't matter (I don't think) because her SP and a DB pension together will take her into 20% tax anyway, and if we draw all that we need out of my pot I won't hit HR tax (or even 21%).  So no tax disadvantage to drawing on mine alone until the values more closely match.  However in the early years, before her SP, it would make tax sense to take a couple of uncrystallised lump sums from her pot, to fully use her tax allowance. These will initially increase that imbalance.

So my question really is whether that's anything to worry about.  If we have enough, are there any circumstances in which it matters that more is in my name than in hers?

Thanks,

Sarahspangles

We’ve pondered similar issues, so I’ll be interested in the answers.  

We currently have similar DC pots and DB pensions, OH’s first DB is already in payment. Until my first DB starts and I retire it makes sense for me to maximise payments into my SIPP, to avoid higher rate tax. So I will soon have a larger DC pot. OH meanwhile has savings that he pays tax on, he’s used up his Premium Bond and ISA allowances, but can’t pay more than the £2,880 into his SIPP as he is retired.

If all goes to plan there’s just one year, the one in which I retire, in which I will have spare personal allowance and could take a larger amount of pension from my SIPP, and also make use of the Savings Starter Rate. However the savings that generate that sort of interest are in OH’s name. So it’s where the savings sit that is the issue for us - but this is easier to resolve.

RogerPensionGuy

A good question. 

So often is the case one partner has a much bigger or smaller pension of either DB or DC or both often because one partner was a homemaker and currently this system is financially painful reference child allowance. 

Then in retirement, the partner with the bigger pension pays typically more tax so its a shame pensions cannot be more better shared between partners.

Pensions can be shared but, it requires divorce or dissolving of a partnership which is a bit drastic. 

Society now likes both partners working and struggling with child care and other caring needs like aging parents etc etc.

It appears a stay at home homemaker is now only for rich folk.

ader42

You may want to balance things to try and avoid HR tax in the future should it become necessary due to needing a large expense such as a roof replacement or something? I.e. if you needed £80k you could take £40k each and avoid 40% income tax. 

Also there are the psychological factors of being more balanced to consider. Life might be more harmonious when you are more equally matched financially? 

You could if you wanted provide your other half with money from your DC to put in hers.

You could even use some of your 25% tax free amount and put it in her DC to get Tax Relief on it.

Maybe she could register as self-employed, you pay her £12k to be your chauffeur (from the 25% TFLS of your DC), she would use her personal allowance and not pay tax on that £12k, she could put 80% of the £12k into a SIPP and get Tax Relief on it and withdraw it at a later date under her personal allowance thereby paying no tax on withdrawal. £3600 Tax Relief profit. Each Year. 

Audaxer

Qyburn said:

However in the early years, before her SP, it would make tax sense to take a couple of uncrystallised lump sums from her pot, to fully use her tax allowance. These will initially increase that imbalance.

So my question really is whether that's anything to worry about.  If we have enough, are there any circumstances in which it matters that more is in my name than in hers?

Thanks,

Yes, it definitely makes sense to use her tax free allowance before her SP kicks. You won't increase the imbalance if she reinvests her drawdown amount into an S&S ISA in her name, in similar investments to that in her DC pot, so that she has the same total invested. It will actually reduce the imbalance if you then drawdown the income you both need from your DC pot.

Qyburn

Savings is a good point, thanks for the reminder. Once we're both drawing pensions I'll need to move stuff around to make sure neither of us busts the zero rates for savings interest. If we've not spent it of course. I think monthly interest will help manage that, rather than having annual interest maybe falling in the wrong tax year and you don't realise until too late.

Qyburn

Oops.  I didn't refresh the page before replying to Sarah's post.  Some good ideas about ways the pots could be rebalanced, but I agree divorce would be a bit drastic. We both have "expressions of wish" with the trustees so on death the survivor should get everything, unlike for example if I had four times as big an annuity for example.

sheslookinhot

ader42 said:

You could even use some of your 25% tax free amount and put it in her DC to get Tax Relief on it.

Would that be acceptable to HMRC ?

RogerPensionGuy

sheslookinhot said:

ader42 said:

You could even use some of your 25% tax free amount and put it in her DC to get Tax Relief on it.

Would that be acceptable to HMRC ?

I cannot see this as any problem. 

So HMRC won't get involved anywhere along doing such stuff.

Dh6

We look at is as annual salary’s in our pension. I have a much larger numerical number than my wife but she has 4 times her salary in her SIPP. I only have two. I think it’s puts it into perspective a bit more than looking at the total figure.

DH

Sarahspangles

sheslookinhot said:

ader42 said:

You could even use some of your 25% tax free amount and put it in her DC to get Tax Relief on it.

Would that be acceptable to HMRC ?

Why wouldn’t it? One partner is drawing pension to support the household finances, meanwhile the other partner is still contributing to their pension. They’re both entitled to tax relief on pension contributions.