Contributing to Spouse's pension

ChilliBob

Hello everyone,
I'm considering contributing to my spouses pension, but some searching around today has left me with more questions than answers! I'm hoping some clued up folk on here may be able to point me in the right direction. 

Some basics on us
* Both early 40s
* Wife has a DB pension with Essex council, she's a social worker
* She pays basic rate tax
* I'm not working, so typically pay no tax, or if I do, basic rate on savings income

I could contribute to her pension, both as a one off, and on an ongoing basis - I figured the one off may apply if I looked at contributions over the last three years.

Anyhow, before getting that far my initial questions were:
* what's most optimal -
A. Pay into her existing scheme
B. She opens a sipp and I pay onto that (and manage it for her most likely)
C. She pays more from her salary and I give her money to realign if you will

From what I could see all would be classed as a :gift' so the 7 year rule business kicks in. (I can't make this a regular transfer from income type situation sadly).

I wasn't sure if C. Was optimal from a tax perspective for her - especially if she was likely to go into higher rste at some point (she's not a million miles from it).

I've had, and continue to hold a dc pension from an old employer, but nothing Db. It seems quite an odd setup, it appears there's a db scheme but that additional contributions go into a dc scheme, which confused me!

Again though, that's me getting ahead of myself.

Besides a feeling of helping, does this unlock any other benefits to me? (Except having less investments unsheltered).

Before jumping into this id perhaps consult a specialist, but I just wanted to gain more of an understanding myself first really. 

Any help much appreciated  

xylophone

From what I could see all would be classed as a :gift' so the 7 year rule business kicks in.

Are you thinking about Inheritance Tax?

https://www.gov.uk/inheritance-tax/gifts

Who does not pay Inheritance Tax

Some gifts are exempt from Inheritance Tax.

There’s no Inheritance Tax to pay on gifts between spouses or civil partners. You can give them as much as you like during your lifetime, as long as they:

• live in the UK permanently
• are legally married or in a civil partnership with you

 I'm not working, so typically pay no tax, or if I do, basic rate on savings income

Not working does not necessarily mean paying no tax.

A person could have taxable pension income, savings income, investment income, rental income,  royalties......

Are you saying that in some years you have income from interest accrued in  non tax privileged accounts that amounts to over £18,570 per annum?

With regard to making gifts to your wife to enable her to increase her pension contributions,  she does have options within the LGPS arrangement.

https://www.essexpensionfund.co.uk/help-support/increase-my-pension

Or she could open a SIPP/personal pension/stakeholder and contribute to that.

The SIPP provider might permit third party contributions but if not, you'd just give your wife the money for her to make the contributions.

MX5huggy

You need to find out if her employer offers Salary Sacrifice, AVC’s maybe with Wise AVC, Prudential, or Standard life. If they do this would probably be the best way for your wife to increase her pension as NI is saved as well as income tax. Then when she takes her council pension she could take the money tax free (up to limits). 

You’re over thinking how you organise this as a married couple you can give each other any gifts the 7 year rule is about Inheritance Tax on gifts but no IHT is due on on estates passed to spouses. 

Sounds like you have separate finances, in comparison ours are as combined as possible both our salaries are paid in to a joint account I contribute lots to a pension as above because that’s most tax efficient pension we both have access to. This means I put less than half what my wife puts in the joint account each month. 

ChilliBob

MX5huggy said:

You need to find out if her employer offers Salary Sacrifice, AVC’s maybe with Wise AVC, Prudential, or Standard life. If they do this would probably be the best way for your wife to increase her pension as NI is saved as well as income tax. Then when she takes her council pension she could take the money tax free (up to limits). 

You’re over thinking how you organise this as a married couple you can give each other any gifts the 7 year rule is about Inheritance Tax on gifts but no IHT is due on on estates passed to spouses. 

Sounds like you have separate finances, in comparison ours are as combined as possible both our salaries are paid in to a joint account I contribute lots to a pension as above because that’s most tax efficient pension we both have access to. This means I put less than half what my wife puts in the joint account each month. 

Thanks for the reply. Yeah our finances are mostly separated except for a joint account we both pay into which we use for utility bills etc. 

To your first point, that was my take, if she can lower her take home pay via increased pension contributions it's got to be the most optimal route. 

I'm not sure once you get into the weeds here how fees would come into it - as we know platform fees for say II and low cost index funds etc can often be cheaper than some schemes (although I think they are getting a lot better!).

Some stuff I had read mentioned the 7 year business but I think now it was a more generic pay into somebody else's pension part of the post which I latched on to. 

ChilliBob

xylophone said:

From what I could see all would be classed as a :gift' so the 7 year rule business kicks in.

Are you thinking about Inheritance Tax?

https://www.gov.uk/inheritance-tax/gifts

Who does not pay Inheritance Tax

Some gifts are exempt from Inheritance Tax.

There’s no Inheritance Tax to pay on gifts between spouses or civil partners. You can give them as much as you like during your lifetime, as long as they:

• live in the UK permanently
• are legally married or in a civil partnership with you

 I'm not working, so typically pay no tax, or if I do, basic rate on savings income

Not working does not necessarily mean paying no tax.

A person could have taxable pension income, savings income, investment income, rental income,  royalties......

Are you saying that in some years you have income from interest accrued in  non tax privileged accounts that amounts to over £18,570 per annum?

With regard to making gifts to your wife to enable her to increase her pension contributions,  she does have options within the LGPS arrangement.

https://www.essexpensionfund.co.uk/help-support/increase-my-pension

Or she could open a SIPP/personal pension/stakeholder and contribute to that.

The SIPP provider might permit third party contributions but if not, you'd just give your wife the money for her to make the contributions.

Thanks for the reply. Indeed, I did pay a small amount of tax the year just gone, but not from a salary or rental income or anything like that. Just dividends, interest etc. 

It seems a direct transfer to her is the simplest route, which means it's then onto whether a sipp or the existing scheme is the most beneficial. 

I did read through the link some time ago now I think of it - to try and get my head around it all, but I came away with a fair few questions I couldn't get answers to! - I may get my wife go see if she can ask them.

I suppose you see it casually thrown around that db pension funds are 'rare' 'gold dust' 'valuable' etc which makes you think you should contribute more to them, but I seem to recall it's just DC in disguise for Avc, which makes me question a sipp instead. 

Dazed_and_C0nfused

ChilliBob said:

xylophone said:

From what I could see all would be classed as a :gift' so the 7 year rule business kicks in.

Are you thinking about Inheritance Tax?

https://www.gov.uk/inheritance-tax/gifts

Who does not pay Inheritance Tax

Some gifts are exempt from Inheritance Tax.

There’s no Inheritance Tax to pay on gifts between spouses or civil partners. You can give them as much as you like during your lifetime, as long as they:

• live in the UK permanently
• are legally married or in a civil partnership with you

 I'm not working, so typically pay no tax, or if I do, basic rate on savings income

Not working does not necessarily mean paying no tax.

A person could have taxable pension income, savings income, investment income, rental income,  royalties......

Are you saying that in some years you have income from interest accrued in  non tax privileged accounts that amounts to over £18,570 per annum?

With regard to making gifts to your wife to enable her to increase her pension contributions,  she does have options within the LGPS arrangement.

https://www.essexpensionfund.co.uk/help-support/increase-my-pension

Or she could open a SIPP/personal pension/stakeholder and contribute to that.

The SIPP provider might permit third party contributions but if not, you'd just give your wife the money for her to make the contributions.

Thanks for the reply. Indeed, I did pay a small amount of tax the year just gone, but not from a salary or rental income or anything like that. Just dividends, interest etc. 

It seems a direct transfer to her is the simplest route, which means it's then onto whether a sipp or the existing scheme is the most beneficial. 

I did read through the link some time ago now I think of it - to try and get my head around it all, but I came away with a fair few questions I couldn't get answers to! - I may get my wife go see if she can ask them.

I suppose you see it casually thrown around that db pension funds are 'rare' 'gold dust' 'valuable' etc which makes you think you should contribute more to them, but I seem to recall it's just DC in disguise for Avc, which makes me question a sipp instead. 

If she's a member of LGPS then there will be several options,

Buying extra DB pension
Adding to a DC pension linked to LGPS
Adding to a DC pension not linked to LGPS

A DC pension linked to LGPS is a very popular option as LGPS is fairly unusual in that you can take more than the normal 25% TFLS from the DC fund.

https://www.essexpensionfund.co.uk/your-pension/paying-in/increase-your-pension

ChilliBob

Thanks that's very helpful. I've spent a little more time on their website, much more digging to do for sure!

The penny has just dropped that performance of said pension fund is mostly irrelevant for the pension holder in the DB side of things..

As someone only used to DC pension funds, and indeed somebody who used to know the rough makeup of Essex pension fund, and many more (former job analysing performance of investors like pension funds and the like) this is all new to me!

Just need to understand what happens if my wife leaves the scheme and decides to say work as a consultant or something, and then retires early, I sense there would be a no pension gap we'd need to fill either without a pension, or with a non lgps linked DC one. Much to consider!

I guess bottom line though, if you are able to contribute more to a pension (however it is structured l), within your limits, then you may as well, otherwise you're leaving top up from the government sitting on the table. 

xylophone

Just need to understand what happens if my wife leaves the scheme and decides to say work as a consultant or something, and then retires early, I sense there would be a no pension gap we'd need to fill either without a pension, or with a non lgps linked DC one. Much to consider!

https://www.lgpsmember.org/your-pension/planning/taking-your-pension/

She might investigate taking the pension pre NRA with actuarial reduction.

Or she might leave the pension deferred to NRA and use her fees/salary from consultancy as income.

Or she might take a job with another employer and join a new pension scheme,

Or she might simply choose to put her feet up and rely on your largesse!

She has options.....

ChilliBob

It's, funny, just after I posted the above last night we chatted abs basically came to that conclusion, so decided not to worry on it for now and focus on her existing pension and what we can do there.

Thanks for you help