Who's pension should we pay in to?

LIFRY

My husband has a work based pension that he pays in to and the work place contribute too.  I am self employed and have not been paying in to a private pension for the last ten years.  I do have a small LISA for this purpose and some very small pension pots from previous employers.  In recent years and right now our finances and have been focusing on getting stability in our lives now, rather than focussing on the future. I am aware that I need to be doing something.  I have just turned 43.  My husband has the option to pay extra in to his pension through a salary sacrifice AVC scheme and wondered if we should be doing this rather than focussing on my pension?  My questions are around whether we should pay more to his, and if I were to survive him will I be able to receive his pension later in life? Or do I really need to have my own in place?  What should I be doing?  TIA for any help  

Dazed_and_C0nfused

Salary sacrifice is likely to be slightly more tax efficient than a pension you can contribute to as someone who is self employed (no NI saving for you).

But you need to try and be careful (as a couple) not to end up in a situation where one has all the pension resource and ends up paying tax on their income whilst the other party (you on this instance) has unused Personal Allowance going to waste.

Triumph13

You need to do the sums on what it costs to put money into each pension and how much tax you will pay on the way out.  That will depend on a number of things, including whether either of you is a higher rate taxpayer and when you plan to retire - eg if you are both basic rate taxpayers, it's probably the case that until you have enough to fully use your basic rate band in retirement, your pension beats his despite the salary sacrifice.

Sarahspangles

LIFRY said:

My husband has a work based pension that he pays in to and the work place contribute too.  I am self employed and have not been paying in to a private pension for the last ten years.  I do have a small LISA for this purpose and some very small pension pots from previous employers.  In recent years and right now our finances and have been focusing on getting stability in our lives now, rather than focussing on the future. I am aware that I need to be doing something.  I have just turned 43.  My husband has the option to pay extra in to his pension through a salary sacrifice AVC scheme and wondered if we should be doing this rather than focussing on my pension?  My questions are around whether we should pay more to his, and if I were to survive him will I be able to receive his pension later in life? Or do I really need to have my own in place?  What should I be doing?  TIA for any help  

It’s good that you’re considering it as a couple, too many don’t until it’s too late to change the outcome. You’re 14 years from the point where you could start to draw a pension (and maybe he’s closer than that?) so it’s also timely.

You both have a personal allowance of £12,570 (currently), you can take that much tax free from a pension when not working, which is particularly relevant for retirement pre State Pension age. If you have headroom for one or more years of tax free pension drawdown that might trump his salary sacrifice saving now. For example next year I will draw £12,570 taxable income from my SIPP plus 25% tax free. That’s £16,760 on which I pay no tax. As my taxable income will be £12,570 I also have lots of savings allowances available, most of which I don’t need. I can save OH up to £1k of tax on savings interest just by him shifting savings (from an inheritance) into joint savings accounts. It buys him time to move more into ISAs.

If either if you is currently taxed on savings interest it’s worth looking at this now.

You should both check your State Pension forecast if you haven’t already. As well as checking if there are any years you could fill cheaply now (though it may not be worthwhile) are you both on track to have qualified for full SP at the point you expect to retire? One of the traps is where one partner has had breaks that haven’t qualified for credits but both want to retire early, so one has to find the cash to buy remaining years’ credits between then and when they reach State Pension age. Some don’t mind working while the other has retired, of course.

You talk about whether you would inherit some of his pension, but as a two-income family currently, doesn’t he ideally need to inherit some from you if you go first? Few widowers/widows actually do downsize and it’s one reason old people struggle.

LHW99

Are you both on track for a full state pension:

https://www.gov.uk/check-state-pension - and read all of it, not just the top figure. It will tell you how many years you are likely to be short, and you / he may need more or less than the oft vaunted 35 years.

If you are short, buying extra years could be worthwhile.

crv1963

It's an interesting problem that I and my wife also had. We decided that despite the tax savings now- I was/am HR taxpayer we chose to build her pension pot up through a SIPP. Our rationale was/is that I will always be a taxpayer although with some planning not always at HR and my wife would have wasted tax allowance going into retirement before SPA. Additionally it is a good point about possibly needing a lump sum/ additional pension should you go first.

Find and update all your existing pensions so you know what you could get, make sure hubby is the nominated beneficiary for them (and he for you if hasn't already done this). Then look at opening a SIPP and start with what is affordable now and then increase as cash situation gets better. We started at £100pm 10 years ago and now are putting £500 pm, incremental increases over time.