Uneven pension provisions for my wife & I

bolwin1

My wife & I have very uneven pension provisions & I'm trying to work out if there's an efficient way of addressing this imbalance, or whether it's appropriate to try. I'd welcome your thoughts.

High level info.

Me 59. Wife 55

My salary £90K. Wife's salary circa £12k (she's a part time NHS employee).

Homeowner, no mortgage. Kids grown up. Modest savings of circa 5 months income.  

Plan for us both to retire in 3 years time.

Jointly aiming for around £50k p.a. post retirement, although we do have some flex on this.

My pension 

£850K SIPP - all in low cost index tracker funds. Around half of this of this is crystalised.

£10K p.a. DB pension starts on my 60th birthday, 50% widows pension if I die before her. There are no early retirement factors, but equally no benefit in taking it later as it doesn't increase until my 65th birthday.

Wife's pension

NHS DB pension circa £6k p.a. from her 66th birthday. (this is on today's numbers).

We both qualify for full state pension (I have checked on the gov website)

I'm been contributing £20K p.a. into my pension (inc employer contributions), but I'm now in a position to double this to £40K p.a. for the final 3 years of my working life. It's via salary sacrifice.

Unless I'm missing something, we'd be worse off contributing more to my wife's pension compared to mine as I get 42% tax / NI on the way in & 20% cost on the way out, whereas she doesn't pay much / any tax most months. On the other hand, she'll have no income at all for around 9 years, which feels like a waste of a personal allowance.

MallyGirl

she could get 20% tax relief on the way in (despite paying no tax) and then drawdown under the personal allowance paying 0% tax. Sounds similar to your 42% in 20% out. You have forgotten her 25% tax free as well

crv1963

From a purely financial point of view you are correct, but it depends on both of your attitudes/ wishes:-

Your wife pays 5.2% of her salary into the NHS Scheme so there is scope to pay into a SIPP for her the equivalent of the whole of her take home pay, so around £11300 pa which when HMRC contribution is added give her 14k pa in the SIPP. Multiply by 3 it would give her a "pot" of around 42k not including any projected growth. Taking this out over 9 years could give her an income of around £4.7k pa all tax free, £400pm. Running the SIPP to nil.

This would still allow you to put around £30k pa into your pension. When SP kicks in your wife will have 18k pa income in her own right, then if you die first she will have £23k pa plus the ability to draw down your SIPP when she inherits it.

Your income would be SP 12k+10 DB plus 10k from your SIPP= 32k pa. Combine your incomes gives your £50k.

Much depends on you and your wife's feelings about her having no income of her own for 9 years. Also on your plans for your retirement. You don't need to let the tax tail wag the income dog.

We were in a similar situation although not such a big gap in provision. We decided that we would build up my wife's pension provision even though I am the HR tax payer so from a pure financial viewpoint it would make sense to put more into my pension. We did this for two main reasons- 1) My wife wants an income of her own even if mine covers our financial needs, she is fiercely independent and stated she wasn't going to ask me for money something she wishes to purchase and 2) she will draw up to her tax allowance annually so will not pay tax from when she retires up to SPA, when her income will be roughly the same. She will still have some monies in her pension pots but she will stop or reduce her drawdown we will decide at the time. 

poseidon1

bolwin1 said:

My wife & I have very uneven pension provisions & I'm trying to work out if there's an efficient way of addressing this imbalance, or whether it's appropriate to try. I'd welcome your thoughts.

High level info.

Me 59. Wife 55

My salary £90K. Wife's salary circa £12k (she's a part time NHS employee).

Homeowner, no mortgage. Kids grown up. Modest savings of circa 5 months income.  

Plan for us both to retire in 3 years time.

Jointly aiming for around £50k p.a. post retirement, although we do have some flex on this.

My pension 

£850K SIPP - all in low cost index tracker funds. Around half of this of this is crystalised.

£10K p.a. DB pension starts on my 60th birthday, 50% widows pension if I die before her. There are no early retirement factors, but equally no benefit in taking it later as it doesn't increase until my 65th birthday.

Wife's pension

NHS DB pension circa £6k p.a. from her 66th birthday. (this is on today's numbers).

We both qualify for full state pension (I have checked on the gov website)

I'm been contributing £20K p.a. into my pension (inc employer contributions), but I'm now in a position to double this to £40K p.a. for the final 3 years of my working life. It's via salary sacrifice.

Unless I'm missing something, we'd be worse off contributing more to my wife's pension compared to mine as I get 42% tax / NI on the way in & 20% cost on the way out, whereas she doesn't pay much / any tax most months. On the other hand, she'll have no income at all for around 9 years, which feels like a waste of a personal allowance.

As a matter of interest, what if anything does your wife know about investing?

I ask, because your marital circumstance seems reasonably typical on this forum ie high earning husband with large SIPP, contrast with  lower earning spouse with modest ( or sometimes minimal) personal pension expectations.

Coming back to my question, in the event of you pre-deceasing your wife how prepared would she be to takeover management of your SIPP to provide herself with a continuing widow's pension and to what extent your joint pension planning incorporates her education in investment matters?

 I note in this regard your SIPP  is currently a mix of low cost trackers, so at some point you will be addressing what  investment changes ( if any) once you enter decumulation phase and enter drawdown/UFPLS. To what extent will this be a joint decision making process  that your wife understands and is a part of?

Finally, if your wife's understanding of your SIPP is minimal and unlikely to improve in future, putting aside the tax  saving issue you highlight, improving her pension outcome by optimising ( as best you can ) her NHS pension expectations could be useful in securing increased guaranteed index linked pensions in her own right. Your SIPP is a massively important retirement income  backstop for you both, but would your wife be overwhelmed what do with it on your demise?

SVaz

She either needs to pay a whole lot more into her work pension or open a Sipp and whack a load in there,
My wife has 1/3rd of the amount that I have ( even less when you include my military pension).
She now puts the gross equivalent of  her whole part time earnings into a Sipp while I’ve cut back on my contributions to mine ( self employed so no employer conts). 
The result being that she can get her whole Sipp out by the time her State pension kicks in , drawing it over 5 years from 2027,  without paying a penny in tax on around £65k.  It’s going straight into ISAs. 

Plasticman

My wife and I also have very uneven provisions and I regret not doing something about that sooner. We're now furiously putting money into her SIPP with the intention to draw down enough to keep her just under the tax threshold between our early retirement (age 55) and her state / other private pensions kicking in aged 67. 20% tax relief on the way in, tax free on the way out. She'll have a pension from my DB scheme if I die first so financially we're OK but - with hindsight - it would have been better to have had a more even share. 

LHW99

Considering buying an annuity with part of your funds at retirement, either joint, or with significant survivor protection (30 year guarantee, 100% survivor benefit) could be worthwhile. That would ensure she has income continuing without having to manage anything.

Also worth working out what happens to income for each of you as the survivor, based on current expenditure needs and provision, and feeding that into the plans.

Tax efficiency is good, but sufficient provision is better.

bolwin1

crv1963 said:

From a purely financial point of view you are correct, but it depends on both of your attitudes/ wishes:-

Your wife pays 5.2% of her salary into the NHS Scheme so there is scope to pay into a SIPP for her the equivalent of the whole of her take home pay, so around £11300 pa which when HMRC contribution is added give her 14k pa in the SIPP. Multiply by 3 it would give her a "pot" of around 42k not including any projected growth. Taking this out over 9 years could give her an income of around £4.7k pa all tax free, £400pm. Running the SIPP to nil.

This would still allow you to put around £30k pa into your pension. When SP kicks in your wife will have 18k pa income in her own right, then if you die first she will have £23k pa plus the ability to draw down your SIPP when she inherits it.

Your income would be SP 12k+10 DB plus 10k from your SIPP= 32k pa. Combine your incomes gives your £50k.

Much depends on you and your wife's feelings about her having no income of her own for 9 years. Also on your plans for your retirement. You don't need to let the tax tail wag the income dog.

.....

Thanks - I do like the idea of splitting the contributions as you suggest. As you rightly point out, it's not purely financial & this will give her some income / autonomy. 

bolwin1

poseidon1 said:

As a matter of interest, what if anything does your wife know about investing?

I ask, because your marital circumstance seems reasonably typical on this forum ie high earning husband with large SIPP, contrast with  lower earning spouse with modest ( or sometimes minimal) personal pension expectations.

Coming back to my question, in the event of you pre-deceasing your wife how prepared would she be to takeover management of your SIPP to provide herself with a continuing widow's pension and to what extent your joint pension planning incorporates her education in investment matters?

 I note in this regard your SIPP  is currently a mix of low cost trackers, so at some point you will be addressing what  investment changes ( if any) once you enter decumulation phase and enter drawdown/UFPLS. To what extent will this be a joint decision making process  that your wife understands and is a part of?

Finally, if your wife's understanding of your SIPP is minimal and unlikely to improve in future, putting aside the tax  saving issue you highlight, improving her pension outcome by optimising ( as best you can ) her NHS pension expectations could be useful in securing increased guaranteed index linked pensions in her own right. Your SIPP is a massively important retirement income  backstop for you both, but would your wife be overwhelmed what do with it on your demise?

These are really good points and some I had not considered previously. My wife knows very little about investing & would struggle to know what to do with a SIPP, even after some education. She has many strengths, but finances are not one of them. I'm completely open with our finances and share everything with spreadsheets, regular financial statement of affairs etc. However, she does have minimal interest...

re moving into the decumulation phase, I'm still in 2 minds about this, but will probably look start de-risking a bit soon.

I'll discuss this with her at length and also potentially take on a suggestion made by another poster and leave instructions with her to purchase an annuity with at least some of the SIPP if I was to die first. I may also suggest she uses an IFA to advise in that scenario, especially as they can often get better annuity rates than the general public.

Albermarle

bolwin1 said:

poseidon1 said:

As a matter of interest, what if anything does your wife know about investing?

I ask, because your marital circumstance seems reasonably typical on this forum ie high earning husband with large SIPP, contrast with  lower earning spouse with modest ( or sometimes minimal) personal pension expectations.

Coming back to my question, in the event of you pre-deceasing your wife how prepared would she be to takeover management of your SIPP to provide herself with a continuing widow's pension and to what extent your joint pension planning incorporates her education in investment matters?

 I note in this regard your SIPP  is currently a mix of low cost trackers, so at some point you will be addressing what  investment changes ( if any) once you enter decumulation phase and enter drawdown/UFPLS. To what extent will this be a joint decision making process  that your wife understands and is a part of?

Finally, if your wife's understanding of your SIPP is minimal and unlikely to improve in future, putting aside the tax  saving issue you highlight, improving her pension outcome by optimising ( as best you can ) her NHS pension expectations could be useful in securing increased guaranteed index linked pensions in her own right. Your SIPP is a massively important retirement income  backstop for you both, but would your wife be overwhelmed what do with it on your demise?

These are really good points and some I had not considered previously. My wife knows very little about investing & would struggle to know what to do with a SIPP, even after some education. She has many strengths, but finances are not one of them. I'm completely open with our finances and share everything with spreadsheets, regular financial statement of affairs etc. However, she does have minimal interest...

re moving into the decumulation phase, I'm still in 2 minds about this, but will probably look start de-risking a bit soon.

I'll discuss this with her at length and also potentially take on a suggestion made by another poster and leave instructions with her to purchase an annuity with at least some of the SIPP if I was to die first. I may also suggest she uses an IFA to advise in that scenario, especially as they can often get better annuity rates than the general public.

I have a similar situation, and not sure what to do about it ( apart from not dying just yet !)
A plan sometimes mooted on here is to engage an IFA whilst you are both still alive and when ;

1) You/me ( as the financial DIYer of the couple) start to maybe lose some capability to manage complex financial situations. Not necessarily dementia but as technology develops and new things come along it will probably get more difficult to follow.
2) You have both reached an age where the probability of one of you dying increases to a significant degree ( 75+) ?) or if one is seriously ill.

I think your OH would be probably panicked by the thought of engaging an IFA herself, especially if she was emotionally struggling. It would be better if it was all already up and running in advance. 
Although that would mean paying for an IFA, when you are not used to it, which is the hard bit....

poseidon1

bolwin1 said:

poseidon1 said:

As a matter of interest, what if anything does your wife know about investing?

I ask, because your marital circumstance seems reasonably typical on this forum ie high earning husband with large SIPP, contrast with  lower earning spouse with modest ( or sometimes minimal) personal pension expectations.

Coming back to my question, in the event of you pre-deceasing your wife how prepared would she be to takeover management of your SIPP to provide herself with a continuing widow's pension and to what extent your joint pension planning incorporates her education in investment matters?

 I note in this regard your SIPP  is currently a mix of low cost trackers, so at some point you will be addressing what  investment changes ( if any) once you enter decumulation phase and enter drawdown/UFPLS. To what extent will this be a joint decision making process  that your wife understands and is a part of?

Finally, if your wife's understanding of your SIPP is minimal and unlikely to improve in future, putting aside the tax  saving issue you highlight, improving her pension outcome by optimising ( as best you can ) her NHS pension expectations could be useful in securing increased guaranteed index linked pensions in her own right. Your SIPP is a massively important retirement income  backstop for you both, but would your wife be overwhelmed what do with it on your demise?

These are really good points and some I had not considered previously. My wife knows very little about investing & would struggle to know what to do with a SIPP, even after some education. She has many strengths, but finances are not one of them. I'm completely open with our finances and share everything with spreadsheets, regular financial statement of affairs etc. However, she does have minimal interest...

re moving into the decumulation phase, I'm still in 2 minds about this, but will probably look start de-risking a bit soon.

I'll discuss this with her at length and also potentially take on a suggestion made by another poster and leave instructions with her to purchase an annuity with at least some of the SIPP if I was to die first. I may also suggest she uses an IFA to advise in that scenario, especially as they can often get better annuity rates than the general public.

I did half expect your response with regard to your spouse's understanding and engagement with investment matters, sadly this is seems all too typical.

For marital situations SIPPs have become an increasingly significant element in retirement planning but largely led by the higher earning spouse, with the lower income spouse passively reliant on their partner's expertise to manage and produce income from the SIPP source. 

 Fine whilst both alive and (mentally) firing on all 'cylinders' but death  ( or indeed incapacity) of the SIPP owner always struck me as a potential problem for the surviving spouse. The bigger the SIPP the bigger the problem. Hopefully this little sidetrack within your thread, will promote some thought and  reflection by others in similar circumstances to yourself, but note you will be reccomending your spouse go down the route of IFA advice and annuities in the event of you pre decreasing.