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    • chile_paul
    • By chile_paul 16th Apr 18, 9:55 AM
    • 403Posts
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    chile_paul
    Helping my wife to start a pension - good idea?
    • #1
    • 16th Apr 18, 9:55 AM
    Helping my wife to start a pension - good idea? 16th Apr 18 at 9:55 AM
    Hi all,

    I'm looking for some advice on whether it would be sensible to be helping my wife to start a personal pension / SIPP.

    A brief summary of our situation is as follows:

    I am 37 yrs old and am a high rate (40%) tax payer and I have a pension with my employer that I'm maximising the employer contribution on and making additional contributions of circa 6k per annum to benefit from 40% tax relief. This offers a spousal pension in the event of my death etc.

    My wife is 36, and is currently at home looking after our children. She currently has a v small LGPS pension which should pay circa 1k per annum. She is likely to re-start work on part time basis in 2 years time when our youngest daughter starts school.

    As I understand it, my wife can open a pension and pay in 2880 per annum and benefit from 20% tax relief. This is obviously less than the tax relief that I would benefit from paying into my pension, so is this still an effective approach???

    From my understanding of things, the benefits of helping my wife to open a pension are:

    - She is unlikely to pay tax on her pension income post retirement (or at least at a lower rate than I will)
    - Mitigates any risk that I might have of hitting the lifetime allowance on pensions
    - Provides more certainty of income for my wife should I die before her, albeit this is mitigated because of the allowance for a spouse associated with my pension

    The downside is that the tax relief going in is less.......

    Have I understood this correctly, am I missing anything?
Page 1
    • badmemory
    • By badmemory 16th Apr 18, 11:49 AM
    • 1,975 Posts
    • 2,723 Thanks
    badmemory
    • #2
    • 16th Apr 18, 11:49 AM
    • #2
    • 16th Apr 18, 11:49 AM
    At retirement it may well save tax if your wife's income is a little higher and your's a little lower?
    • PeacefulWaters
    • By PeacefulWaters 16th Apr 18, 12:42 PM
    • 8,318 Posts
    • 10,670 Thanks
    PeacefulWaters
    • #3
    • 16th Apr 18, 12:42 PM
    • #3
    • 16th Apr 18, 12:42 PM
    I think you've pretty much got it.

    Time to crack on and do it if affordable.
    • Dox
    • By Dox 16th Apr 18, 1:20 PM
    • 936 Posts
    • 719 Thanks
    Dox
    • #4
    • 16th Apr 18, 1:20 PM
    • #4
    • 16th Apr 18, 1:20 PM
    Tax relief should never be the only driver, although it's obviously an important consideration. Sounds a sensible plan.

    Depending on your circumstances, you might think about paying some or all of your 6K to a personal pension or SIPP (assuming you'll still get the maximum employer contribution). If you die before her, you can leave the 'pot' to her with no IHT (or any other tax) complications. See https://www.pensionwise.gov.uk/en/when-you-die
    • Triumph13
    • By Triumph13 16th Apr 18, 6:15 PM
    • 1,322 Posts
    • 1,667 Thanks
    Triumph13
    • #5
    • 16th Apr 18, 6:15 PM
    • #5
    • 16th Apr 18, 6:15 PM
    This all comes down to whether you will hit the LTA and whether you will be a higher rate taxpayer in retirement.
    If you expect neither of these to apply then you are way better off putting any extra into your pension not hers.
    For you 60 of income forgone would become 100 in your pension which becomes 85 when withdrawn (25% tax free, 75% taxed at 20%). That's a 25 profit on 60 which is a 41.7% gain.
    For her 80 becomes 100 which she gets tax free as she'll have unused PA, but that is only a 25% gain.


    ETA: This assumes the AVCs are transferred out on retirement and put into drawdown - in which case they all just move to her name if you die first. If you plan to use them to buy an annuity or additional defined benefits then you do need to think about loss in value of these on your death.
    Last edited by Triumph13; 16-04-2018 at 6:17 PM.
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