Contribute to partners pension

D

David_Dublin

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Hi - can I contribute to my wife's pension? Is there any advantage to ensuring pension sizes are more or less the same, rather than one half having a massive pension, with the other having a tiny one? Assuming taking the full tax free amount at pension age abd buying annuity. I am a company director (PAYE) so I think I might have additional choices/options for what to do with the pension pot.
 
Is your wife paying tax? At the high or low rate? Is she already contributing to a pension?
 
Thanks for the response. She's paying tax at lower rate and contributing a small amount to a pension.
 
A person should not be contributing to a pension if they are paying tax at the lower rate. You get tax relief on the contributions but these will be taxed, possibly at the top rate, when you draw the pension.

If your wife is paying the lower rate, and you are paying the higher rate, would you not be better off going for joint assessment?

If you are both at the lower rate, then neither of you should be paying into a pension fund.

You would be better off saving the money in a separate non-pension vehicle. If you subsequently pay tax at the higher rate, then start moving the money into your pension scheme then. As a company director, you would have much more flexibility to make company contributions to the scheme with few limits on the amount you can contribute.

Brendan
 
Brendan Burgess said:
If you are both at the lower rate, then neither of you should be paying into a pension fund.
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Hi Brendan,

Is this not too generalised? If both partners are paying lower-rate tax, the size of the actual pension funds may be small. So the resulting pensions may be below the Income Tax threshold altogether in retirement. In which case there would be an argument in favour of pension contributions. We don't know that level of detail from the post.
 
Hi Liam

If they are both close to retirement and are not going to be taxed at the higher rates before retirement, and if they are going to be exempt from income tax on their retirement income, then you are correct.

However, most people don't understand this level of complexity. Many people on lower tax rates are being sold pensions - and the vast majority of them should not be contributing to pensions.

Brendan
 
Brendan Burgess said:
...and the vast majority of them should not be contributing to pensions.
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Vast majority?

Tax exemption threshold is €18,000 per year for a single person. Twice that for a married couple.

Looking at a single person, let's assume State Pension of €12,000 per year, so scope to fund €6,000 per year via a private pension. That would cost around €150,000 to fund. So this person could have a fund of €200,000 including tax-free lump sum and the whole lot would be tax exempt.

Do you really think that the vast majority of people earning less than €32,800 are going to be funding pension funds of >€200,000?

I don't.
 
I do take the point that IF you are likely to be paying tax at 20% (or higher) in retirement AND you're paying tax at 20% now then there's little or no incentive to contribute to a pension, so you shouldn't. My point is that each and every individual needs to look at their own circumstances.

I know people on 20% tax who would be mad to contribute to a pension (spouse with substantial pension, lots of rental income etc.) and I also know those for whom it makes sense.
 
Sorry if I have opened a can of worms. But its interesting to see the points teased out. I am very behind with understanding this stuff, and the above posts have helped, so thanks all.

I am taxed at the higher rate, my wife at the lower rate (I think), or perhaps she just about creeps onto the upper but I dont think so.

We are jointly assessed for tax.

I am nearing my forties, my own pension is in the region of 320k at the moment. I dont think my wife's fund is significant at all.

Salary income is our only income, we have a substantial mortgage but we also have some savings, in the region of 50k, which we plan to use to renovate our house.
 
If you are jointly assessed, you are paying the one rate of tax, which should be the marginal or top rate.

I think it then makes sense for her to contribute to a pension up to the limits as I think you get the relief at the top rate.

However, if you have a huge mortgage, you might be better off getting that down to a more comfortable level first. As you are in your thirties, you have plenty of time to accumulate a pension.
 
Thanks for the reply Brendan. to be honest, the mortgage is such that I dont see any point in tipping away at the principal as it would have a negligible effect - we have no excess each month. If my OH stopped her contribution of 100 per month to her pension I dont think it would end up coming off the mortgage.
 
Hi David

It is much better to contribute to a pension than to fritter it away.

It's well worth increasing your repayments on your mortgage even by a small amount. Compound interest is magical. Your repayments effectively compound at the mortgage rate which is a very good return if you are on a SVR mortgage.

It's a slow but steady process and will bring the principal down.

Brendan
 
Thanks for the reply. So you reckon that my wife would be better setting up a DD against the mortgage account for the 100 euro per month, and forget about putting 100 euro into her pension. Part of the mortgage is on a tracker, part on SVR.
 
Is it your own company that you're a director of?

If so, you could put your wife on the books and maximise both of your income tax and pension positions.
 
Yes, my own company. Not sure I understand how that would work. If you had time, maybe you could spell it out for a dummy!!
 
David_Dublin said:
Yes, my own company. Not sure I understand how that would work. If you had time, maybe you could spell it out for a dummy!!
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Well companies require two directors so I'm assuming that as with most owner operated companies, your wife is the company's second director.

If she's employed by the company then you can accumulate more in a pension collectively and make the most of the available tax bands and reliefs.
 
A simple example would be an owner managed company where the husband and wife are directors but the wife doesn't work in the company "day to day" and doesn't have any other employment.

Say the husband earns €80k per annum. He's hit with 41% tax on everything above €41,800.

Why not pay her €23,800 for being a director and pay himself €56,200. Suddenly, they're only hit with tax on everything above €65,600, saving €5,000 per year.
 

This can only be done if the wife is actually working for the company. You cannot pay a spouse a salary just to avoid tax.
 
Wife is not a director, no. She works elsewhere. So I think the option of paying off the SVR element of the mortgage might be a good one. I like the idea that she is also contributing to "her own" (realistically it will be both of our pension) pension, but I also like the idea of chipping away at the SVR element of the mortgage.
 
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