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To start a pension when DH doesn't agree?

(58 Posts)
nightowlmostly Wed 03-Apr-13 15:57:11

I'm having a dilemma! I am the main earner in our family, my DH is part time and looks after our son. We share our money and have for years, and there's never any problem with that. Neither of us takes the piss, any big purchases get agreed in advance etc.

The trouble is, I'd like to start a pension with my work and he doesn't agree. He feels we should focus on paying off the mortgage and investing in another property. I agree but think we should do both. I'd be receiving about £2K a year from my employer into the pension fund.

We've talked about it loads, and always ended up not doing it as he's convinced me! But now I want to do it, we've done it his way for ten years and I'd feel much better knowing I was saving. He did agree to it but I think he didn't think I'd actually ever get round to it. We talked about it again and he was quite anti.

My AIBU is, would I be out of order to use family money to start a pension fund when he isn't in agreement? It'd be about £150 a month which we could manage without at the moment. He's in no way controlling or anything sinister, it's purely a difference of opinion on the best way to provide for our old age. He doesn't trust the system, which I do understand, but I'd be prepared to take the risk. Help, thanks!

chris481 Thu 04-Apr-13 11:40:53

A general comment on tax relief, since there has been some discussion.

Your pension income may fall into a lower tax band than your salary would have, but also you can take a quarter of your pension savings tax free, so even if it doesn't you will still pay less tax. Also if the contribution is by salary sacrifice you will pay less national insurance.

I usually make the assumption that my pension income will be taxed in the basic rate band. (I assume state pension will use up most of personal allowance and I'm not planning to have taxable retirement income of more than 40K) On those assumptions, my pension savings will be taxed on average at 15% (75% of savings taxed at 20% and 25% at 0%) but the tax relief on the salary I've given up will (from memory) be something like 46% for salary in the higher rate band or 38% for salary in the basic rate band. (These percentages include employers NI in both numerator and denominator, as unlike most people I also get employers NI saved by salary sacrifice paid into my pension.)

chris481 Thu 04-Apr-13 12:02:12

Actually after a quick calculation, I think the correct tax rates are that 40% of what the employer pays out goes to the government for salary in the basic rate band, and 49% for higher rate salary.

I'm sure some people who haven't thought about it will be interested to know just how high the marginal tax burden is even for full-time workers only earning the minimum wage. Their marginal rate is roughly double that of pensioners on the same income. (In my view it is economically if not legally correct to include employer's NI in both the income and taxes of employees.)

chicaguapa Thu 04-Apr-13 12:16:48

Can anyone tell me, can you buy an annuity with any lump sum?

Yes you can, subject to anti-money laundering regulations.

TheDoctrineOfSnatch Thu 04-Apr-13 12:22:34

Annuity yields may well be lower than rental yields though, and there may be CGT to pay on the sale of a second property - so selling a property to buy an annuity may not make sense.

WorrySighWorrySigh Thu 04-Apr-13 12:33:18

You only pay tax on the profit on sale of a second property if above the threshold. You can offset some of the costs (maintenance, repairs, improvements plus buying & selling costs) against any cash surplus so it may still be worthwhile if the hassle of holding the property is great.

chicaguapa Thu 04-Apr-13 12:34:44

It's worth noting that the maximum tax relief a company can give you on your contributions into a money purchase (defined contribution) scheme is 20%.

So if you're a higher rate tax payer, ie pay tax at 40%, you have to ask HMRC to rebate the additional 20% directly into your pension scheme. You don't get the additional 20% in your monthly pay.

It's different if you're in a final salary (defined benefit) scheme as the company can apply the full 40% tax relief to those contributions.

You don't pay the tax on the contributions on the way in but you do pay tax on it when it comes out as a pension. But it's very tax efficient if you pay 40% now as an employee and may well only pay 20% as a pensioner. You also only pay tax on 3/4 of it when it comes out as 1/4 can be paid to you tax free as a one-off lump sum.

Someone else made a good point up thread though that you don't know how much the tax will be when you retire. But I don't think this is a good enough disincentive to start a pension up.

Yes they are expensive, but they have to sustain an income over your lifetime and usually maintain its value through inflation, which will be a lot over 25/30 years. You don't know how long your life will be after you retire so I always think it's safer to buy a guaranteed income instead of leaving it in the bank. You might only live for 10 years and won't have got back what your paid in, but you'll have had peace of mind.

Wishiwasanheiress Thu 04-Apr-13 12:36:53

Replying direct to op - if employer is contributing u are mad not to take part. It won't pay for ur old age but will help considerably. U can always move it. Don't rely on the system but don't rely on dh either. Both are subject to change and things can go down as well as up in both areas....

SueDoku Thu 04-Apr-13 20:34:01

I'm about to retire - and I can't tell you how glad I am that I've always paid into a pension. When my marriage fell apart in my late 40s I found myself facing a very different retirement to the one that we'd always planned for... But at least I shall have some money coming in to help with my state pension - and I haven't had to save all of it because of the employer contributions. It makes such a difference to my peace of mind. You never know what your future is going to hold - so start paying in now - you won't regret it...!

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