Is there any reason to put money into SAHP pension assuming we never divorce?

[Hobert]

Just wondering if I am missing something. We (as a couple) get a big tax advantage putting money into my pension as I am a higher rate tax payer. At the moment DH gets the NI payments through child benefit but we don't put anything into a private pension.

Assuming I have no intention of leaving him and the eventual pension will be joint is there any reason not to do it this way?

What happens if you die? Presumably he will get a pay out but would it be enough to substain him? Can he work ? Do u have a life insurance policy?

He might leave you?

I'm hypothising now. If you have a big salary now, will your pensionable income be taxable? If it was split between you and DH, it could be totally tax free?

What is the situation if you die a) before pensionable age? and b) after pensionable age. How much does DH get then?

Basically, you need to look at all the horrible, don't really want to think about situations.

What if you die?

Also, never say never. He'd be very naive to allow you to do this imo.

If I die before retiring he would inherit everything plus he'd get close to a million in insurance payout anyway.

I suppose if we divorce I would have to give him some pension anyway but he doesn't seem worried about this.

Tax on pension is a good point but I'm pretty sure we'd be better off getting the tax relief now given that that extra money will be earning interest (and compounding) over the next 20 years or so.

You can pay £2,900 and the government puts in another £700 which is a 25% return on the first day alone, so the real question is why wouldn't you?

We're not sure how the exact arrangements will work yet, but as I am a separate individual who is suspending earning for a while on mat leave, yes, I will have a separate pension that my husband pays into.

My husband wouldn't have it any other way - I deserve a pension of my own, and I will be giving up a significant part of my life to look after our child.

You can pay £2,900 and the government puts in another £700 which is a 25% return on the first day alone, so the real question is why wouldn't you?

Because if I put it into mine instead I get another 20% on top. So it's a greater return.

The issue is that if your husband is a higher rate taxpayer you'll end up worse off as a couple (assuming you stay together into retirement) when compared against an identical investment into his pension alone. So there is a calculation to be made about risk and reward on it.

I would never discourage women from having their own pensions and I am not sure if considering doing it in my own circumstances makes me a terrible arsehole. Basically DH is not bothered and so I need to think should I make us deliberately worse off as a unit to protect DH from me behaving badly in the future!

£3600 into your pension costs £2160 same into his £2880 so money in is better in yours. But also consider if you will still be higher rate taxpayer on retirement and he may be non-taxpayer or basic rate then about evens. Any risk of hitting a lifetime pension limit if reintroduced in future in which case better in his pot?

If you don't put something in now then it'd be a good idea to get proper advice at retirement time to cover him if you die before him. My mum was a SAHM with no private pension of her own and when my dad died there was a small dependent pension but it did leave things tight for her.

I think with some DB pensions the spouse/ beneficiary wouldn’t be entitled to the pension income in perpetuity if the account holder passed away first. But if it’s all DC then I think your reasoning makes sense, including the assumption that it would be a shared asset if you did split up.

Thanks some really useful points that I'll take away.

I definitely need to bottom out the inheritance point. I am pretty certain that it all goes to him but will take some specific legal advice as I need to update my will anyway. I think hitting a lifetime limit is unlikely but will certainly keep an eye on that.

So is this instead of or as well as payment into your own pension?
If you haven't maxed out your annual allowance I guess it makes more sense to do that first

I have not maxed out my annual allowance no - if I had then yes certainly we'd look at DH's.

Sorry meant to say it isn't doing it first (at least not at the moment) it is instead of. I am unlikely to ever put more than 60k into pensions in one year. Not until I've paid the mortgage off.

If you’re a higher rate taxpayer and he doesn’t work , no there is no point. He would only get lower rate tax relief on a max of £2880. It’s more tax efficient to maximize your own contributions.

Maybe rather than your DH having a pension, he could have a share account. If he doesn't pay tax, or any tax he pays is at the basic rate, dividends would be better in his name. Also any other form of savings (other than ISAs) should be in his name for a lower rate of tax on interest received.

Assuming you both buy ISAs every year, he would build up quite a lot of capital in non-pension savings while you accrue the pension.

That way he'd be trusting you on pensions, and you'd be trusting him on the rest of the family money.

if you’re not working, you will only be able to pay £2880 per annum into a pension and can’t pay into a workplace pension. So while it’s a nice thought that you “deserve” a pension for looking after your child, it’s not going to be possible to pay anything significant Inti a pension if you’re not in work.

We have had this discussion, I am a SAHM and was nervous about not having pension contributions while I’m working.

However with us as with you, it makes more sense to put the money into his pension for the higher rate relief, until/unless he is hitting the lifetime limit (which is going up anyway). Having discussed it I’m ok with it. It would all be one big pot if we were to divorce and if we stay together, this way is better for us all.

I need to check the inheritance point !!

Make sure he is claiming child benefit for the NI contributions. He can claim it but ask not to be paid it (to avoid the tax liability). Also look on government gateway and check for any NI years missed and backfill.

if you’re not working, you will only be able to pay £2880 per annum into a pension and can’t pay into a workplace pension. So while it’s a nice thought that you “deserve” a pension for looking after your child, it’s not going to be possible to pay anything significant Inti a pension if you’re not in work.

Not true. You can pay in more if you want (using the WOHP funds). You just won’t get tax relief on it.

When my husband was a SAHP, as soon as we could afford to we started paying £2880 a year into a SIPP in his name so that he had the psychological benefit of having "his" personal pension. The actual amount is small and it's likely that when he draws it down in addition to his small occupational pension in the gap between stopping work and getting the state pension he won't need to pay any income tax on it, so we gain as much from him getting 25% added going in and paying no tax coming out as we would from me putting it into my pension with 40% tax relief and paying 25% tax when I draw it down.

We've also made up his missing years of NI contributions for the state pension.

Yes but I was assuming you were maximising yours already and your DH's was spare money to put into his, ie in addition to yours.

You also need to think about tax when it comes out the other side. You'll pay tax on the income in retirement.

Ideally you'll want to use his tax free allowance as well as yours, and his basic rate allowance if you would otherwise be paying higher rate on your pension income.

LTA has just been abolished but may be reinstated so that might also be a consideration.

Yes but I was assuming you were maximising yours already and your DH's was spare money to put into his, ie in additionto yours.

Got you - no I put about £25k (before the tax relief) a year into mine last tax year and this. So enough to be a reasonable contribution split between two but not maxing mine out.

He's got full premium bond holdings and about £30k in a cash ISA so he has his own assets (from my income if that matters) just no pension other than state if that's still a thing by the time we retire!

Assume that you are paying back the child benefit if you are a higher rate taxpayer?