SAHMs and Pensions

[littlecabbage]

I'm sure this kind of thing has been asked many times, but a quick search has not found any threads more recent than 2010, so I thought I would ask again...

I am a SAHM mum, as of September last year. I used to work full time until our first child was born in 2011, then went back to work part-time. Ever since that maternity leave, I have stopped paying into my private pension. Since then, I have been paying into a work pension, although not a huge sum due to only working part time, but that of course stopped last September when I gave up work completely.

I am currently pregnant, and unlikely to return to work until this child starts primary school.

My husband is now on a far higher salary than I was on when working full time. At the time I went part time, we were earning roughly the same. He has been paying into a work pension scheme the whole time (I'm not sure how much).

I am now starting to feel a bit vulnerable, and determined to protect myself financially should anything bad happen, e.g. divorce or death of DH. What are your experiences/advice on this?

My gut feeling is that we need to consult an IFA, work out what DH would get paid upon retirement, and start paying into a private pension for me again from our joint family income, so that I could achieve a similar pension. I understand that there are certain rules that apply if a marriage breaks up to allow a spouse to claim on their partner's pension, but I would prefer to be truly financially independent should that situation ever occur.

Advice/thoughts/experiences welcome, thanks.

If you’re a non-earner, you can pay in a maximum of £2,880pa net into a pension (which would be grossed up to £3,600pa after basic rate tax relief).

That being said, from a tax perspective alone, if he’s a higher rate or additional rate taxpayer, then it makes more sense to maximise his pension contributions, as he’ll receive a higher level of tax relief.

On the other hand, if you’re a non-taxpayer, then it would make more sense for income-producing assets (e.g. cash savings, investment portfolios, rental properties etc) to be in your name.

Thanks Uncomfortable Badger, I didn't realise there was a limit, but would definitely be paying less than that per year.

When you say it makes sense to maximise DH's pension contributions if he's a higher rate taxpayer (he is), does that not just make sense for his financial security but not mine? How would that help me?

We have briefly discussed things this evening, and DH agrees that we should look at the fact I have no pension now.

As for your final point, we currently have no assets as such, as have been extending and renovating our house, but hope to start saving again soon!

I’d argue that if you have limited liquid assets, the bigger concern is you having more accessible savings which could act as a ‘running away fund’ if the worst happened. You can’t access pension funds until age 55, so unless you’re in your mid-50s, a pension won’t offer any immediate help in the event of a split.

As I said, from a tax perspective alone it makes sense for your DH to pay more into a pension as a higher rate taxpayer - each £100 paid into a pension will cost you £80, but him just £60.

In the event of a divorce, his pensions AND your own would potentially be considered as part of the marital pot, so increasing your own pot doesn’t necessarily offer greater protection - you’d be forced to disclose your pension details on the Form E (as would he). Depending on the agreed financial settlement, if his assets were greater than yours you may receive a share of his pension pot or a bigger share of other assets instead.

Most importantly, make sure you have sufficient life insurance on each of your lives so you could manage financially if the worst happened.

Thank you, that is all really helpful.