No pension - is this a problem?

[Spindelina]

I work for the NHS, so my pension is pretty much as good as it gets, with associated benefits to surviving spouse. DH is a SAHD, was self employed, has no pension. Our house has a lot of equity, and I have some income from a discretionary trust which would pass to my kids in the event of my death. We're both early 40s, primary aged kids. We're not planning to split, but if we did I would be expecting to pay quite a lot of spousal maintenance, which would be totally fair.

What would be the benefit of DH starting a pension, over and above the discipline of saving? My understanding is that we can choose less of an income in retirement in exchange for an income for him in the event of my death, and we've got the equity in the house which we can release by downsizing and/or moving somewhere cheaper.

For his security, I would say yes. Although no one likes to think about it, in the next 20 years the marriage may break down, and you cannot predict how amicable it would be.

As a SAHP (assuming this is a joint decision, not one party refusing to work), in the event of a divorce the settlement is likely to include some pension provision, however, in all likelihood this will not be a great deal.

Does your husband top up his NI credits to prevent any gaps and ensure he has enough contributions to qualify for full state pension? (If the child benefit is in his name, he could be getting NI credits via that). That is another area to check.

In any marriage, both parties should ensure they have pension provisions, as a lot could happen in the next twenty years. Ideally, the pension would have been started a long time ago, but it's better to start late than never.

CB is in his name, SAHP thing is totally a joint decision.

If we did split, his earning potential and pension provision is already so massively behind mine, there'd need to be quite a lot of provision anyway, right? So any pension would be just a dent in that.

Though it would be one that didn't rely on court order or amicable agreement. Is that the key thing?

I'm not a "high earner" by non-NHS standards (just over £50k) but with the pension, the trust and the house equity, we feel well-off - there's certainly enough there to sustain two (downsized) households at least for a few years.

If you don't set up pension for him now he'll likely get half of yours if you split, it's a tax efficient way of saving but given he isn't paying tax at the moment that doesn't really count, will he work part time when the kids are older?

There's no point in him getting a low-paid job just for the money or because that's what one does. We don't need the money to be comfortable, and I value his contribution (childcare, housework, mental load, IT support, DIY etc) more than minimum wage - apart from facilitating my work, it frees my evenings, weekends and annual leave.

We don't think it would be easy for him to get back into what he used to do. And there's a reason we went from both working part time after DC1 was born to the current situation! If we decided we wanted nicer holidays, we'd think about it. If he wanted to work for the sake of the work itself, then I'd totally support him in that (volunteering also an option). At that point, I'd need to do my share round the house but if we wanted my free time back, I could reduce my hours (another NHS bonus - being allowed to do this is almost a given).

And just to add, you say it is a tax-efficient way of saving (caveat re relative income now and in retirement etc) but at the moment, we are asset-rich compared to our income. We don't really feel the need to save at the expense of our current quality of life. We wouldn't be saving for anything in particular. Except possibly for the sake of DH's independent provision.

If I weren't in a DB scheme, I could absolutely see the merit in splitting the contributions between a pot for me and one for him. But if we did set one up for him, it would be in addition to my 12.5% and my employer's massive nominal contribution.

I'd still check his NI contributions.

And I'd still start a small pension for him. It's good for anyone. And yes, especially because you could split.

What I'm trying to get at is answering why it's good for anyone. So we can make an informed decision about giving up some of our income for whatever those benefits are.

At the moment my understanding is that it would mean more income in retirement (or another asset if we never drew it down?) and a modicum of financial independence for DH. So those are the things we need to weigh against the loss in disposable income. Is there anything else?

He will surely get a spouse pension when you die ? The nhs db scheme provides for this

non tax payer can still get a small benefit

If you have no earnings or earn less than £3,600 a year, you can still pay into a pension scheme and qualify to have tax relief added to your contributions up to a certain amount.

from www.moneyadviceservice.org.uk/en/articles/tax-relief-on-pension-contributions

The maximum you can pay is £2,880 a year. Tax relief is added to your contribution so if you pay £2,880, a total of £3,600 a year will be paid into your pension scheme, even if you earn less than this or have no income at all.

This applies if you pay into a personal or stakeholder pension yourself (so not through an employer’s scheme) and with some workplace pension schemes – but not all. The way some workplace pension schemes give tax relief mean that people earning less than the personal allowance (£12,500 in the 2020-21 tax year) won’t get tax relief.

Yes what time4anothername says. He should pay the £2880 a year into a pension. If the children are under 12 then he will be getting NI credit. At some point you can do a check to see how many years short he is of a full state pension and there is a service to advise you which years you should pay to to make up any shortfall (assuming he won't work again but this may not be the case so it is something worth looking at later). You can then top up missing years to ensure you get full pension.

If you died tomorrow, what would he get? Presumably death in service payment, and some sort of pension. Would he then go back into work, or try and live on the pension?

If you die just after retiring, he would not get the DiS benefit but maybe would get a higher spousal pension (maybe not?). Again, could he manage?

Either way, he wouldn’t get your state pension, so you need to make sure that he will get a full SP of his own (assuming they still exist when he is of SP age) - currently that is 35 years. His credits will stop when he loses CB, will he then have 35 years? Does he intend working again when the kids are older?

Does he have any savings in his name eg ISA?

Only you can know what income he will get from your pension, and if it would be enough for him to live on if you died young but he lived into his 90s.

Yes it is worth him getting one in his own name.

Remember if you die and he lives on yours, he will only get half or 37.5% of it, not the whole lot. Your state pension will die with you too. Therefore, he should be thinking about himself and his provision and not just yours. It’s not just about the risk of divorce, but one person will die before the other.

It is tax efficient to save in a pension. If there is a decent time left, it will be invested which should give better returns overall than the paltry interest rates available to savers at the moment.

See a financial adviser and get him into one ASAP.

"We're not planning to split, but if we did I would be expecting to pay quite a lot of spousal maintenance, which would be totally fair."

Ha, no you wouldn't. This statement alone shows that you're not being realistic. It doesn't matter so much to you but if I was your husband I wouldn't be happy to be so financially vulnerable.

With an NHS Pension you don't need to choose to reduce your annual income pension for him to get a survivors pension. He will get one automatically.

I see thinking about this as a scenario planning exercise. So, thinking about the what ifs. What if you died tomorrow, how would family finance work? As pp said, would mortgage be paid off by life insurance plus death in service benefits? Would he need to go back to work to feed the family or would your survivorship pension be enough? How would that work, would the kids find that really tough in those circumstances, losing him to work as well as you?

What if you died shortly after retiring? Would the survivorship pension be enough for him? What are your relative ages factored into this - ie would he have a gap before state pension for him too.

What about if you become ill and have to medically retire but don't die?

The other thing to consider is when you want to retire. Different sections of the nhs pension have different retirement ages. So you might be able to take some pension at 60 and some later at 67/68/whatever state retirement is when you get there. You can use a private pension to build for yourself to stop working at 60, to cover those years before state pension and the rest of the nhs pension kicks in.

A private pension is basically a tax efficient way of investing, with certain withdrawal restrictions, linked to age but that probably has impacts on other pension features (lifetime allowance etc, I'm hazy on this stuff - it doesn't sound like a massive issue here). It also has some inheritance tax advantages if you die at certain ages I think (ie young). Your NHS pension gives good annuity, but dies with you and spouse and kids (they get a pension too if you die young). A private pension can become assets to pass on so you keep it all.

In pure income post retirement terms, if he isn't going to work after the kids are 12 he should buy NI credits before investing in a private pension, it is far better value for money, so he gets the full state pension. That would be first priority before private pension, as he would want that in retirement.

But you are right to question why you are saving if you don't need to. Think about why this advice might be important for you or not in terms of scenarios. You could pay a one off financial adviser fee for a tailored review of your full finances. Possibly worth it for peace of mind as this is not a thing to cock up, you can end up with big avoidable regrets.

If your nhs then log on to ESR if your trust uses it and have a look at your pension. It will show very clearly what the death in service/survivors pension is. I have two insurance policies to cover the gap if I die, one to pay off the mortgage and another to provide 3 years worth of my salary as a lump sum to DH. The younger you get them, the cheaper they are.

I don't want to die prematurely knowing I didn't provide for them sufficiently. May be worth considering

Thanks for all this. The details are really helping crystallise it.

Wave I've transferred out and in again, so the automatic thing on ESR doesn't work. I'm too complicated apparently. But it's all deemed as being in 2015 section (which was when I transferred back in).

this type of financial planning is way too complicated for a message board. Get an IFA to do a proper financial review and give you some options

@Spindelina

Wave I've transferred out and in again, so the automatic thing on ESR doesn't work. I'm too complicated apparently. But it's all deemed as being in 2015 section (which was when I transferred back in).

If you were employed by NHS pre 2015 then you may have some pension on the older schemes, unless you specifically requested it all transferred to 2015.

Wave I left the NHS and did transfer club to a different DB CA scheme, so left NHS scheme entirely at that point. At the time I wasn't intending to return. Then I transferred back in 2015 (just missed 2008 cutoff). I've effectively got way more than 6 years membership of a scheme that's only 6 years old. From the point of my benefits, I have no membership of the NHS scheme before 2015, but because what I did bring with me was already complicated by a transfer before I transferred it again, the automated system just can't cope.

anniegun, point taken. I guess I'm trying to work out whether we need to do that sort of planning! Our assets aren't liquid really, and we haven't got loads of spare cash floating around that we don't know what to do with. Though obviously we could prioritise getting DH provision in his own name if we decide it's worth it.

How does one choose an IFA anyway?