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Original poster

Married - should we invest more in high earner DH's pension?

43 replies

PooWillyNameChange · 02/11/2021 15:40

Hi there,

DH and I have been together about 8 years, married nearly 5 of those. Very happily married but I know from MN anything can happen!

Right now we both salary sacrifice to get employer match and then, because his income is so much higher than mine, we put a further £300 a month into a SIPP in my name so he doesn't end up with a huge pension and me a tiny one. However, I am a basic rate tax payer and he is well into the 40% bracket. Should we instead funnel the extra into his on the assumption that should we split I will be entitled to a share of his, to take advantage of the double uplift compared to mine?

DH not that interested in money/finances and happy for me to do whatever I think is best. His parents have been very happily married for 35 years so in his rose tinted world divorce doesn't happen.

OP posts:
SiobhanSharpe · 02/11/2021 15:47

Are there more advantages in paying extra into his pension, from an income tax angle? I thought the extra tax relief for higher earners on such payments had been abolished, but i may be wrong.
However, as a rule paying additional voluntary contributions into your pension is a very tax-efficient way of saving, especially as AVCs come off the top of your salary. But you only get basic rate tax relief on them now, AFAICR.

Wnikat · 02/11/2021 15:48

We put more into my husband’s pension because he is the higher rate tax payer. We have agreed it is ‘our’ pension and 50% mine. If we divorce my assumption is that I would be entitled to half anyway but haven’t had that confirmed by a solicitor.

Wnikat · 02/11/2021 15:50

Siobhan is wrong, they haven’t removed higher rate tax relief yet, though everyone assumes they will do so at some point.

Original poster
PooWillyNameChange · 02/11/2021 16:08

This is my assumption to @Wnikat and if that's the case we are doing this quite inefficiently. I've even considered checking with a solicitor but then it seems mad seeing one to discuss a hypothetical divorce from my incredibly lovely DH!

OP posts:
mathanxiety · 02/11/2021 16:26

Don't proceed on the basis of assumptions when it comes to pensions and potential divorce. You won't like each other at the point you decide to divorce, and neither of you will be willing to do any favours for the other.

OP, you and your H should speak to an accountant and solicitor. You need to find put what the law requires.

bowlingalleyblues · 02/11/2021 16:33

Paying into your husband’s pension will save you tax now as he is a higher rate tax payer, but paying more into yours would save you tax in retirement (maybe) as you would both use your full tax free allowance? Is that what you mean?

Capferret · 02/11/2021 16:38

Agree with @bowlingalleyblues.
Also as men statistically die sooner you could see your income halve on his death when you need the money most.

Original poster
PooWillyNameChange · 02/11/2021 16:41

@Capferret

Agree with *@bowlingalleyblues*. Also as men statistically die sooner you could see your income halve on his death when you need the money most.
A defined contribution pension is passed on, is my understanding, unless you've bought an annuity (that would not be the plan)

Sigh. I think I need to see a financial advisor and a solicitor!

OP posts:
Mumof3cherubs · 02/11/2021 17:11

We pay mainly into the pension of the higher rate tax earner to get the extra tax relief. No plans to buy an annuity so nothing should be lost on death.

stealthninjamum · 02/11/2021 17:18

Bitter woman here but I had an amazing husband, a really nice guy, the last person who would ever leave his wife and kids…….

He said I didn’t need to put into my pension as he is a high earner who would look after me. Anyway it’s in the hands of solicitors now.

Wombat49 · 02/11/2021 17:39

And whilst I'd agree it needs safeguards, this is what we've done.

I wasn't earning in a pensionable job but did have income & DH could pay lots in. A good chunk has come back now he's retired.

Does need a remarkable level of trust tho and/or agreement. We also really understand pensions & the risks, eg changes in government regulation.

So whilst I've agreed to it, I'd maybe say it's a risk...definitely worth it tho, for us.

PlanDeRaccordement · 02/11/2021 17:57

@Capferret

Agree with *@bowlingalleyblues*. Also as men statistically die sooner you could see your income halve on his death when you need the money most.
Even if an annuity, they all have the option for survivor benefit.
Cocomarine · 02/11/2021 18:17

Remember that you get tax relief going in, but coming out you “only” get the 25% TFLS then you’re taxed according to your applicable rate. You mention him have a much higher income and potentially a huge pension - so is he likely to have a pension over £50K? Which doesn’t make this not worth while… but if you’re undecided, it may tip the balance.

Another thing to watch is the lifetime allowance. Is he projected to hit that? If so, you might then be channelling far more family money into your pension.

On paper though, yes - it makes more sense to put the money in his pension than yours. As he’s the stronger financial party, you’re always going to “win” in a divorce, and pension staring is pretty basic, even if he did turn into a shit! So I think on balance I’d do it.

I hope you’ll take “win” in the spirit it’s intended in terms of financial risk here - I’m not calling you a golddigga 🤣

Original poster
PooWillyNameChange · 02/11/2021 19:38

Haha cocomarine, when we met he was on 22k or so, so definitely not a gold-digger! Not sure if his pension will exceed £50k, we are fairly simple people so I don't imagine we will wait for it to get really high to retire (or whatever 50k is in future money). I think once kids are long gone and set up we could easily survive on that between the two of us. When I say high earner I mean by normal people's standards not crazy MN 300k standards 😉

The vague plan is to get joint pension to a million or so (today's money) and a paid off house and draw down at 4-5% between us or whatever is considered a safe level. We are 30 and 31 so still a long way to go but both sets of our parents didn't plan properly for their retirement and watching them have to sort it all out has been very motivating.

@stealthninjamum any ideas if it'll go in your favour?

@wombat49 I think assuming things will stay as is and having a bit of provision for if it doesn't (e.g. ISA in case age for private pension access is raised) is all we can do without a crystal ball! It doesn't seem like I'm mad to consider this approach at least.

OP posts:
Wombat49 · 02/11/2021 19:48

It worked well for us as it reduced tax whilst he was working and we had tax relief. I have no chance of getting a decent pension by contribution.

We're keeping an eye on the lifetime thing but we won't get there, I don't think.

But all the other assets we have are split and despite the disparity in earnings, we have a very fair distribution of assets and savings. But you never know if things might change. I was accused of being a child of Thatcher last time I wrote we treat our marriage like a business but it's pretty much that financially, as if you can get it to work fairly, you can do far more as a team.

stealthninjamum · 02/11/2021 20:21

@PooWillyNameChange thanks for asking - after I posted I felt awful for ruining the tone of the thread - I’m not normally bitter!

Yes I’m sure I’ll be ok. I had to leave work because dd2 has Sen and wasn’t coping with a nanny so it stung a bit that stbexh made all sorts of promises that he would look after me and then overnight decided he wasn’t happy. I’ll be fairly comfortable and have my sanity and children whereas ex seems quite broken really. I think he had an emotional affair and got dumped.

Original poster
PooWillyNameChange · 03/11/2021 07:10

How awful @stealthninjamum. No worries about the tone. I'm the one who brought up splitting up. Like @Wombat49 I see marriage as quite contractual. I'm on £40k a year whereas DH is six figs but I have purposefully stayed in a nice, flexible organisation and my career definitely takes a back seat so I want to stay protected as I do a lot of the running of the house...it's one of the main reasons we married, if I'm honest. Not as much of a sacrifice as you've made, but I'm glad you married as I see so many coming onto relationships board not entitled to much at all after giving up so much.

OP posts:
Amberflames · 03/11/2021 07:18

@Wnikat

Siobhan is wrong, they haven’t removed higher rate tax relief yet, though everyone assumes they will do so at some point.
This depends on how much you earn, although currently you need to earn above £200k I think before your tax free allowance starts to taper.
DiamondBright · 03/11/2021 07:20

On divorce, pension pots are equalised, so you wouldn't get 50% of his pension pot, you'd get enough to make yours up to the same value. You'd only get 50% if you had no pension of your own.

Amberflames · 03/11/2021 07:20

I'm on £40k a year whereas DH is six figs

OP it’s worth thinking about whether he will reach the level where the tax free allowance starts to taper. I reached it well before I got close to the maximum pot size and am now restricted to £10k a year tax free.

Cocomarine · 03/11/2021 08:38

@DiamondBright

On divorce, pension pots are equalised, so you wouldn't get 50% of his pension pot, you'd get enough to make yours up to the same value. You'd only get 50% if you had no pension of your own.
That’s not true @DiamondBright there are no hard and fast rules or formulae in divorce. A spouse who is older can argue that the other has more time to build up a pension in their own right, so the older one should get more. A spouse who is caring for a disabled child can argue they cannot build pension after divorce, and request the court to award more. No-one should just assume they’re going to get 50% of anything.
SeasonFinale · 03/11/2021 08:45

@Capferret

Agree with *@bowlingalleyblues*. Also as men statistically die sooner you could see your income halve on his death when you need the money most.
INCORRECT advice which people reading the thread should ignore ^

Yes I would see an IFA OP but you definitely are on the right track. as regards a divorce you may not get a direct share of the pension as this may be equalised in other ways eg. getting a greater share of equity in property too so it is always wise to have your own pension too (which you have).

ShoesEverywhere · 03/11/2021 09:18

This is what we do in order to keep child benefit now my husband earns above the threshold - I think it's pretty common, but if he's close to hitting his LTA I'd definitely seek financial advice.

DiamondBright · 03/11/2021 11:59

@Cocomarine OK, but the standard approach is to equalise pensions, the OP hasn't indicated there are any circumstances that would significantly alter that. I was just trying to make sure she wasn't expecting to get 50% of his pension pot, her own pension will also come into it.

A friend of mine got divorced a few years ago and her exh got exactly 50% of her pension because he didn't have one of his own.

SiobhanSharpe · 03/11/2021 17:06

@Wnikat

Siobhan is wrong, they haven’t removed higher rate tax relief yet, though everyone assumes they will do so at some point.
Ah, thanks Wnikat, thought the threats to do so had been carried out.