Pension contribution for non-earning spouse - lifetime cap

[user143677434]

Situation is that I am the only wage earner - DH doesn’t work. Everything is shared money. Pensions contributions are in my name through salary sacrifice at work. He us named beneficiary on all pensions.

We’ve been maxing out pension contributions to benefit from tax relief as a higher rate tax payer. However just realised the pensions pot is very likely to go over the lifetime allowance because it is in my name, even though it’s for two of us.

I can’t really see any way around this. Will get advice, but just have too much going on just now to book to see adviser etc.

One thing I read is that we can still contribute for DH even though he doesn’t have earnings, and he’ll still get tax relief, but only on contributions up to £3,600. Seems worth doing.

I wondered if anyone else had similar circumstances?

Yes. I believe this to be correct as long as you are under 75. A payment of £2,880 to which the taxman adds £720. This is quoting from a website. I think everyone needs to be aware of the lifetime allowance. People may laugh and think it is very generous and is only for high earners, but it is now frozen to at least 2025/26 and maybe will be frozen further. Anyone who is in line for a reasonable pension and is under 50 will probably be affected by it. I think in the past tax relief on pension contributions was very generous and the government is trying to find more revenue. In some ways this is a shame as it is one of reasons professional people like doctors are retiring early.

Yup, it's free money. Why wouldn't you?

Yes, this is what I'm doing for DH - I'm paying £240 into a pension scheme for him each month.

I’d probably better set that up then!

I assume if I set it up this month I can pay in the whole lot for this tax year in one go?

Can it be backdated to make up for previous years? I know we could do this when overpaying my pension.

Does he have any kind of pension? I think you can only use previous years’ allowance if you were part of a pension scheme at the time (even if you were not contributing)

Yes, he has a couple of old pension pots, but we haven’t contributed to them for years.

How much is the lifetime allowance?

Just over a million pounds. Many can scoff and say that is for rich people but if the limit doesn’t go up most people will be affected by it eventually.

@user143677434 You can make backdated payments of 3 years.

Thank you! So I can do this year, plus 3 others (4 years total) by the 6th April?

Thanks for clarification. I'm not scoffing but I would suggest that most, in current real terms, would not reach this threshold.

Yes but if you are under 45 and the allowance doesn’t go up and we get bad inflation for the next 20 years!

If a 20 year old retiring at age 67 put £250 per month into their pension (between them and their employer), and the market performed “well” (just using Wealthify’s criteria for ease) they would be above the pensions cap.

I do not think that your DH can backdate contributions. He is not paying in £40,000 this tax year, so cannot use Carry Forward which lets someone in a scheme backfill the prior 3 tax years, if they have enough income in the current tax year.

Your DH has no earned income, so can do £2280 (£3600 gross) but more than that does not get tax relief, thus most pension providers won't accept the contributions.

Depending on how old your DH is, a LISA might also be worth considering.

Sure, but let's not make the unrealistic assumption that the threshold isn't going to increase over the next 50 years. Isn't it expected to go up significantly this budget as part of the chancellor's plan to coax the retired (particularly health care) back to work?

The pension lifetime allowance was cut back by Cameron several years ago and was recently frozen until 2026. It is possible that Hunt may look at this to stop people retiring early, but that would reduce revenue to HMRC. Another thing Hunt could do to stop people retiring early would be to increase the age at which they can take their pension.

You can only use this carry forward of relief if you’ve had a pension in the previous tax year you wish to carry relief from. So if it’s your husbands first pension, you can only receive relief up to £3600 if he has no earnings

Very likely that the state pension age for some will increase this budget and not mutually exclusive to the threshold also being increased to coax professionals back to work. Whichever way you cut it, in real terms, the current £1m threshold is more than most will ever achieved.

To clarify, the old pension pots won’t allow him to qualify for this, unless he was actively a member in those years, which it doesn’t sound like he was

Just for clarity, the scenario I was talking about was me (now aged 50).

Admittedly I found out about the pensions cap because I was paying a lot more in, being fortunate to increase earnings substantially in the last few years.

However, as it turns out I would have stood a decent chance of bumping up against it even on relatively modest contributions.

so someone like me (without the increased income and contributions) could quite reasonably be in this situation. I am not personally expecting the cap to go up hugely in the next 15 years or so. And even if it does, it still affects people planning now.

Ah, OK, thanks for that.

Sounds like my best option might just be to ask the pension provider.