Should high earner pay into SAH spouse’s pension?

[Mazuslongtoenail]

I often read comments to SAHPs that their DH should be paying into a pension for them.

But, if they are a high earner, they would get 40% tax relief on their own pension contributions. So £1000 earns £1400 in high earner’s pension or £1200 in SAHPs. (Unless I’ve misunderstood).

I understand the point about financial protection in the case of a split, but if married the pension would be considered in the 50/50 divorce settlement wouldn’t it?

I think they should. I know their married partner would probably be awarded half upon divorce or whatever, but none of that would be quick / simple. So yes, if they're decent, they should.

If I remember correctly it is sensible to.

1. The high earner can get tax relief on the money.

2.At retirement you want two equal sized pension from a tax point of view and also much simpler from a widow’s pension point of view.

The SAHP is staying at home and has given up their career to look after the high earner's children, so are unable to pay into their own pension. So yes, I think the high earner should compensate them for that.

your scenario suggests that they will divorce and/or the woman never goes back to work so a judge will give her a generous divorce package

getting 50% of everything isn’t so clean cut. Length of marriage plays a part.

lots of women go back to work eventually too, it’s just to get over the hump of childcare and the demands of small kids.

paying into a pension whilst the woman is out of work, either privately or just making sure national insurance contributions are topped up, is just of ensuring that’s there is no gap and they aren’t shortchanged for caring commitments.

it’s a form of financial care and equity for a woman who has done the physical labour of extending the family, and usually taking a hit career-wise if there is a period of long maternity leave and SAHMdom

When I was out of work my husband made sure my NI contributions were paid and my savings in my name were fully topped up as they would have been if I would have been earning my full salary

unfortunately lots of women have babies with glorified room mates and have to save themselves for any shortfall of maternity or commitments.

Lots of men do not want to demonstrate this financial care or see why they should. I have seen lots of women torpedo their careers and live like paupers for men who have no issue spending ample disposable
income on themselves

I suppose my point is sacrificing 20% tax relief to demonstrate financial care seems like a big price to pay. I would want to put it where it worked hardest.

The high earner doesn't get their own tax relief on their payment... the low earner gets tax relief at their tax rate

So HE puts £100 into the LE pension - the LE gets tax relief as appropriate (depending on their earnings) - so only tax back at the lower rate... and nothing for the HE to reclaim

When the HE puts it into their pension they either get the full tax relief at source, or get the lower tax relief against the pension and can reclaim the extra...

A HE who had maxed out their annual allowance (was £40k now £60k) or pension pot (was c. £1m now has no limit but labour may bring the limit back in) would still get some benefit within the partnership by contributing to a LE partner's pension as the LE would get the base tax rate back / added to the pension - but if they have not exceeded the annual allowance / pot total then they would getter better tax relief contributing into their own pension

I believe they should. My partner has split his pension contributions with me each year that I've been on maternity leave or working part time to be with our children. At the end of each year, we look at our contributions and he transfers a portion of his to mine so we have the same for that year

But it’s working the hardest for the bloke. It’s not in the woman’s name at all.

I consider pregnancy and raising small kids to be a high price to pay

if we are talking about high earners: then voluntary NI contributions as a bare minimum are a drop in the ocean

my husband didn’t see it as a high price to pay thankfully. It was respect for me growing our family.

My DH has contributed the max ISA allowance into my stocks and shares ISA the years I haven’t been earning or earning less than him (about 3/4 of our relationship). Any time he’s received an inheritance or £ gift from family he’s split it with me. We’ve been married 20 years and our pensions savings (pension plus Isas) are nearly identical, give or take a few thousand pounds.

Erm all that goes thru my mind is where's the care for the spouse but hey

The non earning partner can donate some of their unused tax relief to the earning partner though, if they aren't getting NI credits then the earning partner should pay these too or they should apply for Child benefit even if they don't receive it. Otherwise the non-earning partner will be stuffed come retirement.

You can’t get tax relief for contributions for non workers for any more than £2800 per annum and it would only be basic rate. It is a waste of money for a high earner to do that and pretty much never happens.

Not true.

I totally agree about ensuring full NI contributions are made because that impacts state pension later on.

But in my mind it’s all family money so sacrificing £1200 a year in more tax on a £500 monthly contribution is just bonkers. It’s so much money that could be in the joint retirement pot.

I understand the point about protection in separation which is why I’m only taking about married couples.

When my DH took a step back from work (not a SAHP but he didn’t earn much), we agreed that I would increase my pension contribution to take advantage of 40% tax relief.

If we were to divorce then I would happily give him half, that’s the deal we struck and all of my pension has been built up during our marriage.

My only worry is that if I save too much we won’t be able to withdraw it as tax efficiently as if we had it split between us, but that’s only an issue if we draw more than 50k a year from it (or whatever the higher rate band starts at when we retire) so I don’t expect even the tiniest violin to play.

@Annettekurtin what do you mean it's not true.
Marriage Allowance lets you transfer £1,260 of your Personal Allowance to your husband, wife or civil partner.

Basically it means you are losing about £40 for every £60 invested by not making your own pension contributions if a higher rate taxpayer. Plus any employer contributions. Not something most sensible people would do.

You said partner which is not correct and it doesn’t apply to pensions. Marriage allowance is the only instance where allowance can be “transferred” and only to a legal spouse or civil partner.

Exactly that. I guess to sum it up we do:

pension: weighted to higher rate tax payer
savings after ISA allowances maxed: weighted to basic rate tax payer

so I just don’t get it when standard advice on here is to miss out on that tax benefit. It’s like saying I’ll take the 4% interest rate rather than the 24% please

Theee is no need to pay NI contributions if registered for child benefit (at least for 12 years). Beyond that, only a maximum amount of 10 years can be made up - 35 are required for a state pension.

Most pensions these days are defined contribution. In these cases funds are drawdown as and when and pension benefits are inherited in full by the named beneficiaries.

I’d say that advice about partners paying into a pension for SAHP Is more aimed at those who aren’t married. As you’re right, in a divorce, all assets are considered. But if you’re not married and you split, there’s no framework or entitlement to anything

2.At retirement you want two equal sized pension from a tax point of view and also much simpler from a widow’s pension point of view.

Take this into account when planning. 25% of each person’s pension can be drawn down tax free but after that it is taxed. It would be beneficial for the LE to have enough to make use of the gap between state pension and the Personal Allowance, and for it not all to be in a big fat HE pension where draw down could potentially incur higher rate tax!

If not married and the LE gives up income / pension contributions and promotions and career progression in order to undertake childcare for both then it is essential that ££ goes into that LE’s pension.

Very good point, thank you.

I doubt we’d be lucky enough to be reaching higher rate tax but definitely worth adding to the consideration of where to place the money.