invest more in my pension or the wife's?
Discussion
Hi, I'm looking for a sense check on my thinking.
My situation: aged 47 and trying to plan retirement in about 10 years' time. My wife is the same age. I'm a higher rate tax payer; wife is basic rate
I reckon at my current contribution rates that my total pension pot will hit the £1m lifetime allowance limit in 10 years' time.
My pensions kick in from 55 for the DC scheme and 60 for the DB scheme.
My wife's main DB pension kicks in from 65. She has a tiddly DC scheme that she could draw on from 55.
So my thinking is that if we can free up more money to invest in our pensions over the next 10 years (say £400pm from net income) then we'd be better off putting it in my wife's DC scheme.
This is because:
if the extra goes to my scheme - I get 40% tax relief on the way in, but this extra will likely attract 25% lifetime allowance charge, and then my pension income will be taxed at 20% for sure, and possibly 40% for this extra.
whereas,
if instead the extra goes to my wife's scheme then we get 20% tax relief on the way in, but on the way out between the ages of 55 and 65 my wife's pension income will be below the £10k personal allowance, so will be tax free. After 65, her pension income would be taxed at 20%, so still slightly better than if it was in my scheme.
Have I missed anything? Does anyone have a different view?
My situation: aged 47 and trying to plan retirement in about 10 years' time. My wife is the same age. I'm a higher rate tax payer; wife is basic rate
I reckon at my current contribution rates that my total pension pot will hit the £1m lifetime allowance limit in 10 years' time.
My pensions kick in from 55 for the DC scheme and 60 for the DB scheme.
My wife's main DB pension kicks in from 65. She has a tiddly DC scheme that she could draw on from 55.
So my thinking is that if we can free up more money to invest in our pensions over the next 10 years (say £400pm from net income) then we'd be better off putting it in my wife's DC scheme.
This is because:
if the extra goes to my scheme - I get 40% tax relief on the way in, but this extra will likely attract 25% lifetime allowance charge, and then my pension income will be taxed at 20% for sure, and possibly 40% for this extra.
whereas,
if instead the extra goes to my wife's scheme then we get 20% tax relief on the way in, but on the way out between the ages of 55 and 65 my wife's pension income will be below the £10k personal allowance, so will be tax free. After 65, her pension income would be taxed at 20%, so still slightly better than if it was in my scheme.
Have I missed anything? Does anyone have a different view?
Rpm I had to check your profile to check whether you are me, our situations are identical.
The £1m lifetime allowance will increase with inflation every year, starting in 2018 I think.
Are you planning retirement in 10 years time because you can or because that's what you want? Not everyone wants to give up work.
The £1m lifetime allowance will increase with inflation every year, starting in 2018 I think.
Are you planning retirement in 10 years time because you can or because that's what you want? Not everyone wants to give up work.
I reckon we can both retire at 60 at the moment but we fall into the work to live camp rather than live to work, so I'm looking to bring that forward.
I've been thinking about this some more and realised that I'm taking 40% tax relief on pension contributions for granted, whereas that might conceivably disappear before I retire. So I think for now if I can afford to put more away I'll put it into my pension for a few years and then re-assess.
I've been thinking about this some more and realised that I'm taking 40% tax relief on pension contributions for granted, whereas that might conceivably disappear before I retire. So I think for now if I can afford to put more away I'll put it into my pension for a few years and then re-assess.
So you'd be paying into the Wife's DC scheme?
Is there any matching from company or is this over and above that threshold?
To me depending on the above - I'd be getting annuity calculations for the extra you intend to put in plus the tax less the 25% draw out. Then how many years do you need just to get out what you pay in.
This might be far longer than you might think and instead an ISA instead could well be net net hardly any different with the added benefit you have full access to it at any point in time plus it can be transferred easily as part of the estate come that time.
Is there any matching from company or is this over and above that threshold?
To me depending on the above - I'd be getting annuity calculations for the extra you intend to put in plus the tax less the 25% draw out. Then how many years do you need just to get out what you pay in.
This might be far longer than you might think and instead an ISA instead could well be net net hardly any different with the added benefit you have full access to it at any point in time plus it can be transferred easily as part of the estate come that time.
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