# Contribute to partners pension



## David_Dublin (14 Jan 2013)

Hi - can I contribute to my wife's pension? Is there any advantage to ensuring pension sizes are more or less the same, rather than one half having a massive pension, with the other having a tiny one? Assuming taking the full tax free amount at pension age abd buying annuity. I am a company director (PAYE) so I think I might have additional choices/options for what to do with the pension pot.


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## LDFerguson (14 Jan 2013)

Is your wife paying tax?  At the high or low rate?  Is she already contributing to a pension?


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## David_Dublin (21 Jan 2013)

Thanks for the response. She's paying tax at lower rate and contributing a small amount to a pension.


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## Brendan Burgess (21 Jan 2013)

A person should not be contributing to a pension if they are  paying tax at the lower rate. You get tax relief on the contributions but these will be taxed, possibly at the top rate, when you draw the pension. 

If your wife is paying the lower rate, and you are paying the higher rate, would you not be better off going for joint assessment? 

If you are both at the lower rate, then neither of you should be paying into a pension fund. 

You would be better off saving the money in a separate non-pension vehicle. If you subsequently pay tax at the higher rate, then start moving the money into your pension scheme then.  As a company director, you would have much more flexibility to make company contributions to the scheme with few limits on the amount you can contribute. 

Brendan


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## LDFerguson (21 Jan 2013)

Brendan Burgess said:


> If you are both at the lower rate, then neither of you should be paying into a pension fund.


 
Hi Brendan, 

Is this not too generalised?  If both partners are paying lower-rate tax, the size of the actual pension funds may be small.  So the resulting pensions may be below the Income Tax threshold altogether in retirement.  In which case there would be an argument in favour of pension contributions.  We don't know that level of detail from the post.


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## Brendan Burgess (21 Jan 2013)

Hi Liam

If they are both close to retirement and are not going to be taxed at the higher rates before retirement, and if they are going to be exempt from income tax on their retirement income, then you are correct.

However, most people don't understand this level  of complexity.  Many people on lower tax rates are being sold pensions - and the vast majority of them should not be contributing to pensions. 

Brendan


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## LDFerguson (21 Jan 2013)

Brendan Burgess said:


> ...and the vast majority of them should not be contributing to pensions.


 
Vast majority? 

Tax exemption threshold is €18,000 per year for a single person.  Twice that for a married couple.  

Looking at a single person, let's assume State Pension of €12,000 per year, so scope to fund €6,000 per year via a private pension.  That would cost around €150,000 to fund.  So this person could have a fund of €200,000 including tax-free lump sum and the whole lot would be tax exempt.  

Do you really think that the *vast majority* of people earning less than €32,800 are going to be funding pension funds of >€200,000? 

I don't.


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## LDFerguson (21 Jan 2013)

I do take the point that IF you are likely to be paying tax at 20% (or higher) in retirement AND you're paying tax at 20% now then there's little or no incentive to contribute to a pension, so you shouldn't.  My point is that each and every individual needs to look at their own circumstances.

I know people on 20% tax who would be mad to contribute to a pension (spouse with substantial pension, lots of rental income etc.) and I also know those for whom it makes sense.


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## David_Dublin (22 Jan 2013)

Sorry if I have opened a can of worms. But its interesting to see the points teased out. I am very behind with understanding this stuff, and the above posts have helped, so thanks all.

I am taxed at the higher rate, my wife at the lower rate (I think), or perhaps she just about creeps onto the upper but I dont think so.

We are jointly assessed for tax.

I am nearing my forties, my own pension is in the region of 320k at the moment. I dont think my wife's fund is significant at all.

Salary income is our only income, we have a substantial mortgage but we also have some savings, in the region of 50k, which we plan to use to renovate our house.


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## Brendan Burgess (22 Jan 2013)

If you are jointly assessed, you are paying the one rate of tax, which should be the marginal or top rate. 

I think it then makes sense for her to contribute to a pension up to the limits as I think you get the relief at the top rate. 

However, if you have a huge mortgage, you might be better off getting that down to a more comfortable level first.  As you are in your thirties, you have plenty of time to accumulate a pension.


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## David_Dublin (22 Jan 2013)

Thanks for the reply Brendan. to be honest, the mortgage is such that I dont see any point in tipping away at the principal as it would have a negligible effect - we have no excess each month. If my OH stopped her contribution of 100 per month to her pension I dont think it would end up coming off the mortgage.


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## Brendan Burgess (22 Jan 2013)

Hi David

It is much better to contribute to a pension than to fritter it away. 

It's well worth increasing your repayments on your mortgage even by a small amount. Compound interest is magical.  Your repayments effectively compound at the mortgage rate which is a very good return if you are on a SVR mortgage.  

It's a slow but steady process and will bring the principal down. 

Brendan


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## David_Dublin (22 Jan 2013)

Thanks for the reply. So you reckon that my wife would be better setting up a DD against the mortgage account for the 100 euro per month, and forget about putting 100 euro into her pension. Part of the mortgage is on a tracker, part on SVR.


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## Bateman (22 Jan 2013)

Is it your own company that you're a director of?

If so, you could put your wife on the books and maximise both of your income tax and pension positions.


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## David_Dublin (22 Jan 2013)

Yes, my own company. Not sure I understand how that would work. If you had time, maybe you could spell it out for a dummy!!


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## Bateman (22 Jan 2013)

David_Dublin said:


> Yes, my own company. Not sure I understand how that would work. If you had time, maybe you could spell it out for a dummy!!


 
Well companies require two directors so I'm assuming that as with most owner operated companies, your wife is the company's second director.

If she's employed by the company then you can accumulate more in a pension collectively and make the most of the available tax bands and reliefs.


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## Brendan Burgess (22 Jan 2013)

Hi David

Can you selectively pay off the SVR part? If so, I would do that instead of a pension.

Brendan


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## Bateman (22 Jan 2013)

A simple example would be an owner managed company where the husband and wife are directors but the wife doesn't work in the company "day to day" and doesn't have any other employment.

Say the husband earns €80k per annum.  He's hit with 41% tax on everything above €41,800.

Why not pay her €23,800 for being a director and pay himself €56,200.  Suddenly, they're only hit with tax on everything above €65,600, saving €5,000 per year.


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## Dave Vanian (22 Jan 2013)

Bateman said:


> A simple example would be an owner managed company where the husband and wife are directors but the wife doesn't work in the company "day to day" and doesn't have any other employment.
> 
> Say the husband earns €80k per annum. He's hit with 41% tax on everything above €41,800.
> 
> Why not pay her €23,800 for being a director and pay himself €56,200. Suddenly, they're only hit with tax on everything above €65,600, saving €5,000 per year.


 
This can only be done if the wife is actually working for the company.  You cannot pay a spouse a salary just to avoid tax.


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## David_Dublin (22 Jan 2013)

Wife is not a director, no. She works elsewhere. So I think the option of paying off the SVR element of the mortgage might be a good one. I like the idea that she is also contributing to "her own" (realistically it will be both of our pension) pension, but I also like the idea of chipping away at the SVR element of the mortgage.


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## Bateman (22 Jan 2013)

Dave Vanian said:


> This can only be done if the wife is actually working for the company. You cannot pay a spouse a salary just to avoid tax.


 
Note that I referred to circumstances where the spouse is a director.

Perfectly acceptable to pay the spouse (say) €25k per annum in his/her capacity as a director.


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## Complainer (22 Jan 2013)

No disrespect, but you might also want to consider the possibility that the couple might split up in the future. It does happen. 

Do you really want a significant part of your assets in her name and under her direct control?


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## David_Dublin (23 Jan 2013)

Complainer said:


> No disrespect, but you might also want to consider the possibility that the couple might split up in the future. It does happen.
> 
> Do you really want a significant part of your assets in her name and under her direct control?



That's a fair point. Though, in reality, if we were to break up, part of the split would be to have a fair and equitable allocation of finances etc. I am sure that my pension would not be only mine in that circumstance.


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