Pension for partner with no current pension.

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qwerty5

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Not sure if this has already been covered. I can't find anything so thought I'd pop this question here.

My wife has no pension. We both pool our wages, take an allowance each and then any communal costs come from the remainder. This is working fine for many years. Savings are invested in the stock market.
I have a pension in work. My thinking has been to pay as much as we can afford in there. She's listed as the beneficiary on it.

But I'm wondering if that is the best we can be doing. Next year I was thinking of increasing my contribution. But we could create a pension for her. Should she have a pension in her name? Are there any advantages tax wise for her having a pension set up for her. Her company doesn't have a pension plan so anything we set up for her will have to be done by us.

Are there any major negatives for us to keep going as we are or any major positives for opening a new pension for her?
 
She's a lower rate taxpayer. I'm on the higher rate.
She will be eligible for the contributory state pension by the time we retire (that's the plan anyway).
 
If she earns more than 33k in 2024 she can pay pension contributions and get 40% tax relief on her earnings over this amount provided it is within her age related yearly tax free pension contribution limit.

For 2025 if she earns over 35k, the earnings above this amount can also get pension tax relief at 40%.

If she earns less than these amounts she will only get tax relief at 20%.

But if you have maximized your age related yearly tax free contributions, or exhausted your marginal tax rate capacity and still have extra money to invest into pensions, it could still be worthwhile for her to make pension contributions as she would get 25% of her pension funds tax free on retirement.

Having her own separate pension fund could be advantageous if she decided to retire early while you are still in employment. She could take benefits immediately after her retirement.

In this situation she would be able to make use of her earned income tax credits after retirement. She could possibly get all her pension tax free until Contributory Pension age.

If she was taking money through you from your pension, and had no other earned income her earned income credits would be wasted.
 
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S class said:
If she earns more than 33k in 2024 she can pay pension contributions and get 40% tax relief on her earnings over this amount provided it is within her age related yearly tax free pension contribution limit.

For 2025 if she earns over 35k, the earnings above this amount can also get pension tax relief at 40%.

If she earns less than these amounts she will only get tax relief at 20%.

But if you have maximized your age related yearly tax free contributions, or exhausted your marginal tax rate capacity and still have extra money to invest into pensions, it could still be worthwhile for her to make pension contributions as she would get 25% of her pension funds tax free on retirement.

Having her own separate pension fund could be advantageous if she decided to retire early while you are still in employment. She could take benefits immediately after her retirement.

In this situation she would be able to make use of her earned income tax credits after retirement. She could possibly get all her pension tax free until Contributory Pension age.

If she was taking money through you from your pension, and had no other earned income her earned income credits would be wasted.
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Why 33k when the standard rate cut off point is higher than that?
 
Fibbernacci said:
Why 33k when the standard rate cut off point is higher than that?
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How your income tax is calculated

Tax on income you earn from employment is deducted directly from your pay. Find out how this tax is calculated.
www.citizensinformation.ie www.citizensinformation.ie

Example of standard rate cut-off point for a married couple or civil partners with two incomes​

In 2024, the standard rate cut-off point for a married couple or civil partners is €51,000. If both are working, this amount is increased by the lower of:
  • The income of the lower earner
  • €33,000
This means that one person can have a cut-off point of up to €51,000 and the other person can have a cut-off point of up to €33,000.

Take an example where one person is earning €55,000 and their spouse is earning €35,000.

The standard rate cut-off point for the couple is €51,000 plus an increase of €33,000.

The increase in the standard rate band is not transferable between spouses, so the tax bands for 2024 would be:
  • €51,000 @ 20% (= €10,200) and €4,000 @ 40% (= €1,600) for the first spouse
  • €33,000 @ 20% (= €6,600) and €2,000 @ 40% (= €800) for the second spouse
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Because 9k of the cut off point can be transferred to the other partner.

Assuming the higher earner has enough marginal earnings to make use of the extra 9k, they get the benefit of the extra 40% band and the lower earner can get some 40% pension relief.

If the lower earners income is 40k they could get 40% relief on pension contributions of 7k.
 
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S class said:
But if you have maximized your age related yearly tax free contributions, or exhausted your marginal tax rate capacity and still have extra money to invest into pensions, it could still be worthwhile for her to make pension contributions as she would get 25% of her pension funds tax free on retirement.
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Would she not be better off waiting for auto-enrolment where the effective tax-relief is higher?
 
After next September, if it starts and the fees and investment choices make it a better deal then she could join it.

I don't know anything about AE but just had a quick look.
It seems you can only get benefits at age 66.
This wouldn't suit a lot of people.

If the risk level of investments is restricted and the person is happy to invest their pension in high risk funds, then the existing system might give a better return.

Also if a persons income rises into the 40% tax band it's likely they would be better off in the existing system.

Would a person in AE who doesn't take an active interest in their pension be aware of this or notice it, and would they take action to change back to the existing system.
 
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If an existing PRSA is not deducted at source then AE will start if the person's wages are over 20k.

So it seems to be possible to keep both options open.

A person who wants to invest more than 1.5% of their pay into a pension might be able to operate in both systems.
 
jpd said:
Too many unknowns about AE to give a considered opinion or make a decision today
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We know for sure the next minister for social protection will be different from the current one.

A change is policy is not likely but not impossible either.
 
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