should we invest in a pension on the lower tax bracket

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fonduster

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Hey Guys. I’m trying to plan ahead and trying to gauge if it is worth investing in a pension for my partner or if it’s better to invest outside in in something like Zurich prisma etc

Right now I own several rental properties with debt and I already max out my pension contributions.

My partner earns 20k so is on the lower tax bracket and doesn’t have a pension at the moment.


After we get married, I will be maximising tax efficiency which right now may bring her over the higher tax bracket when we split the rental income between her and I.

If we invest in a pension for her now and if pension rules remains the same, when it comes to retirement most of what she would have contributed will be locked in an AMRF and not sure if it’s worth it compared to investing privately.

On top of this when both of us retire and if she has an amrf. She will actually pay tax at the higher rate when all the rentals are paid off.

Right now, I’m swaying towards not going into a pension but looking for people’s thoughts as I know most would recommend doing a pension.
 
Hi,
You should include a link to your money makeover post. People won't give relevant answers without understanding the potential scale of your rent roll.
 
I had forgotten how complex your property empire was! :)

Right, you're both in your early 30's?
Wife to be currently earning c. 20k, but once married she'll be pushed into higher tax bracket with her share of rental profits (assuming you've that aspect of planning in hand).

Once she's paying tax at higher rate, she'll get higher rate relief on any pension contributions (technically she'll get 20%, but she'll have more of her 20% band left to use for rental income, so she will get relief at the higher rate).

However, the amount she can get relief on is based on a percentage of her earned income only. So in her 30's it's 20% of her 20k, or c.4k per annum. Even at that rate, with no growth, it'll add up to over 120k by retirement age. Tax free growth, tax free lump sum, etc. I wouldn't dismiss it at all. Especially if there is an matching contribution from employer.

I'm sure I'm missing loads here.
 
Yes, all being planned to fully make use of her tax band :)

Sorry, I forgot to add that when/if we have children, there will be a point where her income will
Be severely diminished for a number of years where she might only work one or two days a week. If we do this for a period of let’s say 5-7. I estimate during those years, she will earning circa 5k.
 
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