How to effectively plan your retirement as a couple… and why you should

Published on October 19, 2023 by Andrew
A middle-aged couple looking at a map

A recent FTAdviser report has found that nearly three-quarters (73%) of UK adults don’t know that they can contribute to their partner’s pension. This figure rises to 80% among women.

Paying into a partner’s retirement fund, allowing them to benefit from tax relief at the highest rate of tax they pay, could prove an important part of your joined-up financial plans. 

This tax-efficient strategy is an opportunity not fully exploited currently. Not only that but it is also just one of several ways in which planning your retirement as a couple could have advantages for you both.

Keep reading to find out how planning your finances with your partner could help you achieve your dream retirement. 

Start by thinking about the goals you and your partner share and where they could be aligned financially

Communication is key to any relationship, and this is especially important where your finances are concerned. 

Back in February 2022, the Independent reported that money is the issue couples are most likely to argue about. While finances can often be a taboo subject among families, within a partnership, honesty is vital. 

Sitting down to organise your finances as a couple allows you to explore your shared goals, as well as your different attitudes to money. This might include specifics like your approach to saving versus spending or your investment risk profile.

Setting aside a specific time each month to talk about your finances should promote honesty, reduce stress, and lower the chance of any surprises or future fallings out.

Once you understand each other’s current financial situation and your goals, you can begin to think about how these dreams align – and put a joint plan in place to get you both where you want to be.

It’s important to remember that your goals don’t need to be identical, but frank and open conversations should help you to understand where they complement each other. 

There could be tax advantages to paying into your partner’s pension

You and your partner can both receive tax relief on the pension contributions you make. 

This is automatically applied at the basic rate of 20%. A £100 increase to your pension fund effectively costs just £80, with the government paying the rest. 

But extra relief can be claimed if either of you are higher- or additional-rate taxpayers. A £100 pension top-up will cost £60 as a higher-rate taxpayer and just £55 if you pay Income Tax at the additional rate. You’ll need to claim the extra relief via your self-assessment tax return.

Tax relief is payable up to the Annual Allowance. For the 2023/24 tax year, this stands at £60,000 or 100% of your pensionable earnings, if lower.

If your partner isn’t currently earning, you can contribute up to £2,880 a year to their pension. Tax relief will top this up to £3,600. 

For a working partner, you can still contribute, but their total contributions will need to remain below their Annual Allowance or 100% of their earnings, if lower.

You might find that it’s worth making contributions the other way around, from the lower earner into the higher earner’s pension. This is because tax relief is paid at the rate of the person receiving the money, not the one contributing.

Where one of you is a higher earner, it might make sense to concentrate your contributions (up to the recipient’s Annual Allowance) into that partner’s pension, increasing the tax relief you receive.

Consider making the most of the Capital Gains Tax exempt amount

Capital Gains Tax (CGT) is paid when you or your partner disposes of certain assets, with different tax rates payable depending on the type of asset sold.

You both have a CGT annual exempt amount and transferring assets pre-disposable could allow you to make the most of a partner’s unused exempt amount. The bad news, though, is that the exempt amount is falling.

MoneyAge recently reported that UK taxpayers paid £16.7 billion in CGT during 2021/22, a 15% rise on the previous tax year. The number of individuals paying CGT has doubled over the last 10 years, reaching 394,000 in 2021/22.

Previously frozen until April 2026, the chancellor used his 2022 Autumn Statement to slash the exemption to more than half its original figure, from £12,300 in 2022/23 to £6,000. It will drop again in April 2024, to just £3,000.

Transferring assets to your partner could allow you to use some of their unused exempt amount. You might also find that CGT is payable at a lower rate if your partner is in a lower Income Tax band than you.

Just be sure to pay your future selves first by using any money saved to increase your (or your partner’s) pension contributions.

Get in touch

If you’d like help to organise your retirement planning as a couple, if you have questions about any other aspect of your finances, get in touch. Email or call 0800 0787 182. 

Please note:

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. 

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