For those in long term relationships, it is very common to consider finances together – whether it is home ownership, saving for children’s education, large household purchase or regular budgeting.
But pensions don’t seem to be given the same joint consideration.
That is perhaps understandable, with savings into pensions being in the name of an individual and most often arranged through the workplace.
In the era of defined benefit schemes, it was common for a pension to continue at a reduced level to a surviving spouse.
Under defined contribution schemes, now the norm in the private sector, individuals can choose how to use their retirement fund and most going down the annuity route have opted for a single life version, which will pay out more initially, but reinforcing this ‘pension for me alone’ culture.
In a little known, but major development, the government’s new single state pension, which starts in April 2016, no longer continues to a surviving spouse.
This could come as a shock to many grieving widows and widowers in future years, particularly if they haven’t paid enough in National Insurance to qualify for a full state pension of their own.
On a more positive note, it is now far more common than in previous generations for both partners to be saving into a pension of their own.
Auto-enrolment will continue that trend. But even then, it can pay to consider pension planning as a couple – both when saving and when taking income.
It is rather unfortunate that the most likely time when the pensions of a couple are considered in the round is on divorce – and how to divide these along with other assets fairly.
However, I think there are real opportunities to save on tax both when contributing and when drawing income.
Pension freedoms
Since April 2015, anyone with a defined contribution pension can access their pension pot at any time after age 55 and take as much or as little as they like.
The first 25 per cent is typically tax free, but anything after is taxed at the individual’s marginal income tax rate.
Couples may be able to decide how best to minimise their combined tax by discussing from whose pension to take income each year.
No income tax is paid on the first £10,600 of earnings, including pensions, so it may make sense to take up to this from both partners rather than moving one partner into the 20 per cent tax band.
Similarly, you may be able to avoid one partner crossing into the higher rate tax band by spreading any larger withdrawals between partners.
Moving to a single rate of tax relief
At the moment, higher rate tax payers get a bigger boost on their pension contributions than those paying basic rate income tax.
