The Value of Giving to a Partner’s Pension

Did you know that you can contribute to your partner’s pension? This is a little known tax efficient contribution that can bring significant benefits for your non earning partner. You can also contribute to the pensions of close family members too.

Key Points

  • According to the current rules you can contribute up to £2,880 per year into a pension for a non-earning spouse, partner or child and they will receive tax relief topping it up to £3,600.
  • Even if your spouse/partner is working you can contribute to their pension as long as all contributions remain below their annual allowance which is whatever is lowest of 100% of their earnings or £60,000.
  • Almost three quarters (73%) of people don’t know you can contribute to someone else’s pension.

If you are in the dark about these contributions, which allow you to contribute up to £2,880 per year into a pension for a non-earning spouse, partner or child, then you are not alone.

According to data taken from an Opinium survey of 2,000 people carried out on behalf of Hargreaves Lansdown in May 2023, almost three quarters (73%) of people don’t know you can contribute to someone else’s pension.

An older couple on a beach

Contributing to a Partner’s Pension

This approach is ideal if you’ve maxed out your own pension contributions, your spouse isn’t employed, or you wish to financially assist your children or grandchildren. With pensions under pressure from high costs of living, it is important to be planning for future for both yourself and your loved ones.

The pension allowance for an individual is either 100% of their earnings (up to £40,000) or £3,600 if they have no income. You can contribute to their pension as long as the total amount doesn’t exceed this allowance. This means that you can contribute £2,880 per year, which gets boosted up to £3,600 with a 20% tax rebate.

Here are two examples to illustrate how partner’s pension contributions work and also how this can be used to help a close family member.

You have maxed out your pension contribution and your partner does not work:

Partner’s pension allowance (non-earning)£3,600 per tax year
Your contribution to their pension£2,880
Automatic tax relief received£720 (20% of contribution)
Total pension contribution£3,600

You and your partner want to contribute to your child’s pension

Surplus income given to your child£6,000 (£3,000 each as annual gift)
Maximum contribution (percentage of income)Up to 100%
Tax relief contribution received£1,500 (20% tax relief)
Additional tax relief if child is a 40% taxpayerComplete tax return for additional tax relief
Working at a desk with a calculator and pair of glasses

Contributing to a family member’s pension utilises the £3,000 annual gift allowance, but there is a significant advantage in doing so, as they receive the additional tax relief from this gift, according to their income tax band.

Each parent can contribute £3,000 to a child or family member under the annual gift allowance scheme.

Lifetime ISA’s (LISA) are an Alternative Solution

While contributing to a partner’s pension is an excellent way to save for the future, this isn’t the sole method to secure a loved one’s retirement. For those aged between 18 and 39, there’s the option of opening a Lifetime ISA. These ISAs serve dual purposes: retirement planning and helping them buy their first home.

Lifetime ISA FeaturesBenefit
Annual contribution of £4,000Attracts a 25% bonus
Dual purposeUseful for retirement or first-time home acquisition

Such contributions can accelerate your loved one’s financial planning journey, ensuring your money yields maximum benefits.

What is a LISA

A Lifetime ISA (LISA) is a UK government-backed savings account designed for individuals aged 18 to 50, although it must be opened before the age of 40. It serves dual purposes: helping savers buy their first home or save for retirement.

LISA Contributions

Contributors can deposit up to £4,000 annually, and the government adds a 25% bonus on these contributions up to a maximum amount of £1,000 per year. Payments can be made into the LISA account until the age of 50 at which point they will still attract the prevailing interest rates, but will not receive further enhancements form the government.

LISA Withdrawals

Withdrawals are tax-free if used for a first-time property purchase (up to £450,000) or after the age of 60. Early withdrawals for other purposes, other than being terminally ill with less than 12 months to live, incur a 25% penalty which repays the government contribution.

An important point to consider is the Lifetime ISA limit of £4,000 counts towards your annual ISA limit. This is £20,000 for the 2023 to 2024 tax year.

Excited Family Explore New Home On Moving Day

Junior SIPP’s are also a Good Alternative

A Junior Self-Invested Personal Pension (SIPP) is a tax-efficient account to help you save for your children’s future, particularly as their traditional savings accounts are suffering from high inflation.

As the parent, or guardian, you manage the fund and make investment decisions on behalf of your child until they turn 18, when they take over management responsibilities for themselves.

Benefits of a Junior SIPP

Each time you contribute to a child’s pension, the government automatically adds 20% in pension tax relief. The maximum that can be paid in is usually up to £2,880 each tax year, and the government adds an additional 20% up to a maximum contribution of £720.

Investment returns in a Junior SIPP either through growth of the fund or via dividend payments are tax free.

Tax Efficient Saving Methods for Future Prosperity

For parents with sufficient spare money, combining payments into a Junior SIPP before their children reach 18 years, and a LISA once they reach adulthood, creates a highly tax efficient way of giving them a significant boost to their future prosperity.

This is a point echoed by Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, who said:

“The ability to pay into a partner’s or child’s pension is an important financial planning opportunity and yet the vast majority of us are completely unaware of it. Contributing to a partner’s pension during times when they aren’t working can play a vital part in plugging any gaps in their long-term saving and helping them build a resilient retirement income.

Meanwhile, you can get your child’s or grandchild’s pension planning off to a flying start by paying into a Junior SIPP on their behalf while they are small. 

Under the current rules, you can contribute up to £2,880 per year into a pension for a non-earning spouse, partner or child and they will receive basic rate tax relief topping it up to £3,600. It’s an incredibly tax efficient way of using your money, particularly if you have used your own annual allowance. You don’t even have to pay in the full amount every year, making smaller contributions as and when you can will have a big impact long-term.”

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