Have you talked about your retirement plans with your spouse or partner? If not, you should.
If you and your partner have spoken about retirement, it’s quite likely that your focus has been on how you’d like to spend your time, rather than how you’ll pay for it.
Research from LV= found that over 15m (78%) of married people have no idea what their spouse’s pensions are even worth. A spokesman for LV= said: “Most people have a good idea of what their house is worth, and the same attitude should apply to their retirement funds. After a lifetime of saving, the value of a retirement fund can be worth as much as a property so it’s important that people know how much their retirement savings are worth and the potential death benefits they offer.”
If you’re part of a couple, talking about money is important. That’s so you can:
- Understand your partner’s attitude to money. You can’t assume that they will have the same approach to managing their finances as you do, but if you don’t talk about it, you won’t find out.
- Identify potential areas for conflict. Many couples find money hard to talk about but easy to argue about. That’s often because differences aren’t identified until there’s a crisis, such as one partner losing their job or getting into debt.
Women may sometimes have a more emotional relationship with money than men and it can be easy – for both parties – to make assumptions about their partner’s ideas and values because they handle money differently. If the way they manage their money comes as a surprise (or shock) and you’re already under strain because you’ve hit a money crisis, it’s far more likely that you’ll end up arguing than being able to work through the issues.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
Why not talking about retirement could leave you worse off
Many people find pensions boring at best or a waste of time at worst. But the fact is that you have to work out what you’re going to live on when you retire and find a way of talking about it with your partner. It’s too important not to talk about.
For example, many married men who use some or all of their pension savings to buy an annuity (which – in broad terms – generates a retirement income for life from all pensions except final salary ones) don’t buy one that would pay a pension to their wife or partner after they die. Because women tend to outlive men, it could mean the surviving partner would only have the State Pension and means-tested benefits to live on.
Unromantic as it may sound, it’s also vital to be aware of what each of you has in their pensions in case you separate in future.
According to research carried out by investment firm Interactive Investor, less than half of divorced retirees discussed pensions when they split, even though they are usually the most valuable assets after any property. If you get divorced and one of you has a much bigger pension than the other, the partner with a larger pension may be forced to split, or share their pension. If you find yourself in this scenario, and receiving part of your ex’s pension, the amount to be transferred will be expressed as a percentage. You can find out more about what happens to pensions if you split in our article How are pensions shared in a divorce?
What to talk about
You need to find out how much you’ve each managed to put aside for retirement and how you plan to spend it. It could be that you want to move to a smaller (or larger) property. This will affect your retirement plans. Read our guide Five questions to ask yourself if you’re considering downsizing your home if this is something that you’re thinking about. Other conversations that couples should have before they get too close to retirement include:
- How much to save for your retirement. This is the big question and, while it will depend on how much you’re earning, it’s also about priorities. Don’t think about ‘pensions’ because you’re unlikely to feel inspired to do anything about it. Talk about what you’d like to do when you stop work and work out how much you’ll need to pay for it. Our article How much should I save for retirement? might help you work out how much you should be trying to put away each month.
- When to retire. With the state pension age rising for women at the moment and likely to rise for both men and women in the future, you may not be able to retire as early as you’d hoped. Find out more in our guide Retirement age: When can I retire?
- Talking about your state pension. For most people who retire, the State Pension is the biggest source of income. Most men retire on a full basic State Pension, but fewer than half of all women do. Learn more about the State Pension in our article How the State Pension works. You may be able to increase your State Pension by making additional, voluntary National Insurance contributions. You can find out more about this and whether it’s likely to be the right option for you in our guide Is it worth paying to top up your State Pension?
- Inheriting pensions. Pensions won’t normally form part of your estate for inheritance tax purposes, and on death before age 75, they can usually be paid out tax-free (on death after 75, they are taxed as the beneficiary’s income). However, this is set to change from April 2027, when pensions will be brought into the scope of inheritance tax. You can learn more about these changes in our guide Budget 2024 pension changes. This makes it even more important to discuss when and how you plan to access your pensions with your spouse and whether you want to make the most of gifting allowance to provide your children or grandchildren with some of their inheritance now. Find out more about these in our article Which gifts are exempt from Inheritance Tax?
- Who are your pension providers? It’s really important each of you knows who to contact when either of you dies. Losing a partner or spouse is stressful enough, without not having a clue who to contact when sorting out their financial affairs. Our guide Getting your affairs in order: how to help your loved ones has a useful planner you can download and record all the information you and your partner are likely to need when one of you dies.
- Have you both completed an expression of wishes? A pension expression of wishes form allows you to nominate who you want to inherit your pension if you die, which is crucial if you want peace of mind your savings will go to who you want them to. Find out more in our article What is a pension expression of wishes?
Paying into your partner’s pension
Contributing to a pension for your partner, or the other way around, may help boost your combined retirement income.
For example, a higher earning partner approaching the Annual Allowance may want to consider paying additional contributions into their partner’s pension to avoid triggering a tax charge.
Alternatively, if you’re not working, your spouse or partner may want to pay into a pension on your behalf simply so you have your own retirement savings. Anyone can set up a personal defined contribution pension, such as a stakeholder or self-invested personal pension (SIPP), and pay into it for someone else.
If you are paying into a pension for someone else, then the amount that you can pay into their pension will depend on their own circumstances, not on yours.
The current annual limit for the amount someone can pay into their pension(s) every year is £60,000 or 100% of their earnings, whichever is lower (you can find out more about pension allowances in our guide How do pension allowances work?). If they are not working, they can pay up to £2,880 a year into a pension and still get tax relief at the basic rate. Find out more in our article Can my husband or wife pay into my pension?
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
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