Millions of married couples have no idea about their spouse’s pension and retirement plans, according to new research[1]. More than three-quarters (78%) of non-retired married[2] people do not know what their spouse’s pensions are worth.
Nearly half (47%) of non-retired married people have not spoken to their spouse about their retirement plans. With 85% of non-retired married people are not aware of the tax-efficiencies of planning retirement together.
Wealthy people aren’t doing much better. Mass affluent people (those with assets of between £100,000 and £500,000 excluding property), are more likely than average to be aware of the value of their spouse’s pension. However, the majority (60%) aren’t going to plan their retirement finances with their spouse. With 78% not being aware of the benefits of planning retirement together.
The research indicates that millions of married people are not talking to their partners about their pensions and retirement plans. That’s a mistake because couples who jointly plan their retirement can be much better off when they stop working.
Most people have a good idea of what their house is worth. This same attitude should also be apply to their retirement funds. After a lifetime of saving, the value of a retirement fund can be worth as much as a property. It is important that people know how much their retirement savings are worth, and the potential death benefits they offer.
The best way for people to ensure they have the retirement they want, their pension income lasts throughout their retirement and that they avoid unnecessary tax bills is to obtain professional financial advice. This is especially true for people who plan to retire within the next five years.
A higher-earning partner approaching the Lifetime Allowance (total amount you can build up in all your pension savings without incurring a tax charge) or Annual Allowance (the most you can save in your pension pots in a tax year before you have to pay tax) could pay additional contributions into their partner’s pension. The contributions will attract tax relief.
Pensions won’t normally form part of the 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). It can make sense to discuss when and how to access a pension. It would also be beneficial to see if it would be better to spend any other savings first.
Couples should consider how much money they need to withdraw from their pension funds. Drawing too much too quickly can lead to large tax bills.
You may have carefully arranged all your finances so that they can be passed to your loved ones in the most tax-efficient way possible. However, if your partner hasn’t been part of the conversation they may make uninformed decisions. It’s worth remembering that any adviser/client relationship you have ends on death. Data protection rules mean your financial adviser won’t necessarily know what is happening. This can lead to irreversible and costly mistakes being made.
On retirement, many people’s first instinct is to request their full tax-free cash entitlement. However, unless a large lump sum is needed for a specific purpose, this is not always the wisest course of action.
If flexibly accessing a pension, it can often make sense for couples to retain most of the tax-free cash entitlement until a later date, looking to utilise the personal allowance (and potentially the basic rate tax band) to draw tax-efficient income instead.
For more information or to discuss any of the issues raised in this article, please contact your adviser, or call us directly on 0161 819 1131. Further information can also be found at gov.uk.
Personal circumstances differ and not all of this information is applicable to every client and/or their business, this information is general in nature and should not be relied upon without seeking specific professional financial advice.
The Financial Conduct Authority (FCA) does not regulate tax advice, estate planning, trusts or will writing.
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