People can contribute up to £60,000 a year into a pension (Image: Getty)
Couples who plan their pensions together could boost their retirement savings by as much as £2.6 million over 20 years, new research suggests. The uplift comes from combining pension tax relief with long-term investment growth and making full use of both partners’ pension allowances. When contributions and tax relief are reinvested and allowed to compound over time, the impact becomes significant.
According to Rathbones, one of the UK’s leading providers of investment and wealth management services, a married couple or civil partners can build a combined pension pot of around £2.6 million over 20 years if one partner, an additional‑rate taxpayer, contributes the full £60,000 annual pension allowance while also paying £20,000 into their partner’s pension each year.
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Married couples or civil partners could build significantly larger retirement pots (Image: Getty)
After tax relief is taken into account, this equates to net annual contributions of £33,000 for the additional-rate taxpayer and £12,000 for their higher-rate taxpayer partner. Almost half of the eventual uplift comes from pension tax relief that is reinvested and compounded over time.
By contrast, if only the additional-rate taxpayer contributes £60,000 a year, the combined pension pot would total just under £2million after 20 years, assuming investment growth of 5% a year.
If the higher earner were to maximise both their own and their partner’s full £60,000 annual allowances, the combined pension could reach £4million over 20 years, which is therefore nearly £2million more than in the lowest-contribution scenario.
The difference can also be seen over shorter periods of time. After 10 years, an additional-rate taxpayer contributing £60,000 to their own pension and the same amount to their partner’s could build a combined pot of around £1.5million, according to Rathbones.
That compares with just over £1million if the partner gets a £20,000 top-up, and roughly £755,000 if only the additional-rate earner contributes £60,000.
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Ryan Jackson, associate financial planning director at Rathbones, said: “The phrase ‘better together’ couldn’t be truer when it comes to spouses and their finances. Our analysis shows that by simply making the most of the tax allowances and reliefs already available, spouses can build a genuinely life-changing sum of money.
“We know from experience that people can be hesitant when talking about money – even with their nearest and dearest – but when we show them the potential financial benefit in pounds and pence, the impact is undeniable. Even those who put only part of this approach into action can be significantly better off today and far into the future.
“Marriage itself is an incredibly effective financial planning tool, because it gives couples access to a range of tax allowances and reliefs that simply aren’t available to individuals.”
