Pensions experts are urging those heading towards retirement to look at a way to add several thousand pounds’ worth of additional savings into their pension pots tax free.
Did you know that 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?
Not many people do. In fact, data taken from an Opinium survey of 2,000 people carried out on behalf of Hargreaves Lansdown in May 2023 shows that almost three quarters (73%) of people don’t know you can contribute to someone else’s pension.
According to the current rules, 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.
Men are less likely to know about the tax break: two thirds were unaware compared to 80% of women. Higher rate taxpayers were also more likely to know – 61% were aware compared to only 21% of basic rate taxpayers.
How to save more for retirement
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “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. 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.”
Helping your children to save
In the case of a child, you could find your early contributions mean they have a pension worth tens of thousands of pounds, or even more, by the time they start work. This puts them at a significant advantage over their peers who are yet to be auto-enrolled. It means long-term they are under less pressure to make big contributions themselves and they have more flexibility to save for other things such as a first home or a car.
Pensions are not the only way to help a younger family member plan for retirement. As long as they are aged between 18 and 39 you can also contribute to a Lifetime ISA that they have opened which can be used either for retirement or to help them save for their first home. Contributions of up to £4,000 per year attract a 25% bonus which can really help your loved one get their financial planning off on a firm footing and make your own money work as hard as possible.
Are YOU on track for a comfortable retirement?
So would tucking away additional savings tax free make a difference to your retirement plans?
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