PENSIONS AND RETIREMENT – STILL TABOO?

How to fund retirement is not an ideal topic for a quiet evening in. But it’s an important one which is being overlooked by millions of married couples.

According to a recent study1, almost half (47%) of working married people have not spoken to their spouse about their retirement plans.

Wealthy households aren’t doing much better. The study revealed that 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, but the majority (60%) aren’t going to plan their retirement finances with their spouse.

Those couples who don’t tend to talk about finances might be more likely to do so if they realised that those who jointly plan their retirement can be much better off when they stop working.

Indeed, 85% of non-retired married people are not aware of the tax-efficiencies of planning retirement together.

There are many ways in which couples can maximise the tax breaks jointly available to them and find the most tax-efficient way of generating income in retirement, together.

For example, on retirement, taking the full tax-free cash entitlement from a pension is not always the smart choice- unless a large lump sum is needed.

It can make sense for couples to instead 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 down tax-efficient income instead.

An adviser can unveil the many other ways in which a couple can use the rules to their advantage and minimise tax bills. This is particularly useful where retirement happens before the State pension kicks in.

Making use of each other’s allowances is also worth investigating. A higher earning partner approaching the Lifetime Allowance or Annual Allowance could pay additional contributions into their partner’s pension. The contributions will attract tax relief and the couple will be able to draw a tax-free combined income of more than £30,0002.

That’s got to be worth talking about.

However, it’s not only married couples that are guilty of failing to communicate on retirement money matters later in life.

Previous research3 suggests the failure to talk finances starts much earlier on in the relationship cycle. People admitted they would say ‘I love you’ five months into a relationship, but wouldn’t talk about money until nine months – and a quarter are simply uncomfortable talking about money with their other half.

The research also found 18% are more likely to move in together before they talk about money.

Talking about money and financial security is a must in any relationship since it’s such a big part of planning a future. Sharing decisions about spending and saving – and discussing money openly – will help avoid arguments and tension.

Having an adviser on hand to help put in place ways to reach retirement goals – and others – can prove invaluable.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

Source:

[1] LV= surveyed 4,000+ nationally representative UK adults via an online omnibus conducted by Opinium in June 2021

[2] LV= surveyed 4,000+ nationally representative UK adults via an online omnibus conducted by Opinium in June 2021

[3] https://bank.marksandspencer.com/explore/media-centre/overview/press-release/2020/02/financial-language-of-love/PR100410/