A little-known rule on pension contributions could allow a worker to boost their partner’s pension nest egg by £67,000.
Investment experts say most people are unaware that they can contribute up to £2,880 a year to the pension of a non-working partner.
Significantly, this will be boosted to £3,600 year by the government through tax relief.
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown, said: “Partner pension contributions are a real hidden hero that can give your pension a massive boost.”
The firm’s investment experts modelled two scenarios where someone contributed to a pension between the ages of 22-68 on a starting salary of £28,000.
In the first scenario the member took a five-year break from work – and from making pension contributions – between the age of 32 and 37, perhaps to help raise children to the age they start school.
In the second scenario, the member’s partner plugged the five-year gap during that period by contributing the full £2,880 per year to their pension – rounded up to £3,600 by pension tax relief.
This scenario gave the individual a pension pot of some £398,000 by the time they reached the age of 68. This was £67,000 more than where their partner had not stepped in and paid their pension contributions for those five years.
Hargreaves Lansdown said this move had a secondary benefit because splitting income across two partners also allows them to make the best use of each person’s tax-free personal allowances. The tactic would effectively allow a couple to receive up to £25,140 pension between them before paying income tax.
Helen Morrisey said: “Even relatively small contributions can make a huge difference.
“The time those extra contributions spend invested in the market keeps up the momentum of building your pension over the long term.
“It can not only significantly strengthen your own retirement resilience but that of your family overall as well. It’s a strategy well worth considering if there is the extra money in the family budget to allow for it.”
The figures used in the modelling by the firm are based on assumed growth of 5 percent and fees of 1 percent. They do not take account of inflation so their purchasing power will be lower than they would be today.
