3 ways you and your spouse can become a pension dream team in time for retirement

You and your spouse are likely to have a joined-up approach to many things in life, but when it comes to your finances, research shows some married couples are not as united as they’d like to be.

According to a survey from Aviva, 26% of couples admit to arguing about money every week, while 5% say they bicker about their finances daily.

While it’s normal to disagree on some money matters, as you approach retirement it is essential to have a succinct plan that takes both of your financial circumstances into account – especially as the cost of retirement is increasing.

In January 2023, the Pensions and Lifetime Savings Association (PLSA) reported that rising prices had added 18% to the “minimum cost of retirement”, emphasising the importance of careful saving before you finish your career.

So, here are three ways that you and your spouse can become a pension dream team.

1. Make a plan that aligns your goals

In addition to your home, your pension is likely to be one of the most valuable assets to your name. Together with your spouse, you could have hundreds and thousands of pounds ready to help fund your retirement lifestyle when the time comes.

When you consider just how valuable your pensions are combined, it makes sense to begin forming a joined-up plan that helps you make the most of these funds.

This starts with your ideal retirement ages. If you’d like to retire at the same time, it could be prudent to begin discussing how you can facilitate a simultaneous retirement.

Once you’ve established the “when”, it may be wise to think about how much you need to take as a collective income each year to sustain the lifestyle you want. Then, looking at each of your pension funds as they stand now, you can begin to decide how you’ll draw from each of them sustainably over the course of your retirement.

Being aligned in these areas matters greatly – and the following points will explain exactly why.

2. Work together to inflation-proof your retirement funds

Since the end of 2021, UK inflation has risen substantially. According to the Office for National Statistics (ONS), inflation reached a peak of 11.1% in October 2022 – a 40-year high – and has now declined to 6.7% as of September 2023.

While it is hoped that inflation will continue to fall to the Bank of England’s (BoE) target of 2%, even an on-target inflation rate could affect you and your spouse’s retirement savings over time – especially if a large portion of these savings is kept in cash.

Indeed, although your cash can receive interest, this is highly unlikely to keep pace with rising inflation, and over time, the spending power of your savings is likely to be depleted.

According to Nest, £10,000 saved in cash today, met with a steady 2.5% inflation rate, would only be “worth” £5,394 in 25 years’ time.

So, as you and your spouse plan how you’ll maintain your retirement funds, and when you’ll withdraw them, it’s important to begin protecting this wealth against inflation as early as you can.

As Schroders research has confirmed, in the period between 1926 and 2022, US stocks outpaced the rate of inflation over a 20-year period 100% of the time.

Past performance is not a reliable indicator of future performance, and you may not get back the amount you invested. Nevertheless, history informs us that keeping a significant amount of your wealth invested over the long term could help maintain its spending power.

This is where having a joined-up pension withdrawal plan can be incredibly useful. Taking both your pensions at once, and keeping them in cash throughout your retirement could erode your money over time.

Whereas, remaining invested and drawing an income slowly could help your household maintain a sustainable retirement fund.

3. Pay into each other’s pensions when possible

According to research from Scottish Widows, published in a report from the Guardian, 1 in 5 people aged between 35 and 54 have cut or stopped pension contributions in the last year.

While understandable in the cost of living crisis, reducing your pension payments now could create a substantial shortfall in retirement.

According to Royal London, an individual earning £35,000 who stops pension contributions could:

• Boost their take-home pay by £1,404 in that year
• Lose out on £4,092 in pension savings later.

As you can see, the short-term reward of more take-home pay could make up just one-quarter of the shortfall you may experience later.

This is where treating your pension contributions as a team effort can be instrumental for your later-life savings.

An FT Adviser report shows that 75% of people are unaware that you can pay into your partner or spouse’s pension pot – when in actual fact, the rules are as follows:

• If your partner does not have an income, you can pay £2,880 into their pension every year (which is topped up to £3,600 by Government tax relief).
• If you both earn an income, you can contribute up to the Annual Allowance amount into their pot as well as your own. As of the 2023/24 tax year, the Annual Allowance is usually £60,000 or their total earnings, whichever is lower.

Paying into a spouse’s pension can have huge benefits, particularly if you both work. These advantages include:

• Tax efficiency. If you’ve already used up your own Annual Allowance, but your partner or spouse has not used theirs, you make further pension contributions on their behalf – essentially, making the most of their Annual Allowance too – while receiving tax relief. This will be paid at their marginal rate of Income Tax.
• Supporting your later-life income. After you and your spouse have made the most of paying into each other’s pensions, you could both have large pension pots from which to draw when you retire.
• Leaving a substantial inheritance. Workplace pension pots do not usually form part of a person’s estate for Inheritance Tax (IHT) purposes. If you both have substantial pension wealth, together you could leave a large amount to the next generation while potentially avoiding an IHT bill on the assets kept in your pensions.

If you’re unsure how much you can afford to contribute to your own or your partner’s pension, working with a Financial Planner may be constructive. Visiting us as a couple can help our experts assess both your pension circumstances and offer guidance.

Get in touch

Every unbeatable team needs an experienced coach to help them form a winning strategy. To learn more, email us at enquiries@pen-life.co.uk, or call 01904 661140.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

All information is correct at the time of writing and is subject to change in the future.