Britons could receive a significant boost to their pension pot through their partner thanks to a £16,000 tax break.
Tax relief is applied to pensions and reduces the amount people need to pay to HM Revenue (HMRC) while being used to bolster retirement savings.
It is possible for one party in a couple to pay into their partner’s pension if they are in need of a sizable boost.
This is essential for many Britons, especially those who have left the workforce for an extended period of time.
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Pension tax relief is useful in bolstering peoples' retirement savings
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When an individual pays into someone else’s pension pot, any tax relief received will be based on the latter’s tax status.
Even if someone is not earning, they can contribute up to £2,880 every tax year and get 20 per cent in basic-rate relief from the Government as long as they are under 75.
This would provide a total contribution of £3,600 which can be paid into a non-earning partner’s pension.
If someone’s partner is earning, it is possible to pay in any amount up to their earnings but this will be capped at the annual pension allowance to benefit from any tax relief.
Anyone choosing to do this will need to check how much has already been contributed to their parent’s pension.
This is to make sure that any contribution will not exceed the annual allowance which is usually £60,000.
Helen Morrisey, Hargreaves Lansdown’s head of retirement analysis, and Isabel McDougall, the firm’s pensions and retirement writer outlined how this could translate into a £16,000 pension boost.
The finance experts shared: “Let’s say you put away £3,600 each year, since this limit was introduced in 2001, you could’ve contributed £65,726 in total to your partner’s pension.
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GETTY“When the Government adds tax relief, this would bump it up to a whopping £82,800.
“That’s over £17,000 in free money from the government over the last 23 years – slightly higher than the £16,000 you’d likely get for the next 23 years thanks to the first seven years when basic-rate income tax was still at 22 per cent.”
Research carried out by Hargreaves Lansdown suggests that many couples are reliant on each other when it comes to bolstering retirement savings.
Around 43 per cent of people could not cope financially if they did not receive part of their partner’s pension in retirement.
