Couples could boost their pension pot by £410,000 with 'rare quirk' in system - check how

Experts at interactive investor have crunched the numbers and found that couples could boost their household wealth by up to £410,000 by retirement by making the most of state pension and private pension tax rules, taking inflation into account.

The couples could get a £201,500 state pension boost in retirement for no added cost and an extra £208.4000 in their private pension for just £35,000 in extra contributions.

How to boost savings

State Pension: Stay-at-home parents could miss out on 12 years’ worth of state pension entitlement if they don’t claim child benefit. This could lose £201,500 income over a 20-year retirement for someone currently aged 30 (assuming the state pension increases at least 2.5 per cent each year).

To make sure each person gets a full state pension, it’s worth claiming child benefit even if they will need to pay it back later.

To get the full new state pension, retirees need 35 qualifying years, and to get the full basic state pension they need 30 years, which can be gained through working and paying national insurance, or through national insurance credits.

So even non-earning parents can get national insurance credits and potentially a bigger state pension by claiming child benefit for their youngest child is under 12 years old.

Many people avoid claiming child benefit if they earn over £60,000 as they end up paying back all or some of it due to earning thresholds, however it is still worth claiming for the non earner's national insurance credits.

Alice Guy, head of pension and savings at interactive investor stressed: “The whole £200,000 is free so claiming child benefit is a no-brainer, even if it comes with some extra hassle."

Private Pension: Non-earners can pay up to £2,880 each year into a pension, which will be boosted to £3,600 by 20 per cent tax relief, even though they’re not earning.

Over 12-years, paying into a pension for a non-earning partner aged 30, would boost their pension wealth by £208,400 by the time they reach retirement age of 68, assuming five per cent investment growth net of fees.

The “free” tax relief element of this pension adds up to £42,000 by retirement age.

Guy explained that with couple's there’s often a big earnings gap for women after they have children which has knock-on impact on pension wealth.

She said: “The knotty child benefit rules mean that partners of high earners may be tempted to not apply for child benefit, because they will need to pay it back through the high income child benefit charge. But that decision could have a devastating impact on their state pension later on.

“There's free money available for non-earners where their partner can afford to pay into a private pension. The generous rules mean that non earners can contribute up to £2,880 each year and receive 20 per cent tax relief on top, even though they don’t pay any tax.

"It’s a rare quirk in our system which is designed to help non earners build up their own pension wealth. It’s a great tax hack as it means you can get tax back, even when you don’t pay any tax.”

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Myron Jobson, senior personal finance analyst at interactive investor, says: “Retirement planning is most rewarding when done together. Pensions offer substantial tax advantages, but without a joint strategy, couples risk missing out on the full benefits.

"Joint planning requires a comprehensive understanding of income streams, be it pensions, savings, or investments, ensuring that both partners are on the same page about their financial health."