Should Couples Rebalance Pension Contributions?

In this episode we answer listener questions covering emergency funds for higher and additional rate taxpayers, and inheritance tax considerations around beneficiary SIPPs. We also discuss whether couples should rebalance pension contributions, the key steps to take before retiring abroad, and what to know about DB pension transfers. Finally, we look at cross-border pension taxation using the UK–Denmark double taxation treaty as an example.

Shownotes: https://meaningfulmoney.tv/QA40

01:20 Question 1

Hi Pete & Roger,

Thanks for all your helpful and easy to understand information. I have only been on my financial wellbeing journey for a year. I work in the NHS and am in a higher tax bracket. I am fully enrolled in the NHS pension, more out of previous disinterest than any actual action on my part. I am single and currently saving up for a down payment on a house in about 4/5yrs. I maxed out my ISA last year and expect to do the same this year; this includes money for the down payment. I also took out a SIPP which I only recalled last year; I took it out 20+ years ago. However I am still waiting for a statement from the pension office before my accountant can work out how much more I can add to the SIPP. In the interim I have my emergency fund in a premium bond (20k) but am worried it's being eroded by inflation. I expect to be an additional tax payer in the next few years. Where should I keep my excess cash? More in premium bonds with no tax but erosion by inflation; or open GIA or more in high interest savings account and pay the tax? Or is there another option you would recommend?

Btw I have £600 in crypto (Coinbase and Etherium) but don't plan to put more than £400 more in then plan to forget about it. It's a tiny fraction of what I put in my ISA.

Thanks, Joy

04:46 Question 2

Dear Pete and Roger. Love the podcast. I think it is essential listening for those wanting to elevate their knowledge of the incredibly important subject of financial planning and it also highlights the value add that financial professionals can provide.

My mother is 79 and has a comfortable guaranteed inflation linked income via state and civil service pension, which is supplemented by savings (maxed premium bonds & healthy cash savings) and investments held in ISAs and a beneficiary SIPP from my late father who passed before 75yrs old (therefore the assets are income and CGT free).

My mother is keen to minimise the IHT on the estate both her and my father worked so hard to create. Despite her comfortable situation, I still have to encourage her to spend and use your very helpful '40% off sticker' analogy on a regular basis.

It is my understanding that SIPPs will be subject to IHT and income tax from 2027. As my sister and I are both additional rate taxpayers, we will potentially be subject to 67% tax on any assets remaining in the SIPP if the estate is above £1m IHT threshold. While the '67% off sticker' analogy is even more helpful to encourage her spending, it has triggered some planning. We are drawing down the beneficiary SIPP to fund ISA each year for my mum – keeping the income and CGT tax benefits for my mum while removing it from the double income and IHT tax on death.

As part of the IHT planning we are now considering regular gifts from surplus income. When combined with her guaranteed income, the assets in the beneficiary SIPP are more than sufficient so sustain her lifestyle until her age would be well into three figures. Based on my reading, it appears any drawdown from SIPPs are considered 'income' for gifting purposes, regardless of if they come from capital or income. Therefore she could start to draw more 'income' from the SIPP and gift this surplus which could be considered IHT free. Are there any limits to how much or how quickly she could reasonably drawdown from a SIPP so that it would no longer be considered 'income' by HMRC for IHT purposes? i.e could she empty the SIPP over a 5 yr period, gift that as excess income, then reduce the gifts to reflect a different income and or expenditure?

While all the drawdown from SIPPs is considered 'income' for IHT purposes, the treatment of withdrawals from ISAs or other investments are distinguished between whether they are actually capital or income. Therefore, we have the added complication of needing to balance the 'income' drawdown from the beneficiary SIPP to make sure she doesn't eat into 'capital' of the ISAs and savings which would then mean the gifts from regular surplus income would then be considered part of the estate again.

Our circumstances mean my mum feels slightly trapped between keeping the SIPP (so it is considered income for gifts from regular income but gets IHT taxed at 67%), continuing to use the beneficiary SIPP to fund ISAs (reduce IHT liability but lose flexibility to gift it as income), maybe change the investment engine of the ISAs from a lower yielding balanced solution to something with a higher natural yield, or do something else altogether (lump sum gifts and hope to survive 3yrs for taper or 7yrs). Any thoughts or suggestion would be appreciated.

While there are some relatively niche circumstances, I think it covers two more broadly applicable IHT planning considerations SIPPs v ISAs under the new rules and regular gifts from surplus income. Thanks in advance

Stephen

17:06 Question 3

Hi Pete and Roger

Thank you both for your continued help in navigating the financial maze and I am enjoying the listener questions.

My wife works part time and is a basic rate tax payer. She pays into her workplace pension and contributes an additional 15%. Her pension provider receives 20% tax relief on these contributions.

I am a higher rate tax payer and I make contributions to a SIPP. My pension provider receives 20% tax relief and I claim an additional 20% directly from HMRC.

As a couple, we could stop making the additional contributions to my wife's pension and instead make them into my SIPP. This would give us an additional 40%, rather than 20%.

Mathematically this makes sense.

We haven't done this so far, as I like the idea that we are equally contributing to both of our pensions, for the future. It also helps keep things simple.

I am mindful that one day, we may kick ourselves for not making this simple switch which may leave us with a significantly bigger pot, when we need it.

What options would you consider in this decision of splitting pension contributions.

Many thanks, Rob

20:17 Question 4

Dear Pete & Rog,

I just wanted to say a heartfelt thank you for your podcast and the incredibly valuable information you share. Your conversations are not only insightful but also reassuring as I start to think more seriously about my own retirement planning!

One of the things I'm considering is retiring abroad (somewhere sunny!) Spain most likely, and I wondered if you might explain the process you go through with such clients. Specifically, do you have a checklist, or a list of key questions, that you typically ask clients to work through before moving overseas?

For example, I've learned that ISAs are not recognised in many EU countries (so it may be better to sell before leaving), and I imagine there are similar considerations around SIPPs/UK DC pensions and other investments.

Do you also tend to liaise with financial planners or accountants based in the EU when helping clients prepare for such a move?

I would be very grateful for any wisdom you could share. Thanks again for all the work you put into the podcast, it really does make a difference.

Warm regards, Chloe

24:55 Question 5

Hi Pete,

Love the podcast. Very informative and user friendly.

I have a question, once popular but maybe not so much now and one that will make advisers sweat again!

I'm a sophisticated investor (so to speak!), I manage my own SIPP etc and I'm an accountant so I guess I have a head start over most people. I have a net worth excluding my house of circa £2.5m spread across a SIPP, ISA, FIC and GIA.

I also have an old DB pension. I'm 59. It pays out circa £6,500 from the age of 65. My dad died aged 63. Given my circumstances I want to transfer the DB scheme into my SIPP. I have two children so would like them to get it rather than die with me so to speak. The last transfer value I got was pre covid at circa £100k which I know isn't a brilliant multiple but I'm happy with that. I'm fit and healthy but I'm not relying on the guaranteed pension given my other pension provisions.

So, firstly is it likely the transfer value would have gone up or down given the increase in interest rates and secondly do you think I could get a positive recommendation from an adviser?

Thanks, Oscar

31:35 Question 6

Dear Pete and Roger,

Love the podcast. I'm a bit more of an adventurous investor than you usually caution, but you provide a certain "passive-tracker-Yin" to my "property-investment-Yang".

Given your backlog I'm going to ask you a pension question that I probably don't have to think about for 20 years, so you have time to get to it.

I worked in Denmark for several years and paid into a pension scheme while I was there. I believe it is structured similarly to a UK DB pension scheme. There is an initial lump sum plus an income for life. This pension fund is not covered by QROPS, so there is no transferring my way out of this complexity.

The Danish pension fund thinks I'll be paying Danish income tax (presently 37-38%), Chat GPT is adamant that I'll be paying UK Tax. Who's right? If taxed in the UK I can imagine getting the tax free cash allowance right might be complicated. Is there anything else I should be considering?

Best Wishes, James