Valentine’s Day may have been and gone but if you want to prove long-term commitment to your partner, then you might want to consider contributing to their pension.
I know there is nothing remotely romantic about this, but the reality is it’s a gift that will outlast any number of bouquets of flowers or boxes of chocolates.
You can contribute up to £2,880 to the pension of a non-working partner and they will receive tax relief from the government, who will top it up to £3,600. It’s a little-known rule – research we did last year showed only around one-third of people know you can contribute to someone else’s pension – but it can have a huge impact.
Read more: How couples can benefit from joint financial planning
It can be a very tax efficient use of your money if you have some spare cash and have already made full use of your own tax allowances.
It can play a vital role in boosting your partner’s long-term resilience, at a time when they might be out of work for a few years because they are caring for children or elderly relatives for instance. These workplace gaps are a key reason behind the yawning gender pension gap but can affect anyone who takes time out of the workforce.
If you were to contribute the full amount to your partner’s SIPP for five years, and they were to return to work and continue to pay in at the same level for another 25 years, then they would have a pension pot of around £244,000 at that point. However, if you hadn’t paid contributions for those five years, the pot would be £175,000, so those contributions can make an enormous difference.
It’s also well worth saying that this allowance isn’t just available to partners. You can give a child or grandchild a real leg up with their retirement planning by contributing to a Junior SIPP. Again, you can contribute up to £2,880 per year and they will get the tax relief top up.
Over time those contributions will grow and by the time they start work they could have a pension worth tens of thousands of pounds. This can put them streets ahead of their peers who are just being auto-enrolled.
The ability to contribute to a partner’s pension isn’t just limited to those who aren’t working either. You can contribute up to whichever is the lowest of their annual earnings or £60,000 and still benefit from tax relief.
So, if your partner has a bit of headroom in their allowance, and you have some extra money and have used up your own allowances, then it can make sense to boost their contribution ahead of tax year end. The results not only benefit your partner but can contribute towards a better retirement for you both as a couple.