How married couples can boost their retirement wealth by £410,000

Married couples can boost their pension pot by making use of each other’s tax allowances. Here is how much extra you could earn.

The cost of retirement is rising but there are ways to manage your golden years more efficiently and effectively as a couple.

If you are married or in a civil partnership, there are ways you can make the most of pension contributions and tax relief to boost your wealth.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

In fact, research by interactive investor suggests couples could boost their household wealth by up to £410,000 by the time they retire.

“Retirement planning is most rewarding when done together,” says Myron Jobson, senior personal finance analyst at interactive investor.

“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.”

Every penny can count in retirement, especially with figures from the Pension and Lifetime Savings Association showing a two-person household needs income of £59,000 per year for a comfortable retirement.

AJ Bell research suggests a couple would need a pension pot worth £890,00 to get this sort of income from drawdown in retirement.

Here are some ways couples can boost their pension pot and get extra wealth in retirement.

Claim child benefit

The state pension is currently paid to everyone from age 66.

But you need a minimum of 35 years of national insurance (NI) contributions to qualify for the full state pension payments.

You or your partner may miss out on NI contributions if you stay at home to look after the kids for an extended period.

But one way to ensure you build up state pension eligibility is to claim child benefit as you will still get NI credits until the child is 12.

Analysis by interactive investor suggests stay-at-home parents could miss out on 12 years’ worth of state pension entitlement if they don’t claim child benefit.

It may even still be worth claiming if you or your partner are a high earner and have to pay the high-income child benefit charge.

A 30-year-old would lose £201,500 of income over a 20-year retirement, assuming the state pension rises by at least 2.5% each year, by not taking child benefit, says interactive investor.

Contribute to your partner's pension

Couples may not realise they can contribute to each other’s private pensions.

But a recent survey by Nucleus, a financial adviser platform group, found three quarters of adults were unaware of the possibility of paying into someone else’s pension.

This could be of use if one spouse is close to the £60,000 annual contribution limit and if the other doesn’t work.

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

Joshua Gerstler, chartered financial planner at The Orchard Practice, says a lot of people don't know about this.

"Even if your spouse is not earning, they can contribute £2,880 each year or you can put this money in and the government will give them £820 in tax relief," he says.

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 5% investment growth net of fees. 

The tax relief element of this pension adds up to £42,000 by retirement age, interactive investor says.

That potentially gives a married couple a combined £409,900 extra wealth when claiming both child benefit and contributing to a partner's pension.

Claim the marriage allowance

Another tax perk for couples is the marriage allowance but around 2 million couples are estimated to be missing out

This lets a partner transfer some of their personal tax allowance to their spouse, increasing how much they can earn before having to give money to HMRC.

It is beneficial if the other partner does not pay income tax - or their income is below the £12,570 personal allowance.

The marriage allowance works by transferring up to £1,260 (10%) of the lower-earning partner’s personal allowance to their spouse or civil partner who earns more. New tax codes are issued reflecting this.

“Many people fail to take into account the advantages of planning for the future together,” says Lisa Tipton, director of financial planning at New World Financial Group.

“Structuring retirement income in a tax-efficient manner – using both spouses’ personal allowances and making withdrawals as a mixture of tax-free cash and taxable income can be extremely tax-efficient.”