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Pension AVC for a couple

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  • 05-10-2019 6:17pm
    #1
    mark23
    Registered Users Posts: 80 ✭✭


    Hi,

    If my wife and I both have a DC pension in our respective workplaces but my salary (and hence pension pot) is greater than my wives, does it make sense for my wife to make larger AVCs in order to make the sizes of the pension pots more similar or should I just make the AVCs into my own pension?

    Thanks


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    #2
    RedRochey
    Registered Users Posts: 1,298 ✭✭✭RedRochey


    This might not apply to this situation but there is a maximum of how much you can contribute to your pension tax free.

    For example if you're in your 30s then you can contribute 20% of your earnings tax free to your pension. The limits are set out here https://www.revenue.ie/en/jobs-and-pensions/pensions/tax-relief-for-pension-contributions.aspx

    So say you do a regular contribute of 10% each month, then you can only do 10% of AVCs. Given that your earnings are higher than your wifes then you will be able to do larger AVCs.

    All of this is based on maximising AVCs which I know you might not be doing in this case but its good to know.

    Obviously make sure you're getting the most out of the employer contributions as well before you start doing AVCs. If your employer will match contributions up to 10% then its better for you to do the same than for to do AVCs.

    Also check what fees you are being charged within the pension, you might be getting cheaper fees than your wife so it would make sense for you to do the AVCs.


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    #3
    coylemj
    Registered Users Posts: 25,353 ✭✭✭✭coylemj


    StockTwat29 wrote: »
    For example if you're in your 30s then you can contribute 20% of your earnings tax free to your pension. The limits are set out here https://www.revenue.ie/en/jobs-and-pensions/pensions/tax-relief-for-pension-contributions.aspx

    So say you do a regular contribute of 10% each month, then you can only do 10% of AVCs. Given that your earnings are higher than your wifes then you will be able to do larger AVCs.

    +1 and if the OP is older than his wife, he will arrive in the higher bands earlier than her. For example, when you reach 30, 40, 50 and 55, your max. tax-free contribution limit jumps by 5%. Per the table in the link provided by the previous poster.

    That and his higher income probably means that the OP should be doing the bulk of the contributing. Doesn't mean that the wife shouldn't do any AVC - if they can afford it, they should both go to the max. But where they cannnot do this, the OP should be contributing as much as he can and if he reaches his tax-free limit, the wife should start an AVC or increase her existing contrbutions.


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    #4
    Henry Ford III
    Moderators, Business & Finance Moderators Posts: 17,638 Mod ✭✭✭✭Henry Ford III


    Makes sense to maximise your tax relief.

    The availability of ARF type post retirement products will enable benefits go to a surviving spouse. Anniuties would be awful in that respect.

    p.s. If either pension fund is getting large (or if a d.i.s. scheme exists in addition to pension funds) be careful about the 4 x salary d.i.s. limit.


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    #5
    catrionanic
    Registered Users Posts: 2,091 ✭✭✭catrionanic


    If for whatever reason a marriage broke down, and the couple had been prioritising the husband's pension due to his higher earning capacity, would the wife be left high and dry?


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    #6
    Henry Ford III
    Moderators, Business & Finance Moderators Posts: 17,638 Mod ✭✭✭✭Henry Ford III


    catrionanic wrote: »
    If for whatever reason a marriage broke down, and the couple had been prioritising the husband's pension due to his higher earning capacity, would the wife be left high and dry?

    Pension adjustment orders are mandatory.


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    #7
    mark23
    Registered Users Posts: 80 ✭✭mark23


    Henry Ford III wrote: »
    Pension adjustment orders are mandatory.

    Thanks for all the advice. I am maximising the employer benefits but I am still not sure why or if if matters where we put the AVCs? We can't afford to max out the AVCs so does it matter if I put them in mine or hers?


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    #8
    RedRochey
    Registered Users Posts: 1,298 ✭✭✭RedRochey


    If you're paying the higher rate of income tax and your wife is only on the lower rate then it would be better for you to do AVCs since you're getting more of a tax benefit


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    #9
    coylemj
    Registered Users Posts: 25,353 ✭✭✭✭coylemj


    StockTwat29 wrote: »
    If you're paying the higher rate of income tax and your wife is only on the lower rate then it would be better for you to do AVCs since you're getting more of a tax benefit

    Anyone stupid enough to be in that scenario probably doesn't understand pensions and AVCs - give the OP some credit!


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    #10
    mark23
    Registered Users Posts: 80 ✭✭mark23


    Thanks for all the advice.


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