07 February 2024 , 11:34
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Brits are being urged to make use of a "little known" HMRC tax hack which could help boost pension pots by more than £17,000.
Under HMRC rules, you can claim tax relief by contributing to your non-working partner's pension pot. Currently, you can contribute up to £2,880 per year which will give a tax relief boost of £720 to £3,600. The pension provider will claim this tax relief on behalf of the person receiving the money and will automatically add it to their pension pot.
Since the limit was introduced in 2001, calculations from Hargreaves Lansdown show savers could have put £65,736 into a partner’s pension, with tax relief increasing it to £82,800 - which equates to a £17,000 boost. This figure also included the change in tax relief to 20% in 2008. If you contributed the full amount to your 30-year-old partner’s pension every year, they would have a pension worth around £230,000 by the age of 68.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown said the "little known" rule can have a big impact on a household's financial resilience. She said: "If you have used up your own pension allowances this is a hugely tax efficient way of continuing to build retirement resilience by making sure both yourself and your partner are building up pensions. This comes at a time when many couples find themselves overly reliant on one partner’s pension."
According to research conducted by the financial firm, less than half (43%) of people could cope financially if they didn’t receive part of their partner’s pension in retirement. Around two thirds (58%) of men say they would be able to cope but only 28% of women could say the same. Only one-third of those in the 35-54 age group say they would be able to cope and this compares to almost half of the 18-34 age group and over 55s.
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Helen added: "The figures are particularly grim for women, with just over one quarter saying they could cope on their pension alone, as a toxic mix of time out of the workforce and lower paid, often part-time work takes its toll on women’s pension prospects.
"However, it’s also fair to say it’s a problem many men grapple with too. Less than 60% said they could cope without a share of their partner’s pension, so it’s important to do all you can to boost your prospects as a couple wherever possible and this could prove to be a real game-changer.”
People can calculate their potential pension tax relief by using the Hargreaves Lansdown tool.