As a couple, you may well have exciting plans for what you both want to do once you’ve retired. Whether it’s travelling the world, spending more time with your grandchildren, or taking up a new hobby, your retirement will no doubt be something you’re both looking forward to.
However, to achieve everything the pair of you want to do, you’ll need to make sure you have enough funds put aside and a strong financial plan in place.
With that in mind, it’s important that you make future financial plans together, rather than separately.
Indeed, a report by PensionsAge reveals that more than half of couples who work together to plan for retirement were on track for a moderate income, compared to 42% overall.
So, read on to find out six wonderful benefits of financial planning as a couple and how planning with your partner could build a more robust retirement plan.
1. Joint planning could help you both achieve your life goals
It’s possible that both of you will have very different ideas of what your retirement will look like. Indeed, one of you might want to stay at home, while the other might want to travel. If you don’t discuss these ideas and goals now, it could create tension in the relationship later.
It’s worth planning jointly now to strengthen the relationship and make sure that you’re both rowing in the same direction by aligning your spending habits.
2. Joint decisions are usually better decisions
Despite the benefits of discussing finances and plans with your partner, there are many UK adults currently in relationships who want to maintain their financial independence.
Indeed, a report by This is Money reveals that almost 1 in 7 people in relationships have more than £50,000 in savings that they have failed to mention to their partner.
You may not always want to discuss your finances with your partner, having worked hard to put money aside by yourself for many years. Yet, discussing money management and financial strategy with your loved one could be hugely beneficial to both of you.
By doing so, you’ll be more invested in the outcome, and the decisions you make as a partnership will most likely be better than individual ones.
3. You’ll be able to make the most of pension tax relief
With tax relief provided by the government, pension contributions could be an incredibly tax-efficient way to save for your joint retirement. Your Annual Allowance means that, in 2023/24, you could save up to £60,000 (or 100% of your earnings if lower) into a pension tax-efficiently.
You’ll receive basic-rate tax relief on your pension contributions, meaning a £100 contribution would only cost you £80. You will also benefit from further tax relief at your marginal tax rate if applicable.
Even if you’re not working, you could still contribute to a pension and benefit from the basic-rate tax relief on your contributions. This means you could pay up to £2,880 into a pension each year, with basic-rate tax relief topping this up to £3,600.
Tax relief is available to all individuals, so working together to make the most of the relief that is available can give your retirement fund a real boost.
4. Working together could help you both maximise your tax-efficient savings
In addition to the tax relief you could potentially receive on your pension contributions, placing some of your wealth into an Individual Savings Account (ISA) also has tax advantages.
You’ll each have an annual ISA allowance of £20,000 (2023/24 tax year), regardless of how much you earn. Crucially, returns on any money held within ISAs are entirely free from Income Tax and Capital Gains Tax (CGT).
This means that you and your partner could save up to £40,000 tax-efficiently in the 2023/24 tax year.
5. You could maximise your tax-free investment income
If you’ve invested money in non-ISA assets, you may have to pay Capital Gains Tax (CGT) on your profits.
However, you will only have to pay CGT on any overall gains above your annual exempt amount. In the 2023/24 tax year, this is £6,000, and is set to fall to £3,000 in April 2024.
By working together with your partner or spouse, you can make gains of £12,000 in 2023/24 from your investments free of CGT. This amount is on top of any investments you have in tax-efficient vehicles, such as ISAs and pensions.
6. A joint retirement income strategy could be advantageous
Aside from a joint income strategy making it highly beneficial to save money, planning with your partner also has advantages when it comes to taking income when you retire.
There are various tax allowances that can create plenty of opportunities if you financially plan as a couple.
For instance, both of you have a Personal Allowance in each tax year, allowing you to draw an income without facing Income Tax. In the 2023/24 tax year, this would be £12,570, meaning that you could get a joint tax-free income of more than £25,000 if you planned your withdrawals carefully.
Seeking financial advice could also be beneficial
Of course, while discussing your financial situation with your partner is incredibly important, having a joint discussion with a financial planner could also help.
Working closely with an experienced financial planner means you’ll have the peace of mind of knowing a professional is in your corner, devising a financial plan that suits both of your financial circumstances.
To find out how we could help you, please get in touch. Email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.
The tax implications of pension withdrawals will be based on your circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
