3.7 Pension Planning for Couples

3.7 Pension Planning for Couples

Pensions are personal, but retirement is often shared. When two people plan together, there’s more room for flexibility, tax efficiency, and long-term security — but also more complexity. This chapter explores how couples can work together to get the most from their pensions.

Why Planning as a Couple Matters

Retirement planning isn’t just about individual pots — it’s about joint outcomes:

• One partner may have significantly more pension wealth
• Income may be needed for joint spending, not split evenly
• Planning for inheritance or survivor’s income is essential

By working together, couples can reduce tax, stretch savings further, and ensure both partners are financially secure — even in the event of illness or death.

Coordinating Withdrawals and Timing

Couples can choose to draw pensions:

• In parallel (both withdraw income at the same time)
• Or strategically staggered (e.g. one draws early, the other delays)

Key factors include:

• Age differences and tax bands
• When State Pension starts
• Who needs more income now
• Whether one person is still working

Tip: Coordinating income so that both partners stay within the 20% tax band can reduce the total tax bill significantly.

Making the Most of Joint Tax Allowances

Each person gets their own allowances — so couples have double the room to draw income tax-efficiently:

Using these allowances together allows couples to draw more income before hitting higher tax bands or losing benefits.

Equalising Pension Wealth

It’s common for one partner to have a larger pension — especially if the other took career breaks or worked part-time.

Unequal pensions can lead to:

• One partner paying 40% tax while the other has unused allowances
• Less flexibility in long-term planning
• Dependency on one income source in widowhood

Strategies to rebalance include:

• Making pension contributions for a lower-earning spouse (even non-earners can contribute up to £2,880 net per year)
• Using ISAs or gifting to shift savings over time
• Drawing more income from the larger pot while preserving the smaller one

State Pension Planning

Each person builds their own State Pension — but couples should check:

• Are both on track for the full amount (around £11,500/year)?
• Does either qualify for Pension Credit?
• Are there any missing years of NI contributions?

🔗 Check forecasts at: gov.uk/check-state-pension

Case Example: Coordinated Drawdown

John (67) and Priya (64) are married.

• John has £250,000 in a DC pension and £12,000/year DB pension
• Priya has £60,000 in a DC pension but no DB income
• Both have ISAs

They want around £45,000/year joint income.

Their Strategy:

• Priya draws £12,000/year from her DC pot (within her personal allowance)
• John draws £9,000/year from his DC, on top of his £12k DB income
• They top up with £12,000/year from ISA savings
• Result: Tax-efficient income, minimal higher-rate exposure, and retained flexibility

Inheritance, Death Benefits, and Survivor’s Income

Pensions don’t automatically pass to your spouse — it depends on the scheme and nominations.

• For DC pensions, you can nominate your spouse (or anyone else)
• For DB pensions, most schemes offer a 50% survivor’s pension
• If you die before 75, beneficiaries may inherit pension tax-free
• From April 2027, IHT may apply to undrawn pensions (rules pending)

Actions for couples:

• Check and update Expression of Wish forms
• Make sure both partners understand where income will come from if one dies
• Consider joint planning for drawdown vs annuity split

Divorce and Pension Sharing

If a couple separates, pensions are usually part of the financial settlement:

• Courts may issue a Pension Sharing Order
• Applies to both DB and DC pensions
• Advice is usually required to value and divide pensions fairly

⚠️ Tip: Even if one person keeps the pension and the other keeps the house, this can result in long-term imbalance.

Summary: Planning as a Couple

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We’ll cover Annuities — how they work, when to use them, and how to shop for the best deal.

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