Pension tip can make 'enormous' difference to retirement savings - only 34% know about it

Just over one third of people are aware they can pay money into their partner's pension, despite the "enormous" difference it can make to their savings pot. New research from Hargreaves Lansdown showed 34% of people knew about this rule. Worryingly, only 25% of those aware were aged 55 and over.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: "The ability to pay into a partner's pension is a little-known benefit that can make an enormous difference to your family's retirement planning."

According to the rules, people can pay up to £2,880 per year into the Self-Invested Personal Pension (SIPP) of a non-working spouse. Ms Morrissey continued: "Even though they are not working (so not paying tax), they will still get a tax relief top-up from the Government, taking it up to £3,600."

She added: "It's a powerful way to boost the retirement planning of a loved one who is taking time out of the workforce to care for children or other loved ones, and can go a long way towards closing the gender pension gap that continues to yawn widely."

According to Ms Morrissey, you can still make payments to your partner's pension even if they are working, as long as total contributions do not exceed their annual allowance.

The standard annual pension allowance is £60,000; however, this can be lower if you've flexibly accessed your pot or you have a high income. In terms of high income, you'll have a reduced ('tapered') annual allowance in the current tax year if both your 'threshold income' is over £200,000, and your 'adjusted income' is over £260,000.

Ms Morrissey said making the contributions to partners' pots is "a great way" to make the most of any spare cash you have if you have made the most of your own pension allowances.

However, she noted: "The problem is, not enough of us know about it. Only a third of people knew that this was something they could do. Awareness seems to be more widespread among younger people, with 43% of those who are aged between 18 to 34 being aware compared to just 25% of those aged over 55."

Higher earners appear to be much more aware, with well over three-quarters of additional rate taxpayers claiming to know about it.

Ms Morrissey explained: "This may well be because they are making use of it."

The rule can expand even further than that of a spouse or partner. You can also contribute to children's pensions through a Junior SIPP to get their retirement planning off to a flying start.

Ms Morrissey said: "As with a non-working spouse, you can contribute up to £2,880 per year to a Junior SIPP and they will receive the Government tax relief top up to £3,600. Even small contributions will make a difference. Combined with tax relief and long-term investment growth, these contributions can grow and give your child a real leg up the retirement planning ladder."

According to Hargreaves Lansdown's calculations, making contributions of the full £3,600 per year could see children with a pension pot of £104,000 by the time they are 18.

Ms Morrissey added: "This puts them well ahead of their peers who are yet to be auto-enrolled. Overall, this early planning could leave them in a much better position."