Pension planning for service spouses - boring but important!

September 28, 2022

Pensions. Not the sexiest of topics as, let’s face it, none of us want to think about getting old. Switching jobs regularly makes it more difficult for army families to plan for a secure financial future. But plan you must! It’s not wise to just rely on your soldier’s pension as your circumstances could change.

We spoke to Paul Fox at the Money and Pensions Service, who outlined how to deal with your pensions when you’re always on the move.

Keeping up to date with your pensions can feel challenging, especially if you’ve had multiple jobs. Maintaining a file of pension scheme paperwork, including contact details, will help, as well as keeping schemes updated with changes to your address.

It’s a good idea to review the pensions you have and plan ahead, the earlier the better. The new full state pension is £9,627 a year but, according to the Pensions and Lifetime Savings Association, the suggested moderate income for a couple is £30,600 a year, so will your pension savings be enough for retirement? If not, consider increasing your contributions.

You can contribute up to 100% of your earnings and get tax relief. However, the total amount paid into your pension, or benefits built up each year, must normally be below the annual allowance of £40,000 to benefit from tax relief (see page 35 for more). Even if you’re not working, you can get tax relief on contributions up to £3,600 gross (or £2,880 net) a year, so you can continue paying contributions to build up your own pension, or a member of your family’s, making it a tax efficient way to save for retirement.

What if I change jobs?

You can usually leave your pension in the scheme until you reach retirement age, or you may be able to move it to your new employer’s pension scheme.

If you’re considering transferring an old pension, check what type you have. If your pension is defined contribution (you have a pot invested with a pension provider), it’s likely to be easier to transfer, but whether this is the best thing to do will depend on a number of things, such as the provider’s fees, the investment options and performance and whether there’s a penalty for transferring out.

If your pension is defined benefit (such as a final salary or career average pension where you get a guaranteed income at retirement), there are more restrictions in place, and you may need to seek independent financial advice. Most people will normally be better off staying with the defined benefit pension.

What if I’m out of work?

Make sure that you’re building up National Insurance (NI) contributions towards your state pension. Since 2016 you need 35 years of NI contributions to qualify for the full state pension (currently £185.15 a week). If your NI record started earlier, it’s best to check your forecast at gov.uk

If you’re not working, you will receive NI credits if you are claiming child benefit for a child under 12.

What if we’re posted overseas?

If you have UK income you can continue to pay into a pension and get tax relief up to the limits mentioned earlier. If you don’t have any UK income you can still contribute up to £3,600 a year gross into a pension and get tax relief for up to five years.

You can also claim NI credits for time you’ve spent accompanying your soldier on an overseas assignment. See AFF website: Benefits, National Insurance and Tax