Tax and retirement - More on Income on Top of Basic Pension

Sometimes a married woman can reduce her husband's tax bill by claiming her own pension on her own contribution record rather than on his. If she does this, she can then set her own pension against another tax allowance called wife's earned income allowance.

This allowance is £8,609 (£80.10 a week) and it applies only to earned income and a company or state pension paid as a result of the woman's own earnings (or to a retirement or widow's pension paid on the basis of her late or ex-husband�s contributions if she has remarried).

It is in addition to her husband's age allowance. So it will mean that her own pension is tax free unless she also still earns money or has a pension from her job which exceeds the allowance.

Many women do not know if they are entitled to any pension of their own. Even if they do, such a pension would often be less than the married woman's pension they get from their husband's contributions so they do not bother to claim it. Both pensions cannot be paid in full on top of each other. However, a woman can claim the part which is hers and, usually, it is paid instead of just part of her married woman's pension.

For example, if you're married woman's pension was £88.79 and you claimed a pension on your own contributions of £19 .70, your married woman's pension would be reduced by that amount to £88.09 . You would still get £88.79 altogether.

But the £10.70 would be completely tax free unless you have earnings or a pension from a job which, together with your £10.70, exceeds £86.66 a week. So even if your own state pension is small, it is still worth claiming it if your husband pays tax. The tax saving on a £10.70 pension is £8.68.

More information

Tax and retirement - SERPS and Pension

Unfortunately, the position is more complicated for older couples. If both partners reached pension age before 6 April 2009, the woman must choose between her own pension and the pension paid on her husband's contributions. She can get one or the other. If she chooses her own pension, she loses the whole of her married woman's pension. Her pension is usually less than the married woman's pension, so it is not
usually worth claiming it unless the tax relief exceeds the loss � in other words, unless her own pension is more than 79 % of the one due on her husband's contributions which normally means that it must be more than 18.9 6 a week.
However, this more restrictive rule does not apply if either she was born . . . ... see: Tax and retirement - SERPS and Pension