Splitting pension income between spouses / partners (UK)

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Q - Each partner has a pension but in retirement it only takes income from one. Is there a reason?

A - The software does not automatically split pension income. If all of your client's expenses are co-owned, which for couples expenses are set as such by default, the software will simply start withdrawing from one pension followed by the next when it comes time to use pension income to fulfill expenses, normally after retirement.

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This will be the case provided you leave pensions set to crystallise on an as needed basis, which is also the software's default setting, as shown below. 

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Option 1 - Consider splitting the ownership of some expenses

If the objective is to show a more even split when fulfilling expenses between pension funds, you may consider splitting some of the expenses. For example, you could have the couple's shared fixed costs (e.g., their home mortgage) co-owned, and their personal expenses owned individually.

For example, John's personal expenses, owned solely by John.

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And Julia's personal expenses are owned only by Julia. 

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For individual expenses, the software will attempt to draw first from assets owned by the owner of the expense, which respective of the liquidation order and crystallisation  the individual's pension. 

Viewing the chart details for a year following their retirement. 

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The Expenses tab of the chart details panel will show how her personal costs are being fulfilled, respective of any incomes received at the time and the software's Liquidation Order, as set in Preferences. 

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The same expense fulfillment details can be seen by moving our cursor over his personal costs. 

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Tip: Having at least some of the expenses owned individually has the added advantage of showing decreases in certain costs following the death of a spouse or partner. When running the software's Life Insurance Need Analyser or when modelling an earlier than expected mortality in a what-if scenario, the software will know to drop any expenses out of the plan upon the death of its owner. Co-owned expenses, on the other hand, will continue in the plan. 

Option 2 - Set a crystallisation / income schedule from at least one pension

Apart from this, you could set an income from each of the pensions by going to the Pensions > Money Purchase screen and under Withdrawals & Annuity > Crystallisation of Money Purchase set a planned crystallization in a fixed amount or an inflated one or as a percentage of the pension's balance. This amount might match the individual's personal allowance or even be a grossed up amount to account for both the personal allowance and the 25% of the crystallised funds that would be tax free.

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The same could be done for crystallised funds on the Pensions > Money Purchase screen. 

 

Related Topics

Retirement Planning Options - Default Settings

Expense Fulfillment - In what order are expenses fulfilled and what funds are used to pay them?

 

Article created - 2018-June-12