Many people are unaware that under current legislation, you are allowed to contribute up to £3,600 gross (£2,880 net of basic rate tax) into a registered pension scheme regardless of your level of income or age.
Therefore, if you wished to contribute into a pension scheme for your non-working Spouse or children, they are then deemed to have made contributions net of basic rate tax even if they are non taxpayers.
Bobby wishes to increase his family’s pension fund available when they retire. He makes a contribution of £2,880 into his non-working wife’s pension fund. The £2,880 contribution is actually worth £3,600 in the scheme and he is able to obtain a tax saving of £720 by doing so.
Bobby also contributes the same amount of £2,880 into each of his four children’s pension schemes which as before, is worth £3,600 in each of their schemes, receiving a further £720 tax advantage in each scheme (£2,880 in total).
The other benefit from this type of planning is that as the children will have started their pension scheme running at a younger age than the typical age of individuals starting a Pension, (around 30 years of age), they will have a considerably larger pension when they come to retire.