My wife at the moment pays into the local government pension scheme (5.5% of salary and also pays £50 pm AVC's (£40 net before tax relief). Tax relief is at source. From the next financial year she will no longer be a taxpayer. Would she be better putting the £40 net (£50 gross) AVC contribution into a stakeholder scheme to ensure that she continues getting the tax relief?
On the basis that your wife will no longer be a tax payer then I am assuming that she is either leaving employment or working reduced hours so that her earnings fall below the basic rate income tax allowance.
As you state the Additional Voluntary Contributions (AVC) are relieved at source i.e. taken from gross pay. So there isn't much benefit (from a tax relief view point) for someone who isn't paying tax to pay pension contributions from gross pay. However, non-tax payers can pay £2,880 net each year into a stakeholder or personal pension and still receive tax relief at the basic rate (even though they don't pay income tax). Their contribution would be grossed up to £3,600.
But, your decision on whether to pay into a stakeholder instead shouldn't be based solely on tax relief. You need to look at the benefits your wife would receive under the AVC if she can remain contributing (especially if it buys added years in a final salary scheme) and compare it to those of the stakeholder (where the benefits are based purely on the fund size).
I suggest you seek independent financial advice before making any decisions.
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