Guidance on Pension / Child Benefit
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OP we pay into my pension as a v low earner, because of the double benefit outlined ably above. I am a SAHM mostly but sort out the family finances.
I wish I had known about the 2880/3600 for low earners years ago!Save 12 k in 2018 challenge member #79
Target 2018: 24k Jan 2018- £560 April £26700 -
Yup a big income reduction but very tax efficient. To be honest school fees would be so crippling it's hard to pay them from income without paying 40% tax and loosing child benefit. My wife works part time but is likely to give up work completely if we have another child so we are putting 80% of her income into a pension and will then drop down to 2880/3600 per year from my income.0
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Whoa thank you - this is why I love this site. Some serious food for thought. So, with the help of Google and some back of the fag packet calculations, if I was to increase my AVCs from 5 - 25%, this would mean that:
- My Net Adjusted Income would be considered as £44.75k;
- Monthly take-home pay would reduce £603;
- Would retain child benefit at £89.70 per month;
- Would qualify for marriage tax allowance at £19 / month (£230 divided by 12 months).
So the net monthly reduction in take-home would be approximately £495.
Meanwhile, for my pension this would mean:
- AVC contribution would increase from £245 to £1230;
- Added to employer 10% standard and 5% matched contribution of £737.50;
- Monthly contributions would increase to £1968 (previously £983.33).
So essentially, in my pension, I'd be £985 better off a month, at a "cost" to me of £495 / month. Have I got that right?!?!
This does assume the money would not be better served paying off mortgage or placed into savings, but is incredibly tempting....I had not previously factored in marriage allowance nor considered just how big a difference this would make to the pension.
To put this into context, I am a contractor who has recently gone permanent, and will stay permanent for a few years while baby(ies) at home, so this makes particular sense in the meantime to get my pension up and running....
Thanks again - some really useful advice.
re.: my wife's situation - I am not sure what pension is on offer, except that when offered she immediately opted out!! Will get her to find out her pension plan when she does start work at the end of the month, but between me upping mine and her contributing, we'd be struggling to pay the bills in the here and now...!0 -
One more question.... does Childcare Vouchers purchased direct from employer (pre-tax) also affect the calculated Net Adjusted Income figure?0
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Whoa thank you - this is why I love this site. Some serious food for thought. So, with the help of Google and some back of the fag packet calculations, if I was to increase my AVCs from 5 - 25%, this would mean that:
- My Net Adjusted Income would be considered as £44.75k;
- Monthly take-home pay would reduce £603;
- Would retain child benefit at £89.70 per month;
- Would qualify for marriage tax allowance at £19 / month (£230 divided by 12 months).
So the net monthly reduction in take-home would be approximately £495.
Meanwhile, for my pension this would mean:
- AVC contribution would increase from £245 to £1230;
- Added to employer 10% standard and 5% matched contribution of £737.50;
- Monthly contributions would increase to £1968 (previously £983.33).
So essentially, in my pension, I'd be £985 better off a month, at a "cost" to me of £495 / month. Have I got that right?!?!
This does assume the money would not be better served paying off mortgage or placed into savings, but is incredibly tempting....I had not previously factored in marriage allowance nor considered just how big a difference this would make to the pension.
To put this into context, I am a contractor who has recently gone permanent, and will stay permanent for a few years while baby(ies) at home, so this makes particular sense in the meantime to get my pension up and running....
Thanks again - some really useful advice.
re.: my wife's situation - I am not sure what pension is on offer, except that when offered she immediately opted out!! Will get her to find out her pension plan when she does start work at the end of the month, but between me upping mine and her contributing, we'd be struggling to pay the bills in the here and now...!
Yep we do all of that (and a lot more).
If you want to contribute anymore below this level it is probably worth doing it in your wife's name as it is likely that when she comes to receive her pension it will be taxed at a lower rate than yours will be.
My pension contributions are done as salary sacrifice which means I save on both income tax and NI and then my employer chips in some of the saving they make on NI too (an additional 10% of my contributions).I think....0 -
Dazed_and_confused wrote: »ISA interest (when rules are adhered to) is tax free and therefore not counted for adjusted net income or any other income tax purpose.
Ooh - now that got me googling and I discovered that isa income is also ignored when stating income for tax credits purposes - tax credits withdrawal rate is 41% so interest income (above £300) currently is effectively taxed at 41% but now I discover than in an isa it would be 'tax' free.
Only problem is my 'stash' is currently in instant savings accounts paying on average 2.2% and I don't think I would be able to get any where near this in a ISA.I think....0
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