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  • FIRST POST
    CSL0183
    Diverting £50k of salary into pension fund to claim welfare benefits
    • #1
    • 5th Dec 11, 2:06 PM
    Diverting £50k of salary into pension fund to claim welfare benefits 5th Dec 11 at 2:06 PM
    Say I am a 28yr old man with a £65k income, are there any legal issues in diverting the maximum allowable £50k into my company pension plan, the maximum £243pm into childcare voucher plan (£2.9k) and living off the remainder £12.1k salary?

    I would then declare £12.1k salary to the benefits office/HMRC in order to receive every benefit I would be entitled to on that income? 3 kids would equal a lot of LHA, a lot of child tax credit, a lump of WTC, probably council tax benefit and of course child benefit (Which looks like its going to be taken away in 2013 for higher rate tax payers)

    The aim would be to retire at 55 with a very large pension pot. Forget the morals behind it, all I am asking, if its legally possible to do? If so, then surely this is a no brainer option if you can of course afford to live off a 'low' welfare income.

    Thanks in advance.
    Last edited by CSL0183; 05-12-2011 at 2:12 PM.
Page 1
    • atush
    • By atush 5th Dec 11, 2:48 PM
    • 16,100 Posts
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    atush
    • #2
    • 5th Dec 11, 2:48 PM
    • #2
    • 5th Dec 11, 2:48 PM
    I don't quite knwo what to say to you.

    Even if it is legal, I hardly see that this is what the benefit system is for.
    • shadydaz
    • By shadydaz 5th Dec 11, 2:52 PM
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    shadydaz
    • #3
    • 5th Dec 11, 2:52 PM
    • #3
    • 5th Dec 11, 2:52 PM
    Strange how this is being asked the same day as the government launches its "crackdown" on benifit fraud...
    Was in debt £23k- Not now (12/07-12/10)
    Did smoke- Not any more (26-02-11)
    I am not perfect but everyone loves a trier don't they??
    • shadydaz
    • By shadydaz 5th Dec 11, 2:55 PM
    • 373 Posts
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    shadydaz
    • #4
    • 5th Dec 11, 2:55 PM
    • #4
    • 5th Dec 11, 2:55 PM
    ...and it has got to be the most selfish post I have ever read on this forum.
    Was in debt £23k- Not now (12/07-12/10)
    Did smoke- Not any more (26-02-11)
    I am not perfect but everyone loves a trier don't they??
    • hugheskevi
    • By hugheskevi 5th Dec 11, 2:59 PM
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    hugheskevi
    • #5
    • 5th Dec 11, 2:59 PM
    • #5
    • 5th Dec 11, 2:59 PM
    are there any legal issues in diverting the maximum allowable £50k into my company pension plan, the maximum £243pm into childcare voucher plan (£2.9k) and living off the remainder £12.1k salary?
    No, as long as you accurately report this whenever asked.
    would then declare £12.1k salary to the benefits office/HMRC in order to receive every benefit I would be entitled to on that income? 3 kids would equal a lot of LHA, a lot of child tax credit, a lump of WTC, probably council tax benefit and of course child benefit (Which looks like its going to be taken away in 2013 for higher rate tax payers)
    I think only half of the pension contributions are disregarded for Council Tax and LHA (not 100% certain though, and that might well just be individual contributions, so doing it through the company might get you 100% disregard) so main benefit is from Tax Credits. And it isn't clear how the rules for Child Benefit and Higher Rate payers will be assessed AFAIK.

    Forget the morals behind it, all I am asking, if its legally possible to do? If so, then surely this is a no brainer option if you can of course afford to live off a 'low' welfare income.
    Yes. The key thing is whether you can accept the standard of living.

    Strange how this is being asked the same day as the government launches its "crackdown" on benifit fraud..
    It is not fraud, it is how the system is designed to work. It is discussed in Appendix A of this Department for Work and Pensions report about Financial Incentives to Save for Retirement.

    The same arguments can be applied to the morality of higher rate tax relief for pension contributions, or salary sacrifice.
    Last edited by hugheskevi; 05-12-2011 at 3:05 PM.
    • Alias_Omega
    • By Alias_Omega 5th Dec 11, 3:04 PM
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    Alias_Omega
    • #6
    • 5th Dec 11, 3:04 PM
    • #6
    • 5th Dec 11, 3:04 PM
    If you could be done, I would do it.

    Money is Money,
  • CSL0183
    • #7
    • 5th Dec 11, 3:28 PM
    • #7
    • 5th Dec 11, 3:28 PM
    Strange how this is being asked the same day as the government launches its "crackdown" on benifit fraud...
    Originally posted by shadydaz
    The government are planning on taking £2500 away from me because I am a higher rate taxpayer. £2500pa is £208pm so its not small change (It is useful as it currently pays the council tax/BT phone bill and Internet)

    I am not asking about the morals of doing so, just the legalities. If it is legal it cannot be classed as benefit fraud. Believe me, I dont want to go down the path of committing fraud.

    I have just been doing the maths and with a £12k income I am entitled to a hell of a lot of benefits (3 kids), I wouldnt need to worry about loss of child benefit, LHA amounts are reasonable for rent, council tax would be minimal and most importantly I would be entitled to generous child tax credit payments aswell as the childcare element of tax credits for funding nursery payments. (Currently something I have to do myself 100%, well less childcare vouchers)

    £65k with my normal 7.5% pension contribution and the £243pm childcare voucher gives me around £3300 per month + £208pm child benefit. As this £208pm is going to be taken away from me, my income falls to just my salary of £3300pm.

    Therefore, I need to do my maths to try and make up this £3300pm.

    Income = £12k salary (£877pm)
    Child tax credits = £2,555 x 3 + £545 = £8210pa/12 = (£684pm)
    Working tax credits = £2,740 / 12 = (£228pm)
    LHA entitlement 3 bed house = £750pm
    CT band D = £165pm

    I know I would receive full CTC but not 100% sure on how much of the WTC/LHA and CT discount I would receive on a declared income of £12k but I would say probably around 75% of those costs so around £860pm. Then there is childcare, currently costs me around £1k per month to which I would get 70% paid for me so £700pm

    Adding all those figures up and of course these are just very rough estimates, I make that out to be around £3100pm. £3100 vs £3300 is no real drop in standard of living but yet I am putting away £55.2k into my pension fund each year (£50k self, £5.2k company(8%) ) £55.2k rising with inflation each year for the next 30yrs or so will give me a pension pot in the millions and allow me to retire early at 55.

    I am seriously seriously tempted and this has all come about at ways of trying to keep hold of my child benefit. I was just going to contribute more into my pension to take me under the £43k limit but that didnt make sense as I couldnt make anything back from the welfare state for my efforts. Someone mentioned, why I didnt just go the full hog and then that got me thinking.

    I know this post will annoy many hundreds of you but I simply do not care, if this is legal, I shall be reviewing those figures above in a lot more depth. Even if it came to within £500-£700pm of what my income is now then it would be worth it retiring at 55 with a nest egg in the millions.
    Last edited by CSL0183; 05-12-2011 at 3:37 PM.
    • spadoosh
    • By spadoosh 5th Dec 11, 3:32 PM
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    spadoosh
    • #8
    • 5th Dec 11, 3:32 PM
    • #8
    • 5th Dec 11, 3:32 PM
    pensions are a weak subject but arent they capped at a million or is that just capp how much you put in?!

    O and naughty OP!! Thats very selfish. It make me soo angry that this guy is bumming a few grand from the government when every major organisation 'avoids' millions in tax and are catered for before anyone else.
    Last edited by spadoosh; 05-12-2011 at 3:35 PM. Reason: He's not the messiah, hes a very naughty boy!
    Don't be angry!
  • talana
    • #9
    • 5th Dec 11, 3:42 PM
    • #9
    • 5th Dec 11, 3:42 PM
    Say I am a 28yr old man with a £65k income, are there any legal issues in diverting the maximum allowable £50k into my company pension plan, the maximum £243pm into childcare voucher plan (£2.9k) and living off the remainder £12.1k salary?
    Originally posted by CSL0183
    As per the first comment in post 5.

    I would then declare £12.1k salary to the benefits office/HMRC...
    However, your salary wouldn't be £12.1k would it? It would still be £65k unless I'm missing something. So that would be a false declaration straight away...
  • CSL0183
    As per the first comment in post 5.


    However, your salary wouldn't be £12.1k would it? It would still be £65k unless I'm missing something. So that would be a false declaration straight away...
    Originally posted by talana
    As far as I'm aware you declare income less pension provision so in this case £12.1k, they need not know about the £50k pension and £2.9k childcare vouchers.

    Even if it is required to be declared on the forms, although not 100%, I asked my sister who does claim tax credits and she informed me that they do not take pensions into account only taxable income (£12.1k taxable, £52.9k non taxed) I have also asked many others who have told me the same, pensions are disregarded.
  • CSL0183
    Would salary sacrifice affect the figure ?
    Originally posted by molerat
    That is a good point, I currently pay my pension by salary sacrifice.
    • molerat
    • By molerat 5th Dec 11, 3:56 PM
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    molerat
    Yes it is morally wrong but no more than the non working generations of spongers. This is one of the reasons why the benefit system needs taking apart right down to the ground and starting again.
    Last edited by molerat; 05-12-2011 at 4:00 PM.
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    • mania112
    • By mania112 5th Dec 11, 3:58 PM
    • 1,949 Posts
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    mania112
    pensions are a weak subject but arent they capped at a million or is that just capp how much you put in?!

    O and naughty OP!! Thats very selfish. It make me soo angry that this guy is bumming a few grand from the government when every major organisation 'avoids' millions in tax and are catered for before anyone else.
    Originally posted by spadoosh

    the most you can have in a pension (before huge penalties) is £1.8m

    the most you can contribute to a pension is £50k a year (including tax relief) or 100% of your salary, if less than £50k pa.

    There are then 'count back' rules for those who haven't paid into a pension (but had one) for the past 3 years. So essentially you could put £150k into a pension in year one.
    • gadgetmind
    • By gadgetmind 5th Dec 11, 4:01 PM
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    gadgetmind
    That is a good point, I currently pay my pension by salary sacrifice.
    Originally posted by CSL0183
    Be aware that you can't sal sac to below minimum wage.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
    • spadoosh
    • By spadoosh 5th Dec 11, 4:01 PM
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    spadoosh
    the most you can have in a pension (before huge penalties) is £1.8m

    the most you can contribute to a pension is £50k a year (including tax relief) or 100% of your salary, if less than £50k pa.

    There are then 'count back' rules for those who haven't paid into a pension (but had one) for the past 3 years. So essentially you could put £150k into a pension in year one.
    Originally posted by mania112

    Is that the value of the pension is 1.8m or the contributions?!
    Don't be angry!
  • CAN1976
    The government are planning on taking £2500 away from me because I am a higher rate taxpayer. £2500pa is £208pm so its not small change (It is useful as it currently pays the council tax/BT phone bill and Internet)
    Originally posted by CSL0183
    Me too, but that's fine with me if it helps balance the books. Benefits should be for those that need them not just extra money for people who don't.
    • gadgetmind
    • By gadgetmind 5th Dec 11, 4:09 PM
    • 10,599 Posts
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    gadgetmind
    it would be worth it retiring at 55 with a nest egg in the millions.
    Originally posted by CSL0183
    The lifetime allowance has recently been *lowered* to £1.5 million, and there are complex rules for when your pot is assessed against that limit and nasty tax charges if you exceed it. It still might be worth doing for a while as you can always swap back later once the bulk of the money is in there.

    You should start a regular blog about this and try and get some papers to cover it. The advertising income should come in handy!

    Regards morality, making pension contributions to avoid higher tax bands, and losing benefits, is very common. You're just taking it to a (probably!) legal extreme.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
    • Bigsmak
    • By Bigsmak 5th Dec 11, 4:22 PM
    • 183 Posts
    • 233 Thanks
    Bigsmak
    Basically no you can't do it..

    You cannot pay more into a pension than you currently have as a Salary..


    So even if you messed with the figures / dividends / pay into a pension before you take a salary, you would only ever be allowed to pay in a maximum of £50k or match your current Salary.. whatever is lower.

    So ... the answer is no..

    as for your attitude towards the benefits system.. I hope you get caught doing something wrong and go to jail.

    have a good day!
    I am nearly an Independent Financial Adviser - Studying

    Anything posted on this forum is for discussion purposes only and should not be considered financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser who can advise you after finding out more about your situation
  • CSL0183
    Basically no you can't do it..

    You cannot pay more into a pension than you currently have as a Salary..


    So even if you messed with the figures / dividends / pay into a pension before you take a salary, you would only ever be allowed to pay in a maximum of £50k or match your current Salary.. whatever is lower.

    So ... the answer is no..

    as for your attitude towards the benefits system.. I hope you get caught doing something wrong and go to jail.

    have a good day!
    Originally posted by Bigsmak
    My salary is £65k, pension contributions of £50k, salary is higher.

    Are you suggesting I cant pay more into a pension than I draw in a salary? So best possible outcome is a 50/50 split which would be a £32.5k split? I have never read anything relating to that, can you point me to your source of this information? In any case as I salary sacrifice, my income is not £65k, it's whatever I want it to be, i.e £12.1k or whatever minimum wage is if needs be

    For example as it stands at the moment, my salary is £65k - £4900 pension (7.5%) - £2900 childcare vouchers = £58,200. My plan is just to play with that pension part to read £50k
    Last edited by CSL0183; 05-12-2011 at 4:39 PM.
    • corbyboy
    • By corbyboy 5th Dec 11, 4:39 PM
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    corbyboy
    Then there is childcare, currently costs me around £1k per month to which I would get 70% paid for me so £700pm
    Originally posted by CSL0183
    Can't help you with the other stuff but with the childcare element of tax credits you can only get help on the "cash" amounts. You have to take away the amount you get in vouchers.
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