Diverting £50k of salary into pension fund to claim welfare benefits

CSL0183 · 5 December 2011 at 3:06PM

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.

atush · 5 December 2011 at 3:48PM

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 · 5 December 2011 at 3:52PM

Strange how this is being asked the same day as the government launches its "crackdown" on benifit fraud...:rotfl:

shadydaz · 5 December 2011 at 3:55PM

...and it has got to be the most selfish post I have ever read on this forum.

hugheskevi · 5 December 2011 at 3:59PM

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.

Alias_Omega · 5 December 2011 at 4:04PM

If you could be done, I would do it.

Money is Money,

CSL0183 · 5 December 2011 at 4:28PM

shadydaz wrote: »

Strange how this is being asked the same day as the government launches its "crackdown" on benifit fraud...:rotfl:

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.

spadoosh · 5 December 2011 at 4:32PM

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.

talana · 5 December 2011 at 4:42PM

CSL0183 wrote: »

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?

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 · 5 December 2011 at 4:47PM

talana wrote: »

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...

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 · 5 December 2011 at 4:52PM

molerat wrote: »

Would salary sacrifice affect the figure ?

That is a good point, I currently pay my pension by salary sacrifice.

Diverting £50k of salary into pension fund to claim welfare benefits

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