CMEC calculation - new system

mrsspendalot

There is part of a discussion around the treatment of pension contributions here http://services.parliament.uk/hansard/Lords/ByDate/20090226/mainchamberdebates/part018.html at para 420 (scroll down) which seems to suggest the reasons why occupational pensions would be allowable, i.e. that they are already deducted from gross income in the data HMRC provide for the year, which is where they are going to take the income information from. They even discuss the treatment of salary sacrifices.

"Being able to rely on HMRC data that come automatically through the system is crucial. In relation to occupational pensions, the data come net of the gross payment. That is why we did not look to cap pension contributions; because we would have had to use that data, analyse it in some other way and go back to the problem of not having speedy data on which we could rely."

mrsspendalot

"In a similar vein, since the 6th April 2009, a father can no longer minimise the income available for the purposes of a maintenance calculation by diverting most or almost all of that income into a pension. This was possible previously because the same definition of income which necessitated the above amendment, provides for the deduction of pension contributions and therefore such diversions were perfectly legal. The Child Support (Miscellaneous and Consequential Amendments) Regulations 2009 have now closed this loophole."
http://www.stubblegal.co.uk/scripts/9Fam12.htm

clevertrev

Thanks,i can't even begin to understand all that. All seems very vague. If pensions are taken into account it should be set out clearly. ie what pensions and how much.
It would be good if my company pension was was taken into account,it would help with the transition.

mrsspendalot

I think it's vague because it is going to depend on discretion in what is deemed reasonable in each case. Everyone's pension is different. If your company pension scheme asks you to pay 9% in your pension, that is reasonable, just as being asked to pay 5% is reasonable. I think the grey areas will be personal pensions where you can choose how much you want to pay in, and AVCs. The public consultation on charging is due to end 7th April so I guess there will be more detail soon on how the scheme will operate going forward after that.

What they are saying in effect is that HMRC income data (think of your P60 annual income) is net of pension contributions because they are not taxable income. The CSA want to use the HMRC data for ease of calculations, without the need to rely on information from NRPs. If they want to use HMRC data for cost effectiveness and ease, they are going to have to use it net of pension contributions, as that is how the information is supplied. Like I said, the difficulties will come with personal pensions in my opinion, as you have a degree of choice over what % of income you pay into these. However, if you follow the debate down, they discuss how salary sacrifices may be treated as diversion of income because you are giving up income in place of another benefit.

See here also:

"Pension Deductions from gross income will now only be allowed so far as CMEC decide is reasonable in any individual case. Previously a non resident parent could have paid all his income into a pension fund and beyond the resident parent making an application to CMEC to decide what income would be taken into account there was little that they could do. As pensions were deductible in full it was constrained on what could be done.
Now CMEC have the power to decide what is a reasonable deduction at the outset of a maintenance calculation. There will be cases where high deductions are meritted perhaps with elderly non resident parents whose pensions have been reduced as a result of a pension sharing order on divorce, or soem other financial disaster."
http://www.forths.co.uk/familyforths-family-law/child-maintenance-new-law.html

clearingout

The pension thing is interesting. I am a PWC so really, it doesn't matter but if I were an NRP, I'd be asking this question. I am about to change career. I have very, very little pension provision at the age of 40. I will be going into a public sector role with a decent pension scheme so realistically, it would make sense for me to buy back as many years as possible in the early years of me changing careers. If I were an NRP, would buying back a few years be seen as 'reasonable' or as me trying to divert income away from paying maintenance?!

clevertrev

Sorry no idea at the moment. I only found out pensions were part of the gross system today. From the little I have seen,it all sounds a bit hit and miss.

mrsspendalot

clearingout wrote: »

The pension thing is interesting. I am a PWC so really, it doesn't matter but if I were an NRP, I'd be asking this question. I am about to change career. I have very, very little pension provision at the age of 40. I will be going into a public sector role with a decent pension scheme so realistically, it would make sense for me to buy back as many years as possible in the early years of me changing careers. If I were an NRP, would buying back a few years be seen as 'reasonable' or as me trying to divert income away from paying maintenance?!

I would expect that if you can demonstrate that it is reasonable in your personal circumstances, they will probably be able to do little about it, particularly if it is through a company scheme. I guess there will be more clarity when they finish looking at how the new system will be introduced, and all these things will be answered.