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

jamesd

jlpike wrote: »

Im also very interested in this mostly from a point of Child benefit. I am a £1700 into upper rate tax + my company car would take me around 5-6k over. My wife works part time and looks after our 2 kids and I do not consider myself super rich but I will lose my child benefit which is £1752 per year but in terms of salary at 40% it is more like £3000. I will therfore need a £3000 pay rise to be the same off but my neightbours both earning £40k each will be unafected.

It's entirely possible. Please phone the helpline and explain your situation and planned action to address it. You'll find no difficulties and this approach has been well discussed and advocated in the mainstream press.

gadgetmind

shadydaz wrote: »

Don't worry I still won't count on your vote

Very wise.

property.advert

I'll put a large wager on the fact that most of those criticising this as morally indefensible or illegal etc. are simply not in a position to do what the OP is investigating. Or they are too scared to knock the cream off the top of their rice pudding without someone holding their hand. Grauniad readers perhaps ?

The fact is that it is tax mitigation not tax avoidance. The former is totally legal and indeed encouraged.

If you Google around this subject for long enough you come across some white papers / government reports which skirt the issue rather than directly deal with it but which do look into the mathematics of benefits now versus costs later. The logic here being that whilst it may seem expensive to give out allowances now, the cost pales into insignificance when viewed in the context of someone needing state subsidy in the future. Essentially it is the time between investment and compounding which wins out. I may have saved some references, I'll try to dig them out.

If you allow an individual to massage the system of pension provision you take away the risk from the government. We all thought final salary pensions were affordable until we started living longer but deflect that risk to the private sector where the individual has such a pot as to place him over any means tested threshold and it doesn't matter how far he is over that amount; in fact the more the better. The same is true when comparing state benefits versus private pension.

If I ever get time I'd be interested in really getting to grips with the maths but whilst obtaining benefits through tax mitigation may not seem right, the very fact that it exists is because the loony left and New Labour spent a decade developing a bloated welfare state where almost every working person was eligible for some benefit or another.

That it would have been far cheaper not to tax them as much in the first place eluded them but then again, you had that clown Broon running the numbers !

atush

I'll put a large wager on the fact that most of those criticising this as morally indefensible or illegal etc. are simply not in a position to do what the OP is investigating. Or they are too scared to knock the cream off the top of their rice pudding without someone holding their hand. Grauniad readers perhaps ?

Not true in my case certainly. We earn more, and I still find the practice indefensable. However, if it is legal, then they can go ahead. We will be making large pension contribs in the near forseeable future, but will not be lowering our income to 12K, (can't with a 50K cap anyway) and will certianly never be claiming benefits. And i dont' see how anyone could comfortably raise children on such a sum. I know my bill for nappies for year one of my twins life was in the region of 1500 quid. Add in other necessities such as clothes, food, shoes, formula and it isn't possible, Which is why they will be claiming benefits. And no where in this OPs calculations are savings for his children to help with future university/life expenses. To me it seems very selfish indeed to think only of their pension instead of thinking of their children's future with University fees and living expenses as high as they are.

Cases such as these just show how comfy and lovely Labour made benefits during their tenure. No wonder we are the benefit claimants country of choice in the EU. And just shows how much they need reform. So maybe the OP should act quickly before this makes the press and the ministers get voters clammoring for change?

CSL0183

xylophone wrote: »

I thought the OP said he was going to put in £50000 per annum himself?
"(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.)"

Salary sacrifice agreement, I agree to work for £12k per annum if they put £50k + their 8% into my pension pot.

It gets round the whole half pension thing for housing benefits, WTC/CTC and all the other benefits only ask for taxable income.

atush

I thought it was 50K total, so not 50K plus 8%.

gadgetmind

atush wrote: »

I thought it was 50K total, so not 50K plus 8%.

Yup, £50k including all employer's and employee's, but if you had a pension scheme open over the last three years, you can use anything below £50k that you didn't use in those years via Carry Forward. You can only go back three years, and this year's £50k is used before you go back to the earliest year to use that. It's "use it or lose it", hence me just kicking off a new SIPP.

I have a spreadsheet with heavily nested (seven levels!) conditionals to work all of this out to let me play "what if".

Oh, and you also need to be very aware of Pension Input Periods, which are even more complex!

CSL0183

It is more than possible to raise a family on £12k per annum plus state benefits for 3 children, the rewards are substantial and if you followed my posts earlier you would see the maths behind it.

Simple things like not having to pay council tax, getting the roof over your head paid for, qualifying for free school dinners, not having to pay for childcare etc

If it is too much of a struggle, I can of course alternate it each year, 1 year full income, next year £12k income. I would use the full income year to save up money to make the £12k income next year more comfortable (keeping within the savings rule). The £1.5m cap is a hinderance as pension forecasts are showing near enough double that amount so I would be able to alternate each year if needs be to keep within or of course if I were feeling greedy I'm sure a good accountant/IFA would be able to give me advice on how to beat the £1.5m cap if needs be.

With my company pension scheme if I were to die before I made it to retirement my family would receive 3 x my full salary tax free + the contents of pension pot tax free so they would be well catered for. As for university education, I live in Scotland so no tuition fees up here. If I do make it to my 55th birthday and retire then I would be able to help my kids out a lot more than I could do with deposits for houses etc.

I certainly dont think I am the first to exploit this and I dont think I'll be the last. Some of the self employed deliberately keep their income low to take advantage of our benefits system, this is no different other than I am taking advantage at the other end too with my pension.

NAR

You are playing by the rules so good luck to you. Morally wrong, no I don't think so. No more than the alley cats that have a few wains so they can live off the state for the rest of their lives.

The scheme is all above board so why shouldn't you make full use of it. A lot of green-eyed posts from what I see! :rotfl: Until parliament change the rules then fill your boots.

nomoreboomandbust

As you are obviously renting, isn't one of the downsides not having a settled home or a you lucky enough to have a landlord that doesn't want to turf you out every 12 months. I suppose its a small price to pay for keeping to your plans