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

gadgetmind

jamesd wrote: »

People should recoil in horror at the thought. Then change theirs to add another £50k that they can put in in the same tax year.

It's a while since I went through all my options, but ISTR you can't move a PIP such that the period is > 1 year, or move it between tax years, so the only/best option (for me) was to start a new pension with a different PIP. My contributions for tax purposes, and pension inputs for annual allowance purposes, are now adrift and very between pensions, which adds complexity but also provides flexibility.

Is it any wonder people find pensions scary?

gadgetmind

xylophone wrote: »

The object is clearly to prevent people from manipulating their income to claim more tax credit than they would otherwise be entitled to.

Can I safely assume that those on gilt-edged final salary public sector pensions report the notional annual contributions these would cost in the real world as being income?

Just asking.

CKhalvashi

Gracchus_Babeuf wrote: »

It's a clever scam, granted, but the loophole will be closed - you can be sure of that. This allows the wealthy to claim benefits and there is no way any government could allow it.

Interested to know how a 28 year old can earn £65k - he must be a high flying lawyer or accountant I guess.

I was earning 6-figures 19 (2001ish) :eek:

By the time I was 21 (with a young child), I’d clawed around £200,000 in contributions, which has helped me take several risks later on. At 29 (with 2 children and no.3 on the way), I’m currently at around £600,000. I ‘m contributing around 25% of my basic salary (before dividends), but that’s another matter!

funguy

Good on this guy for making a stand about the high levels of taxation to actual workers and the overly generous benefits system. The government need to take a good look at the benefits system so things like this are NEVER worth doing.

Its the old story as they did in Hong Kong - reduce the taxation rate to a flat rate 20% and the country actually gets in more tax revenue. At the same time, reduce benefits to encourage people into work! We should be looking at a similar route in this country!

atush

I can't believe we're still discussing the moral rights and wrongs about this topic rather than focusing on factual help for the OP. nobodies mind is going to be changed & we're all going to go round in circles. None of us can change anything by disagreeing on here, so why not just get on with it??

why does the OP need help? He has they 'system' figured out like those who enter the country illegally but claim refugee status? they know the law and how to get around it. They don't need help figuring it out.

The point is, right now it is legal. And probably should not be. So more effort should be to put that into effect. Of course part of that could be you helping the OP to make his claim ASAP before any changes.

This is a forum, and not as personal as you might like to make it.

I have a guy living over the road from me who is almost 70 but fully active. He lives in a 3 bedroom house on a protected rent, wants for nothing and goes to the pub every night.

The only job he has ever had is a paper round (it did not earn enough to affect his benefits). He has never had a job, never wanted one, and is not ashamed he has lived on benefits his whole life.

The most unusual thing I find about his whole lifestyle is that no one appears outraged by it.
Indeed, people appear to feel sorry for him and leave food at his house or buy him a pint when they see him in the pub.

He has taken from society his whole life and contributed nothing.

Frankly, I can't condemn the OP for doing what he is possibly planning. I myself don't really want to pay my "fair share" if it's going to be squandered on people like my neighbour.

Smacks to me of a nation morally bankrupt by a culture of greed and laziness.

There was a time not so long ago when it was a matter of deep shame for a man not to be employed. There has been a huge change of attitude in many people in society – today there is a massive sense of entitlement among much of the population.

Bingo. you have won today's prize. Which is I guess a comprehensive way to cheat the system (not beat).

No one is really slating the OP here. Although I think he is wrong (and maybe his parents before him) to think this way and to have learned this way of life. I find it more sad really. And wonder what his children will think when they grow up and learn that you don't have to work hard to gain in life.

I am raising 3 boys in this 'new' world and find it hard to explain why they have to do 'chores' for their pocket money when friends they have do not. And why those who live on the a nearby housing estate have 'better' trainers than I refuse to pay for. And why they have to save for their future alongside of me.

if this is the example to the younger generation of who we are and how we should all behave, then we are in the proverbial cr*pper.

Go on, fill your boots. Just forgive me for not joining you.

sabretoothtigger

early 40's with 800K in a SIPP

Thats not a negative. Someone who saves their cash is doing something productive with it and presumably you'll take the income and spend it at some point, pensioners can pay tax too

UK operates a large finance management sector and private pension funds are of benefit to the country in general. Just recently the government has been trying to tap pensions for infrastructure investment.
Not sure they'll pull it off but at least its an option, most pension funds buy government bonds so imagine where we'd be without these large home made investors. You might think they are sneakily avoiding tax, I believe the money is still mostly being used to benefit the UK

thistledome

gadgetmind wrote: »

And paying the way of loads of other people too.

Until he rebelled.

So now we have a situation where the rest of us are paying OP's way in life when he has £65,000 a year coming in and will be retiring 12 years before the rest of us on the money he's "saved" by letting us taxpayers pay for his children. Nice.

If OP was planning to save for his massive early pension and living within his means to do so, I'd be the first to applaud him, but living on benefits whilst sitting on a pile of millions is sheer greed.

No wonder the country is bankrupt - with state benefits being paid to the rich! :T

michaels

For the OP

A lot of your sums are basedon nursery vouchrs and tax credits for childcare expenses. Once your kids are at school full time these savings will no longer be available but you will start to incur lots of other child related costs that are not met by the state (brownies, scouts, music lessons etc) At this point the maths may not look so good so defnitely go for it now.

I was looking at going for a biannual scheme but being a home owner and with savings the numbers are not so favourable for me.

jamesd

xylophone wrote: »

I was think more about deprivation of income The following is from http://www.litrg.org.uk/low-income-workers/tax-credits/tax-credits-advisers/what-is-income

The salient part of that is this from the employment income section:

"Gross contributions to an occupational pension scheme are deducted"

Pension contributions is not notional or any other form of income, it's a specific permitted itemised deductible amount.

When salary sacrifice is available this from the employment income section is relevant:

"Employment income, again, broadly follows employment income for tax purposes, so that most employees can use the entries on form P60 or P45"

A salary sacrifice arrangement reduces the P60 and paycheck income.

Now look at the worksheet on page 12 of the notes to help people fill out form tc600, under the "Now enter your deductions" subheading:

"Personal pension contributions you paid into a registered scheme. Include Free-Standing Additional Voluntary Contributions and payments to Stakeholder pensions. Enter the gross amount. Don't include contributions you paid through your employer."

So just like occupational pensions you can deduct personal pension contributions from your income for tax credit calculations.

You might also consider that at I least actually called the Working Tax Credit helpline to discuss this a couple of years ago and know it's entirely legitimate to do it. No need at all to hide anything or do anything else underhand. It's simply the way the law and public policy to encourage pension contributions is written.

If anyone has questions about this they should simply do what I did and call the well informed and helpful people at the tax credit helpline to get the correct answers.

gadgetmind wrote: »

It's a while since I went through all my options, but ISTR you can't move a PIP such that the period is > 1 year, or move it between tax years, so the only/best option (for me) was to start a new pension with a different PIP. My contributions for tax purposes, and pension inputs for annual allowance purposes, are now adrift and very between pensions, which adds complexity but also provides flexibility.

I think that there are cases where there's sometimes some ability to change once in some schemes but I didn't have as much reason as you to check or worry about it because I'm not close enough to £50k.

property.advert

michaels wrote: »

For the OP

A lot of your sums are basedon nursery vouchrs and tax credits for childcare expenses. Once your kids are at school full time these savings will no longer be available but you will start to incur lots of other child related costs that are not met by the state (brownies, scouts, music lessons etc) At this point the maths may not look so good so defnitely go for it now.

I was looking at going for a biannual scheme but being a home owner and with savings the numbers are not so favourable for me.

This is a crucial point but not so dark as it may seem. You don't get all your child care costs so you have to contribute and when your child care costs are removed, so is the additional amount you have to pay. This can be diverted to the other items you highlight. A simple spreadsheet should be enough to work it out.

However, you have changes such as those coming in April 2012 which essentially reduce the amount of tax credits available. As claimants will have to work 24 hours, up from 16, those extra 8 hours income will reduce the tax credits payable.