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

jem16

gadgetmind wrote: »

For balance.

Not following. Could you explain please?

gadgetmind

jem16 wrote: »

Not following. Could you explain please?

Because some seem to be of the opinion that those funding their own retirement via pension contributions should include these contributions as part of their income when claiming various tax relief and benefits.

I was simply observing that, if this was the case, then those on final salary pensions (mainly public sector nowadays) should also be subject to the same system.

As I say, balance.

jem16

gadgetmind wrote: »

Because some seem to be of the opinion that those funding their own retirement via pension contributions should include these contributions as part of their income when claiming various tax relief and benefits.

So assuming you are referring to the employer contributions, this would also apply to a private sector defined contribution scheme where the employer also pays a contribution.

Reaper

This is an interesting topic which highlights flawed systems and questions of morality.

Personally I contribute enough to my pension to bring me down to being a basic rate tax payer. I think that is financially and morally sound. However taking benefits when there is no need is a step too far for me. Indeed in the past I have not even always accepted benefits that have been on offer.

So I would be against the OP's idea because:
1) On moral grounds: In taking benefits you do not need you are taking money from taxpayers almost all of whom are on incomes much lower than yourself.
2) On practical grounds: There is no point in living your life on a shoe string to retire in luxury when there is no guarantee you will even live that long. Enjoy it now.

gadgetmind

jem16 wrote: »

So assuming you are referring to the employer contributions, this would also apply to a private sector defined contribution scheme where the employer also pays a contribution.

Dunno, ask those people who think that *all* pension contributions should affect credits and benefits! I'm merely asking for a level playing field, and in doing so, hope at least a few of those people realise that you need to be careful what you wish for.

property.advert

I telephoned them the other day to ask them directly.

I went through and asked whether hey knew about salary sacrifice and so forth and they did so I asked whether there was any issue with starting or increasing a salary sacrifice with specific when as a direct result, it may give rise to a claim for tax credits or increase the amount of tax credits payable.

They were quite adamant that this was fine. I even went so far as to say that it seemed "wrong" but again, they were insistent that as long as the scheem was authorised, you were eligible to claim increased tax credits based on your lower income.

They were also very quick and I though well trained to come back with the retort that a larger pension pot would mean more tax was payable later in life and that the individual would be less likely to need state assistance. They did make a specific link between the tax saved now and the increased tax payable later.

Their answers were not coached but were also not just their personal thoughts. They had obviously been educated in this scenario and had a ready list of stock answers.

So as far as I can see, the UK government is taking a long term view here in forgoing tax now (including paying tax credits) and reducing the potential liability later. As pension liabilities are all the rage, this could make some sense and any benefits received today will likely feed directly into the economy generating tax revenues themselves.

jamesd

Thanks. That was pretty much my experience as well: they knew the policy objectives and law and answered accordingly.

xylophone

http://www.towersperrin.com/tp/getwebcachedoc?webc=REIN/USA/2007/200703/Pers_Salarysacrifice.pdf

"OTHER IMPLICATIONS
Salary sacrifice must not be made if it
would bring an employee’s pay below the
National Minimum Wage.
Sacrificing salary could result in lower-
paid members suffering a reduction in, or
even loss of a number of earnings-related
State benefits, short or long-term.
On the other hand, a pay reduction can
entitle an employee to a means-tested
benefit for the first time, or a larger State
benefit. But income reductions which the
authorities believe a claimant has deliber-
ately made to gain benefit or reduce
Child Support payments may be taken
back into account.
These points should be included in
the information provided to members
before a salary sacrifice arrangement is
implemented."

Can this be more FUD? Someone should tell them to phone?

jamesd

xylophone wrote: »

Can this be more FUD? Someone should tell them to phone?

No, because there are some types of income reduction that aren't permitted. But pension contributions isn't one of them. The guidance notes to filling out the form that I linked to in an earlier post give more details of the types that can be problematic.

Debbie_A_3

Just came across this thread.

This trick is legal. If you question it morally then you also need to question such wheezes as higher rate tax relief on pension contributions, and the use of salary sacrifice techniques to avoid NI on pension contributions.

But what we are discussing is not a problem but a symptom.

The problem is an over-engineered monstrosity of a tax and benefits system (thanks mainly, but not exclusively to Gordon Brown). Quite frankly it beggers belief that someone in full time employment in the UK should need benefits to support their family. If companies paid a living wage, benefits would not be needed.

Debbie