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

jlpike

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.

Although the OP views are quite extreme for me to get round this like many other I can increase my pension contributions. I do not have salary sacrifice but I contribute into a group personal pension at 2.5% salary and my employer 5%.

I have my doubts if this policy will ever come in certainly in it's current form as it is unworkable in my opinion but I have a few questions:

1. My personal pension contributions are not salary sacrifice but normal contributions, I assume I can still lower my taxable income doing this and get below 40% tax.
2. When do people think the government will enfoce this. They say 2013, do you think they will look at 2012-2013 tax returns, if so should we be thinking about pension contributions from April 2012 onwards.
3. Do the people on here think this will actually happen?

Cheers

gadgetmind

jlpike wrote: »

1. My personal pension contributions are not salary sacrifice but normal contributions, I assume I can still lower my taxable income doing this and get below 40% tax.

No-one knows for sure but it looks that way.

2. When do people think the government will enfoce this. They say 2013, do you think they will look at 2012-2013 tax returns, if so should we be thinking about pension contributions from April 2012 onwards.

It seems that they are planning to use the same "honesty box" approach as is used for capital gains tax. Your wife should declare that you're a higher rate tax payer, or you should declare that your wife is getting child benefit so it can be taken from you.

If you aren't paying higher rate tax, then you need do neither.

BTW, start bugging your employer about sal sac NOW as it's a win-win because you both save NI. You only save 2%, but the employer saves 13.8%, and some even give some of this to the employee via a contribution boost.

property.advert

gadgetmind wrote: »

HMRC do say that reducing your sal sac percentage should only be done due to "life changing" events. I change it every year to make the best of changes in my income and rules like carry forward - surely the ever-changing pension and taxation rules are potentially life-changing if you don't react to them?

I believe I read somewhere that annually was fine as all manner of taxation, benefit and taxation regulations are either affirmed for anther 12 months or replaced by new legislation.

It would be very hard for a government to argue that adjusting your pension strategy every 12 months was too often when they themselves adjust the goalposts at least as frequently.

Gracchus_Babeuf

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?

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.

Interesting post. How on earth could you live on £12k a year? Are you not planning on ever having a mortgage?

Incidentally, what job do you do?

Gracchus_Babeuf

Alias_Omega wrote: »

If you could be done, I would do it.

Money is Money,

So would I, if I had my mortgage paid off.

besti

Gracchus_Babeuf wrote: »

Interesting post. How on earth could you live on £12k a year? Are you not planning on ever having a mortgage?

Incidentally, what job do you do?

He's not going to live on £12.5k becasue he will get additional income from the state takinh him up to £31k.

Gracchus_Babeuf

CSL0183 wrote: »

I do currently own a property yes although there is no real equity in it so I would be able to sell and keep my profit under the £16k limit for benefits. 25% tax free cash from my pension pot would buy me a property outright at 55 so I have no qualms about renting and getting my rent paid for me until that happens.

Easier said than done. Living on a pittance sounds doable in theory, but you'll be punishing yourself for 27 years in order to reach a pot of gold at age 55. Are you seriously prepared to do this? And how confident are you that you will be earning so much for the next 27 years? What if you were to lose your job?

gadgetmind

property.advert wrote: »

I believe I read somewhere that annually was fine

The HMRC web site is having a bad day, but other sources confirm this. Many thanks as I'm doing a rather fancy dance with my sal sac and didn't want to fall in a heap!

jlpike

The reason I think it can't be implemented as advertised is it goes against the tory philosopy of capitalism and work hard for personal wealth creation. In 2013 the cut off will be £44k for uppr rate tax. Somone earning £43,999 with 3 kids and a stay at home wife can get a £1 pay rise and be the equivilent of approx £5k (in salary terms) worse off instantly. Where is the incentive to work hard and improve yourself. They will have to wait years to get a £5k payrise and be the same off, therfore why would i take a promotion or work harder or do overtime. How does this help GB Plc and for only £1bn, it is a mad plan.


Surely they must have thought this, they are not that stupid. How can more work not pay.


Therfore everyone like me everyone who understands will put loads into thier pensions. But perhaps that it the plan anyway and it is a cunning plan to get everyone to pay into thier personal pensions at a high rate to then scrap the state pension for such people when they retire using means testing or am i just being cynical. Personal pension contributions will increase enormously.

drc

There was a similar thread a few years back. I think the general consenus apart from being morally dubious was that it couldn't be done easily;

https://forums.moneysavingexpert.com/discussion/738223