Buying Additional Pension & CTC/WTC

gardenia101

I'd been hoping to buy some extra pension entitlement in my local government pension in the form of Additional Voluntary Payments. As I understand it, this it taken directly from my gross salary, just like the "usual" pension contribution I make each month.

After years of self employment at a low'ish wage, I'd like to try & catch up now I have a decent pension scheme to pay into.

I've had lots of good advice on the pensions board, but someone there suggested I check what would happen with my claim for CTC & WTC - expecting my renewal any day.

As I've never paid any additional pension payments before I haven't a clue - I'm assuming that as my gross salary itself hasn't changed much (very small pay rise) & I'm choosing to spend extra on my pension rather than take that money home, then my TC won't be affected. Is this right (sounds far too simple for TC :rotfl:).

I hope I've explained that OK - I did have a search but couldn't find much info.... Sure it is out there, somewhere.

Thanks in advance.

zagfles

Paying extra pension contributions will lower your taxable (P60) income and so will usually increase your tax credits. It's generally a good idea to pay extra into a pension if you're claming tax credits (if you can afford it) as you get tax relief plus extra tax credits.

Of course when you get paid the pension you'll get taxed on it (other than the 25% TFLS) and it'll count as income for the purposes of any means tested benefits.

gardenia101

zagfles wrote: »

Paying extra pension contributions will lower your taxable (P60) income and so will usually increase your tax credits. It's generally a good idea to pay extra into a pension if you're claming tax credits (if you can afford it) as you get tax relief plus extra tax credits.

Of course when you get paid the pension you'll get taxed on it (other than the 25% TFLS) and it'll count as income for the purposes of any means tested benefits.

Goodness, that doesn't seem right, almost feels like an abuse of the system - after all it is my choice to be able to pay extra into my pension & I should therefore be able to afford to take the drop in salary. Seems a bit like trying to hide savings in order to claim more in benefits - why are TC different?

Not doubting what you saying for a moment though. Thanks you for the clear advice.

Can I just check that my "ordinary" monthly pension contribution taken straight from my wages is already accounted for in my P60, so I don't need to tell TC about it? I think that is right as my pension is taken from my gross salary.

So if I go ahead with the extra pension in this current financial year, should I tell TC now (& can I make a change before I've had my renewal pack?) or wait until this year turns into next year & tell them when I check & confirm my 13/14 award?

Is there a limit in TC terms to how much extra I can out into my pension?

Bollotom

I did that, made provision for my old age and I now pay 20% tax and get no benefits, apart from the state pension if you can call that a benefit. I pay full council tax too, but I do get a personal allowance.

Icequeen99

gardenia101 wrote: »

Goodness, that doesn't seem right, almost feels like an abuse of the system - after all it is my choice to be able to pay extra into my pension & I should therefore be able to afford to take the drop in salary. Seems a bit like trying to hide savings in order to claim more in benefits - why are TC different?

Not doubting what you saying for a moment though. Thanks you for the clear advice.

Can I just check that my "ordinary" monthly pension contribution taken straight from my wages is already accounted for in my P60, so I don't need to tell TC about it? I think that is right as my pension is taken from my gross salary.

So if I go ahead with the extra pension in this current financial year, should I tell TC now (& can I make a change before I've had my renewal pack?) or wait until this year turns into next year & tell them when I check & confirm my 13/14 award?

Is there a limit in TC terms to how much extra I can out into my pension?

There is no limit.

You can do either. You could estimate your 13/14 income now and then confirm after the year end or you can just wait until the year end.

Bear in mind though, that this year there is a £2,500 disregard for falls in income. So you won't see the full benefit of sacrificing until at least the following year.

IQ

zagfles

gardenia101 wrote: »

Goodness, that doesn't seem right, almost feels like an abuse of the system - after all it is my choice to be able to pay extra into my pension & I should therefore be able to afford to take the drop in salary. Seems a bit like trying to hide savings in order to claim more in benefits - why are TC different?

Don't worry, it's not abuse of the system, pension contributions are specifically allowed deductions - even if you were contributing to a private pension scheme you'd be able to deduct the contributions from your income. There are other ways of lowering your income which tax credits won't allow, such as taking "loans" instead of pay.

Some other benefits allow pension contributions to be deducted, I think HB/LHA will allow you to deduct 50%, and when UC comes out it will have similar rules to tax credits, ie all pension contributions can be deducted.

When you think about it, contributing to a pension is like deferring income, when you finally claim your pension and take that income it will be counted for any means testing at that time. So if benefits now didn't allow contributions as a deduction, the same income would be counted twice, which would be unfair and no encouragement for people to save for their old age!

Not doubting what you saying for a moment though. Thanks you for the clear advice.

Can I just check that my "ordinary" monthly pension contribution taken straight from my wages is already accounted for in my P60, so I don't need to tell TC about it? I think that is right as my pension is taken from my gross salary.

Yes this is nearly always the case. (a few employers deduct from net salary but this is rare).

So if I go ahead with the extra pension in this current financial year, should I tell TC now (& can I make a change before I've had my renewal pack?) or wait until this year turns into next year & tell them when I check & confirm my 13/14 award?

Is there a limit in TC terms to how much extra I can out into my pension?

IQ has answered these.

gardenia101

Icequeen99 wrote: »

There is no limit.

You can do either. You could estimate your 13/14 income now and then confirm after the year end or you can just wait until the year end.

Bear in mind though, that this year there is a £2,500 disregard for falls in income. So you won't see the full benefit of sacrificing until at least the following year.

IQ

Thank you IQ - I understand the disregard rule (now read up more) but as I wasn't expecting any rise in TC at all then it doesn't matter.

Thank you Zagfles for answering the other questions - seem to have cross posted. That makes much more sense now you have explained it.

I haven't seen a date yet for when UC will be phased in for most claims - any ideas? I'm expecting it will take a lot longer than HMRC think :rotfl:

zagfles

gardenia101 wrote: »

Thank you IQ - I understand the disregard rule (now read up more) but as I wasn't expecting any rise in TC at all then it doesn't matter.

Thank you Zagfles for answering the other questions - seem to have cross posted. That makes much more sense now you have explained it.

I haven't seen a date yet for when UC will be phased in for most claims - any ideas? I'm expecting it will take a lot longer than HMRC think :rotfl:

It won't be till April 2014 earliest, probably later. See http://www.turn2us.org.uk/information__resources/benefits/universal_credit/universal_credit_timetable.aspx

sammyjammy

Probably much later.....

Richardworkshard.

About 3 years ago my Work Pension improved its AVC scheme so I joined it and paid a lump sum in of about a third of my salary two weeks before the end of the tax year ! HMRC & Tax Credit Office were as awkard as hell about it, but I eventualy received about 1.5K tax rebate and 2k extra tax credits for that year. I now pay almost half of my monthly PAYE wages into AVC sceme. Retiring in maybe 4 /5 years time, so I think of the AVC as a subsidised 5 year savings plan. No guilt at all as the government changes RPI to CPI and retirement age gets older and older.

Housing_Benefit_Officer

I started paying into my pension again after a break of two years as I got more tax credits So my loss of take home pay was negated by extra tax credits