Paying majority of salary into pension

-markie-

I've just been looking into paying into a pension. I did notice it did say there is no limit on how much you can pay in.

However, whats stopping people paying the majority of the pension into their pensions to get a massive pension, and then bringing them under the threshold to claim tax credits.

My calculations is if i earn £30k a year and pay £21,000 into a pension a year, this would bring me a salary income of £9,00 a year, which then entitles me to the highest tax credits.. whilst i guess this isn't very ethical.. what's stopping people from doing this?

atush

Yes people do this. there is even a thread on here where a higher rate taxpayer with kids is doing it. To get credits and other benefits off the taxpayer.

So for now it is still legal within limits. But there are limits, you can put in 100% of your salary up to 50K this year, going down to 40K next. Plus there is a lifetime limit to contributions, was 1.5 million but is now going down to 1.2M.

Some people feel while it is legal, it isn't moral. But that is up to you. Personally, living on 9K would be a bit miserable for me.

Perelandra

I addition to what atush has said above-

I think this only "works" if you have access to salary sacrifice (not just pension contirbutions), and the minimum you can sacrifice down to is minimum wage. If it's an employer's scheme, they may also stipulate that there needs to be a buffer above minimum wage.

somethingcorporate

Agreed it's not particularly ethical and I certainly wouldn't do it myself but each to their own.

Here is the thread, make yourself a cup of tea and have a good read (it'll take a while!)

https://forums.moneysavingexpert.com/discussion/3655837

The first half a dozen answers cover off the morality element.

zagfles

Perelandra wrote: »

I addition to what atush has said above-

I think this only "works" if you have access to salary sacrifice (not just pension contirbutions), and the minimum you can sacrifice down to is minimum wage. If it's an employer's scheme, they may also stipulate that there needs to be a buffer above minimum wage.

Nope - for tax credits any pension contributions are deductible.

JoeCrystal

zagfles wrote: »

Nope - for tax credits any pension contributions are deductible.

Which I used to great effects. It make my pension contribution of 25% more bearable. Although I do have to send a letter to HMRC with evidences of my private pension contribution when their figures didn't match.

Cheers,
Joe