Pension Contributions and Universal Credit

Slobby · 13 October 2013 at 8:47PM

Firstly, I'd like to say this a purely a hypothetical thread...you'll understand why in a minute. As a single person, earning an average salary, I am neither entitled to, nor need, nor want any form of state subsidy. And this is in no way a benefit bashing thread - what I am posting is potentially a way that higher earners could qualify.

So....I think I've spotted either a flaw in the calculation of universal credit entitlement using the entitledto website, or an extremely interesting side effect.

I think most people know about the child benefit changes coming up - the tapering down to 0 of child benefit payments for earners over 50k per year. There are innumerable articles suggesting that people increase their pension contributions so that child benefit is reinstated (alongside the tax relief on the pension contribution).

What if one decided to take this further?

How about an situation where there is one earner in a family of 3 (i.e. with a young child), who earns say 50k per annum. The other parent does not earn. If as a unit they were to contribute nothing to their pension, they would take home around 3k net per month. Not too shabby, but long term, not great. Let's also assume they have savings under 6k for the purposes of argument.

So...what if they decide to increase their pension contribution to 40k per annum - leaving an amount just above their personal allowance threshold to be considered as 'net earnings'. Insanity I hear you say!

Well, from what I can work out, using the calculator they would be 'entitled to' quite a lot of universal credit. In the area I live, they would then be entitled to just over £310 p/w in universal credit, plus child benefit, plus around 5.5k net income per year after paying NI.

This equates to a net income just shy of 2k per month.....1k less than before, but, adding in 40k into a pension per year.

I.e. they are 'losing' 12k per year in net income now to contribute 40k into a pension. For those with a long term view (and who can budget themselves to 2k per month) that is surely exceptional deal...! Presumably the family would also qualify for every other 'low earner' thing - free school meals, dental, subsidised gym etc etc.

Now, I appreciate the ethical and moral dilemmas this present - but can this be true? And more importantly, if it is, would anyone actually do it?