Childcare vouchers effect on DB pension with extra SIPP complication

mike5678

Hi all, I'm looking for advice regarding some of the complexities of childcare vouchers and their effect on employer pensions.

I have a DB government CARE pension (recently changed from FS). This pension is based on my base salary of £35k and does not include my London allowances of £7k, making my total taxable salary £42k. My DB pension is paid via salary sacrifice.

My question is how this affects me as I work a lot of overtime, taking my gross income to about £62k. It is more complex of a question as I make sure that I do not pay higher rate tax by paying that extra £20k each year in to my SIPP, to bring me back into the basic rate of income tax. My overtime is NOT pensionable and I cannot make extra payments to my DB scheme.

The information on all the scheme websites just state the differences on max allowable benefit based on income and whether your salary is in the basic tax rate or higher tax rate, but does this include adjusted salary and taxable income, or does it really mean gross income full stop?

My wife also currently works and earns £26k. We also receive child benefit for our 1 child which we do not repay due to my extra SIPP contributions.

What I cannot find anywhere online is how taking the maximum amount of £243 per month childcare vouchers from my salary would affect my DB pension, which is very valuable to me.

Would my DB pension still receive full benefit as it is only based on the £35k basic salary anyway, considering the max childcare vouchers would total £243 x 12 = £2,916. Would this first come out of the £8k gap to higher rate tax or from my first pensionable £35k or a proportion of both?

Me and my wife are both 31 and trying to work out the best way to pay for our childcare as both our employers offer childcare schemes and I don't want it to affect our retirement plans. My wife only has the 1% auto enrolment pension.

Thanks for any help if you can understand that, it's quite difficult to explain my question fully.

jamesd

Ask the scheme administrators. There is not a fixed rule that applies.

Usually benefits would be worked out on base salary value before sacrifice but that might not apply to your specific scheme. for example, a person on 40k base salary who sacrificed down to say 13k would still get benefits for the 40k level.

RickyB2000

A related question. A 20% tax payer is allowed £240 a month in childcare vouchers before tax. A 40% payer is only allowed £120 a month before tax. If you reduce your income below the 40% rate via personal post-tax contributions to a SIPP, would you be able to get £240? If so, how would you go about getting this from your employer (who will see your pay as being taxed at 40%)? Or can you claim from the tax man?

xylophone

What I cannot find anywhere online is how taking the maximum amount of £243 per month childcare vouchers from my salary would affect my DB pension, which is very valuable to me.

http://www.kiddivouchers.com/salarysacrifice.php

Have you checked with your employer?

mike5678

xylophone wrote: »

Have you checked with your employer?

No, but purely because I know how incompetent and useless they will be. I will have to give the pensions department a call and ask but I doubt they have ever had anyone ask what I'm asking who actually pays so much more in to pensions, as most of my colleagues think that our DB pension is a rip off. I was just thinking that the good folks here probably know a lot more about it than them.

xylophone

https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

Both your pension contributions and your childcare vouchers will be salary sacrifice?

mike5678

xylophone wrote: »

Both your pension contributions and your childcare vouchers will be salary sacrifice?

My DB pension payments are via salary sacrifice, my SIPP payments are made from my net pay and then tax relief claimed. Childcare vouchers are paid via salary sacrifice.

DB pension based only on £35k of salary, does not include £7k of London allowances or overtime.

RickyB2000

mike5678 wrote: »

My DB pension payments are via salary sacrifice, my SIPP payments are made from my net pay and then tax relief claimed. Childcare vouchers are paid via salary sacrifice.

DB pension based only on £35k of salary, does not include £7k of London allowances or overtime.

This kind of comes back to my question though. How does your employer give you the childcare vouchers by salary sacrifice? If they think you are earning over the 40% bracket won't they just give you the reduced £120 by salary sacrifice?

xylophone

This kind of comes back to my question though. How does your employer give you the childcare vouchers by salary sacrifice? If they think you are earning over the 40% bracket won't they just give you the reduced £120 by salary sacrifice?

Adjustment to tax code to take account of SIPP?

See https://forums.moneysavingexpert.com/discussion/comment/68510963#Comment_68510963

post 4

mike5678

Also my 'salary' as far as my employer is concerned is £35k, plus £7k allowances = £42k and UNDER the 40% threshold. I just happen to also work £20k of voluntary overtime too.

My tax code is adjusted for my SIPP.

RickyB2000

xylophone wrote: »

Adjustment to tax code to take account of SIPP?

See https://forums.moneysavingexpert.com/discussion/comment/68510963#Comment_68510963

post 4

I guess you have to get them to adjust your code at the start of the year based on expected SIPP contributions rather than leave it until the end of the tax year and claim back the cheque. I wonder what happens if you then don't pay what you said into a SIPP, guess you have to repay the NI and tax.....