Clueless NHS worker

mshimmy

Hi, I'm a single mum working in the NHS and would like to pay a lump sum this tax year into a pension to avoid having to pay back child benefit.

I already pay into the NHS pension but have left it too late to buy additional pension, but I understand that I have a choice between joining a MPAVC or stakeholder pension.

I only want to pay in roughly £4000 for now, which one would be the better option? I've tried to work this out using the Standard Life website, but I don't really understand it!

Marcon

Given how close we are to the end of the tax year, I wouldn't waste too much time agonising about the destination! If you put the money into a stakeholder pension scheme (try https://www.cavendishonline.co.uk/pensions/stakeholder-and-personal-pensions/) you can move it with no exit penalty, so why not do that to ensure it is done before the end of the tax year and then do the 'investigation' as to what might be best for you.

Albermarle

From the Standard Life website :

Stakeholder Pension
To apply call 0345 272 8810

mshimmy

Thanks, what is the benefit of a stakeholder over avc?

xylophone

Read

https://www.pru.co.uk/rz/nhs/

mshimmy

Can I pay into an avc directly or does the lump sum need to come from my pay? This may be a deciding factor in deciding to go with avc or Stakeholder as I think I can pay into a stakeholder directly

Dazed_and_confused

and would like to pay a lump sum this tax year into a pension to avoid having to pay back child benefit.

Do you understand the tax relief side of things if you opt for a "relief at source" stakeholder pension?

The gross contribution - it is unclear if you mean to pay £3,200 net or £4,000 gross - will reduce your "adjusted net income" which is what determines any High Income Child Benefit Charge payable.

But it doesn't reduce your taxable income. The gross contribution increases your basic rate tax band, which can then reduce the amount of higher rate tax payable.

Any additional tax relief due, over and above the 25% uplift added to your net contribution, ultimately benefits you via a lower Self Assessment bill (or larger refund). It doesn't get added to your stakeholder pension fund.

And you do not get an "extra 20%". The actual benefit depends on your overall tax position.

mshimmy

This money won't be coming out of my pay so I'll have to complete a self assessment form. I basically want to pay in the least amount of money I need to, to avoid paying back child benefit. I've got a lot of outgoings this summer so need to keep the rest of my savings for those, but I still want to choose the best plan to contribute more into, in the future.

I'm pretty clueless when it comes to pensions, tax savings, etc. I'm not even sure I completely understand your post!

Dazed_and_confused

Basically a contribution to a "relief at source" pension can result in three benefits to you (more in other more complex scenarios).

1). The pension company adds a 25% uplift to your actual contribution. So if you were to actually pay £4,000 the pension company (courtesy of HMRC) would add £1,000 so you have £5,000 in your stakeholder pension fund.

2). That gross contribution of £5,000 is used in calculating your "adjusted net income" which is what is used to determine any High Income Child Benefit Charge. We have no idea how many children you have but if we use one child and "adjusted net income" of £54,000 before the stakeholder pension contribution then the gross contribution will reduce your adjusted net income to £49,000 and no High Income Child Benefit Charge will be due. Saving you having to pay back £430 in Child Benefit.

3). You may be entitled to higher rate tax relief. This is because the gross pension contribution increases the amount of basic rate tax payable which in turn reduces any higher rate tax payable. So in a very simple example this will mean you pay 20% tax on an extra £5,000 instead of paying 40% on it.
Saving you another £1,000.


So ultimately you have handed over £4,000 on day one.

But once the full benefits are realised you end up with a £5,000 pension fund which really cost you £2,570. And it would actually cost even less if you have more than one child or your adjusted net income before the pension contribution was more than £54,000.

mshimmy

Thanks, this makes more sense now. I've got three children, so this will be beneficial!

Do you know if it is possible to make relief at source contributions into both avc or stakeholder? I still don't know which to go with and I need to complete the forms this weekend.

Dazed_and_confused

No idea sorry. If the AVC is a "net pay" scheme the outcome should be the same really, it is just a different route to get there.

You get full tax relief through your wages. You can never claim anything in addition to this i.e. you pay £4,000 into the pension and this saves you £1,600 in personal income tax because your taxable salary will be £4,000 less.

Your "adjusted net income" is £50,000 (not £49,000) because your P60 pay figure will be £4,000 less in the first place. You cannot deduct the pension contribution in the adjusted net income calculation.

As your ANI is only £50,000 you have no High Income Child Benefit Charge to pay.

So £4,000 in your AVC has really cost you £1,970.

If your AVC contribution has to be paid outside payroll that is slightly different but same overall end result.

This all assumes it is taxable salary that is making up well in excess of £50k of your taxable income. And uses the one child example for simplicity/comparison.