Increasing pension payments vs higher tax/losing child benefit

Bonavino

Hi,  just to make explicit that 'adjusted net income' must include the value of company provided benefits such as car allowance, health care, etc, if relevant. This is sometimes overlooked. 

Bear777

german_keeper said:

retiringtoosoon said:

german_keeper said:

retiringtoosoon said:

43 y/o with teacher wife and 2 kids. Similar to you I guess.

I’m on £80k basic and will always Sal sac down to below £50k. Mad not to imo.

Put £76k into pension last year and £56k in this year. 

Pensions are very tax efficient!

Maybe there are lots of people whose financial commitments mean that they can't put such amounts into their pension. The percentages on the figures you have quoted are rather large. Not sure that makes them "mad". 

I’m not sure what you mean. I don’t need to live on £80k. I could easily live on £40k, say.
Happy for the extra £40k odd extra to fund my retirement 

I read your "mad not to" comment as being a general one. Most people earning large salaries would probably see their priorities as a nice house, 2 nice cars, nice holidays, maybe private education etc etc. Very likely to make significant pension contributions of course but not right down to BR tax level.

Presumably you meant mad not to in your personal situation.  

Well as you say Keeper everyone’s situation is personal. 

However, I have to say I’m firmly in toosoon’s camp on this one. I think it is ‘mad’ for people earning large salaries as you have mooted above to spend their money on all of what you have outlined. Let’s be honest many, many people on ‘large’ salaries flitter a lot of their money away on things they don’t actually need. In terms of preservation of their wealth and long term wealth security they would be absolutely be mad not to maximise their pension contributions down to BR tax level. Even at that level they will still be earning 50% above the UK average salary - more than enough to have and do all of the above but maybe not to the same excess as is done now. 

I don’t sacrifice quite as much as toosoon. But between some salary sacrifice for a car, childcare vouchers and £16.5k of pension contributions per annum I comfortably take my salary down to BR tax levels. The thing is depending upon circumstances the actual cost of pension contributions to that level are massively offset. So take my £16.5k contributions, well the government contributed £3.3k of that as basic rate tax relief, I can claim back £2.9 of higher rate tax rebate on the contributions. I also as a result of being a BR tax payer ensure that I still receive £2075 per annum of childcare vouchers. So the £13200 I actually contribute in fact costs me (personally) £4.9k.

So that brings me back to toosoon’s point which is that I would indeed be ‘mad’ not to do that. Many more people would also be mad not too but aren’t aware of just what the benefits are and how little a lot can cost them. 

Chili81

Sorry for my very basic question but the HICBC charge has always confused me so much.  My partner (the HR earner) has a DB pension and has smallish AVCs. I'd always understood that the figure to go by for adjusted net income is the one on his P60. Is that the end of it? Does that figure already take into account the contributions he's made to his DB and AVCs (which are both done through work)? If so, to bring his adjusted net income down below the HICBC threshold would he just need to increase his AVCs or set up a private pension outside work? 

MX5huggy

Are his AVC’s by Salary Sacrifice? 

Is he in LGPS? 

Dazed_and_C0nfused

Chili81 said:

Sorry for my very basic question but the HICBC charge has always confused me so much.  My partner (the HR earner) has a DB pension and has smallish AVCs. I'd always understood that the figure to go by for adjusted net income is the one on his P60. Is that the end of it? Does that figure already take into account the contributions he's made to his DB and AVCs (which are both done through work)? If so, to bring his adjusted net income down below the HICBC threshold would he just need to increase his AVCs or set up a private pension outside work? 

The P60 pay figure is only one element of adjusted net income.  You have to factor in all taxable income even if it taxed at 0%.  So (non ISA) interest or dividends have to be included.

With most DB pensions you cannot deduct the pension contributions as they will be made using the net pay method and have already been taken into account in arriving at the P60 pay figure.

AVC's can vary, you need to check which method is used to make those payments,

Net pay
Relief at source
Salary sacrifice

Bluebell1000

We made a similar decision, to make sure enough is salary sacrificed that I don't end up in higher rate tax. However we have gone for an electric car via sal sac and putting some into my pension. Of course the amount going on the car isn't going in the pension... Right now though the balance is working well and the pension is on track to give enough for retirement.

jaypers

Another thing to look at is to invest into a Share Incentive Plan, if your company has this. Contributions come out of gross pay, and as such is something else that reduces your taxable pay and may help towards keeping within the thresholds that you are trying to do.