To claim tax credits by upping my pension contribution?

[TaxCredits]

I’ve just found out that if I up my pension contribution via salary sacrifice, we would get a substantial amount of tax credits and hardly be worse off.

I’m the sole earner on 40k - 4 kids, one with a disability.

If I put 1/2 my salary into the pension, I get income tax relief, NI saved and my employer pays the full employer NI saving.

This means that I end up with around 23k in my pension per year.

In addition we would get tax credits of around £1150, which would otherwise be tapered away at 41p per pound I earn (plus tax and NI on top)

Basically doing the sums we would be around £300 per month worse off now, for 2k in my pension! Or put another way, for every 27p I give up of income I give up now, £1.13 would go into my pension.

I would be stupid NOT to do this, right? We have to save for our future and it’s totally within the rules.

Bombardier - I kind of agree. But i would be idiotic not to do this. I'm effectively being 'taxed' at 73% (and that's not including the fact I get employers NI saving given to me too) if I don't and I'm hardly a high earner.

If they hadn't made life so expensive by propping up house prices I might have been less inclined to do this but we are private rented and will never own our own home. But if I can secure a retirement why not?

This is the definition of deprivation of assets, deliberately moving your money around to look like you have less income without loosing anything. It's like parents selling their house to their kids but still living In it.

Also , those benefits are for those who can only earn £20k not those who claim poverty on £40k while saving half their bloody income.

Go for it :)

Although it sounds a lot, you need to keep the value of your pension pot below 1.03 million, otherwise you'll pay tax on it.
Adding £20k per annum, and assuming growth of 5% in your pension, you'll hit that after 26 years, and that's assuming you continue to put the same amount in each near, no inflation on your salary.

you'll hit that after 26 years True, but by that time her children may be over 18 anyways and child tax credit will stop?

I was expecting the OP to get flamed!!! If you can do this, and it's legal, then I don't see why you wouldn't. But usually on MN people are horrified about benefits that aren't being used as a "safety net" (you don't need them now, you earn enough). I wonder why this thread has been so supportive compared to
Others?

I'm a bit appalled at this tbh.

I wonder why this thread has been so supportive compared to
Others?

I think we all know why

True, but by that time her children may be over 18 anyways and child tax credit will stop

if she stops after 16 years, and drops down to 10k into the pension, it will take 28 years to hit the limit. it's surprising how quickly it mounts up.

A 1 million annuity would provide around £30k per year, if you wanted to keep up with RPI

So effectively you want other taxpayers to fund your private pension contributions? I think that's disgraceful.

I’m also appalled buy it. Stick half your salary in a pension so tax payers can top up your day-to-day living amount? I think it’s pretty shitty.

This is why salary sacrifice and voluntary contributions should be capped (and are where I live). Otherwise, you get people funnelling money away into their pension schemes/super funds in order to lower their tax obligations, or in order to claim benefits they wouldn't otherwise be entitled to.

Disgraceful behaviour.

I’m amazed this is allowed tbh

Sorry but you really are are immoral.

I really cope to God this is not a loop hole- because if it is allowed then that’s so wrong on every level!!!

Benefits aren’t so you can live a great lifestyle during your retirement. It’s to help those lead a basic lifestyle (disclaimer- benefits do not give you an amazing lifestyle regardless of what those whose who’ve never claimed belive)

It’s not a loophole it’s encouraged, the government are very aware . Within UC you would have an even better pension return doing this.
The op won’t receive pension credit this way.

Not my specialist subject but assuming OP does this and claims benefits now, when she gets to old age she will have a pension pot to live on and will have to use that to pay for things like care home fees should she need it. There's a good reason that the government want people to squirrel all their money into pensions, old people are expensive!

Of course the government want us to put money in our pensions. But she isn't squirrelling away HER money. She is claiming benefits so she can save. Benefits that are meant to support those who cannot support themselves .

Sounds sensible. Do it.

And it's not encouraged or a huge proportion of the population would put everything into pensions to the point of paying themselves minimum wage and then claim tax credits Etc. If everyone did this the benefits system would collapse. This is not what it's meant for.

May be legal but morally is not right at all. And I am utterly amazed that you would even be allowed to do this.

I'm hoping that this isn't real? Some of the benefit bashing I see on here is awful but now we're looking for ways to claim benefit by upping pension contributions- wow!

wtc isn't a benefit though, only in the eyes of tories
was never supposed to be considered as a benefit either.

If it works for you OP go for it.
My tc pays for school fees, you use it for whatever you need it for.

Won't a new claim be under UC though and the rules are different for this.

Benefits that are meant to support those who cannot support themselves

I see your point. But her pension will support her and her OH in old age. The older generation cost a lot of money. Both my mum and dad paid a lot into their pension so they would be financially stable when they retire. They don't need any help now.

So, an increase in tac credits now will save money for the government in future years.

Also if you can afford to be almost £500 a month worse off how can you even claim any tax credits?

Something seriously wrong here!