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AIBU?

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Original poster

To claim tax credits by upping my pension contribution?

125 replies

TaxCredits · 31/08/2018 17:49

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.

OP posts:
umdont · 01/09/2018 16:20

And @GeorgeTheHippo that's one of the things uc "fixes" isn't it?

GeorgeTheHippo · 01/09/2018 16:35

Yes, when they roll out UC that will stop. So only 20 years of it.

AveEldon · 01/09/2018 16:36

you can also deduct charitable giving from your income for tax credits

reallybadidea · 01/09/2018 16:39

It doesn't have to be done by salary sacrifice, any pension is fine. It's just simpler and saves the NI if you do it that way.

Original poster
TaxCredits · 01/09/2018 16:44

Plus the more I think about it the more stupid it is to work for 40k unless I do this!

Put another way - If I was earning 20k, I'd only be 450 pm / 5k pa worse off because I'd get those tax credits.

Effectively then I'm working 1/2 a year - 125 days for 5k, which works out to £5 per hour. That's less than minimum wage!

OP posts:
Original poster
TaxCredits · 01/09/2018 16:46

As far as the it a house thing goes -

If we saved that 5k a year, it's take us around 10 years to get a reasonable deposit together. In that time I can put £250k in the pension.

Once we retire we can take 25% of that tax free, and move somewhere where housing isn't unreasonably priced.

This seems much more sensible to me...

OP posts:
Luckymummy22 · 01/09/2018 16:46

I don’t think I really get the point of this post.

You clearly think the world owes you a living so what was point of asking the question?

RedNed · 01/09/2018 16:47

I've got to work until i'm fucking 67 Confused

So do most of us, what's your point exactly? Other than, apparently, as long as you're sorted fuck everyone else.

It's appalling you are able to do.

reallybadidea · 01/09/2018 16:52

It's appalling you are able to do.

Most working people on TC will be paying into a pension and getting extra TC as a result. Where would you draw the line?

Original poster
TaxCredits · 01/09/2018 16:57

You clearly think the world owes you a living so what was point of asking the question?

Because i couldn't believe it myself.

I don't think the world owes me a living, but I'd rather not be working so much extra for less than minimum wage, and I'd like to be able to look after myself in retirement.

Maybe they should make the tax allowance for single earner families higher? If they did we might have been able to earn money, have kids, a house and save for retirement ourselves, and there would be an incentive to earn more. At the moment that incentive is almost completely removed because I'm barely better off for doing so.

OP posts:
Sugarhunnyicedtea · 01/09/2018 17:04

Do you have the option of being a two income family? Sorry if I've missed it

Luckymummy22 · 01/09/2018 17:06

You are not earning below minimum wage!

And it’s an insult to all those hard working people who do earn low incomes to even suggest such!

Anyone else becoming suspicious of OP?

umdont · 01/09/2018 17:16

Your not on minimum wage you're on £40k!! money is tight because you are supporting 5 people on 1 wage not because your badly paid. Do you even know what minimum wage is??

Original poster
TaxCredits · 01/09/2018 17:21

I'm not sure what you find suspicious?!

There is no argument - I am working those extra hours for below minimum wage. I spelt out the maths of it. Indeed it would be worse for someone on a lower income than myself - they could effectively be working for £2 per hour!! I'm not insulting them - far from it. they have even more incentive to do something like this because why wouldn't they?! If anything I'd rather that they were paid properly and didn't have this sort of inequity in society.

OP posts:
GreenGrassAndClover · 01/09/2018 17:29

I’m astonished you can get tax credits on 40k wage.

Considering we had our child benefit taken off us, because one earned over £45K, its quite frankly ludicrous.

I also know two people who lost their substantial pensions when their firms went bust.

errorofjudgement · 01/09/2018 17:32

I really can’t understand why this allowed.

Thatsfuckingshit · 01/09/2018 17:32

Maybe they should make the tax allowance for single earner families higher?

Why? I am a single parent and wouldlove to know the reasoning here?

Why are you a one earner household?

Ifailed · 01/09/2018 17:33

Some of the replies on here are deeply worrying, as they imply an awful lot of people don't realise how the benefit system has been engineered for the past 20 or so years - do you ever bother to read a decent analysis of the yearly budget - if not, why not?

Tax credits are there to subsidise low paying employers & they engender a reliance on the state.

The opportunity to manipulate pension contributions to avoid tax has been a signal to the slightly well-off for the same period.

Rather like the Right to Buy, collectively it is wrong for the population as a whole, but makes sense for an individual family to take advantage of it.

We are in this situation because far too many people just can't be bothered to engage in how their country is run, preferring to watch shit TV, presumably.
This had played into the hands of those with power to ensure compliance. You get what you vote for, or in many cases what you can't be bothered to vote for 'cos some made up reality is being beamed into your homes.

Babyroobs · 01/09/2018 17:37

Why are people so greedy, don't they realise it's someone else paying for it ? Some of us have 4 kids and don't get a penny in tax credits, yet are funding you to put more in your pension ??

Thatsfuckingshit · 01/09/2018 17:53

ifailed I agree with your point But disagree it's because people are lazy.

Labour hailed tax credits and the rest of it as their proof they wanted to support low income families. Loads of people thought it was great because they were getting extra money, some people could work less etc. And the warning that it would lead to lower wages and be very expensive were ignored. Because the general public were just happy to be given extra money.

People, in general, will ignore the negatives if the positives play in their favour.

Thatsfuckingshit · 01/09/2018 17:55

Some of us have 4 kids and don't get a penny in tax credits, yet are funding you to put more in your pension ??

That's a bit of a daft argument. Everybody out there could complain they don't get. When me and dh were together we couldn't afford 4 kids, so don't you know how lucky you are?

That argument can carry on forever.

Original poster
TaxCredits · 01/09/2018 18:01

By upping the tax allowance for single earner families they could then keep more of their earned money for living costs before taxation kicks in. At the moment I have the same allowance as a single person with no dependents. It doesn't make sense.

Dual earner families can earn 25k before tax kicks in thanks to 2x personal allowances. Frankly I still think that is too low, but it's a lot better than 12.5k for me. At this moment in time I'm paying out 9k in tax and NI.

A dual earner family would be paying out 5k combined if both together got my gross salary.

How is that fair?

OP posts:
Babyroobs · 01/09/2018 18:01

You make it sound like we are on massive wages to have four kids - well that isn't true. We've spent years working around each other to avoid high childcare fees and are not exactly rolling in it !

RomanyRoots · 01/09/2018 18:02

Yes, but if you have 4 kids and don't get tc you obviously earn more than the cut off, so are well enough off anyway.
If you had your cb stopped it's because you earn enough without it.
How you decide to spend your money is entirely up to you.

BrewDoggy · 01/09/2018 18:02

This whole thread should be forwarded to the government office. It is rather obscene and clearly the rules need to change.