Pension contributions- will this be bad move in regards to UC

[Danikm151]

Hi all. I’ve tried to google but can’t see to find the right answer!
Work have advised that we’ll be looking at 2% payrise soon. I was thinking of asking for my pension contributions to be increased as the extra 2% won’t be missed if it goes straight into my pension.
I currently get UC to help towards childcare. I know the take home they calculate is after tax,NI and pension but is this basic pension contributions only?
Will they accept me making higher pension contributions without deducting extra based on my take home?
Will probably be an extra £38 each month.

UC is based on your taxable income. Pension contributions aren't taxable, so I don't think your UC would go down if you increased your pension contributions to offset the increase in gross pay.

Thank you. 🙂 I’ll give it a go.
Thought it was time to take my pension seriously rather than get to 68 and think oh is that it

I am also wondering about this. If 100% of salary was paid into workplace pension, how would this affect a universal credit claim?

I recently got a pay rise and increase my pension contributions by 10% . I am also on universal credit and I worked out that for every £1 I put in to my pension universal credit increases by 61p so it only costs me £39 to put £100 in to my pension.

@Riskybiscuits I'm just curious how can someone pay 100% of their salary into a pension and be able to claim UC? Although I'm not clued up on the rules around this, being in receipt of tax credits I know my pension contributions of around 10% of my salary are deducted so I assume would be the same on UC. But paying in 100% of salary seems odd. UC and TC are for low earners. If one can afford to pay in all their salary how can they be claiming UC? Not having a go, just wondering if their are rules around maximum you can pay in etc

So as a single parent I can raise my pension contribution high to reduce income and claim UC??

@Riskybiscuits

I am also wondering about this. If 100% of salary was paid into workplace pension, how would this affect a universal credit claim?

Wow, that's a good question. I'd have to look into it, which is always a pain in the arse with UC because so much of it is discretionary.

I rather suspect that there may be some catch-all about deliberately depriving yourself of income, like there is with capital.

But what would you live on if you paid all your salary into a pension?

@FAQs

So as a single parent I can raise my pension contribution high to reduce income and claim UC??

Pretty much, yes.

I'll play around with some figures later, and see what it looks like.

You couldn’t pay all your wages into pension in though could you? You need to be left with minimum wage.

But yes you can increase your pension contributions and will get more UC as pension contributions are disregarded in full.

Don't forget that there are limits on how much you can contribute tax free to a pension. If combined employer and employee contributions are more than £40,000 then I think the tax rate is something like 55% on the excess over £40,000.

Actually ignore that first sentence. Don’t think it’s relevant with pensions.

However DWP could look at deprivation of income if you purposefully paid in at more. 100% would get questioned. A modest percentage increase wouldn’t raise eye brows. We might do this ourselves now!

It works the same with salary sacrifice schemes , cars, cycle to work etc . Any deduction that is taken out before tax when your income drops it's boosts universal credit by 61p.

Same goes for company car tax , this is deducted by way of increasing tax paid , which also boosts universal credit. Furthermore the benefit in kind attached to company cars does not count towards "income" for universal credit purposes like it does for tax credits .

@sickofturkey my car allowance is taken into account as income for UC and I’m taxed on it too :-(

This is so interesting, thanks everyone. I suppose I'm asking hypothetically, I have a wage as an employee and some self-employed earnings. My pension contributions are pitiful and I don't know how I'll ever be able to contribute properly. I've research and as @CornishTiger, you must still be earning equivalent of minimum wage if you do salary sacrifice. It's all something to think about.

[quote CornishTiger]@sickofturkey my car allowance is taken into account as income for UC and I’m taxed on it too :-([/quote]
Your car allowance is paid the same way as salary so you will be taxed on it and it is counted as income for universal credit purposes . This is the reason I opted for a company car provided by my employer (I am very lucky to have the choice)

Universal credits do not currently have the ability to receive real time infoon benefits in kind such as cars .

@LakieLady

UC is based on your taxable income. Pension contributions aren't taxable, so I don't think your UC would go down if you increased your pension contributions to offset the increase in gross pay.

Pension contributions are deducted before tax so they reduce your taxable income by that amount. Car Allowance and company cars are all taxed, they increase your salary (by the amount on your P11D in the case of a company car)

@Comefromaway correct but universal credit does not take in to account p11d it only looks at the monthly take home pay that employers report to the hmrc

It has no way of knowing that at end of the financial year an employee may also have 15k on their p11d