Higher paid can get money back for benefits

THOUSANDS OF higher-earning families could boost their child benefit entitlements by saving more money into their pension, according to a mutual insurer.

Royal London calculates that working families are collectively losing up to £171m per year by failing to make the most of a “little known” connection between their child benefit entitlements and their pension contributions.

Since 2013, working families where one parent earns more than £50,000 per year face a high income child benefit charge, which can wipe out some or all of the value of their child benefit.

At the point where a parent earns over £60,000, the tax charge is equal to the amount they receive in child benefit.

But Royal London believes many people may not realise that earnings measured for these purposes are based on income net of pension contributions.

This means that people who ramp up their pension contributions could potentially lower their income for purposes of the high income child benefit charge – and face a smaller charge as a result.

Based on previous estimates in 2013 from the Institute for Fiscal Studies (IFS), Royal London said around 320,000 families could fall within the £50,000 to £60,000 earnings band.

It said if each of these people were to contribute an additional £3,000 per year into their pension, they could cut their child benefit charge by 30 per cent of the amount of child benefit received.

Sir Steve Webb, a former pensions minister who is now director of policy at Royal London, said: “For a higher earning family, putting money into a pension is already a very attractive option.

“They benefit from higher rate tax relief on their contributions and may also get a matching contribution from their employer.

“But what they may not be aware of is the additional advantage of reducing the tax charge they face as a higher income family receiving child benefit.”