Pension pots can be boosted by clever usage of child benefit payments according to recent analysis from Quilter. Parents with higher earnings of between £50,000 and £60,000 could gain as much as £18,500 through child benefit by increasing their pension contributions while also leaving them £120,000 “better off” in retirement.
Quilter began their calculations by assuming the person (or people) involved already has a £100,000 pension pot at age 40 and contributes £100 every month.
Additionally, it also assumed that the children being claimed for still have 12 years of child benefit payments available, based “roughly on the average age people have children.”
Based on these parameters, Quilter’s calculations showed that a family which has two young children with one parent earning £59,000, could increase their pension contributions by £467 per month which would enable them to claim back over £18,500 over the 12 year period that their children are eligible for child benefit payments.
Quilter went on to breakdown how this would all work: “Due to the additional tax relief on pension contributions for higher rate taxpayers and the extra child benefit payments this would mean that it would cost someone just over £35k in total over 12 years to gain just under £49k from these two tax benefits.
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The HICB was introduced in January 2013 and according to Quilter’s analysis, it has “significantly reduced” the number of families in receipt of child benefit.
Ian Browne, a pensions expert at Quilter, commented on these findings: “The child benefit system is incredibly complicated and wage inflation has gradually pushed more people over the high income child benefit threshold meaning fewer and fewer families are claiming child benefit each year.
“At the most recent budget, the higher rate tax threshold has been frozen at £50,270 but the high income child benefit Threshold of £50,000 has not changed with it meaning basic rate taxpayers will get caught for the first time.
“However, parents often don’t realise that they can receive much more in child benefit payments by upping their pension contributions while also setting themselves up for a more prosperous retirement and taking advantage of the favourable tax relief available.
Claims for an eldest or only child will bring in £21.15 per week.
Additional children will generate £14 per child.
Claims for child benefit can be made from as soon as a child’s birth is registered.
It can tek between six to 12 weeks to process a new claim but claims can be backdated by up to three months.
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