Parents earning £75,000 could gain £16,000 in Child Benefit payments and leave themselves £170,000 better off in retirement under new rules, according to new analysis from Quilter.
Following the Child Benefit changes in the Budget last week, the firm days, a parent earning £75,000 could gain £16,000 in Child Benefit payments by increasing their pension contributions by £400 a month while also leaving them nearly £170,000 better off in retirement.
Calculations* reveal that a family with two young children, where one parent earns £75,000, could increase their pension contributions from £200 to £600 per month and claim an impressive £15,931 over the 12-year period during which their children are eligible for Child Benefit payments. The long-term result would also be to increase their pension pot by £167,364 at age 68, assuming a modest growth of 2% after charges and inflation.
Under child benefit, parents receive £24 a week for one child and £15.90 for each additional child. Those amounts are due to rise to £25.60 and £16.95 a week in April.
However, the High-Income Child Benefit Charge (HICB) is calculated based on income after pension contributions. Consequently, if someone increases their pension contributions they may fall below or closer to the income threshold. This not only boots the amount of Child Benefit but also allows them to take advantage of the generous tax relief on pension contributions.
*Calculations assume someone already has a £100,000 pension pot at age 40 and already contributes £200 every month. Also assumes that the children still have 12 years of Child Benefit payments available, based approximately on the average age people have children.
