How changes to Child Benefit could have a positive impact on your pension

Parents earning £75,000 could gain £16,000 in Child Benefit payments and leave themselves £170,000 better off in retirement under new rules.

If you are a parent earning £75,000, you could benefit from the recent changes in the Child Benefit rules announced in the Budget.

By increasing your pension contributions each month, you could not only boost your retirement savings, but also make yourself eligible for Child Benefit payments.

This is because the High-Income Child Benefit Charge (HICB) is based on your income after pension contributions. So, by saving more for your future, you could also get more support for your children now.

How your pension could benefit

Our calculations* show that by increasing their pension contributions by £400 a month, a family could claim an impressive £15,931 in Child Benefit over the 12-year period during which their children are eligible. 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.

Shaun Moore, tax and financial planning expert at Quilter, explains how you can take advantage of this opportunity.

“Last week’s news will be hugely popular with families where one parent is earning over £50,000. However, these parents can reap even more reward if they up their pension contributions.

“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. Although this does mean that someone has to increase how much they are saving for retirement, the benefits mean that the ultimate gain far out strips the spend.

“There is still a significant proportion of people in the UK who are not saving enough for retirement and using this quirk in the system could help them achieve their retirement aspirations. Everyone’s financial circumstances are different and seeking professional financial advice is always best to ensure that your whole financial life is accounted for.”

*Calculations are based on:

• A family with two young children, who have 12 years of Child Benefit payments available.
• One parent earns £75,000, and already has a £100,000 pension pot at age 40.
• They are already contributing £200 every month into their pension and increase this to £600 per month.

Remember, the value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

As always, a financial adviser can help you make well-informed decisions to help you make the most of your money. If you don’t already have a financial adviser, we can help.