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Blog:
Pension contributions & reducing child benefit/maintenance support payments

Businessman calculating child benefit pension contributions
Did you know that making pension contributions can reduce your child benefit/maintenance support payments?

If you make pension contributions, these are deducted from your gross income before your child benefit/maintenance payment is assessed.

In the calculation example below, we have outlined a calculation for Tony. Without pension contributions, Stuart has to pay £248.00 per week in child maintenance to Caitlyn, the Resident Parent. However, if Stuart were to pay £1,733.33 per month (£400.00 per week) in pension contributions, his weekly gross income would reduce by £400.00 and his child maintenance reduces to £200.00 per week.

Child benefit/maintenance calculator showing pension contributions where NRP earns £1,800 per week

Stuart, the non-resident parent (NRP) is due to pay Child Support to Caitlyn, the resident parent (RP) for two qualifying children. Stuart lives with his new partner, Alexa, and they have no other children together or from previous relationships.

Stuart is a company director, and pays himself a salary and dividends. His salary is kept below the Lower Earnings Limit (LEL) where employees do not pay National Insurance but get the benefits of paying. In 2020/2021 this is £120 per week. He then takes dividends throughout the year, totalling £87,360 which equates to £1,680 per week.

Stuart’s gross income is £1,800 per week. The ‘basic rate plus’ of child support applies because his gross weekly income is over £800 per week.

Step One:

Gross Weekly income = £1,800

Gross weekly income (for the purposes of this calculation) = £1,800

Income between £0 and £800 = £800

Income over £800 = £1,000

Step Two:

There are two qualifying children, so child support is 16% of £800 plus 12% of the excess above £800 (£1,000) in this example).

16% of £800 = £128

12% of £1,000 = £120.00

£128 + £120.00 = £248.00

Stuart is due to pay £248.00 child support per week to Caitlyn, equating to £1,074.67 monthly or £12,896 annually.

However, if Stuart makes pension contributions, this reduces his weekly gross income

Stuart’s gross income is £1,800 per week. The ‘basic rate plus’ of child support applies because his gross weekly income is over £800 per week.

Step One:

Gross Weekly income = £1,800

Stuart makes pension contributions of £400 per week.

Gross weekly income (for the purposes of this calculation) = £1,400

Income between £0 and £800 = £800

Income over £800 = £600

Step Two:

There are two qualifying children, so child support is 16% of £800 plus 12% of the excess above £800 (£600) in this example).

16% of £800 = £128

12% of £600 = £72.00

£128 + £72.00 = £200.00

Stuart is due to pay £200.00 child support per week to Caitlyn, £866.67 monthly, £10,400 annually

By paying £400 per week (£1733.33/month or £20,800/year) into his pension, Stuart has reduced his annual child maintenance from £12,896 to £10,400, a reduction of £2,496 each year.

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