How pension contributions can help to preserve Child Benefit

Contributions to registered pension plans are highly tax efficient. The payment of pension contributions can also be used to reduce income below the High Income Child Benefit Charge (HICBC) threshold. Child Benefit is progressively cut back if one parent or partner in the household has adjusted net income of more than £60,000. Benefit is totally lost when adjusted net income reaches £80,000.

A pension contribution made in any form can reduce a client’s level of adjusted net income and restore part or all of the benefit/avoid HICBC tax charges. It can also achieve high effective rates of tax relief. It is possible to achieve even higher savings where salary sacrifice is used. And, the higher the number of children the higher the potential tax saving.

Example

Terry and Nicola are married with two children, Calum aged 5 and Ryan aged 2. In 2025/26, Terry has an adjusted net income of £72,000 and Nicola has an adjusted net income of £32,000. Nicola claims Child Benefit for both of their two children. This amounts to a weekly amount of £26.05 for Calum and £17.25 for Ryan.

The total benefit is calculated based on the weekly amounts Nicola receives up to the end of the tax year – 2025/26. However, Terry will be liable to the charge as his adjusted net income is over £60,000:

Terry’s HICBC is: £2,251.60 x 60% = £1,350.96.

Nicola will therefore, effectively, receive just under £900.64 in Child Benefit (£2,251.60 - £1,350.96).

Let’s say Terry decides to make a gross pension contribution of £12,000 to his occupational pension scheme via salary exchange. This would have the effect of reducing his adjusted net income down to £60,000 and £12,000 would be added to his pension by his employer. He would effectively receive tax relief of £4,800 (£12,000 x 40% = £4,800), so the pension contribution would actually only cost him £7,200 and he and his employer would also benefit from national insurance savings. And the HICBC of £1,350.96 would no longer be payable.

A similar result, without the national insurance savings, could be achieved if Terry had instead made a net personal pension contribution of £9,600 (i.e. £12,000 when grossed up by basic rate tax relief.) Again, the pension contribution would actually only cost him £7,200 as he would be able to claim higher rate tax relief of £2,400 (40% - 20% = 20% x £12,000 = £2,400) on the grossed-up contribution.

By undertaking this simple planning opportunity not only would a taxpayer be increasing their pension pot on retirement, they could also prevent being caught by the HICBC. Further, they can continue to receive Child Benefit payments in the normal way, resulting in a beneficial outcome for all parties concerned.

If you or someone you know would like some guidance in this area, get in touch and arrange a free initial consultation.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The information in this article is based on current laws and regulations which are subject to change as at future legislations. 

The Financial Conduct Authority does not regulate advice on Tax Planning.

The value of your investment can fall as well as rise and is not guaranteed. 

The information in this article is correct as at 17/09/25.