Pension contributions - what is deemed a diversion of income ?
My ex- raised a variation on the grounds of diversion of income in regard to my additional pension contributions, however the CMS deemed them to be 'not unreasonable'. They also explained that they have a table of 'maximum reasonable pension contributions' to use for this kind of assessment, and that the NRP's age is a factor in this (i.e. higher contributions allowed for older NRPs). I don't know if the 'maximum reasonable amount' is a flat amount or a % of gross income however.
Does anyone know the thresholds in this table ? I don't suppose this information is in the public domain ...
If you dowload the FOI FSA Pensions guidance document, the table is on there...
Also provides a bit of a summary as to how the CMS look at pension contributions and hopefully should help you to bring things into alignment. Remember it is at your caseworkers discretion (although they are guided by this document) and how you explain why you are making higher pension contributions above the 12% reasonable level is important... Eg based on your age, maybe if you've seen a financial advisor, maybe if you haven't paid into a pension historically but are now catching up and due to age require higher contributions, any ill health factors that might prevent you contributing for the long term etc...
That is very useful information - thanks !
If I understand the table correctly, a reasonable level of pension contribution for someone my age (57) can be up to 45 to 70 % of my gross income (*). That is much higher than I would have thought and seems generous.
I am actually planning on contributing around 34% this financial year, so it seems well within what the CMS would call a reasonable amount.
(*) where gross income is reduced as a result of the pension contributions
Correction - the 34% is the level of my additional pension contributions I am planning to make. Including my 'regular' contributions the total comes to about 56% - though still within the allowable level according to the table.
That sounds sensible. Whilst I think on initial review the allowances seem generous, if we factor in what's happened to private pensions over the past 10 years eg falling annuity rates, changes to pension drawdown, the government encouraging auto enrolment and mandatory contributions, we now need bigger pots to provide for retirement and therefore I would say that table which was produced before all the changes is probably no longer generous..
Also depending how you make your contributions there could be a time lag too. If employer deductions these will show on payslip and easy to work out gross income and so CMS can factor in sooner. If private pension contributions then you need to wait for statement from pension provider to show contributions and different providers have different frequency for producing.
Also remember, if private pension your contribution is net of tax and so your statement would need to show the contribution you have made plus and tax rebate which the CMS need to add together and deduct from your gross income. If this makes sense? I've heard many stories where paying parent struggles to get CMS to understand this and have had to appeal or wait for an annual statement showing the contributions and tax rebate or get pension provider to send a bespoke letter (sometimes at cost)...
@Daddyup Thanks for all help on this. For information, my 'regular' contributions are to my workplace defined benefit pension and show on my payslips, and my gross taxable income on my P60 is after such costs. My 'additional' contributions are via salary sacrifice and to the same pension provider (but to a separate defined contribution scheme) - so these are also taken account of at source and impact my taxable income on my P60 too. So hopefully none of the timing issues you refer to as all contributions are made from pre-tax income and via my workplace payroll.
Actually I note that the figures in the table relate to when the NRP started making contributions. So whilst it says 45 to 70 % for someone aged 55 and over, if they have been making contributions since they were - say - age 40, then it seems that 18 to 25 % is the guideline figure.
However these are guideline figures with a lot of scope for taking other factors in to consideration, so I hope that the CMS will judge my planned contributions to be reasonable given other factors such as my inconsistent provision in the past and desire to 'catch up', and current projection for my income in retirement.
Hi Will, how did you get on with this, really interested, as I am 55 in October and looking to retire no later than 60, mainly due to ill health. I a aware of the rationale behind the pension contributions and there is case law to support an older person, who has previously not paid contributions and needing to prepare for retirement. I started paying 45% from 53 and am looking to increase to 60% when I hit 55. Common sense is clear that this should be acceptable and not a diversion of income, but just wondered how you got on. Would really appreciate any other members experience
Funnily enough I just received a decision this morning from the CMS on this.
They were actually making a decision on a notional income variation applied for by my ex (refer https://www.dad.info/forum/child-maintenance/notional-income-variation/#post-124601), however as I provided full financial disclosure as part of that - including pension provision - they have also made the decision to assess me on the full value of my additional pension contributions 'due to my existing pension provision'. These are contributions I make in addition to the standard workplace pension I am a member of.
So the CMS have made this decision despite :-
1. A previous request by my ex- for a 'diversion of income' variation on these grounds having been rejected on the grounds that these contributions were 'not deemed excessive'. I presume this decision was made by reference to the 'table of acceptable pension contributions' the CMS use (referenced earlier in this thread).
2. Including ALL my pension provision I estimate that I will get on retirement an annual pension of approximately £23K (this is without taking any tax free lump sum)
3. My current age of 57.
@Will99 Thanks Will, so reading this, would appear good news for you mate, sorry if not reading correctly. So they allowed you to make the extra pension contribution you were suggesting, in line with the FSA chart?. I am not looking to get away from paying for my son, who the ex has alienated from me, but being 55 and needing a pension, I will need to make the increase to 60%. Thanks mate in advance