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[Sticky] Variation and diversion of income

 
actd
 actd
(@actd)
Illustrious Member

Many thanks to @Will99 for this information - quoting his reply to another post

 

This link is to a comprehensive document dealing with all different kinds of variation, Chapter 36 deals with diversion of incomee :-

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1066233/volume-3-variations.pdf

One specific way to divert income is via additional pension contributions - for this specific method there are threshold values in para 36014 which detail what is an 'acceptable' level of pension contribution based on % of income and your age. However note that the age in this table is when you started making pension contributions - and I think this is often misunderstood even by CMS themselves as your current age. In any case I think this table is almost unusable in my view because you may have stopped and started contributions throughout your working life - and para 36012 bullet 7 refers to this as a consideration.

Para 36019 states that the Decision Maker should initially refer to para 36014, but in complex cases (or where either party disputes the decision) the table in para 36020 should be used instead. This is much easier to apply and depends on your current projected pension income and your current income.

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Topic starter Posted : 23/06/2022 3:48 pm
(@Will99)
Estimable Member Registered

Hi - just to add that someone else (apologies I can't recall who, but thank you anyway) posted a link to the 'Child Maintenance Decision Makers Guide', from where you can access the above information relating to variations along with other information :-

https://www.gov.uk/government/publications/child-maintenance-decision-makers-guide

 

edit - it was @world-traveller that posted the above link. Thank you !

This post was modified 8 months ago by Will99
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Posted : 23/06/2022 4:26 pm
actd and actd reacted
(@parkside357)
Active Member Registered
Posted by: @actd

Many thanks to @Will99 for this information - quoting his reply to another post

 

This link is to a comprehensive document dealing with all different kinds of variation, Chapter 36 deals with diversion of incomee :-

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1066233/volume-3-variations.pdf

One specific way to divert income is via additional pension contributions - for this specific method there are threshold values in para 36014 which detail what is an 'acceptable' level of pension contribution based on % of income and your age. However note that the age in this table is when you started making pension contributions - and I think this is often misunderstood even by CMS themselves as your current age. In any case I think this table is almost unusable in my view because you may have stopped and started contributions throughout your working life - and para 36012 bullet 7 refers to this as a consideration.

Para 36019 states that the Decision Maker should initially refer to para 36014, but in complex cases (or where either party disputes the decision) the table in para 36020 should be used instead. This is much easier to apply and depends on your current projected pension income and your current income.

Just trying to understand this fully - increasing your pension by (example) 12% will mean 12% off your CM payments, however will also mean 12% of your wages are not received and cant be touched until years down the line. So it's just putting it in a different pot not exactly helping with current cost of living.

 

Or are you saying put the payment back down to a low figure once the calc has been made, then back up again before the annual review

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Posted : 08/11/2022 12:16 pm
(@Will99)
Estimable Member Registered

@parkside357 

Increasing your pension contributions will do three things :-

1. Increase your pension pot

2. Reduce the net income you get paid

3. Reduce the amount of child maintenance you have to pay

So say you increase your pension contributions by £1,000 in a tax year (compared to the year before, with everything else staying the same).

1. You will have an additional £1,000 in your pension, which is subject to growth hopefully. How this money is taxed later depends as there are different options for accessing your pension pot. Generally speaking it should be taxed less in retirement than if you had had it paid to you through your payroll. For one thing, retirement income is subject to tax but not National Insurance, for another you can also withdraw 25% of your pension pot tax free, and also most people's retirement income will generally be less than their salary when they were working - so this £1,000 could also be taxed at a lower rate than had it been paid to you through your salary.

2. You will receive less in net pay as a result of the extra pension contribution. For a basis rate taxpayer you will get £680 less (£1000 less tax at 20% and NI at 12%) and for a higher rate taxpayer you will get £480 less (£1000 less tax at 40% and NI at 12 %).

For those reasons alone many people decide to increase their pension contributions, but where you pay child maintenance, you will also see a reduction in this.

3. Say your CM is calculated as 12% of your gross taxable income. If you reduce that gross income by £1000 via an additional pension contribution, your CM liability is reduced by £120.

But in respect of 3. there are limits on how much you can pay in to your pension and have that sum reduce your CM. The CMS are aware that some NRPs will do this just to reduce their CM liability, and if they think you are paying an excessive amount in to your pension, they can apply a 'diversion of income' variation which means money so diverted to your pension can also be included in the CM assessment. The variations document deals with this.

This post was modified 3 months ago by Will99
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Posted : 08/11/2022 3:26 pm
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