Pension payments can help to cut tax on child benefits

Thousands of high earners are set to boost their pension savings in a bid to avoid being caught out by new child benefit restrictions.

One in six workers in the higher rate tax bracket expects to lose some or all of their child benefit payments when new rules come into force next year, according to research by Prudential.

A quarter of those expecting to be hit by the change intend to increase their monthly pension payments to avoid a tax clawback on the benefit.Under restrictions being introduced in January, households with at least one parent earning more than £50,000 will have their benefit withdrawn gradually in the form of a tax charge, before losing it entirely at £60,000.

Those earning between £50,000 and £60,000 can limit the amount of child benefit they lose or even retain their full entitlement by increasing their company pension contributions, with the effect of taking their salary down towards or below £50,000.

Matthew Stephens, tax expert at Prudential, said: “The new child benefit tax will be a real blow for many families next year, particularly in households where one parent is the main or sole breadwinner.

“There is, however, a strong case for a parent whose income is between £50,000 and £60,000 to make additional pension savings to avoid the new tax, and at the same time boost their retirement income.”