Since 2013, working families where one parent earns more than £50,000 per year face a high income child benefit charge of 1% of their child benefit for every £100 earned above the £50,000 threshold, up to a maximum of 100%. Where someone in the family earns over £60,000 the tax charge is equal to the amount they get in child benefit.

However, Royal London says what is not well known is that when HMRC measures earnings for these purposes, it is on the basis of income net of pension contributions.  

This means that those who increase their pension contributions will lower their income for purposes of the high income child benefit charge and will face a smaller charge as a result, possibly even ensuring they retain the full child benefit entitlement. 

At the time the new regime was introduced, the Institute for Fiscal Studies estimated that around 320,000 families would fall within the £50,000-£60,000 earnings band.  If each of these people were to contribute an additional £3,000 per year into their pension, they would reduce their child benefit charge by 30% of the amount of child benefit received, the Royal London calculates.  

For a family with two children this would be a gain of around £536 per year. Across all families in this income bracket this could be a saving on child benefit charges of up to £171m per year.

Steve Webb, director of policy at Royal London said: ‘For a higher earning family, putting money into a pension is already a very attractive option. But what they may not be aware of is the additional advantage of reducing the tax charge they face as a higher income family receiving child benefit.’

Report by Pat Sweet