I’m collapsing on a police pension, but can I save taxes and keep child support by also opening a private pension scheme?

I am a sergeant in the service of the police and will retire at the age of 60. With the government’s recent pay raise, I’m entitled to a raise, which means I’ll be earning around £53,000 a year from September.

I pay into the Police Pension Scheme, which takes 13.44 per cent of my pay, meaning my actual take-home income before tax will be around £43,000 – £45,000.

My wife and I, as things stand, are eligible for child benefit.

However, overtime is quite common and it wouldn’t be unexpected if I earn between £50.00 and £10,000 a year in overtime. Overtime is not pensionable.

Right now I’m depositing the same percentage as above of my overtime into stocks and shares of Lifetime Isa, which of course I’ll get when I’m 60. However, this will be taxed now, rather than in 22 years when I retire.

So if I were to earn this amount in overtime I would be well above the £50,000 threshold, meaning I would no longer be eligible for child benefit or be taxed at a higher rate to compensate for this.

To avoid this, would it be worth putting some of my overtime into a private pension that I could withdraw as money later in life?

I’ve been told I can start doing this at 57, which is three years before I get my police pension. Or, given the cost and value of my police pension, would I also miss out on a taxable benefit in this way?

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Steve Webb replies: For someone in your situation, additional pension savings instead of saving via a Lifetime Isa can have many advantages.

However, you are understandably concerned about how your current income, including your overtime hours, or taking retirement income later if child support is then still an issue will increase the child support you may be facing.

To start with the basics, the High Income Child Benefit Charge (HICBC) applies when someone receives child benefit and when he or his partner has a ‘net income’ (see below) of £50,000 a year or more.

For every £100 that your net income exceeds the £50,000 threshold, you pay 1 per cent of your child benefit, up to a maximum of 100 per cent for those with a net income of £60,000 a year or more.

For example, at current benefit rates, a family with one child would get £24 a week or £1,248 a year.

If a partner had a net income of £55,000, this would result in a supplement of 50 per cent of the child benefit amount, or £624.

Please note: child benefit will continue to be paid in full, but the highest earner will receive an addition.

As you have indicated, the way HM Revenue & Customs (HMRC) calculates your net income for these purposes is to deduct pension contributions first.

So your contribution to your police pension brings your base salary below the £50,000 threshold. If you do not earn overtime, you do not have to pay HICBC.

Unfortunately, however, payments to a Lifetime Isa are not deducted when they calculate your net income. This seems unjustified since a Lifelong Isa is in fact a form of pension.

If you were to stop depositing your Lifetime Isa and put the same amount into a personal pension or similar, these contributions would be deducted and you could well fall below the £50,000 threshold, even in a year when you work overtime .

In fact, because you are a higher taxpayer, you will receive a higher tax reduction on your pension contributions.

For example, if you pay £80 of your take-home pay towards a personal pension, HMRC will top this up by £20 to give you £100 in your pension pot.

The £20 represents base rate tax relief on the £100 contribution. But someone at your income level paying £100 towards a pension should get £40 in tax relief, not £20. So you can fill in a tax return and pay the extra £ 20 as a tax refund.

Generally, you get higher rate relief on the bit above the higher rate threshold.

So if your contribution takes you from clearly above to clearly below the threshold, you will receive a basic rate reduction on the first bracket and a higher rate reduction on the second bracket.

Another advantage of saving for retirement is that you can access the money sooner than with a Lifetime Isa – at least for the time being.

Since you are still paying for a Lifetime Isa, I assume you must be under 50 years old.

For someone your age, the ‘normal minimum retirement age’ (at which you can receive your pension) is currently expected to be 57, but this may increase as the state pension age rises. A Lifetime Isa, on the other hand, is only accessible from the age of 60.

Please note, however, that if you currently have another child who is young enough to be entitled to child benefit and you decide to take your (new) personal pension at the age of 57, this will be added to your net pension. income and you will then find yourself with a large HICBC to pay.

An important point I would like to make is that just because you can access a personal pension at age 57 doesn’t mean you should or even should!

If you are still working at that time, you probably still have a good income and you may therefore not need to draw on your pension pot.

And if you add your retirement withdrawals to good pay, you’ll pay 40 percent tax on the money you withdraw (aside from a tax-free lump sum), while if you can wait until retirement, you might be able to withdraw and pay the money out gradually only 20 percent tax.