Thousands of parents received a welcome reprieve last year when the threshold for the High Income Child Benefit Charge (HICBC) was raised. But higher earners have an extra trick to bag more of their Child Benefit, while also boosting their retirement nest egg – paying more into a pension.
Contributing more to your pension could reduce how far your earnings go above the threshold, meaning you could keep thousands of pounds extra of Child Benefit.
Additionally, you would be saving more money towards your retirement.
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“Parents often don’t realise that they can receive much more in Child Benefit payments by upping their pension contributions while also setting themselves up for a more prosperous retirement and taking advantage of the favourable tax relief available,” says Shaun Moore, tax and financial planning expert at Quilter.
“Although this does mean that someone has to increase how much they are saving for retirement, the benefits mean that the ultimate gain far out strips the spend.”
How does the High Income Child Benefit tax Charge (HICBC) work?
The earnings threshold at which Child Benefit starts to get withdrawn is if one parent earns more than £60,000 a year. This stood at £50,000 until April 2024.
As a result of the HICBC, a parent has to repay the benefit at a rate of 1% of the benefit amount for every £200 they earn above the threshold.
This means that if they earn £70,000, they lose 50% of the benefit. Someone on £75,000 will lose 75% of the Child Benefit amount.
The top of the taper is now £80,000, which is the point where all the benefit is repaid.
The plan was to move to a system of household income, rather than based on individual parents' earnings, by April 2026, though that was the intention under the previous government so it could change.
How increasing pension contributions can boost Child Benefit
If you’re affected by the charge, it’s possible to reduce the impact and end up net better off by increasing the amount you pay into your pension via salary sacrifice.
Holly Tomlinson, financial planner at Quilter, says this is "one of the most effective ways" to reduce your adjusted net income, which HMRC uses to calculate how much Child Benefit you have to repay.
She explains: "Contributions made through salary sacrifice reduce your taxable income before it’s even paid. This can help bring you below the £60,000 threshold or reduce how much of the benefit is clawed back.
"Even personal pension contributions made from net income attract tax relief and reduce your adjusted net income, offering a powerful incentive to save for retirement while protecting access to Child Benefit."
From April 2025, parents receiving Child Benefit will get £26.05 a week, up from £25.60, for an eldest or only child, and £17.25 for other children, up from £16.95.
Analysis by wealth manager Quilter shows a 40-year-old parent earning £75,000 with two young children who contributes £200 into their pension each month would currently get to keep £562.90 of Child Benefit each year.
By increasing their pension contributions to £600, the higher earner’s adjusted salary would be £63,000 and they would be able to keep £1,913.86 per year of Child Benefit.
That equates to £16,212 over 12 years instead of £6,755.
Additionally, that extra money in your pension could boost the amount of money you have towards your retirement.
Assuming a modest growth of 2% after charges and inflation, the long-term result would also be to increase their pension pot by £167,364 at age 68, according to Quilter.
"Although this does mean that someone has to increase how much they are saving for retirement, the benefits mean that the ultimate gain far out strips the spend," adds Moore.
"There is still a significant proportion of people in the UK who are not saving enough for retirement and utilising this quirk in the system could help them achieve their retirement aspirations."
Why taking Child Benefit could boost your state pension
Thousands of parents have opted out from taking Child Benefit, particularly if they earn above £80,000.
This would remove the hassle of completing a self-assessment tax return to pay the HICBC. This rule is changing, meaning high-earning parents will soon be able to pay the charge through their payslip.
More than 712,000 families have now opted out of receiving Child Benefit entirely, affecting more than a million children, according to HMRC data from April 2025. While it's a decrease of 4% compared to the previous year, it’s a stark figure that speaks to the policy’s long reach and lasting impact on middle-income households, Tomlinson says.
She urged families to "tread carefully", adding: "Those near the threshold may be able to use salary sacrifice to reduce their adjusted net income and retain their Child Benefit."
The number of families receiving Child Benefit has fallen to its lowest level since 2003, despite population growth and rising household costs.
Alice Guy, head of pensions and savings at interactive investor warns opting out could reduce your state pension entitlement.
“The high level of those not claiming Child Benefit raises concerns that parents are unwittingly missing out on valuable National Insurance credits, which could potentially boost their state pension in future,” she says.
“To receive a full [new] state pension you need 35 years of either National Insurance payments or National Insurance credits. Claiming Child Benefit gives you a National Insurance credit if your child is under 12 and therefore could increase your state pension when you retire.”
Grandparents may be able to boost their state pension, if the parents won't benefit from the National Insurance credits linked to Child Benefit, via Specified Adult Childcare Credits (SACC).
Carers retire with an average pension of just £6,750
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