Benchmark gross replacement rate

[Mikexx]

I'm struggling to understand what this is in respect of "Excessive pension contributions". The context is around Chapter 36 in:
https://assets.publishing.service.g...db07d0/volume-3-variations-chapters-27-36.pdf

They give an example:
"NRP John’s gross income is £30,000. The Annual Benefit Statement shows a projected pension income of £25,000, the benchmark gross replacement rate is 60%. 60% of John’s current gross income figure is £18,000 (£30000 x 0.6= £18,000).
As John’s projected income (£25,000) exceeds 60% of his gross income (£18,000) the difference of £7,000 (£25,000 - £18,000= £7,000) can be applied to the variation. This will increase John’s income by £7,000 for the purposes of the child maintenance calculation."

I don't understand why the CMS would increase his income to £37,000 for the child maintenance calculation?

 

[Unknown01]

No, you misunderstand (but it's not very clear). If you are putting money into a pension and the projected pension income exceeds 60% of your gross salary, they will add back to your gross income that you are paying in over and above what you need to pay in for a 60% of salary pension.

For example, if John pays in £6k of his £30k salary (CMS assessed on £24k) and only needs to pay in £5k to get 60% of income in retirement the CMS will do a variation on that £1k difference (so on a £25k salary).

Actually, you need to pay in an awful lot to get 60%, especially if the ex got a large chunk of your pension in a divorce. Also, it shows why its worth taking more equity and less pension in a divorce sometimes. Equity in the hand can be worth a lot more as you can also save more of your future income for a pension and reduce CMS payments.

 

[Mikexx]

No, you misunderstand (but it's not very clear). If you are putting money into a pension and the projected pension income exceeds 60% of your gross salary, they will add back to your gross income that you are paying in over and above what you need to pay in for a 60% of salary pension.

For example, if John pays in £6k of his £30k salary (CMS assessed on £24k) and only needs to pay in £5k to get 60% of income in retirement the CMS will do a variation on that £1k difference (so on a £25k salary).

Actually, you need to pay in an awful lot to get 60%, especially if the ex got a large chunk of your pension in a divorce. Also, it shows why its worth taking more equity and less pension in a divorce sometimes. Equity in the hand can be worth a lot more as you can also save more of your future income for a pension and reduce CMS payments.

Many thanks, I understand and can see where the £7k comes from in that example. But not how it relates to pension contributions where it says, "If the projected pension income exceeds the percentage of the NRP’s current income that is indicated on the table below, it may be appropriate to treat part of their pension payments as an unreasonable diversion of income".

The actual wording in the example suggests if the NRP isn't making pension contributions then his gross income on which CM is calculated he will be paying CM on £37k (£30k + £7k)?

 

[Peanut 21]

I've got to admit I had to read it a few times. I think they write it in such a way it's confusing.
It's difficult to know if they mean pension contributions or pension being received....as I read it.
Any financial advisors or accountants in the group?

 

[Roblox]

Many thanks, I understand and can see where the £7k comes from in that example. But not how it relates to pension contributions where it says, "If the projected pension income exceeds the percentage of the NRP’s current income that is indicated on the table below, it may be appropriate to treat part of their pension payments as an unreasonable diversion of income".

The actual wording in the example suggests if the NRP isn't making pension contributions then his gross income on which CM is calculated he will be paying CM on £37k (£30k + £7k)?

It's referring to gross income so I assume that's before any pension contributions.

I've not looked at the link but the example doesn't seem realistic. A 30k salary and a pension income projected of 25k annually. I can only think this is based on a final salary (defined benefit) type arrangement.

 

[Mikexx]

It's referring to gross income so I assume that's before any pension contributions.

I've not looked at the link but the example doesn't seem realistic. A 30k salary and a pension income projected of 25k annually. I can only think this is based on a final salary (defined benefit) type arrangement.

I'm going to suggest there are many instances where a NRP has taken low paid work, where either a defined salary or money purchase scheme has been paid from a very high wage.

It feels as if the CMA can magic up some income you don't have, or can't get.

 

[Roblox]

I'm going to suggest there are many instances where a NRP has taken low paid work, where either a defined salary or money purchase scheme has been paid from a very high wage.

It feels as if the CMA can magic up some income you don't have, or can't get.

The CMS' powers are way out of kilter with it's competence.