Working parents earning more than £100,000 have been urged to check whether making extra pension contributions could help them retain access to Government-funded childcare. Retirement specialist Standard Life highlighted that many higher earners are unaware that pension contributions can reduce their adjusted net income, the figure used to determine eligibility for the Government's 15 or 30 hours of funded childcare.
Under current rules, if either parent has an adjusted net income exceeding £100,000, the family loses eligibility for funded childcare. Standard Life noted that increasing pension contributions, including through salary sacrifice where available, can lower adjusted net income. For families with income just above the threshold, this could help them retain childcare support while boosting retirement savings.
Mike Ambery, Retirement Savings Director at Standard Life, said: “For many parents, the summer holidays are one of the most expensive times of the year. Frozen tax thresholds mean a pay rise doesn’t always leave families better off, and crossing the £100,000 mark can mean losing valuable childcare support. Understanding how pensions interact with the tax system can make a meaningful difference.”
The company also found that 52 per cent of people do not realise that pension contributions can reduce taxable income. The £100,000 threshold applies to each parent individually, not household income, so a family can lose access if one parent exceeds the limit even if the other earns less.
Parents claiming funded childcare must reconfirm eligibility every three months through their online childcare account. Standard Life also encouraged checking eligibility for the Tax-Free Childcare scheme and stressed the importance of seeking financial advice before making significant pension changes.
