Retirement specialist Standard Life has urged working parents earning more than £100,000 to consider making additional pension contributions to retain access to UK Government-funded childcare. The warning comes as families face the high costs of summer holiday clubs, which average £179 per week per child according to Coram Family and Childcare.
How Pension Contributions Affect Childcare Eligibility
Under current rules, if either parent has an adjusted net income above £100,000, the family loses eligibility for 15 or 30 hours of funded childcare. Standard Life explained that many higher earners are unaware that pension contributions can reduce adjusted net income, potentially keeping them below the threshold. This includes salary sacrifice arrangements where available.
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, with childcare costs placing additional pressure on household budgets. At the same time, frozen tax thresholds mean that a pay rise doesn't always leave families better off, and if the net income of either parent exceeds the £100,000 mark, crossing that threshold can mean the whole family losing eligibility for the valuable childcare support."
Lack of Awareness Among Parents
The company found that more than half (52 per cent) of people do not realise paying into a pension can reduce taxable income. Ambery added: "Understanding how pensions interact with the tax system can make a meaningful difference to family finances; however, what's striking is that more than half of people aren't aware of the power of pension contributions when it comes to reducing their taxable income."
Individual Parent Threshold and Salary Sacrifice
Standard Life stressed that the £100,000 threshold applies to each parent individually, not household income. This means a family can lose funded childcare if one parent exceeds the limit, even if the other earns much less. Parents are encouraged to check if their employer offers salary sacrifice, which allows pension contributions before tax and can help reduce adjusted net income.
Reconfirmation and Other Support
Parents receiving Government-funded childcare must reconfirm their eligibility every three months through their online childcare account. Failure to update details can result in losing access until eligibility is confirmed again. Standard Life also advised families to check eligibility for the Tax-Free Childcare scheme, which helps with nursery fees, holiday clubs, and wraparound care.
Ambery concluded: "Depending on individual circumstances, increasing pension contributions could not only boost retirement savings but also help some parents manage key income thresholds and retain valuable childcare support – especially those on the borderline." The company emphasised that everyone's financial situation is different and recommended seeking regulated financial advice before making significant pension changes.
