redundancy - augmenting redundancy money over £30k into your pension

nigreeves

I am due to be made redundant in the next few weeks.
My redundancy payout may exceed £30k (I don't know figures yet)
I have heard that you can augment anything into your company pension to save payment of tax on this amount.
Can anyone confirm if this is correct?
Can the lump sum augmented then be pulled from the pension as a lump sum but tax free? Are there any time constraints dictating how long the money has to stay in the pension?
Advice much appreciated

GaryS

I have also heard that this is correct, some of the chaps I work with are planning to do this when they go in the near future.
Not sure of the full details though.

Teazel

Yes you can put an amount into your pension, subject to the pension scheme rules. Once it's in your pension its there until you retire I'm afraid so you don't pay tax but can't draw the money out.

Debt_Free_Chick

It's best to get the company to construct the package so that they pay an amount into your pension plan e.g. if you're due to get £45k, company pays you £30k and puts £15k in to your pension.

As Teazel says, once it's in your pension plan, then that's it - you can't get at it until retirement. But it would hopefully grow in value over that period of time. At retirement, you can take 25% of the value as a tax free lump sum, under current rules so you would effectively get 25% of the redundancy amount back, tax free - plus 25% of the investment growth on that amount.

Saving in a pension should not be a decision you make purely for tax reasons. Remember that apart from the lump sum which is (currently) tax free, the rest of the value of your pension provides an income which is taxed. Ignoring the tax free lump sum, you don't necessarily save any tax by putting money into a pension - you just avoid paying tax now and pay it later instead. There would only be a tax saving if you're a higher rate taxpayer now and a lower rate taxpayer in retirement.

Regards

nigreeves

I may have to pull my pension several months after redundancy.
Presumably ther eis no problem getting the augmented lump sum (25%) so soon after putting the money into the pension?

Debt_Free_Chick

No problem at all - some people draw on it immediately.

nigreeves

Does anyone else have a view on claiming the full augmented amount as I am getting info from other sources which suggest you can pay the full amount over £30k into the pension and pull it back in full tax free.
Thanks

thirdparty

Is your pension scheme a defined benefit scheme (DB) or defined contribution scheme (DC)?

I believe the following is the case:

If DC then you can take 25% of the total value of your fund as a tax free lump sum.

If DB then you can 'exchange' 25% of the value of your pension for a tax free lump sum. The value of the exchange is dependent on your particular scheme

For a DC scheme it would not make much sense to put the whole redundancy pay in if you are trying to get the maximum tax free sum (just anything above 30K)