Redundancy Pay or Pension

Sammi1976

Hi,

My husband has the chance to take voluntary redundancy with a pay off of £80,000. This is however on the condition that he sacrifices his entitlement to his pension (a final salary pension). He's 34 years old and the pay off would clear our mortgage. I could then return to work full time, I currently work part time to look after our two children. My husband is reluctant to take this option as he is concerned about losing his pension. I on the other hand think it's a good deal. Any advice?

Thanks.

bendix

It really depends on his current salary and - thus - what he would likely expect from his pension, as well as how long he has been working

However, given he is only 34 I would hazard a guess that he is not earning £80,000 a year. If that is the case, this would seem a very generous offer to me.

To be mortgage free at 34 is a hell of a position to be in. He could then build a personal pension over the next thirty years, using money he would have put into the mortgage.

Had he been 54, my advice would be different largely because it might be difficult to find another job.

But 34 - it's a no brainer. Jobs will return, but he'll never have another chance to have a windfall like this again.

Sammi1976

Thanks for your opinion. My husband has been working for the company for 16 years, the redundancy pay is £5,000 for each year he's been there. His basic annual salary is currently £25,000.

Atelier

Don't forget that he will only get the first £30K tax free. Anything above that will be taxed as per normal salary.

So you could only get £60Kish in your pocket

bendix

Sammi1976 wrote: »

Thanks for your opinion. My husband has been working for the company for 16 years, the redundancy pay is £5,000 for each year he's been there. His basic annual salary is currently £25,000.

In my opinion,that's incredibly generous. I would be snapping their hands off.

There are a number of things he could do. While there is a tax liability, it can be reduced by putting a big chunk of the money into a private pension plan, to mitigate his fear of not having a pension, just to kick-start it. That would be tax free.

You could pay off almost all your mortgage to the point that the repayments could be met by your salary, for example, and he could buy himself a year or two to find another role.

The economy - and jobs - will return.

If I was being offered redundancy at over three times my salary, you wouldnt see me for dust!

Pete111

bendix wrote: »

In my opinion,that's incredibly generous. I would be snapping their hands off.

There are a number of things he could do. While there is a tax liability, it can be reduced by putting a big chunk of the money into a private pension plan, to mitigate his fear of not having a pension, just to kick-start it. That would be tax free.

You could pay off almost all your mortgage to the point that the repayments could be met by your salary, for example, and he could buy himself a year or two to find another role.

The economy - and jobs - will return.

If I was being offered redundancy at over three times my salary, you wouldnt see me for dust!

+1 !!

I realise there is a final salary issue here but If I were on 25k and got offered 80K to leave I wouldn't hesitate to take it. This is quite possibly a once in a lifetime opportunity. I would personally pay off the mortgage and open a private pension or overpay into my new one when I found a new job.

P

getmore4less

Sammi1976 wrote: »

Thanks for your opinion. My husband has been working for the company for 16 years, the redundancy pay is £5,000 for each year he's been there. His basic annual salary is currently £25,000.

£50k taxable and some will be at 40%.

I would also check that the company can do this

It is in effect allowing you to cash in your pension at 34 which is not as far as I know allowed.

dickydonkin

Consult a PROFESSIONAL INDEPENDANT financial advisor - there seems a lot at stake here.

Some of the responses on here are based on personal preferences, what is more important is if the decision you are considering is best for you and your family in the long term - not for anyone else.

An instant financial boost may seem a good idea at the time, but if that money is blown pretty quickly, that may leave your years of retirement a misery for both of you. Please seek advice - but not on forums such as these.

You have to ask why the company are asking him to forfeit his pension..............

mikey72

And what will the pension be worth in 30+ years time, or will it still even be there?

bendix

the real issue is not what the financial value of pension is in 30 years, it's what is it worth now.

No disrespect to the OP's husband, but based on the fact that he has worked in the same company for 16 years - pretty much all his working life - and is earning £25k after that time, we can make some basic assumptions about past salary levels and future earnings (although the latter is irrelevent, because there won't be any in that company).

I would very much doubt that the value of any accrued pension rights are anywhere near £80,000 at today's value.

bendix

dpassmore wrote: »

You have to ask why the company are asking him to forfeit his pension..............

For the same reason just about every company in the UK with a FSP is doing the same thing. They are trying to get rid of an extremely expensive balance sheet liability, and quite right too.