Redundancy - Cash v Pension

David2O

I am 57 years old and have been offered a significant sum to take severance from my job. Of the redundancy sum, I plan to take the £30,000 tax free lump sum but do not know whether to take the balance as cash and pay down my mortgage or pay this into my pension pot and benefit from the 25% tax free sum and subsequent index linked monthly payment that my pension provides.

I do understand that I will pay no tax at all if I pay the balance of my redundancy sum into my pension pot but, if I look at the cash benefit my pension provides after tax is deducted, it is llittle more than I currently pay in mortgage interest.

However, if I die early in retirement, I lose the capital invested in the pension - so do not have cash to leave to my wife and children.

Is it better to pay down debt or forgo the cash and take a monthly pension?

Gigglepig

I would consider if it could be a good solution to first pay into the pension and later withdraw up to 25% lump sum from the pension another year

Andy_L

Are you/will you be a higher or lower rate taxpayer?

Considering the tax year has only just starterd will you earn enough this year to pay tax (and thus get pension tax relief) on the balance of the redundancy payment

marlot

Might be worth asking the question in the pensions forum - there are some experts over there who are very helpful

Bigmoney2

David2O wrote: »

I am 57 years old and have been offered a significant sum to take severance from my job. Of the redundancy sum, I plan to take the £30,000 tax free lump sum but do not know whether to take the balance as cash and pay down my mortgage or pay this into my pension pot and benefit from the 25% tax free sum and subsequent index linked monthly payment that my pension provides.

I do understand that I will pay no tax at all if I pay the balance of my redundancy sum into my pension pot but, if I look at the cash benefit my pension provides after tax is deducted, it is llittle more than I currently pay in mortgage interest.

However, if I die early in retirement, I lose the capital invested in the pension - so do not have cash to leave to my wife and children.

Is it better to pay down debt or forgo the cash and take a monthly pension?

Depending on the type of pension scheme, there may well be a 5 year guarrentee where by if you die before receiving 5 yrs (may be a different no of years) pension, your spouse will receive it.
There is also the possibility that the scheme provides a spouses pension (typically 50% of what you receive) for the remainder of their life.

You need to find out what the scheme rules provide.