Redundancy payment 30K+

danihulo

Hi All,

Would be grateful for any and all advice...

My husband is due to be made redundant in December. He is fortunate to be receiving approx. 38k payoff.

We know that 30K of this is tax free and 8k will be taxed at higher rate. 9.5k of the 30K will be paid to a 0% credit card we recently purchased a car with. We plan to reserve the remainder of the tax-free lump (21k) in easy access accounts to pay bills in case there is a prolonged period of unemployment (hopefully not!) Will fill next year's cash ISA allowances with any remaining from this sum if possible.

He is 42 and we are hoping he will be able to retire at 62ish.
Have already filled up our cash ISA allowances for this year.

We are considering the following options - what do you think?
a) Put the 8K straight into his pension scheme so it is tax free.
b) Put the excess over 30k once taxes into S&S Isa with the understanding that it will not be touched as a pension investment.

Am interested to know what the wise people on this board would suggest - one of the above or something else entirely...

Many thanks
Nina

joerugby

You may already be aware that if he works only for 9 months this tax year he will still get a full year's personal allowance. Might this bring him down to basic rate tax, or will he have earned too much by December?

typistretired

He could ask his present company now to put the excess over £30,000 straight into his company pension, that way he would not be taxed.

danihulo

Hi Joerugby,

Thanks for your reply.

I must admit I hadn't thought of that but have just done some calculations on the back of an envelope(!) and his 9 months salary will just take him to the 40% level.

rpc

Depending on the terms of the pension scheme, probably better to put the taxable money in that rather than a S&S ISA. Assuming he will be a basic rate tax payer in retirement, the pension option gives 40% relief on the way in and 20% on the way out. The ISA option takes away 40% on the way in and 0% on the way out leaving you worse off.

BarrBru

Just in case it takes longer than expected to get a new job I wouldn't be too hasty about locking it up in a pension.

Pensions are fantastic but they do lock your cash away. If he gets a job soon they you may want to consider this option then.

Anything you can invest long term I'd put away in a S&S ISA.

kidmugsy

danihulo wrote: »

... have just done some calculations on the back of an envelope(!) and his 9 months salary will just take him to the 40% level.

Then I suggest you wait to see whether he gets a new job quickly and starts earning again in this tax year. If he does, put the surplus over the 40% threshold into a pension. If not, keep it on hand in case of need.

P.S. Why the rush to pay off a 0% credit card? That money could be earning 3% p.a. gross in an interest-bearing current account.