Should I take voluntary redundancy and retire early?

Triumph13

I'd echo what's been said so far about doing your best to bung into a private pension 100% of earned income for this tax year and all of the taxable redundancy sums when you get them. I might even be inclined just to invest them as cash to avoid any investment risk.


The one potential warning though is to have a good look at your fallback plan if you don't get the redundancy. It would be vexing if:

1. You put everything you could beg, steal or borrow in now,
2. You got turned down for the package,
3. You had to take more than the 25% lump sum back out again for some reason, thereby having your annual allowance reduced to £10k
4. The package was offered the following year and you then didn't have a big enough allowance to take full advantage.

Also, have you thought about what you will do if ony one of you is offered the package?

ewor1958

[/QUOTE]Also, have you thought about what you will do if ony one of you is offered the package?[/QUOTE]


Yes, it's a concern, we did ask the question of our respective directors, the reply was " there will have to be a conversation!"
Not too sure what that means!

The voluntary application needs to be in by 25th Feb, and we will know our fate by April 3rd, so possibly too late for this Tax year.

jamesd

The respective directors would have to discuss agreeing to both of you or neither of you. Alternatively they might deliberately plan to make it available to only one of you in the hope that the other might leave anyway without the package.

You two may be able to make your own applications conditional on either both or neither of you being accepted.

coyrls

ewor1958 wrote: »

We have already paid 5k & 7k respectively into our pensions in this tax year, including AVC's - I assume this will come out of the 40k allowance?

Also, Income Tax will automatically be deducted from the redundancy money through PAYE - will I have to claim that back from the tax man?

Watch your calculations, the 40K allowance applies to the combined employee's and employer's contributions, so you need to add in your employer's contributions.

If you contribute to a SIPP or PP, you will automatically get basic rate tax relief applied to your contributions. If you pay higher rate tax, you will need to claim the balance back via your tax form.

bitofatit

In respect of the £40k allowance for Pension contributions - as you are both in final salary schemes you may need to ask your employer to give you an estimate of how much you pension has increased in value from one year to next in order to get a fix on where you stand vis a vis the £40k allowance. Is of particular relevance if either of you has had a big pay rise in the last year or so.

atush

yes your contributions (along with any DB contributions) wil be taken into acct re the 40K.

And no you dont tell the taxman if you pay BR tax. That is automatic on a PP. Your wife would tell hmrc though, to get her HRT back.

If the avcs are SS she doesn't have to, but would have to if the avcs were on taxed pay and with any DC pension.

atush

April 3rd will be time enough if you have opened the pension already. As you could put in savings at least and can do that by a faster payments transfer, or even transfer it to your current acct and pay by debit card over the phone.

but would not be enough time to put in redundancy pay for this year as I presume they wont be paying it until the new tax year.

PeacefulWaters

Smart use of the new tax year pension allowance could really work for you if they fire you off after 6th April.

ewor1958

2 more questions please.
Do you have to be in employment to pay into a personal pension?
How does the tax relief work, I get my redundancy pay, which has been taxed, I pay it into a pension, how do I benefit!

atush

Ok, so yes, you can pay into a personal pension with no earned income but it is limited to 2880 (3600 with tax relief). Which is win, win as you get TR when you have paid no tax.

In your case, unless you can work a bit into the new year (may be possible as you only find out abt redundancy after April 1st) yes you can pay into a pension. but the amt will be limited to your earnings that year up to 40K less pension paid by employer. But you can claim (if you were in a pension plan at the time and you were) the 3 previous year's unused allowances.

So do get on with the maths in this regard.

As to your redundancy pay, the amounts over the 30K tax reelief as taxed as earned income. so again tha bove rules apply. You have a 40K per year allowance incl employers contribs and tax relief. Past 3 years unused allowances can then be used on top if you have more income than allowance.