Voluntary Severance and pension.

kidmugsy

If you do decide that it will be good value to defer the TPS to 60, as it might well be, then the next question is how best to bridge the gap of about 18 months. I suggest that first you calculate what you expect by way of pensionable earnings in 17/18 with a view to making a contribution to some sort of personal pension in 17/18. I suspect (open to correction here) that it equals earnings, plus the £6k of severance pay above the tax-free bit, less the increase in value of your TPS pension accrued during 17/18 (you'd need TPS to calculate that last bit for you).

Then you should consider making a gross contribution to, say, a SIPP equal to the result of that calculation. Then in 18/19 you could withdraw some or all of that cash tax-free, because you'd get the 25% tax-free lump sum, plus any drawdown income that falls beneath the personal allowance for income tax. (Remember to allow for two or three months of TPS pension income that you'll get in 18/19).

This is effectively a method for "stretching" the value of your severance pay and for exploiting the fact that in 18/19 you will otherwise have, I assume, some unused personal allowance against income tax.

One last thing: do check whether your employer is prepared to make the payments to the TPS that would allow you to draw your TPS pension early at age 58.5 without actuarial reduction. Because if that is on offer grab it with both hands.