Being made redundant

GunJack

Ahhh...think get where you're coming from now....whatever pension you've built up to date won't be actuarily reduced for taking it early (i.e. before NRA) because of the redundancy. If you just decided to leave, and retire before NRA, the pension you'd built up could be taken, but reduced (by 5%-ish per year before NRA) in view that you'd be drawing it for longer than normal.

Silvertabby

Unreduced in this context (redundancy over age 55) means that your LGPS pension isn't actuarily reduced for early payment. One way of looking at it is that your NRA will be 62 instead of 66.

It's a common misunderstanding that 'unreduced' means the pension you expected to get at 66 - but that is is not the case. It just means that you will get the full pension you accrue up to your date of leaving.

As you are being made redundant, deferring payment of your pension is not an option - but even if it were it would be a daft thing to do as you would be giving money away.

billpaul812

Thank you both for taking the time to explain that. Its the first time I've ever understood that.

billpaul812

AlanP said: "What you could look at doing is paying as much as you can into the LGPS AVC scheme between now and December, including any redundancy over the £30k tax free bit.

You can then take the whole AVC pot tax free as part of your 25% Pension Commencement Lump Sum at the point you start your LGPS pension.

You should be able to get the whole redundancy payout into your account tax free that way by the sound of it."

Thank you but I won't be getting any lump sum until quite late in the process. This is early days in terms of my redundancy and technically I haven't even started my notice period yet. I could increase my contributions into my AVC though. I realise its a tax efficient way to save.

Can you explain in dummy's language why if I did get a lump sum early it would be worth putting the over £30K bit into my AVC?

Thanks.

Audaxer

woolly_wombat wrote: »

No, you are over 55 and therefore eligible for immediate unreduced payment of your LGPS built up to the date of departure.

That sounds like a great deal to get it without the actuarial reduction that normally happens when most other pensions are taken early. It should mean that if the pension increases at the projected rate, the OP will still get the amount he would have got at his Normal Retirement Age, as well as getting 4 additional years of early pension without any penalty.

hyubh

Audaxer wrote: »

That sounds like a great deal to get it without the actuarial reduction that normally happens when most other pensions are taken early. It should mean that if the pension increases at the projected rate, the OP will still get the amount he would have got at his Normal Retirement Age, as well as getting 4 additional years of early pension without any penalty.

If you mean 'he would have got at his Normal Retirement Age, had he remained a member until then', well no, as Silvertaby explained (the actuarial reduction is cancelled, however there's no bonus four years of reckonable service).

This 'deal' is just part of the scheme rules - the employer will be required to pay a capital sum ('strain charge') determined by the fund actuary to prevent the fund (and therefore other participating employers, the local council taxpayer) from losing out.

xylophone

http://moneytothemasses.com/tax-advice/tax-mitigation-tax-advice/how-can-to-reduce-the-tax-on-a-redundancy-payment

may be worth a look but the Annual Allowance is now £40,000 not £50,000.

https://mpfmembers.org.uk/content/how-may-i-be-able-use-my-house-avc-fund-retirement

Take your AVCs as cash
You can take some or all of your AVC fund as a tax-free cash lump sum*, but you can only take it all as a lump sum if you draw it at the same time as your main LGPS benefits and provided, when added to your LGPS lump sum, it does not exceed 25% of the overall value of your LGPS benefits (including your AVC fund).

*Provided the lump sum does not exceed £250,000 (2017/18 figure) or if you have previously taken payment of (crystallised) pension benefits, 25% of your remaining lifetime allowance.

Audaxer

hyubh wrote: »

If you mean 'he would have got at his Normal Retirement Age, had he remained a member until then', well no, as Silvertaby explained (the actuarial reduction is cancelled, however there's no bonus four years of reckonable service).

That's true, he would get less as he is not paying into the pension for the next 4 years. However it is still a great pension as he doesn't get any actuarial reduction for retiring early through redundancy. I have 2 pensions - one private sector and one public sector - where that is not the case.

AlanP_2

billpaul812 wrote: »

AlanP said: "What you could look at doing is paying as much as you can into the LGPS AVC scheme between now and December, including any redundancy over the £30k tax free bit.

You can then take the whole AVC pot tax free as part of your 25% Pension Commencement Lump Sum at the point you start your LGPS pension.

You should be able to get the whole redundancy payout into your account tax free that way by the sound of it."

Thank you but I won't be getting any lump sum until quite late in the process. This is early days in terms of my redundancy and technically I haven't even started my notice period yet. I could increase my contributions into my AVC though. I realise its a tax efficient way to save.

Can you explain in dummy's language why if I did get a lump sum early it would be worth putting the over £30K bit into my AVC?

Thanks.

I wasn't implying that you would get the redundancy lump sum early, I mentioned December as it was mentioned in one of the posts.

You need to ask payroll if they can make a payment of the amount over £30k from the redundancy into the AVC associated with your pension at the point they pay out the redundancy.

Before that you need to open an AVC (if you don't have one), and if you can afford it start pushing as much into there as you can each month.

Beware of the Annual Allowance as mentioned below, but unless you have had a large pay rise recently, or contribute to the AVC or another pension already you are likely to be below the thresholds after taking carry-forward into account.

Your pension statements may show how much the Annual Allowance values for each year were so can check that.

The only downside is that it is likely to take a bit of time for the last payment into the AVC, which will include some redundancy lump sum, to get to the AVC provider and for them to turn it round and send it back to your employer so they can pay it to you.

This may delay the first payment of your LGPS pension but you will have the £30k tax free redundancy cash to tide you over.

billpaul812

Thank you all for your thoughts.

Have to admit I hadn't considered that the £25K I will get now will grow slightly so in 2021 it won't be the £5K difference that it looks like now. Only thing is I suppose is did that £30K projected (2021) figure I've been given allow for growth because if it didn't that would have grown too, so back to square one.

AlanP, so if my redundancy lump sum is £67K, you are saying that I ask payroll to pay £37K straight into my AVC, yes I do have a small one. So does this reduce the tax I pay, not quite sure how it works and what the gain is? I did ask payroll a while ago to do an estimate for me and they said that £67K would become £53K so worth doing something to improve that. Thanks again for your advice.