Voluntary Severance payment into pension fund?

kidmugsy

J._Jones wrote: »

I think I'm going to have to pay someone with more day-to-day experience of this complex area to bring together all the relevant information and lay out my options more clearly.

I ask entirely non-sarcastically: will it be easy to find such a person? How will he find what he needs to know from your pension fund?

J._Jones

Well let's hope so, kidmugsy.

For many years my wife and I had an excellent financial adviser, an elderly lady who delivered some great results for us and whom we came to trust implicitly. Unfortunately she is no longer with us. But I'm hoping I can find someone not dissimilar.

At very least I'm assuming that a professional advisor with comprehensive knowledge of the legislation on tax and pensions and some familiarity with the generic features of occupational pension schemes and severance deals ought to exist. In this regard, after all, my situation in general terms is hardly unique. I take your point about the continuing problem of extracting useful sense from my employer's specific pension scheme but at least he or she will know the field and be better placed than me to filter the garbage and drill down to the key facts.

I hope so, anyway.

Brynsam

You certainly need to discuss with someone who has all the relevant facts, not the drip-feed of bits of info which is the lot of those on a forum.

Presumably you will be required to sign a severance agreement, so your lawyer will be able to give you advice on certain aspects. It would be helpful if you obtained written information from your employer/the scheme about whether some or all of the £43,000 could be put into the pension scheme, whether there would be any tax charge to you (a question they may try to duck, but worth asking) if this were made as an employer contribution, and exactly what it would buy in terms of extra pension.

This really isn't a particularly difficult or complicated situation, but until you have some facts, making a decision is whistling in the wind.

Dox

J._Jones wrote: »

I'd been assuming that most of this could be paid straight by my employer into the occupational scheme so as to off-set the actuarial reductions that will be applied because I'm starting to draw the pension from 55. This would, I hope, raise the current £15,000 annual pension by perhaps another couple of thousand. But a conversation with the employer's pensions officer has sowed serious doubt in my mind. She confirmed that such a payment to the scheme was possible but advised me strongly against asking for the severance payout to be made in this form. She told me that such a payment would be fully taxed at my marginal rate if it went to the pension fund whereas if I received it personally the first £30,000 of the £43,000 would be taxed at my marginal (40%) rate. I already knew about this £30,000 tax-free allowance for severance payments taken by departing employees, of course, but the idea that there would be 40% tax on any of the £43,000 if it went instead into my pension fund was news to me and very unsettling.

Are there any experts out there, or people who've been through this situation of deciding what to do with a significant lump sum on severance or early retirement, who have any thoughts about whether my employer's pensions officer (not the most impressive individual if I'm honest) was correct and was giving me accurate information? (I did ask her to repeat what she said, and she willingly did, so this wasn't just me mis-hearing or getting the wrong end of the stick.)

This is a common situation, made needlessly complicated by a failure to establish basic facts. Making assumptions and having conversations is no substitute for getting answers in writing.

If your pensions officer isn't good at writing things, write to her setting out your understanding of what she said and asking her to confirm you have understood the position correctly. if you think she's wrong, try something along the lines of 'I had always thought until you corrected me....for my peace of mind please could you explain why [xxxxxx] is so'. That gives her the chance to wriggle out without losing too much face by telling you that you misunderstood what she said; or she has to commit...

J._Jones

Sensible suggestions. Many thanks.