BT Leaver and Redundancy payments

tigerspill

Hi,

With all the talk of job losses in BT, I am wondering from those that have left in the past with a leaver payment - how this was paid in terms of tax years.
I know that 30K is tax free; Some can go into pension tax free up to the yearly and annual allowances.
Is the rest taxable at nominal rate in the current tax year or do they pay (or offer to pay) in multiple tax years to allow more to be taken tax free?
The question is specific to BT rather than a generic question.
Thanks

grolley

The procedures should be pretty well documented by now, but when I left, the payments were made over 3 successive financial years. In my case that meant I didn't actually wait too long, as I arranged to leave right at the end of the f.y.

Vortigern

It should be possible to spread the redundancy payment over several tax years, although I didn't need to do that.

It may be possible to pay some into an AVC such that the entire AVC can withdrawn as a tax-free Pension Commencement Lump Sum without affecting your monthly pension.

You might also be able to make additional contributions into the main pension scheme to boost your monthly pension.

Some of this may depend on which pension scheme you are in. I was in section B and left 10 years ago - so my info may be out-of-date.

Browntoa

£30,000 straight away tax free then either take balance of redundancy in next tax year or over next 2 tax years.

Anything in years 2 and 3 are taxed at basic rate unless your income from pension etc AND lump sum takes you into higher rate tax. Most engineers are not going to reach higher rate tax bracket on their pension and lump sum.

If you are on higher rate tax before leaving they will tax your lump sum in year 2 at the higher rate , a phone call is needed to the tax people to get the overpayment back.

If you take your pension straight away then all of the lump sum is tax free and does not count as income , only your pension does

Vortigern

tigerspill wrote: »

Is the rest taxable at nominal rate in the current tax year or do they pay (or offer to pay) in multiple tax years to allow more to be taken tax free?

The redundancy payment could push you into higher rate tax, if you're not already there. The purpose of spreading across tax years is to avoid higher rate tax and to make use of next year's personal allowance, if you're not using it for your next job.

tigerspill

So in years 2 and 3 (ignoring any other income for simplicity) I get the normal tax free allowance (say £12K per year) then pay 20% tax on the rest (assuming staying below HRT).
So can I put anything over 12K into the AVC tax free in the normal way as if it was income. Or any other SIPP I guess.

Vortigern

tigerspill wrote: »

So in years 2 and 3 (ignoring any other income for simplicity) I get the normal tax free allowance (say £12K per year) then pay 20% tax on the rest (assuming staying below HRT).

Yes

So can I put anything over 12K into the AVC tax free in the normal way as if it was income. Or any other SIPP I guess.

I doubt you'll be able to contribute to the AVC after leaving BT. SIPP would be possible.

Dox

You can't contribute to an AVC once you have left active membership of the main scheme to which the AVC is 'attached', but nothing to stop you paying into a SIPP, stakeholder or personal pension of your choice.

ermine

tigerspill wrote: »

The question is specific to BT rather than a generic question.

Depending on how old you are there are specific advantages of putting any excess over £30k tax-free into an AVC linked to the BTPS, because you tax-free lump sum can be 25% of (20*DB pension@NRA) + AVC fund often letting you draw the entire AVC fund tax-free without reducing your DB pension.

Go to one of the free Wealth @ Work seminars BT often run to encourage their staff to take VR. BT naturally has an axe to grind, but they explain the options well. Just don't actually invest with W@W, because of their high fees. It's not a terribly hard sell, and understanding the way the AVC interacts with the DB pension is key to minimising the tax you pay. You will get the opportunity to add any excess redundancy to your AVC in part of the leaving process. The AVC option gives you specific and much greater possibilities than the SIPP, and nowadays if you feel the SIPP would work better for you (you can't take the AVC earlier than your DB pension, f'rinstance) then you can transfer the AVC to a SIPP to use the flexible drawdown options. It's a one-way ticket, though, and you must xfer the entire AVC to a SIPP, and sometimes pay for one-off financial advice to do so

Spreading the payment over multiple tax years is another good way to minimise tax, but that depends on whether and how much you expect to be earning after leaving.

tigerspill

Thanks folks,

I have a w@w thing in June. I have been to these before. I did invest at one point but got out as their fees are high. I have a load in the AVC already. But with the changes to BTPS, the AVC is only open until June 19. AVC would be ideal between now and then because of the way the 25% tfls is calculated.

The reason I asked all this as I had heard that all tax was due as soon as you go and that delaying payment of the cash didn't delay the tax due.

robin61

With the closure of the BTPS to new contributions from 30 June 2018 it's not going to be possible to pay into the AVC in the same way as in the past.
As I understand it we will be allowed to contribute to a specially defined pot in the BTRSS until September 2019. After this date it gets transferred back to the AVC and can be used in the same way to increase your lump sum in either Section B or Section C
BT have not been clear about the choice of funds we will have from 1 July or indeed which fund it gets paid into in September 2019. So I guess we will need to wait and see.
If you leave before September 2019 and you have paid AVC earmarked money after 1 July 2018 I assume that you will be able to use it in the usual way but again I've not seen this in writing.

Hopefully it will all be clarified in due course.