redundency payout and pension

fancyabrew

ayup,

I took voluntary redundancy back at the end of June from a public sector agency, and came away with £70k'ish (20 years service) I had a civil service aligned pension scheme (JTS) for all those 20 years that was a final salary scheme up until April (one of the reason I decided to take voluntary) but the new scheme isn't, like all other civil service schemes, so I have 3 months worth of contributions to the new scheme. I walked right in to a new job after taking 3 months off and now just have a bog standard pension with them I currently pay 5% and the employer 5% but I'll probably up that to 10% some time in the next tax year, the employer will match.

Anyway I currently have my redundancy cash sitting around doing not much so was thinking about putting that into my current employers pension, I'm just under the 40% threshold but this tax year my redundancy payout has taken me over the 40% threshold. I could have taken some of the redundancy payment as a pension contribution to my old civil service scheme when I left but not knowing if I might need the cash I didn't do that.

So my question is can I put some of the cash in to my current pension and get 40% relief? If so how does it work? Do I put in say £20k and that effectively pays in £28 including the 40% tax relief? Or could I pay it in to my new civil service scheme that I had for the 3 months before I left? I don't think I can pay it to the old civil service scheme as thats been frozen.

I already do a self assessment as I have a rental property, so I take it it gets entered on there somewhere.

Cheers

AlanP_2

You pension contributions are limited by annual relevant earnings is the first point to make.

If you had a reasonable salary this tax year plus ~40k of taxable redundancy then to offset the 40% tax paid on some of that and to have the capacity to put a substantial amount in to a pension you need to do it before April.

Does your new employer's scheme accept lump sum payments in directly or is all payroll deduction based?

If you can't use that pension wrapper then a standalone personal pension / SIPP with one of the DIY providers could be an option. If you go down this route allow time for proving identity etc as you have that April deadline looming.

Paul_Herring

Note that you can only get 40% relief on post-tax wages
- that actually attracted 40% tax, (Note also that the first £30K of redundancy is normally tax free.)
- in the year that the contribution was made. (So you'd better get it somewhere before the start of April.)

Regarding the relief, if made out of post-tax wages, what you contribute normally gets a 25% tax rebate (the 20% income tax on the gross amount) and you must claim the other 20% of the 40% from HMRC in the next tax year (self assessment.)

So, if you put in £20K (provided all other caveats are covered regarding limits,) that would be grossed up to £25K when it hits your pension fund, then if you paid enough 40% tax to cover it, you'd claim another £5K back from HMRC in the new tax year.