Redundancy and pension contribution

skid112

Morning,

I am about to be made redundant, which I am happy about. My payment before tax is going to be into around £110,000 and I want to maximize pension contribution and lessen tax effect.

I am 58 years old, in a salary sacrifice scheme but limited by cap, currently, to a £10,000 per annum contribution. I can afford not to work, but will most likely look to do some work as I wont want to sit around all day. The end date for employment is April 30th.

Frozen_up_north

58 is a good age to retire. I took voluntary redundancy 8 years ago aged 57. I don’t work, but have hobbies that keep me very busy.

I was able to take the company pension 3 years earlier than the normal scheme retirement age with no reduction for taking redundancy (normally around 4% reduction for each year early). In addition I started to draw an older separate company pension, also with a scheme retirement age of 60, that despite the reduced payout (around 12%) turned out to be pretty good as the annual increases seemed better than expected at 5% each of the first 2 years.

I invested just over 100K in shares, taking advantage of the tax free ISA allowance each year to transfer as much as I could to minimise tax. About 3/4 of the share dividends are paid as monthly income, the rest is re-invested.

Overall, I think I have about the same “spare” money each month as when I worked, perhaps slightly more that I’ve just reached state retirement age. My quality of life is so much better than when it was at work.

lisyloo

You should be able to make a £30k contribution yourself (as the annual limit is £40k) and if you want to increase on that it might be worth looking at carry forward where you can use previous years unused allowances.

You would get tax relief so that would be worthwhile.

tigerspill

I am in a similar position (but 53). I am planing to take my pension contribution to 40K on 6th April or there abouts. Cant do this by sal sac as that is done via payroll and my redundancy payment I wont get to May (and I dont think I can contribute at that point as I will have left).
I have very specific reasons for wanting to do this (as it is an AVC and the 25% TFLS is on the whole pension, nit just the AVC bit).

Maybe you work for the same place as me

DoctorStrange

OP,

Are you limited to £10k because of high earnings? Or by some other cap?

I'm guessing it's because of your salary and, if so, I think you'll be stuck paying tax on the redundancy amount greater than £30k. However, you should be able to put some into your pension in the following tax years if you're still working (and presumably earning less than the adjusted limits). This will enable you to get some tax back immediately, and will also let you lower your PAYE bill on your part time work, so should work out the same as gaining full tax relief on the amounts you'd have put into your pension.

Dazed_and_confused

This will enable you to get some tax back immediately, and will also let you lower your PAYE bill on your part time work, so should work out the same as gaining full tax relief on the amounts you'd have put into your pension.

"Net pay" contributions can save you personal income tax but contributions to a "relief at source" scheme often have no affect on someone's personal tax liability.

There are other more unusual situations but they would usually need to be either higher rate payer in the tax year the contribution is made or Scottish resident for tax purposes and paying the intermediate tax rate in the tax year the contribution is made to benefit personally rather than just get the basic rate tax relief added to the pension fund.

skid112

limited by salary. I have filled my recent years allowances as well.

thanks for the advice

cloud_dog

I assume the £10k limit is gross payment in to a pension for person X? As opposed to a personal contribution in to their pension from person X?

I'm just wondering if the latter is true then salary sacrifice payments are made by the company not the person. Although, I'm going to hedge my bets and think that the £10k limit is total contribution limit.