Paying redundancy into pension

Hi

I'm currently going through redundancy after over 20 years service. I'm aware the first £30k will be paid tax free, but any money over that will be taxed. The HR rep running the consultation mentioned I would have the option of putting money into my Final Pay pension in a way that will reduce the tax being paid on the redundancy over £30k. They couldn't expand on how this works so I was hoping someone could offer some advice. And if I was to withdraw money from my pension pot at a later stage would this then be subject to the original tax rules?

Thank you in advance.

Comments

  • davidwatts
    davidwatts Posts: 354 Forumite
    edited 28 January 2020 at 8:22PM
    In theory you should be able to pay anything over the £30k into your pension to avoid paying any tax on it.

    Your Pension department or equivalent should be able to provide you with the relevant form to fill in to request this, e.g. for a one off AVC payment or similar. Contact them about it.

    You need to be wary of whether this takes you over the £40k annual allowance for the current year and how much unused allowance you have available from the previous 3 years.

    Once in your pension, normal tax rules apply once you start taking it, e.g anything over your allowance will be taxable.

    I'm sure others may be able to flag any considerations I've missed but I'd recommend putting as much of it as possible and practical into your pension rather than taking an unnecessary tax hit.
  • Thanks David, I very much appreciate your reply on this.
  • hyperhypo
    hyperhypo Posts: 179
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    Wondering how  the OP got on with this one ? I have exactly the same question. Am wishing to pay £48k into pension , due in next tax year (April 20 payroll) .
    Have overhead for the additional 8k (overr £40k allowance) in this current year. Have contacted hmrc to run numbers past them this morning,  all seemed ok they suggested scheme admin (Aegon ARC) would be able to help on this...they placed onus on me to work out "carry forward" but i wasn't able to determine who drives the query over carry forward. HMRC  will know my earnings for > April 2020..and i can provide an accurate estimate...and Aegon will  know sum of contributions in same year...so i'm a bit unclear as to what they need from me ?  Interested in hearing how ds78 got on ,  and what they needed to do to make this work ... Thanks !
  • As I understand it it is up to you to work out if you are able to use carry forward.

    What will your pensionable earnings be in the tax year you plan on paying £48k?  Is this to a relief at source pension where the pension scheme will add the 25% tax uplift, making a £60k gross contribution?  
  • hyperhypo
    hyperhypo Posts: 179
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    This info from my employers, which distinguishes between the settlement element of the total amount ( £60k) and the PILON, holiday pay .  This is my understanding:
    Total is £78k.
    Settlement is £60k.
    So they can pay directly the  excess of £30k into my sipp ..ie £30k as an employer contribution for  settlement amount. I receive £30k tax free.
    Newish PENP rules direct:
    The remaining £18k will be subject to deductions as usual , i have a regular tax code for next year ..1250L. I guessing this will be treated as if had earned £18k gross in a single month, and will need to claim back any tax paid above £12500 should i do no more paid work in 2020/21.
    Have looked on  net for a tax calculator which might be appropriate to my situation but not yet found anything.
  • Listentotaxman should do the job.

    Remember not to make life more complicated that it needs to be.

    Based on your post the relevant facts are that you are being paid £18,000 in (I presume) month one of the tax year and the tax code will be used is 1250L.

    Everything else you have posted is irrelevant as far as the tax position is concerned.
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