Invest some redundancy into SIPP despite exceeding LTA??

TEC6245

I am about to start getting a pension of £48K per year as there were minimal penalties for taking early, and for now also have a salary of £90K.  I have already exceeded the lifetime allowance for pension, and have IP16.  I am adding to my work SIPP at the moment as the company gives 10% of salary as a benefit and then matches the 3% I pay in with a further 3%, as I figure the 16% contribution for 3% pre-tax pay cancels any extra tax I will pay when I take the benefit.   I am taking voluntary redundancy later this year, and trying to work out if I should put more money into the company SIPP to minimise the tax being paid on the lump sum.  However, I'm not sure if the higher tax for being over lifetime allowance makes this worthwhile.  Can anyone advise if I should look at this, or just take the hit on the tax on my £160K payout?  I asked this on the tax forum without a response yet, but reading around here it seems this might be a better place as it relates to pensions.  If I do put some more into the SIPP what limit applies - is it up to the £40K annual allowance. or can I carry forward unused allowance from previous years?  Would be grateful for any advice, as I've been trying to do the sums but have no confidence that I'm factoring in the right things.  I plan to leave the SIPP invested for the time being.

Albermarle

LTA issues can get quite complicated , especially as you are a high earner still and wondering what to do for the best . Presume IHT issues will also come into it .
You should maybe consider taking professional advice, from an IFA who understands these issues. Not all do apparently.

TEC6245

Thanks, I did have an IFA who I have lost confidence in, and have been looking for someone else to work on a fee basis, but the couple I have talked to seem more interested in how much lump sum I might be able to invest.  Have been asking round for recommendations

ukdw

Definitely a good case for your current 3% contributions - but for the redundancy payment quite a complicated decision, especially if your redundancy payment (minus £30k tax free part), plus your £90k income pushes you above the £200k pension contributing tapering levels.
LTA works out cost neutral if you get tax relief on the way in at 40% but drawdown at 20% (after the 25% LTA charge).  There is a small benefit if you get tax relief at 45% (like I presume you would) and then drawdown at 20% - but if you end up having to drawdown at 40% which is possible in your case then it switches to a net loss - 55% vs 45%.   

Other considerations are pension CGT and dividend tax savings, plus if you are unlucky enough to die before age 75 then there are larger LTA and IHT benefits of putting as much as you can of the redundancy payment into the SIPP.

I would also look into other options to get back some of the 45% tax -  like VCTs or contributing some of the redundancy money into your partners pension (if applicable).

TEC6245

Thank you - my partner could definitely benefit from additional pension contributions..  How would this work - would I ask my employer to pay direct into his SIPP?

tacpot12

You could try asking them to pay directly into his SIPP, but I doubt they would do so - they have no connection with him - and if he happened to be an employee of the same employer, I think this could cause a number of problems for both him and the employer. I think they will want to pay you your redundancy, and you can give this to your partner for them to pay into their SIPP. If you die within 7 years, there might be some inheritance tax that your estate would have to pay on this gift to him, so make sure you leave a note about this (and any other large) gift you make so that your personal representatives know about them.