Putting redundancy money into Pension??

bearofverylittlebrain

I have just been made redundant. I am 54, turning 55 in May. I am wondering if there is any rule against me putting my lump sum plus PILON and holiday money into my pension to get the 20% back from the Govt, with a view to then taking the 25% tax free element on May to cover me while I look for alternative employment? 

WYSPECIAL

You can pay in 100% of your earned income up to a maximum of £40k. Not much of this tax year left to do it though.

jim8888

Hi Bear, just wanted to wish you luck. I was made redundant the other week out the blue. I'm 57 and trying to work out all my options. This is a great board with lots of helpful people on it, and I've learned loads from it.

sheslookinhot

WYSPECIAL said:

You can pay in 100% of your earned income up to a maximum of £40k. Not much of this tax year left to do it though.

Would this 100% be less any employee/ employer contributions made in the tax year ? So potentially reducing the 40k allowance.

bearofverylittlebrain

It would not meet 100% of my earned income, I was just wondering if there was any limit to the time it had to stay in before I can access it? If I was further away from 55 I wouldn't consider it as I know I will need the money, but getting an extra slab from the Gov't seems an attractive option after all the tax/NI they took off the PILON/Holiday pay!! 
Cheers

Albermarle

sheslookinhot said:

WYSPECIAL said:

You can pay in 100% of your earned income up to a maximum of £40k. Not much of this tax year left to do it though.

Would this 100% be less any employee/ employer contributions made in the tax year ? So potentially reducing the 40k allowance.

Yes that is correct. The £40K annual allowance maximum includes employEE and employER contributions + any tax relief added.
If you have not reached this level over the past three years you can bring allowance forward so more than £40K can be added.
However separately the OP can not add any more gross contribution than taxable earnings in any tax year .
The redundancy money above the £30K tax free will count , as will the PILON I think as it is taxable. Plus of course any earnings before being made redundant.
But it will depend in which tax year they will be paid .

bearofverylittlebrain

I received all of my payments on Friday. My total gross income for the year, including that, came to about £30k. I would be looking at putting £10/12k in to get the tax back. That added to my pension contributions throughout the year is still well within this limit. I would anticipate moving the money this week to ensure it falls into this tax year. I reckon that is going to be more efficient than putting it into my ISA as I will get the tax back whereas any gain in the ISA will take time to accrue?

Albermarle

 I would anticipate moving the money this week to ensure it falls into this tax year. I reckon that is going to be more efficient than putting it into my ISA as I will get the tax back whereas any gain in the ISA will take time to accrue?

If you have on line access to the pension , I would get on with it today/Monday latest due to end of tax year and Easter approaching at the same time .

If you invest in an ISA or a pension into the same investments , they will grow ( or shrink ) exactly the same over any given period of time . The pension though gets an immediate tax benefit.

bearofverylittlebrain

Albermarle said:

 The pension though gets an immediate tax benefit.

That's what I was thinking. Thank you

jamesd

There's no minimum time that money has to be in a pension before you take it out. Many pension firms don't add the tax relief 25% until up to about six weeks after the money is paid in.

MarkCarnage

Definitely worth checking if you can carry forward unused allowances from previous years to maximise your contribution rate now with your redundancy money....assuming that this leaves you with enough cash to be comfortable with in the short term.