Voluntary Leavers Scheme and additional pension contributions

lastofthesummerwine

Hello All  

Long time lurker but first time poster here.

I need a bit of help in understanding how much of my voluntary early leavers pay off I can put into my pension scheme as I won't be working ever again. I have read the government pages, I have been in touch with my pension provider and also Pensionwise but I am not clear, it's terribly complex. I would appreciate any kind words of advice.

Key points below:

37+ years service (age 57)
DB pension to June 2018
Standard Life DC pension post June 2018
Annual (part time) salary £29k 
May 2022 - present I have salary sacrificed 50% of my income into DC pension through my employer and then paid a single payment of the remaining salary into pension which benefited from the tax relief. So 100% of my income. 
Leaving employer 30th April 2023 with 1 years salary equivalent but which includes 1 months PILON. 

From what I can gather I won't benefit from putting most or all of my voluntary leavers payment into my pension as it is not classed as "earned income" and therefore won't benefit from any tax relief being added to it. In fact, since it is almost all tax free, I would be worse off when I come to draw it. Is this correct? 

If so, would I be able to put in the PILON amount since this is taxable and still benefit from the tax relief? 

Am I missing anything? 

I am not unhappy with either my DB or DC which I don't need to start drawing until 60 but if any of the leavers payment could bump up the DC tax efficiently I would be interested in doing so.

Thanks for taking the time to read.

CoboCali

This sounds very much like you are a BT employee.  I'm not sure I can answer your specific question but you should have access to a calculator in an excel file which provides some guidance around the PILON figure and the up to £30k non-taxable redundancy payment. The remainder of your leavers payment you can decide what to take as cash in your final payslip (liable for tax) and what to contribute to your DC pension with SL.  Don't hesitate to ask a question of the leavers team, from experience I know they let me change my decision and increase the payment I wanted to make into DC pension. (I left in 2020).

Pat38493

I was hoping someone else would reply here as I am not sure about this, but I would be fairly sure that the PILON counts towards earned income as you are effectively still an employee on gardening leave or whatever you want to call it.

I also would assume that the tax free portion of the redundancy payment does not count as earned income for pension allowance purposes.

Any taxable redundancy payment beyond the tax free amount (still 30K?) , I honestly don’t know.  I don’t see why it wouldn’t count as earned income as it’s taxed like any other but I am not sure.  Maybe call HMRC if you don’t get any other replies here.

lastofthesummerwine

CoboCali said:

This sounds very much like you are a BT employee.  I'm not sure I can answer your specific question but you should have access to a calculator in an excel file which provides some guidance around the PILON figure and the up to £30k non-taxable redundancy payment. The remainder of your leavers payment you can decide what to take as cash in your final payslip (liable for tax) and what to contribute to your DC pension with SL.  Don't hesitate to ask a question of the leavers team, from experience I know they let me change my decision and increase the payment I wanted to make into DC pension. (I left in 2020).

Well spotted, I am indeed BT. Thank you for the response, I do have access to the calculator and will go on there and take another look. 

lastofthesummerwine

Pat38493 said:

I was hoping someone else would reply here as I am not sure about this, but I would be fairly sure that the PILON counts towards earned income as you are effectively still an employee on gardening leave or whatever you want to call it.

I also would assume that the tax free portion of the redundancy payment does not count as earned income for pension allowance purposes.

Any taxable redundancy payment beyond the tax free amount (still 30K?) , I honestly don’t know.  I don’t see why it wouldn’t count as earned income as it’s taxed like any other but I am not sure.  Maybe call HMRC if you don’t get any other replies here.

Many thanks for responding. Your response makes sense and aligns with my understanding. I think I will just put the PILON in the pension along and then split the rest of the tax free lump sum between mine and my husband's ISAs and not touch it. Unfortunately, since my income is only £29k, other than the PILON, the rest can't go into the pension.

Appreciate the responses I have had.