Salsac 100% of PILON?

artyboy

So, just about to be made redundant (which for clarity is a 😁 and not a 😭 situation) - it will be a mix of a redundancy settlement and PILON. 

I would like to sacrifice all of my PILON into my pension, to maximise the NI relief (because my redundancy payment >£30k will already be exempt from NI). I know ordinarily that you can't sacrifice to below minimum wage, but am I right in thinking that as PILON is not actually 'wages', there is no legal restriction on sacrificing 100%?

Many thanks
Arty

Linton

PILON (ie redundancy beyond the £30k tax free) can be contributed into a pension by sal sac if your employer supports this option. The only limitation is the £60k, formerly £40k, annual pension allowance for all payments into your pension in a single tax year.  Minimum wage is irrelevant since you are not being paid for employment. 

artyboy

Linton said:

PILON (ie redundancy beyond the £30k tax free) can be contributed into a pension by sal sac if your employer supports this option. The only limitation is the £60k, formerly £40k, annual pension allowance for all payments into your pension in a single tax year.  Minimum wage is irrelevant since you are not being paid for employment. 

Thanks, yes they do support it, and as this is happening early in the new tax year, I happily have most of my 60k AA still available. The fact that I no longer have to be concerned about breaching LTA is an added bonus.

artyboy

Actually @Linton just to pick up on one point you made... PILON is technically separate from a redundancy payment, and is subject to tax and NI.

For the actual redundancy payment, that is free of tax/NI up to £30k, but any excess to that amount will only be taxed and not NI'd... so basically I've got 3 parts to my payment all getting separate treatments... 

Qyburn

If PILON stands for Pay in Lieu of Notice then in many cases that is compensation rather than earnings. What does your contract say? 

artyboy

Qyburn said:

If PILON stands for Pay in Lieu of Notice then in many cases that is compensation rather than earnings. What does your contract say? 

My contract simply states that they may pay me PILON if they decide to terminate my contract early. So it's not called out explicitly although I'd agree with your assessment. Either way though, it would definitely be subject to both income tax and NI.

Qyburn

My understanding is that if it's mentioned as an option in your contract then it's taxable earnings.  If not mentioned, it's compensation for their breach of contract by not giving you the required notice so not taxable. When I've been laid off without notice it was the latter so outstanding holiday pay was taxed, pay in lieu and redundancy were not.

In your case maybe it would suit you if it's taxed, that way you can put it into a pension and get the tax back anyway.

artyboy

Ok I get your point - they can't suddenly say you're getting PILON if it's not in the contract (or they can say it, but that doesn't actually make it PILON...). Interesting if that would make the tax treatment different, although definitely a moot point for me...

theblueflash

I believe all PILON is now taxable/NIable etc. I’m struggling to find anything that contradicts whether contracted or not? Commiserations and congratulations to OP - there’s a lot of it about, as they say 👍