Redundancy paid into DC pension

Sodium68

I'm due to be made redundant later this year and want everything over the £30k tax free element of the redundancy paid into my works pension (DC scheme) by way of salary sacrifice (employer contribution) which would equate to approx £70k. Can this be done by utilizing the carry forward rules?

I'll have earned approx £34k at the point of redundancy and will have pension contributions this tax year of £9k.

The three previous tax tears i earned approx £49k each year with pension contributions of about £20k each year all by way of salary sacrifice.

I had a telephone call with pension wise and they said because it was an employer contribution it was OK but i also asked the same question on the moneyhelper web chat and they told me different so confused now as to whats possible.

Pat38493

I am not 100% sure on this but I think that:

a) Yes you can do that because the £70K would either be an employer contribution, or it would count as part of your gross income, so either way it should be ok.  However carry forward rules doesn't apply to the limit on earned income, only the overall blanket contribution limit, but either way I think it should be ok based on what you posted.

b) I am not sure how the minimum wage rules applies to redundancy payments on a redundancy sacrifice basis.  With normal pension contributions, you cannot salary sacrifice below the minimum wage for that month.  However it might be different if it's specifically a redundancy payment that you are not working for.

Bimbly

https://www.moneyhelper.org.uk/en/work/losing-your-job/your-pension-options-if-you-re-made-redundant

RogerPensionGuy

30K plus into a pension pot seems like a potentially good idea in my head.

I thought any employer uplift due salary sacrifice or smart rules maybe won't attract the little bit extra as I think maybe some forms of redundancy payments do not got through the employer NI contributions like normal pay.

In the past I've know people who try and leave under these circumstances try to leave in April time if it suits everyone, get April pay, 30K and any amount over 30K before paying tax or occasionally going up to the higher rate of tax being 40%

Marcon

RogerPensionGuy said:

30K plus into a pension pot seems like a potentially good idea in my head.

I thought any employer uplift due salary sacrifice or smart rules maybe won't attract the little bit extra as I think maybe some forms of redundancy payments do not got through the employer NI contributions like normal pay.

In the past I've know people who try and leave under these circumstances try to leave in April time if it suits everyone, get April pay, 30K and any amount over 30K before paying tax or occasionally going up to the higher rate of tax being 40%

See https://www.gov.uk/termination-payments-and-tax-when-you-leave-a-job/what-you-pay-tax-and-national-insurance-on

Mick70

would it not be classed as an Employer contribution ? and as a result be no tax added on/uplift ?

Sodium68

Mick70 said:

would it not be classed as an Employer contribution ? and as a result be no tax added on/uplift ?

Yes it'll be classed as an employer contribution.
Done by way of redundancy sacrifice. 
Just hoping it will be ok and I won't have HMRC coming after me.

Pat38493

Sodium68 said:

Mick70 said:

would it not be classed as an Employer contribution ? and as a result be no tax added on/uplift ?

Yes it'll be classed as an employer contribution.
Done by way of redundancy sacrifice. 
Just hoping it will be ok and I won't have HMRC coming after me.

If you wouldn't mind keeping this thread updated how it goes that would be good as my employer is threatening to announce redundancies soon, and frankly if I could get redundancy with most of the money paid directly into the pension, it would probably be perfect for me at this stage in my life.

I would guess (but I haven't seen this 100% stated in black and white anywhere official) that you cannot put the 30K tax free money into the pension as it's already tax free, plus depending on your situation it may not in any case make sense to do so.  The question is, if you already had 30K of spare earned income in that tax year beyond the redundancy payment 30K, would that allow you to put the 30K into a pension - well once it's been paid to you, it is your money so I assume you could pay it back into a SIPP (unless the pension recycling rules also applies to redundancy payments).

Sodium68

Pat38493 said:

Sodium68 said:

Mick70 said:

would it not be classed as an Employer contribution ? and as a result be no tax added on/uplift ?

Yes it'll be classed as an employer contribution.
Done by way of redundancy sacrifice. 
Just hoping it will be ok and I won't have HMRC coming after me.

If you wouldn't mind keeping this thread updated how it goes that would be good as my employer is threatening to announce redundancies soon, and frankly if I could get redundancy with most of the money paid directly into the pension, it would probably be perfect for me at this stage in my life.

I would guess (but I haven't seen this 100% stated in black and white anywhere official) that you cannot put the 30K tax free money into the pension as it's already tax free, plus depending on your situation it may not in any case make sense to do so.  The question is, if you already had 30K of spare earned income in that tax year beyond the redundancy payment 30K, would that allow you to put the 30K into a pension - well once it's been paid to you, it is your money so I assume you could pay it back into a SIPP (unless the pension recycling rules also applies to redundancy payments).

Yes as the first £30k is tax free so I can't put that into my pension.

artyboy

I did this recently - put in £32.5k excess redundancy payment through salsac. 

Took the first £30k tax free (no point in sacrificing it). Was also obliged to take another big chunk of PILON in (taxed and NI'd) cash because my former employer seemed to think that HMRC could interpret PILON sacrifice as a form of tax fiddle. 

Bit annoying as redundancy isn't subject to NI whereas PILON is, so I lost out on another 2% saving.

I think the key point here is that HMRC won't be 'coming after me' for anything...

Pat38493

artyboy said:

I did this recently - put in £32.5k excess redundancy payment through salsac. 

Took the first £30k tax free (no point in sacrificing it). Was also obliged to take another big chunk of PILON in (taxed and NI'd) cash because my former employer seemed to think that HMRC could interpret PILON sacrifice as a form of tax fiddle. 

Bit annoying as redundancy isn't subject to NI whereas PILON is, so I lost out on another 2% saving.

I think the key point here is that HMRC won't be 'coming after me' for anything...

The link above implies that the PILON is effectively considered as if it’s earned income, so I would have thought that theoretically you should have been able to get that part into the pension by increasing your pension contributions as close to 100% as possible for that month.  If the employer doesn’t allow you to change the amount for that month as part of their process I guess that could be the issue.  Even then though, I would have thought that you could pay the money into a SIPP to get the tax relief on it.

I don’t really see why that would be a tax fiddle as it’s effectively income that you paid tax normally on just like when you were working.