Confused around PILON and pension

jameslester78

We are being made redundant.

Final september pay will be made up of redundancy pay, PILON, a 2% bonus, unused prorated holiday pay and a lump sum representing September, October and November pay. (our contracted end date was originally end of Nov its been bought forward to end of Sept, but we still get the salary for sept -nov)

30k of the redundancy is tax free,  the rest of the redundancy/bonus/lumpsum/holiday pay is not taxable if we pay it into the pension.

We can also pay in the PILON to the pension if we wish, we have received an explanation that suggests doing so might not be a good idea because we may still need to pay tax on it. I dont really understand the explanation, Can anyone explain the below in simpler terms?

Sacrificing part or all of your PILON may not result in a tax and NIC saving when compared with the PILON being paid as cash. The rules mean that where you choose to sacrifice an element of your PILON, you would no longer be receiving the cash payment for your notice and as a result part of your enhanced redundancy payment, equivalent to the sacrifice amount, would then be treated as taxable employment income.

chrisbur

https://www.shoosmiths.com/insights/articles/common-pitfalls-employers-face-when-calculating-post-employment-notice-pay

This link gives some details of the complications that can arise from post-employment notice pay (“PENP”)

EDIT
Just to quote the final summary from this site....

"Summary

PENP calculations are fraught with difficulties. What is clear is that careful consideration of the amounts being paid and their treatment for tax purposes is needed, and this may require legal advice and/or HMRC clearance."

meleasa

Im 62 and being made redundant on 31st October and I'm wondering if I can transfer a lump sum into my pension to avoid paying tax on it then withdraw the same amount from my pension without paying tax on it

penners324

If your company will allow it, yes you can. Though redundancy payments aren't taxable (the 1st £30k of it)