Redundancy payment into pension

Mason

Good afternoon all.  I hope some good soul will help answer my questions.

I am 59 years old and have been offered a voluntary redundancy package that includes:

a) a statuary element of 1 week for each year worked (5 weeks);
b) a company enhancement of 1.5 weeks for each year worked (7.5 weeks);
c) 12 weeks notice period;
d) pay in lieu of holidays not taken (1 week); and,
e) 10% bonus payment.

My understanding is that (a) and (b) will be paid out free of income tax and NI contributions.  I have asked my company to confirm this and they will let me know in the next week or so.  Does this seem correct?

Parts (c), (d) and (e) will be subject to income tax and NI.

I have a couple of questions which are mutually exclusive:

1. Can I request from my company that the taxable elements (c, d and e) are diverted directly into my pension?

2. Would the tax free redundancy payment be considered "re-cycling" should I transfer that into my pension and claim the 40% enhancement?

I should point out a couple of things.  With the 3 months notice period payment and bonus together with earnings since April 2024 I fall into the 40% tax bracket this year.

The total redundancy payment on top of payments already made into the pension including the 3 months notice payment and bonus do not fall foul of total earnings or £60K.

I hope that is all the information you clever people need but if there is anything else I should add then please let me know.

Thanks.

Sarahspangles

Is c) Pay in Lieu of Notice (PILON) 

Is this is a DC pension scheme

Do you have any other pensions (into which you could contribute)

and

Are you intending to retire?

Mason

Yes, PILON.  Yes DC pension scheme.  I do have a SIPP that I can contribute to.  And, possibly I will retire but would ideally like not to withdraw from my pension for 6 months in case I find retirement difficult.  I have enough savings in ISAs to enable this.

Dazed_and_C0nfused

Mason said:

Good afternoon all.  I hope some good soul will help answer my questions.

I am 59 years old and have been offered a voluntary redundancy package that includes:

a) a statuary element of 1 week for each year worked (5 weeks);
b) a company enhancement of 1.5 weeks for each year worked (7.5 weeks);
c) 12 weeks notice period;
d) pay in lieu of holidays not taken (1 week); and,
e) 10% bonus payment.

My understanding is that (a) and (b) will be paid out free of income tax and NI contributions.  I have asked my company to confirm this and they will let me know in the next week or so.  Does this seem correct?

Parts (c), (d) and (e) will be subject to income tax and NI.

I have a couple of questions which are mutually exclusive:

1. Can I request from my company that the taxable elements (c, d and e) are diverted directly into my pension?

2. Would the tax free redundancy payment be considered "re-cycling" should I transfer that into my pension and claim the 40% enhancement?

I should point out a couple of things.  With the 3 months notice period payment and bonus together with earnings since April 2024 I fall into the 40% tax bracket this year.

The total redundancy payment on top of payments already made into the pension including the 3 months notice payment and bonus do not fall foul of total earnings or £60K.

I hope that is all the information you clever people need but if there is anything else I should add then please let me know.

Thanks.

What 40% enhancement?

Pension contributions either benefit from no pension tax relief (net pay and salary sacrifice) or have 25% added (20% of the gross contribution) if they are relief at source contributions 

They are never enhanced by 40% and you can never claim any extra tax relief with net pay or salary sacrifice contributions.  You may be eligible to claim higher rate relief on relief at source contributions but the exact amount depends on how much higher rate tax you are liable to.  It's not simply an extra 20%.

westv

Dazed_and_C0nfused said:

Mason said:

Good afternoon all.  I hope some good soul will help answer my questions.

I am 59 years old and have been offered a voluntary redundancy package that includes:

a) a statuary element of 1 week for each year worked (5 weeks);
b) a company enhancement of 1.5 weeks for each year worked (7.5 weeks);
c) 12 weeks notice period;
d) pay in lieu of holidays not taken (1 week); and,
e) 10% bonus payment.

My understanding is that (a) and (b) will be paid out free of income tax and NI contributions.  I have asked my company to confirm this and they will let me know in the next week or so.  Does this seem correct?

Parts (c), (d) and (e) will be subject to income tax and NI.

I have a couple of questions which are mutually exclusive:

1. Can I request from my company that the taxable elements (c, d and e) are diverted directly into my pension?

2. Would the tax free redundancy payment be considered "re-cycling" should I transfer that into my pension and claim the 40% enhancement?

I should point out a couple of things.  With the 3 months notice period payment and bonus together with earnings since April 2024 I fall into the 40% tax bracket this year.

The total redundancy payment on top of payments already made into the pension including the 3 months notice payment and bonus do not fall foul of total earnings or £60K.

I hope that is all the information you clever people need but if there is anything else I should add then please let me know.

Thanks.

What 40% enhancement?

Pension contributions either benefit from no pension tax relief (net pay and salary sacrifice) or have 25% added (20% of the gross contribution) if they are relief at source contributions 

They are never enhanced by 40% and you can never claim any extra tax relief with net pay or salary sacrifice contributions.  You may be eligible to claim higher rate relief on relief at source contributions but the exact amount depends on how much higher rate tax you are liable to.  It's not simply an extra 20%.

If you, say, earn £60k and decide to sal sac 10% then it will cost you 58% of £6k. It is reduced by 40% tax and 2% NI.