Redundancy and pension sacrifice

unlikely_2

I'm going to be made redundant soon and will receive 60k enhanced.
I wanted to accept the first 30k as thetax free redundancy portion, can I have my employer pay the other 30k into my pension and would this incur tax? 

Linton

unlikely_2 said:

I'm going to be made redundant soon and will receive 60k enhanced.
I wanted to accept the first 30k as thetax free redundancy portion, can I have my employer pay the other 30k into my pension and would this incur tax? 

Assuming this is a DC pension or AVC,  you should be able to get your employer to pay the taxable part directly into your pension - ask them.  There would be no tax, or if there was some deducted it would be refunded by HMRC.

If for some reason it is not possible paying £24K (increased to £30K by the provider) into a personal pension would have the same effect.

unlikely_2

Thanks Linton. Sorry for the delay. I've had conflicting advice from different services. 
Money Helper said it wouldn't work like this as if my employer paid it direct it wouldn't count as taxable earnings. And as the first 30k redundancy would also not be taxable I wouldn't have enough allowance to count towards full tax relief. I'm really confused tbh. My annual earnings are only 15600k gross. I also haven't used anywhere near my allowance over the last 3 years so I thought this could be carried over?

dunstonh

Money Helper said it wouldn't work like this as if my employer paid it direct it wouldn't count as taxable earnings.

Moneyhelper doesnt give advice and only talks generically and wouldn't over all schemes.   I'm surprised they even attempted it (perhaps they shouldn't)

I wanted to accept the first 30k as thetax free redundancy portion, can I have my employer pay the other 30k into my pension and would this incur tax? 

Yes as long as it is a DC pension and the employer supports salary sacrifice.  (minimum wage issues could come into play potentially that may restrict the amount)

I also haven't used anywhere near my allowance over the last 3 years so I thought this could be carried over?

Carry forward is available to those earning over £60k a year or have company contributions that could utilise it.  It does not apply in your case.

Dazed_and_C0nfused

unlikely_2 said:

Thanks Linton. Sorry for the delay. I've had conflicting advice from different services. 
Money Helper said it wouldn't work like this as if my employer paid it direct it wouldn't count as taxable earnings. And as the first 30k redundancy would also not be taxable I wouldn't have enough allowance to count towards full tax relief. I'm really confused tbh. My annual earnings are only 15600k gross. I also haven't used anywhere near my allowance over the last 3 years so I thought this could be carried over?

That is correct.  And is basically the whole point of salary sacrifice.  You agree to give up that income in return for additional employer contributions.  As you don't have the money in the first place there is no tax or NI to pay on it.

Did you explain to Money Helper that you wouldn't be making these contributions, that they would be employer contributions?

unlikely_2

Thanks. Yes I explained that my employer would make the 30k contribution. It was a long web chat. They seemed to think that I wouldn't be eligible for full tax relief due to my normal salary being 15600k. (I'm part time). So I'd only be eligible for relief on my normal salary amount and that the redundancy portion wouldn't count as salary, for the allowance, as its not taxable earnings.... feel I'm going around in circles. 

Dazed_and_C0nfused

unlikely_2 said:

Thanks. Yes I explained that my employer would make the 30k contribution. It was a long web chat. They seemed to think that I wouldn't be eligible for full tax relief due to my normal salary being 15600k. (I'm part time). So I'd only be eligible for relief on my normal salary amount and that the redundancy portion wouldn't count as salary, for the allowance, as its not taxable earnings.... feel I'm going around in circles. 

You aren't going to get any pension tax relief from a salary sacrifice contribution.

You are agreeing to a reduced salary in return for employer pension contributions and there is no pension tax relief available to you on employer contributions.

You do of course avoid paying tax and NI on the income you have agreed to forego, that's why salary sacrifice is, with the exception of very low earners, the best option.

unlikely_2

Thanks.
As you can see though I am a low earner. So what's the upshot? What should I do? 

Sarahspangles

unlikely_2 said:

I'm going to be made redundant soon and will receive 60k enhanced.
I wanted to accept the first 30k as thetax free redundancy portion, can I have my employer pay the other 30k into my pension and would this incur tax? 

The information on this page is designed for advisors but is more clearly written than most information I have seen provided for customers.

https://www.aegon.co.uk/adviser/knowledge-centre/technical-zone/what-are-relevant-uk-earnings

It suggests the second half of your redundancy payment is relevant UK earnings and could be contributed.

Maybe I’m reading it wrong - anyone?

unlikely_2

Thanks Sarah. That is a lot better explained in terms of relevant uk earnings. I'm just not clear whether redundancy paid direct to pension by employer is considered salary, and therefore actually salary sacrifice, and whether the better option is to receive it and pay it into pension myself or its better to be an employer contribution. 
I'm also autistic and this amount of information about a subject I know very little about, but I'm worried will  jeopardise providing for my family, is starting to become incredibly stressful and overwhelming. I'm going to lose my job and although it's a good redundancy package, in reality 30k is a year of income (benefits will stop) and then I might not get another job. 😥

Sarahspangles

unlikely_2 said:

Thanks Sarah. That is a lot better explained in terms of relevant uk earnings. I'm just not clear whether redundancy paid direct to pension by employer is considered salary, and therefore actually salary sacrifice, and whether the better option is to receive it and pay it into pension myself or its better to be an employer contribution. 
I'm also autistic and this amount of information about a subject I know very little about, but I'm worried will  jeopardise providing for my family, is starting to become incredibly stressful and overwhelming. I'm going to lose my job and although it's a good redundancy package, in reality 30k is a year of income (benefits will stop) and then I might not get another job. 😥

I don’t know much about how employers run pensions but don’t they already pay over some money they take off your pay? So presumably if they put the numbers in the right box that means it’s an employee contribution.

The Benefits board might be a good place to look at the different scenarios if it takes you time to get another job. Best of luck with it.