Redundancy payment into pension

Quorden

Hi all,

Bit of a change in direction and after some advice, am 57 and had been planning on working to at least 60 however yesterday was unexpectedly offered a generous settlement figure of £132k.to leave work . The alternative to not taking it is to go through a consultation period and if unsuccessful will only get statutory redundancy, so it's a bit of a no-brainer for me and also I'm quite happy with the option to leave early. 

Aside from a lot of thinking about what to do in the future my immediate concern / question is what to do with the settlement money as I've really only concentrated on my pensions to date and am a little light on cash.

Wanted to check if rather than taking it all as cash and paying 50% on the taxable element I could use my remaining pension allowance this year and the unused allowance from last year, about £50k, put this into my current work pension then over next few months transfer / consolidate that it into one of my SIPP pots, then take it  if needed as tax free cash from one of those. 

I've taxable pay this year of £70k.so I think I'm ok to pay this amount into my pension, and the £50k would be about 12% of my either of my two SIPP pots so if I wanted to withdraw that I think that's allowed.

Know there are implications to taking tax free cash but wanted to know if in principal this would work or whether I'm missing something.

Any thoughts would be welcome.
Thanks

Cobbler_tone

You should take the £30k TFC and then ask your employer to pay the rest in the most tax efficient way, i.e. to cover the maximum pension allowance across this and the appropriate previous years. At our place numerous people have done this but may come down to the effectiveness of your employer. It shouldn’t be difficult for them and they should be doing everything to help you at an unsettling time.
When the dust settles….congratulations!

Wonka_2

As part of the package are they not offering a financial consultation ? 

kimwp

Just to clarify, you've been paid 70k this year since 5th April?

Quorden

Wonka_2 said:

As part of the package are they not offering a financial consultation ? 

Nope, only help with finding another job, though as I've only really concentrated on building up a pension and not given too much thought to the end I am thinking of taking some independent financial advice
. kimwp said:

Just to clarify, you've been paid 70k this year since 5th April?

Yep, its been a good year, well except the redundancy part.

Goodproblemtohave

Hi,
A similar thing happened to me 3 years ago. My leaving date was going to be 31/12 but my company were great (think I was a "good" leaver) and let me stay until after the new tax year in April.  If your place can be flexible with the timing you can save £k's in tax as you get another full years tax allowance. I paid a tax expert £200 to help me but was the best £200 I've ever spent !!
Good luck with it all as even though was like a lottery win for me was still pretty stressful.

dharm999

What will your taxable pay ytd be when you leave?  Have you paid any of the £70k in to a pension already, if so, that will reduce how much of the redundancy you can put in to your pension.

in theory, of the £132k, £30k will be tax free, and then of the £102k remaining, you can ask that an amount equal to your taxable pay at leaving less pension contributions at point of leaving be paid in to your pension.  I’m making assumptions about whether any contributions were made by a salary sacrifice arrangement, but you get the general gist of how to work out how much of £102k to pay in to your pension.

NoMore

Other than the 30k tax free the Redundancy pay will be taxable pay so I'm not sure why people are concerned with their other earnings to date.

dharm999

To work out how much is available to put in to a pension

NoMore

dharm999 said:

To work out how much is available to put into a pension

His redundancy pay will be £102k of relevant taxable income, so he could put 102k (Gross) of his redundancy pay into Pension as long as he has enough AA. His previous earnings to date don't change this.

Quorden

dharm999 said:

What will your taxable pay ytd be when you leave?  Have you paid any of the £70k in to a pension already, if so, that will reduce how much of the redundancy you can put in to your pension.

in theory, of the £132k, £30k will be tax free, and then of the £102k remaining, you can ask that an amount equal to your taxable pay at leaving less pension contributions at point of leaving be paid in to your pension.  I’m making assumptions about whether any contributions were made by a salary sacrifice arrangement, but you get the general gist of how to work out how much of£70k102k to pay in to your pension.

The £70k is my estimate of what my taxable pay will be end of September which will be my leaving date, nothing can do change that date. I will only have paid in £20k into my pension through salary sacrifice by that point as well.  So that will leave me about £40k to pay into the pension to take me up to my annual allowance.