Retention Bonus to be sacrificed to my pension

Rightthing

I'm 58 and am being made redundant next April, Can i sacrifice some of my Retention bonus into my pension? I'm already drawing from my DB pension with my previous company, so believe I'm limited to contributing £10k a year to my pension?

artyboy

If you're drawing only from a DB pension, then the £10k MPAA limit does not apply to you.

As for your other question, that will be down to what your employer's scheme allows, have you asked them? If not you could always pay this separately into a SIPP to get the benefit of the tax relief (although not the NI...) 

I am assuming here that you have enough relevant income to make the additional payment?

Aretnap

You trigger the MPAA by taking taxable money from a DC pension (with a couple of exceptions such as lifetime annuities or small pots), so if the only pension you have drawn from is a DB pension you will not have triggered it and will not be limited to £10K contributions.

Whether you can pay the retention bonus by salary sacrifice will depend on whether your employer allows it, but you could certainly pay it into a pension as a personal contribution, subject to having enough annual allowance and income from employment for the tax year in question.

To be clear, are you talking about a bonus which is separate from your redundancy payment, or do you mean your redundancy payment which is tax-free up to £30K?

kermchem

If it is a redundancy payment then the first £30K is tax-free and the remainder is subject to income tax but not NI, so there is no need to use a salary sacrifice method to add it to a pension.

Cobbler_tone

Rightthing said:

I'm 58 and am being made redundant next April, Can i sacrifice some of my Retention bonus into my pension? I'm already drawing from my DB pension with my previous company, so believe I'm limited to contributing £10k a year to my pension?

Depends on the scheme and your situation. Redundancy over £30k is classed as income, so no issue there. I can only give you our example. If someone in my business received (e.g. £100k) we would pay the £30k tax free and fill the allowance for the past three years if someone choses to. If it can be fully utilised, great. If not we pay the balance as taxable income. We have done this several times and it is covered off following the consultation period and final decision.
First step is to clarify if it qualifies as income (assuming the retention bonus is for staying on and transferring skills), then whether they will entertain it and then how much personal allowance you have remaining.

Rightthing

Hi, Thank you for responding. My pension with my previous employer is a non-contributory defined benefit scheme, so thank you for advising that the MPAA doesn't apply in this case. Not that any of my pension or redundancy payments are very large! 

My current employer has confirmed that i can sacrifice some or all of my retention bonus into my current pension with Nest. So at least i won't be taxed on that part. Yes the retention bonus is separate from my statutory redundancy pay which is under £30k so should be tax free too.

It's just that i've worked since 16 and want to maximise the amount that i receive.

FIREDreamer

kermchem said:

If it is a redundancy payment then the first £30K is tax-free and the remainder is subject to income tax but not NI, so there is no need to use a salary sacrifice method to add it to a pension.

Some of my taxable redundancy payment did have some NI deducted. This was in 2007 though so the rules might have changed since then.