NHS Redundancy, Tax and Pension

Xoroi909

I am 61, taking NHS redundancy on 31 March 2026. I will get 24 months salary as my redundancy payment. Unfortunately, as I will have earned my full salary by then the redundancy payment will be taxed at 40%. Is it worth buying additional pension in the 2015 scheme now before the redundancy to reduce my tax bill which seems grossly unfair. I plan to retire using my 1995 pension of 38 years. Thank you.

Moonwolf

You certainly would reduce the amount of tax at 40%, you just need to check your annual allowance calculation and only you can decide if you would prefer the income over taxed cash.

Do you have some 2015 pension?

Have you looked into using some of the redundancy to take that early without a reduction, at the same time as your 1995?

Offsetting the capitalisation costs of taking the pension early would mean you get full pension immediately, it also has the benefit that you don’t have to worry about the annual allowance.

This is from the employer not employee pages but explains it https://www.nhsbsa.nhs.uk/employer-hub/redundancy-overview-employers/capitalisation-costs
 

QrizB

The first £30k of your redundancy payment should be tax-free.

If your salary is £50k and your redundancy payment is £100k, your backstop is to pay some or all of the taxable £70k into a personal pension (SIPP or similar). You'll get tax relief on it at 20% plus it'll increase your basic rate band by the same amount.

Purplelady65

As QuizB states the first £30k of a redundancy payment is tax free. I’m presuming you didn’t access your 1995 pension at age 60 as you were waiting for redundancy.  Re the 2015 scheme you should be given a quote of the cost of using your redundancy payment to contribute to your 2015 scheme and reduce any actuarial reduction by taking it early. Ask your HR department or local pensions administrator to get a quote for you.