Redundancy Payment & Saving

M3Cobb

I'm due to receive a hefty redundancy payment next week, and umming and arring over how to save/invest it.

The plan is to put a chunk into a savings account where I can 'pay' myself each month into my current account a salary equivalent to I was receiving each month in a job.

The rest will be split between Stocks and Shares ISA and Cash ISA i think.

Am I missing anything here? I know there are the annual limits on paying into ISA's. Can I pay in over that limit? I have ISA accounts open with a couple of providers. It's £20k across them all, not each isn't it?

eskbanker

You might find this useful:

The UK Personal Finance Flowchart - UKPersonalFinance Wiki

As you suspected, you can't pay more than £20K into ISAs in total in any tax year, even if you pay into more than one, but there's more to saving and investing than ISAs - pension contributions are often worthwhile for money you can lock away until retirement, for example.

Markdavid1962

Depending on when retirement is you could also consider putting some in to a SIPP, and receive the additional tax relief.

M3Cobb

retirement isn't for another 20 or so years!

So, £19K into an ISA as I've already been paying some in. Split more or less 50/50 across a cash ISA and S&S (my wife's not keen on the rollercoaster that S&S can be!)

The rest split across the highest interest easy access savings account I can find (for my 'salary) and the rest in as high an interest rate savings account as I can find.

kermchem

£20k into an ISA in wife’s name

Don’t rush to rule out SIPP. When you get pay advice and see how much tax you have paid on the lump sum you may reconsider.

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/82044877#Comment_82044877

The nature of retirement planning is that it's best if started early and kept going, and if you're not employed then alongside your pseudo-salary it's likely to be prudent to continue to make contributions to a pension, although you don't say how long you anticipate that lack of employment to last, or how many years your redundancy payment lasts.

Investing via a S&S ISA may be sensible but again it'll depend on when you're likely to need the money, plus recognition of all the rest of your financial circumstances that we don't know about…

friolento

https://forums.moneysavingexpert.com/discussion/comment/82044877#Comment_82044877

20 years of saving and investing is nothing if you are planning for a retirement that may well last more than 20 or 30 years. So don't discard a SIPP entirely.

n15h

Also worth thinking about whether the redundancy figure you’ve been quoted is the actual net amount you’ll receive. The first £30k of a redundancy payment is tax-free, but anything above that is taxed as income at your marginal rate. Depending on your circumstances, the payment could push you into the higher rate tax band and further reduce the net redundancy amount you receive. Putting some of it in to a pension could help lower your tax bill (and get tax relief as mentioned in one of the other replies). Just something to think about - if you haven't already done so.

Bigwheels1111

Will you have any income at all, or just interest.

M3Cobb

I know what I'll be receiving after tax on the redundancy pay, and that's what I'm looking to sort out. I'll also be getting 2 months PILON as well as a month's salary on top so my pay slip is going to look a right old state with tax, NI, student loan etc coming out!

I've tried to estimate as best as I can what I should be getting from the pay & PILON and then once i've got my P45 I'll be onto HMRC for a refund

kempiejon

Hefty and next week don't leave much time for planning. A long time back I managed to get a lot of my redundancy into the pension, a new job and cash to tide me over for a while looked OK. If tax is a consideration and part of a sharing partnership using ISAs, Premium Bonds and SIPPs could shelter ~£200k. Looking for a high interest savings accounts when dealing with hefty payout when the interest above £1000 is taxable might not be tax efficient.