Voluntary redundancy - £100k threshold

Realhedgehog

I took voluntary redundancy with a decent payout at the end of May and will be starting a new job in September. Combined this will take my annual taxable income for 2026/27 to c.£115k (plus the £30k untaxed voluntary redundancy allowance). Given I have one child in nursery and will also loose 15hrs free childcare and tax free childcare, I estimate the proportion over £100k will be taxed at an effective c90% tax rate (!). I think my options are 1) put a lump sum payment into my new company pension pot (if they let me - will need to ask once I start) or 2) create a SIPP and put the c15k in there. Any other options I've missed? Any advice on the pros and cons of these options? A SIPP you can take from 58yo pre retirement which makes it attractive as an investment/savings fund as may want more money then to support child with uni/other at this point in time. Need to re-do my numbers but pension should be fairly decent as is from other sources, so beefing up pension isn't the main driver here.

Realhedgehog

Should have said, I have already opted to pay in 6% to my new employer pension fund as they double match fund up to this level.

Vitor

The key is to reduce adjusted net income to £100,000 or below.

The first £30,000 of a qualifying redundancy payment is tax-free and does not count, but PILON, holiday pay and similar elements are taxable.

If £15,000 is the amount you need to reduce income by, that is usually the gross pension contribution. With a relief-at-source SIPP, you would normally pay £12,000 and the provider adds £3,000 basic-rate relief. You then claim any further higher-rate relief from HMRC.

Ask whether the new employer offers salary sacrifice or allows extra contributions. Salary sacrifice is usually better because it may also save National Insurance, but it cannot normally be applied retrospectively to redundancy money already received.

A SIPP is otherwise a sensible option. Leave some headroom below £100,000 for savings interest, dividends or taxable benefits, and check your pension annual allowance and any available carry-forward.

sheenas

I wondering if the OP means because the tax year runs April to April he can reducing 1-4-2 £100K tax trap that way?

In which case yes the salary sacrifice approach could be used with your new employer for Sept-April. Dropping 15k into the pension would be very tax efficient as stated above. One note about your new employers pension. It worth carefully reviewing the investment options. The default is often not very good.

Realhedgehog

Thanks both, really helpful. Yes my new employer is salary sacrifice so will check with them when I start whether I can make addtitional payments to make-up the c£15k pre end of the tax year. And if not, will go down the SIPP route. When I start I will also be able to check the default fund and select an alternative if I wish - useful tip-off that the default is usually poor. I've got two (small) private pension pots from prior employers so also need to look at those and whether worth consolidating them or not. Think it might be worth getting an IFA to help me sort out all these bits.

Albermarle

When I start I will also be able to check the default fund and select an alternative if I wish - useful tip-off that the default is usually poor

The default funds are designed to cover as best as possible, the majority/average of peoples needs. So they are not 'poor', but as they are inevitably a compromise, they may be sub optimal for your own personal situation. Then again it might be fine, and picking your own funds is not guaranteed to work out better, although it might.

I've got two (small) private pension pots from prior employers so also need to look at those and whether worth consolidating them or not. Think it might be worth getting an IFA to help me sort out all these bits.

Be aware that IFA's are not really interested in sorting out 'bits', or in workplace pensions. Even if they were, the cost would be out of proportion to the funds.

Luckily it is usually pretty easy nowadays to transfer pensions ( as long as they are DC schemes with no guaranteed benefits) and most providers welcome transfers in.

monkey-fingers

https://forums.moneysavingexpert.com/discussion/6676413/voluntary-redundancy-100k-threshold

throw it in a SIP if you can't put it in your pension.

I asked my company to put £60k into my pension and they obliged.