Redundancy payment and SIPP

BrownHen

Hello everyone and apologies in advance for my limited knowledge of this field. I have taken voluntary redundancy and the pot was around £89000. I’m still waiting for my P45. I know the 1st £30 000 is tax free, and you can only invest up to £60 000, or earnings from employment, whatever is lower ( without incurring tax in the SIPP). My question is: does the taxable portion of the redundancy payment count as earnings, or are earnings strictly what you earn as per monthly payslips?If I look strictly at salary and totally exclude redundancy pay, it was about £15000 up to leaving. Ideally I’d like to invest £18000. However, I am also planning on taking my DB pension in January, February and March when I turn 60. This will total about £3900. Does this complicate things further? Many thanks.

Albermarle

Yes the redundancy money above £30K counts as 'relevant earnings' for pension purposes.

So you could add up to £74K to a pension including tax relief. Although above £60K you will probably have unused allowance from previous years. Obviously that is a lot but you could consider adding enough to avoid paying any 40% tax this tax year.

£74K taxable income + £4K DB pension- means you will pay 40% tax on about £28K ( assuming you have the usual £12570 personal allowance available) .

40% tax relief is very generous, especially if you will be a basic rate taxpayer when you take the pension.