more Qs on pensions and redundancy

JoT_4

I am being made redundant and am trying to get my head around the best way to use some of my redundancy payment as pensions contributions. It's proving to be a very frustrating tasks. Despite the fact that I work for a large, reputable, mutual (for now) life assurance company, no one (internal) seems to be able to answer my questions!

Anyway, here are the salient facts:
1) I belong to my employer's (non-contributory) final salary pension scheme (and have been a member for 12 years).
2) My redundancy payment will be substantially more than the tax-free limit of £30k.
3) My employer has already confirmed that I can choose to forego part/all of my redundancy payment to purchase additional months' service in the occupational pension scheme (and I am awaiting exact quotes on value of such contributions etc).
4) I am 40 years old.

What I would really like to know is:
Can I direct my employer to pay some/all of my redundancy payment into a personal (stakeholder) pension rather than the occupational pension scheme (over and above the normal contribution levels)? If so, would such contributions get tax relief? Is there a time limit i.e. do such contributions have to be made at the time I receive my redundancy payment (as is the case with the occupational scheme)?

Any help gratefully and eagerly received! ???

Pal

What I would really like to know is:
Can I direct my employer to pay some/all of my redundancy payment into a personal (stakeholder) pension rather than the occupational pension scheme (over and above the normal contribution levels)? If so, would such contributions get tax relief? Is there a time limit i.e. do such contributions have to be made at the time I receive my redundancy payment (as is the case with the occupational scheme)?

Yes but only up to the maximum annual limit based on your age, so chances are you could not contribute a large amount.

Yes, you would get tax relief. You are sacrificing the payment so you never actually receive it, so you don't have to pay tax on it.

There would not be a time limit, except that your employment contract would not officially end until it is made (the payment by the company would be a condition of your being made redundant to end your contract). In reality this is a minor point.

In theory there is no reason why a payment has to be made to an occupational scheme before you leave either. The company can make it when it likes. However making the payment to provide extra benefits is part of your leaving deal, so they need to do it asap in order to comply with the terms of your redundancy.

I think that the contribution limits to stakeholders are likely to mean that you cannot do what you are planning. I also think that you should looks at the option to buy added years a bit more closely. Get the pension department to let you know how much extra pension your redundancy would buy.

It is possible that after 2006 you might be able to put as much as you like into a stakeholder or personal pension, so another alternative is to take the taxed redundancy and save it until then. You should still be able to get the tax relief back on it when you pay it into a pension at a later date. This does leave you at the mercy of the Inland Revenue rules for a couple of years thought!

isasmurf

If you're a member of an Occupational Pension scheme you can only contribute £3,600 a year gross (i.e. you contribute £2,808 and the provider reclaims the rest from the IR) to a Personal or Stakeholder Pension and that's only if you have earned less than £30,000 in any single tax year since 2000-01 and have not been a controlling director in any of those years.

So putting it in a PP/SHP doesn't look like a good option.

Pal

He can contribute up to the age related percentage of his earnings during the rest of the tax year following his redundancy. It relies on him getting another job, and knowing already how much he is going to be earning.

I agree, it isn't really a viable option.

JoT_4

Thank you for your replies. Your comments re. contributions to a personal pension have greatly clarified things for me.

I am continuing to look at making further contributions to my occupational pension scheme and it's looking increasingly likely that I will take this route. Getting the necessary figures is tedious beyond belief, but that's my problem!

Thanks again.