Pension and redundancy pay

[CAH706]

Hi

I'm being made redundant on the 17th April.

I'm looking to take £80k of the payoff as this will be a low tax impact.

Id like to pay the rest £85k into my pension. I don't have a work pension is a SIPP

My work has advised me that they can't sacrifice the severance payment at source and send direct to my pension provider to avoid tax and NI

Question. If I take the full amount of my severance, can I pay a chunk into my pension and reclaim the tax and NI or am unable to do this?

Thanks in advance

[5pen]

A few pointers.

Redundancy payments aren't subject to NI.

You can only add £85k into your pension (and receive tax relief) if you have unused annual allowance from the past 3 tax years AND you had a pension in place for those years AND you have sufficient qualifying earnings in the CURRENT tax year. The annual allowance is £40k if you didn't know already. Check if you have unused allowances using the HMRC calculator https://www.tax.service.gov.uk/pension-annual-allo...

The £30k tax free element of redundancy payments does not count as qualifying earnings.

To be clear, is your total redundancy payment £165k?

It does sound like you will have to make the payment to your SIPP (which will be grossed-up by your provider to allow for 20% tax relief) and claim the higher rate relief from HMRC.

Edited by 5pen on Tuesday 26th January 20:47

[Zigster]

NI is probably payable on at least part of the redundancy payment - see here:
https://www.gov.uk/staff-redundant/redundancy-pay
Also, is it “redundancy” or is it a “compromise agreement”? In my sector, genuine redundancies are rare, but people whose time is up tend to be asked to sign a compromise agreement and given a pay-off much like redundancy. Not sure if NI is payable on that.

I suspect there could be a couple of reasons why the employer won’t pay direct into the OP’s SIPP
1. It’s not the employer’s scheme. Presumably at the level of employment you must be to get such a big pay off, you have a company-provided pension scheme as well? Would the employer pay into that.
2. I know there is something about only sacrificing pay before you’re entitled to it - for example, I always have to say how much of my bonus I will sacrifice into my pension before I have become entitled to the bonus. Is it possible there is something similar here? That is, you’ve already signed up to the redundancy agreement so they can’t now divert it to a pension?

[CAH706]

Apologies for the late response.

Thanks both for taking the time to reply. Much appreciated and I think I have my head round this now

Pensions etc are far too complicated!

[Roaringopenfire]

The free government pension helpline is worth trying, to get all the facts. Remember you can only pay £40,000 per year into your fund to get the tax allowance. Not sure how many unused years you can utilize, if you have any. Good luck!

[CAH706]

Thanks Roaringopenfire - I didn’t know about that so very helpful