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Redundancy - Pension

A company is about to offer voluntary redundancy. An employee is offered redundancy terms of 65k gbp. Is it the case that there will be no tax liable on the first 30k of the redundancy? The employee asks that he does not receive the remaining 35k as a payment - but that it is paid in to his company pension scheme in which he already has invested 110k gbp.

He then takes "the package" - leaves the company and retires and takes his pension (he is old enough to do so). He then takes the 35k from the pension fund as a lump sum - because it is less than 25% of his total pot - he does not pay any tax on it. ie the full 65k has become tax free.

Sounds a good deal - is it correct?

Reply to
leaver
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Bitstring , from the wonderful person snipped-for-privacy@privacy.net said

Yes, although it does mean he can't take much more tax free lump sum (could have previously taken 27.5k).

Also the taxman may frown if there is any clear =contractual linkbetween not taking the 35k redundancy and the company putting an entirely voluntary ex-gratia contribution into the pension fund for this person (could be viewed as tax avoidance). (So best entered into with trustworthy companies).

Been there, dun that, got the T-shirt ...

Reply to
GSV Three Minds in a Can

Provided it isn't pay in lieu on notice (PILON), this is usually quoted at part of redundancy quotes and *is* taxable.

Sounds OK, but why not take the full 25%?

Reply to
Andy Pandy

But why would it matter now (post "A-day")? The OP can put as much of his salary as he wants into his pension pot and get tax relief, he doesn't even need to get the company to do it.

Reply to
Andy Pandy

Bitstring , from the wonderful person Andy Pandy said

Ah but does a redundancy payment count as salary for the purposes of making pension contributions?

Reply to
GSV Three Minds in a Can

It always has been quite common to enhance [often final-salary / defined benefit scheme ] pension entitlements in order to facilitate early pension payment [and the cash-equivalent value of doing so can be very considerable] prior to 'normal retirement date' - prior to 'A Day' the Revenue had a complicated formula to limit this, based on length of pensionable sevice. Post A-Day AFAIK there's only a 'lifetime' ceiling applicable, so the company could pay-in the ex gratia company contribution envisaged without much difficulty and 25% of the total personal pension 'pot' could be taken as an immediate taxfree lump sum along with an annuity bought from the pot's remainder. There may be problems with applying tax relief at source to

*employee* contributions, so unless it's ok that this can be accomplished without difficulty, it's simpler if they're paid-in as company contributions.
Reply to
David

I'm not sure and I CBA to look it up, but I'd be very surprised if any taxable payment from the employer doesn't count for the purposes of the pension contribution limit.

Reply to
Andy Pandy

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