Redundancy to pension

[kiriwast]

I expect to receive approximately £100k as redundancy payment in the next month or so. I am therefore in the process of deciding how to make the most appropriate fiscal arrangements, with no assistance on personal tax matters from my current employer. I have a few questions I hope you guys can help me with.

a) I intend to pay a lump sum to my corporate pension. Do you know if the tax-free pension allowance kicks in before or after the first 30k? In other words, assuming no contributions were made this year, if for example I put 40k in, will it mean 70k of the 100k will be effectively tax free?

b) I understand from here [https://www.gov.uk/tax-on-your-private- ... -allowance] that I can carry over the unutilised portion of the pension allowance for the past 3 years. In the past 3 tax years, I didn’t contribute my pension with the full tax-free allowance. As the figure was reduced from 50k to 40k in the 2014/15 tax year, shall I do the calculations upon (whatever I contributed, minus) the 50k for 2013/14 and 40k for 14/15 and 15/16, or 40k for all 3?

c) does the redundancy payment contribute to my overall income for HMRC to calculate the (now reducing) tax free pension allowance for 16/17?

[strawn]

(a) yes

(b) £50k when it was historically correct. Moreover for 15/16 you can ignore any pension contributions less than £40k made before the July Budget that year. This is a one-off idiosyncrasy.

(c): Good question. I don't know.

[kiriwast]

(b) £50k when it was historically correct.

Thanks strawn. In terms of logistics, given that my current employer is not providing any fiscal advice, is it just a matter of asking them to transfer the gross proceeds to the corporate pension plan? Or will I be expected to pay tax first, and then claim it on the basis that previous years I hadn't used the full allowance?

[...]Moreover for 15/16 you can ignore any pension contributions less than £40k made before the July Budget that year. This is a one-off idiosyncrasy.

Sorry I didn't get that. Can you please elaborate with an example? Does it have to do with the £80k allowance until the day the budget was announced?

[strawn]

(i) Sorry, I don't know.

(ii) Suppose that you and your employer paid into your pension monthly: say £2k p.m. between you, just for illustration.
Then in (say) late April, late May and late June 2015 you'd have paid in £6k. You can now ignore that and treat the allowance to carry forward from 15/16 as £40k less the amount contributed after the July budget.

Caveat: there may be complications to do with the PIP (pension input period) of your company scheme. That goes beyond my knowledge.


The sum of money is so large that perhaps you should see an IFA.

[strawn]

Hold on, I should amplify an earlier reply.

"if for example I put 40k in, will it mean 70k of the 100k will be effectively tax free?"

The answer is "yes" if the £40k is paid gross into your pension by your employer. But if the employer declined to do it than you could instead pay £32k as a net contribution to a personal pension of some kind. The provider would claim £8k tax relief from HMRC and add it to your 'pot'. You then report your gross contribution of £32k + £8k = £40k to HMRC, which in the fullness of time will bung yo a further £8k into your own hands.

[strawn]

Oh dear, I need to correct my amplification. The further £8k from HMRC into your own hands occurs only if it's higher rate tax you are avoiding.