Redundancy Payment as an AVC into Pension

Danske Tracker

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I am taking redundancy at the end of the year and I am wondering if I can request that payroll pay the full Redundancy payment into my pension as an AVC. I will receive the redundancy about 2 weeks before I actually finish up working.
I am already making the maximum payment of 25% for tax relief into my Pension, but can I put my redundancy into my pension. I realise I will get no TAX relief on it but is it an option for me and worth doing? Thanks
 

Gordon Gekko

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That sounds like salary sacrifice.

It’s more complicated then this, but basically:

1) “Hi Tom, I hear you want your redundancy paid into your pension fund, we can do that” isn’t fine

2) “Tom, we’re making you redundant and we’re paying €X into your pension fund, take it or leave it” is fine

So it depends whether one can arrive at Scenario 2.
 

rob oyle

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That sounds like salary sacrifice.

It’s more complicated then this, but basically:

1) “Hi Tom, I hear you want your redundancy paid into your pension fund, we can do that” isn’t fine

2) “Tom, we’re making you redundant and we’re paying €X into your pension fund, take it or leave it” is fine

So it depends whether one can arrive at Scenario 2.
What about?
3) 'Oh, I'm getting a redundancy payment of €x,000 you say? Coincidentally, I want to make an AVC of €x,000 into my pension fund this month. It just so happens...'
 

Danske Tracker

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That sounds like salary sacrifice.

It’s more complicated then this, but basically:

1) “Hi Tom, I hear you want your redundancy paid into your pension fund, we can do that” isn’t fine

2) “Tom, we’re making you redundant and we’re paying €X into your pension fund, take it or leave it” is fine

So it depends whether one can arrive at Scenario 2.
Thanks for the response - My thinking was that the growth it would have in a pension fund for a sum I didn't expect would be a good place for it to sit. However I was wondering what the downsides to this would be ( apart from no access until retirement and no tax relief for the sum going in).
 

Gordon Gekko

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Thanks for the response - My thinking was that the growth it would have in a pension fund for a sum I didn't expect would be a good place for it to sit. However I was wondering what the downsides to this would be ( apart from no access until retirement and no tax relief for the sum going in).
Can you not get it tax-free, or partly so, and do other things like pay down debt?
 

SPC100

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I am taking redundancy at the end of the year and I am wondering if I can request that payroll pay the full Redundancy payment into my pension as an AVC. I will receive the redundancy about 2 weeks before I actually finish up working.
I am already making the maximum payment of 25% for tax relief into my Pension, but can I put my redundancy into my pension. I realise I will get no TAX relief on it but is it an option for me and worth doing? Thanks
Afaiu yes you can. As you say you will not get tax relief in it. You can claim future tax relief on it though.
 

SPC100

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I'd agree with Gordon to see how much you could get Tax free/low tax in hand and consider taking that if you have a use for it
 

Ndiddy

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so lets say you have 100k redundancy, 30k is not taxable so you have 70k left that is taxable.

If like the OP's case, they already put in full AVC relieved ( lets say 30%), could you take 30k in cash and put the 70k that would have been taxable in AVC lump sum. Wouldn't 30% of this 70k get tax relief?
 

bstop

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Is the redundancy payment classed as earned income?
If it is then maybe the taxable portion could be included in the years earned income and be allowed tax relief on an AVC contribution.
It used to be that the redundancy sum was allowed top slicing relief but now it is taxed as all earned in one year.
 
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Brian McD

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So if I earn €100k per annum, age 43, about to get €170k redundancy payment, the maximum I can contribute to an AVC is 25% of €115k?

To shield the rest of the redundancy payment from tax / get tax relief I’d need to put whatever about is exposed to the top rate of tax into a mix of relatively secure asset backed EIIS investments?
 

Danske Tracker

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I have spoken to my pension provider and they have said that as I am employed until the 31st Dec ( however paid the redundancy 2 weeks prior to that) then there is no limit to the lump sum I can make to my pension once Payroll are agreeable. Obviously I can make no further payments to my pension after 31st Dec. So as it stands, I can't see any reason why I wouldn't make a lump sum payment as I don't need to reduce debt and want to ensure I have as large a pot as possible set aside from this particular employment to grow until retirement.
 

Gordon Gekko

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I have spoken to my pension provider and they have said that as I am employed until the 31st Dec ( however paid the redundancy 2 weeks prior to that) then there is no limit to the lump sum I can make to my pension once Payroll are agreeable. Obviously I can make no further payments to my pension after 31st Dec. So as it stands, I can't see any reason why I wouldn't make a lump sum payment as I don't need to reduce debt and want to ensure I have as large a pot as possible set aside from this particular employment to grow until retirement.
The pension provider is telling you that there’s no limit to the pension contribution that can be made? That’s surprising given that their business is selling pensions…

The issue here is ‘salary sacrifice’ as per the posts above.

You’d also have to run the numbers on the merits of tax-free redundancy versus an employer pension contribution.
 

Sunny

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I have spoken to my pension provider and they have said that as I am employed until the 31st Dec ( however paid the redundancy 2 weeks prior to that) then there is no limit to the lump sum I can make to my pension once Payroll are agreeable. Obviously I can make no further payments to my pension after 31st Dec. So as it stands, I can't see any reason why I wouldn't make a lump sum payment as I don't need to reduce debt and want to ensure I have as large a pot as possible set aside from this particular employment to grow until retirement.

I would seriously question that advice. As Gordon says above, that sounds simply like salary sacrifice.
 

Gordon Gekko

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Forgive me, I'm being a bit slow today.

If the net after tax amount is being paid into AVC, where's the salary sacrifice issue? Or maybe I've completely misunderstood what @Danske Tracker is asking?
I think what’s being said is that the redundancy is, say, €X, and the poster is asking the employer to recharacterise it as an employer pension contribution of €X.
 

losttheplot

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I understood it to be receiving redundancy payment and putting it into a pension as a lump sum. Rather than getting the money and transfer to pension, the OP is asking can the employer do it directly.
 

Gordon Gekko

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I understood it to be receiving redundancy payment and putting it into a pension as a lump sum. Rather than getting the money and transfer to pension, the OP is asking can the employer do it directly.
Yes, but then that’s salary sacrifice, plus the AVC is limited to 25% of €115k less the 25% of normal income that the OP’s already doing. Plus some or all of the redundancy may be tax-free anyway.
 

SPC100

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I only see a request for payroll to send money directly to pension rather than be paid to op and then op reroutes it. I don't see a request for the company to pay it tax free into pension.

I think this is clear as in the op they say they realize they will not get tax relief on it.
 

Gordon Gekko

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I only see a request for payroll to send money directly to pension rather than be paid to op and then op reroutes it. I don't see a request for the company to pay it tax free into pension.

I think this is clear as in the op they say they realize they will not get tax relief on it.
Maybe, but it sounds to me like an employer pension contribution.
 
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