Redundancy Payment as an AVC into Pension

Danske Tracker

Registered User
Messages
10
Yes the contributors above are correct, I am not suggesting the employer pays a contribution to my pension. My query is, Can I make the contribution as an AVC similar to what I have being doing each month, only this time it will be for all or most of the redundancy I am getting. I will receive x amount of redundancy after tax has been paid -so can this go straight in into my pension via payroll. I will not have this option to put any money into my pension as soon as I leave the company - so asking payroll to do it on my last pay day, is my only chance to boost that particular pension before I leave. My query is why should I not do this ( I am prepared to not have access until retirement and I appreciate that there is no separate tax relief on the lump sum as I am already getting the max relief for my age). Thanks
 

Gordon Gekko

Registered User
Messages
5,705
But are you not already maxing out your AVCs at 25%?

So at best 25% of the payment could go into your pension.

That depends on where you are relative to the €115k earnings cap.

What’s your salary? And how much is the payment? And how much of the payment will be tax-free?
 

Danske Tracker

Registered User
Messages
10
Yes I am maxed out on the tax relief I can get - but my understanding is, that you are not actually prohibited from still contributing beyond that -
( I accept most people choose not to ) - I am nowhere near the €115k earnings cap, so that's not an issue.
 

RedOnion

Frequent Poster
Messages
6,161
I will receive x amount of redundancy after tax has been paid -so can this go straight in into my pension via payroll.
I think in terms of the mechanics of whether it's allowed, you've already got this answered by your pension provider I think?

My query is why should I not do this
Just a few questions. How much is involved, how much is your total pension worth, what are the charges on your pension like, will you work again, is this your only pension, and how long until you retire?
 

Danske Tracker

Registered User
Messages
10
My pension is currently approx 100k and I was considering putting 50k from redundancy into it. I have 23 years until retirement. I would hope to work in the public sector in my next role. This pension is with Irish Life at the moment.
 

ashambles

Registered User
Messages
465
My pension is currently approx 100k and I was considering putting 50k from redundancy into it. I have 23 years until retirement. I would hope to work in the public sector in my next role. This pension is with Irish Life at the moment.
If you've the redundancy money in your account on the 17th or 18th of December, then take payroll out of the picture. Salary sacrifice is a non-issue then.

If the pension company is told that you're still employed to the 31st of December - just make the AVC yourself.

They'd have your money around 2 days after you transfer it. You mightn't see it applied to your pension until January but the key date is when they get the money.

Also on tax relief, seeming you can use that in coming years if you weren't already planning on maxing your pension tax relief - which you probably won't be if you end up in the public sector.
 

Gordon Gekko

Registered User
Messages
5,705
We don’t have enough detail, but this sounds mad to me.

Potentially tax-free redundancy vs a tax-relieved pension contribution, I can see the merits of a discussion around that.

But potentially tax-free redundancy vs a non-tax relieved pension contribution?

Hard to see the logic.
 

ashambles

Registered User
Messages
465
We don’t have enough detail, but this sounds mad to me.

Potentially tax-free redundancy vs a tax-relieved pension contribution, I can see the merits of a discussion around that.

But potentially tax-free redundancy vs a non-tax relieved pension contribution?

Hard to see the logic.
This is one thread that discussed carrying forward pension tax relief,

Pensions have a serious disadvantage when it comes to accessing them, and governments can change rules on tax free lump sums etc. on a whim
However the advantages of investing inside a company pension outside of tax relief on contributions
- generally zero entry fees
- lower fund charges
- tax free growth
- pension investing outside of company schemes is often more expensive, usually larger fund fees and sometimes also charge entry fees.
- investing outside of pensions in Ireland can be complicated for tax, particularly for ETFs
- potentially the pension fund could be moved into a PRB - which allows more flexible investing options
 

Gordon Gekko

Registered User
Messages
5,705
I get that, but then if you’ve the ability to contribute the next year, you can.

Plus this may be tax-free vs pension contribution.
 

ashambles

Registered User
Messages
465
I get that, but then if you’ve the ability to contribute the next year, you can.

Plus this may be tax-free vs pension contribution.
The tax treatment of the redundancy doesn't change regardless of how it will be used - or does it?

This article by Marc Westlake gives detail on maximum AVCs and carrying forward relief.


Next year there won't be access to this pension scheme. As the tax relief can be carried forward - doing it now is a reasonable approach - sure it'll use up spare tax relief for a few years - but that's fine. Usually but not always it's better have the money in the market longer than trickle the money in over time.

As I said company schemes are cheap, the OP is unlikely to get as good a deal if they end up in the public sector.

I didn't want to over complicate the decision, but an old pension fund can also be moved to a PRB where currently you can have access to ETFs, shares etc.. Considering Revenues ever changing and complicated attitudes to ETFs - being able to invest in them tax free is something I find useful.

For a PRB you probably want your fund going in there as big as possible - to be a more useful investment and to get a better deal on fees.
 
Top