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bigduckontax, Accountant
Category: Tax
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i am being made redundant and am over 55 years old. please

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i am being made redundant and am over 55 years old. please confirm that i can put up to £40000 of my notice pay (that would usualy be taxed) into my pensio fund free of tax/NI and can immediately take it out, providing it is less than 25% of my total pension value.

-Hello, I'm Keith and happy to help you with your question.


By notice pay I assume you mean redundancy payment. You pay normal income tax and NI on unpaid wages and pay in lieu of notice is extremely complex, see HMRC web site EIM 12975-9.


Redundancy payments up to 30K are tax free. This reduces considerably any possible transfer to a pension fund. You may transfer 100% of salary to such a fund subject to a limit of 50K this tax year [3 days to go, act slippy] 40K next. The 50% and 40% limits include any contributions made by a third party (ie your employer).


Releasing moneys from pension funds is fraught with dangers. There have been warnings about this in the media recently. Some firms charge up to 55% of the fund just to organise this and if you are under 55, which I appreciate you are not, you cannot release funds at all.


Regarding release of pension funds, bearing in mind the 30K tax free redundancy payment, you should seek local, trusted profession guidance.

Customer: replied 4 years ago.

thanks. The notice pay i am referring to is not redundancy, I have a 6 month notice period and my actual redundancy pay is only £4k. So the majority of my settlement (I will be leaving without working most of my notice period) will be taxable, and this is why I am considering this method. It will be paid in the next tax year (hence the £40k not £50k limit, as you pointed out, and I am aware this includes employer conributions). I also understand there may be charges to release the funds (I may actually leave all the money in the pension fund until full retirement). At this stage I would simply like conifrmation that, in principle, the method I proposed is legal and correct.

Yes, perfectly legal. If you dump funds in a SIPP you can also mop up the last 3 years unused pension contributions. Remember the 50K and 40K limits only came in in 13/14 and 14/15 respectively.

Your suggestion to leave funds where they are is sound. With annuity rates as poor as they are at present any rise in interest rates will raise these. Gone are the days of over 10% guaranteed annuity rates as investors in Equitable Life know to their cost!
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