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Hi.If you sacrifice some of the redundancy pay and have your employer pay that money into your pension, you won't pay tax on it as it was never paid to you and your employer will still get tax relief on the payment.Provided the employer does the paperwork properly and that the sacrifice agreement is in place before the payment is made, there really isn't anything to stop you sacrificing some of the severance pay. You also need to avoid breaching the annual allowance which may result in a tax charge. You can read about that here.I hope this helps but let me know if you have any further questions.
Does that hold for the Pay in Lieu of notice as well as the compensatory part of the severance pay?My company has advised that they are not permitted to apply salary sacrifice to the PILON, but I am not sure if this is just because they can't be bothered with the hassle, or it is against HMRC rules.
My understanding is that a payment in lieu of notice is not pensionable. If the notice period is worked the pay can be pensioned in which case it won't be pay in lieu of notice. If I were you, I would check with an independent financial adviser for confirmation.
In my original question I asked about severance pay and PILON, and you only replied about severance pay. This did not answer my question.
I then re-asked about PILON and you said you thought it was not pensionable and advised that I contact a financial advisor. Again this did not answer my question, and I tried this website originally as I did not want the hassle of asking a financial advisor.
I have subsequently spent considerable time researching all this and as far as I can see, the PILON not being pensionable just means that it does not count towards my final salary for the year on which certain pension limits would be based and has no relevance to the salary sacrifice question I asked.
I am sorry, I thought that this would be in the field of expertise of the replier on this website, as it was a question about being tax efficient, but from your replies it appear that it is not. In my opinion if the tax rules around PILON were not in your area if expertise then you should not have taken on the question.
It might have helped to point out your problem with my answer before applying a damaging rating to it. I've had over 7,500 answers acceppted on this site and I have 35 years of experience so I know my tax on redundancy, severance and PILONs.I did have some more to say on this but you didn't give me the chance to address your concerns before rating and made assumptions about my expertise so I will opt out. As you have found out this isn't a straightforward area and there are variables which dictate whether such payments as you are about to receive are pensionable which is why i suggested an IFA who could look at your employment contract and the payment from your employer in more detail than any expert could do from here.