Ask a planner answers: adding redundancy payment into a pension

Tuesday, June 7, 2016

The question, from Jean Giner, 64 from London

Can I select an amount from a redundancy payment to be transferred into my personal pension or are there limits set on the amount by HMRC?

The answer, from Anna Sofat CFPTM, Addidi Wealth Ltd

you can negotiate an amount which can be paid into your pension instead on it being paid to you as a payment. There are HMRC limits – the key ones to bear in mind are:

  1. Annual allowance – this puts a limit on what you can pay into your pension. The limit is £40k for this tax year but you can also bring forward any unused allowance from the last 3 years. As it will be an employer contribution, you are not limited by your own earnings for this year.
  2. Lifetime allowance – you can save upto £1.25m in your pension before it becomes less tax efficient. In case of final salary scheme, this would equate to an annual pension of £62,500. 

Anna Sofat CFPTM, Addidi Wealth Ltd