Some work I have been been doing over the last week or so for a senior employee of one of the major banks has bought home just how important the new pension freedoms are when it comes to tax planning relating to large redundancy payments for the over 55’s.
One exciting case I am working on involves wiping out the entire tax bill on a redundancy payment of over £100,000 some of which would have been taxed at 45%. Routing the funds through a SIPP (self-invested personal pension) makes 25% of the payment effectively tax free. The other 75% will sit in the SIPP and can be extracted tax efficiently in the future. In this case £75,000 will remain in the SIPP for a net cost of £35,000. What a result!
The secret to making this work most effectively is to create a tax position where the funds in the SIPP can be extracted at basic rates of tax in future. All sorts of possibilities – deferring Employment and State pensions, utilising a Limited company for consultancy income, diverting income to a spouse, etc, etc. Or why not take that “Gap Year” you have been promising yourself.
To be fair, all of this is not without complications. There are all sorts of issues to consider. Lifetime allowance limits, annual allowance issues, cash flow, pension input periods etc. but the outcome is well worth all the hard work. Be prepared for some pretty hefty fees. This is one area where you will probably need the help of a regulated pension expert. They don’t come cheap and a really good one is difficult to find.
That is where I come in!
After 30+ years in this business I can help you find the right expert, make sure you are asking the right questions, getting the right answers, and keeping your costs within reason.
If you are facing the possibility of redundancy give me a ring on 07770 575122 or use the “request more info box” to let me have your details. If you have friends or colleagues in this position make sure you share this with them. Otherwise they might finish up with a large tax bill or will end up putting money into their employers pension scheme which will have little flexibility.
Finally please share this on Linkedin. Even with my years of experience I only saw the possibilities when I was asked to work on a specific case. This really does need to be shared as widely as possible.
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