# Redundancy Payment as an AVC into Pension



## Danske Tracker (18 Nov 2021)

I am taking redundancy at the end of the year and I am wondering if I can request that payroll pay the full Redundancy payment into my pension as an AVC. I will receive the redundancy about 2 weeks before I actually finish up working.
I am already making the maximum payment of 25% for tax relief into my Pension, but can I put my redundancy into my pension. I realise I will get no TAX relief on it but is it an option for me and worth doing? Thanks


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## Gordon Gekko (18 Nov 2021)

That sounds like salary sacrifice.

It’s more complicated then this, but basically:

1) “Hi Tom, I hear you want your redundancy paid into your pension fund, we can do that” isn’t fine

2) “Tom, we’re making you redundant and we’re paying €X into your pension fund, take it or leave it” is fine

So it depends whether one can arrive at Scenario 2.


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## rob oyle (18 Nov 2021)

Gordon Gekko said:


> That sounds like salary sacrifice.
> 
> It’s more complicated then this, but basically:
> 
> ...


What about?
3) 'Oh, I'm getting a redundancy payment of €x,000 you say? Coincidentally, I want to make an AVC of €x,000 into my pension fund this month. It just so happens...'


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## Gordon Gekko (18 Nov 2021)

rob oyle said:


> What about?
> 3) 'Oh, I'm getting a redundancy payment of €x,000 you say? Coincidentally, I want to make an AVC of €x,000 into my pension fund this month. It just so happens...'


Doesn’t work I reckon


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## Danske Tracker (18 Nov 2021)

Gordon Gekko said:


> That sounds like salary sacrifice.
> 
> It’s more complicated then this, but basically:
> 
> ...


Thanks for the response  - My thinking was that the growth it would have in a pension fund for a sum I didn't expect would be a good place for it to sit.  However I was wondering what the downsides to this would be ( apart from no access until retirement and no tax relief for the sum going in).


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## Gordon Gekko (18 Nov 2021)

Danske Tracker said:


> Thanks for the response  - My thinking was that the growth it would have in a pension fund for a sum I didn't expect would be a good place for it to sit.  However I was wondering what the downsides to this would be ( apart from no access until retirement and no tax relief for the sum going in).


Can you not get it tax-free, or partly so, and do other things like pay down debt?


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## SPC100 (18 Nov 2021)

Danske Tracker said:


> I am taking redundancy at the end of the year and I am wondering if I can request that payroll pay the full Redundancy payment into my pension as an AVC. I will receive the redundancy about 2 weeks before I actually finish up working.
> I am already making the maximum payment of 25% for tax relief into my Pension, but can I put my redundancy into my pension. I realise I will get no TAX relief on it but is it an option for me and worth doing? Thanks


Afaiu yes you can. As you say you will not get tax relief in it. You can claim future tax relief on it though.


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## SPC100 (18 Nov 2021)

I'd agree with Gordon to see how much you could get Tax free/low tax in hand and consider taking that if you have a use for it


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## Ndiddy (18 Nov 2021)

so lets say you have 100k redundancy, 30k is not taxable so you have 70k left that is taxable. 

If like the OP's case, they already put in full AVC relieved ( lets say 30%), could you take 30k in cash and put the 70k that would have been taxable in AVC lump sum.  Wouldn't 30% of this 70k get tax relief?


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## bstop (18 Nov 2021)

Is the redundancy payment classed as earned income?
If it is then maybe the taxable portion could be included in the years earned income and be allowed tax relief on an AVC contribution.
It used to be that the redundancy sum was allowed top slicing relief but now it is taxed as all earned in one year.


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## Brian McD (19 Nov 2021)

So if I earn €100k per annum, age 43, about to get €170k redundancy payment, the maximum I can contribute to an AVC is 25% of €115k? 

To shield the rest of the redundancy payment from tax / get tax relief I’d need to put whatever about is exposed to the top rate of tax into a mix of relatively secure asset backed EIIS investments?


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## Danske Tracker (19 Nov 2021)

I have spoken to my pension provider and they have said that as I am employed until the 31st Dec ( however paid the redundancy 2 weeks prior to that) then there is no limit to the lump sum I can make to my pension once Payroll are agreeable. Obviously I can make no further payments to my pension after 31st Dec. So as it stands, I can't see any reason why I wouldn't make a lump sum payment as I don't need to reduce debt and want to ensure I have as large a pot as possible set aside from this particular employment to grow until retirement.


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## Gordon Gekko (19 Nov 2021)

Danske Tracker said:


> I have spoken to my pension provider and they have said that as I am employed until the 31st Dec ( however paid the redundancy 2 weeks prior to that) then there is no limit to the lump sum I can make to my pension once Payroll are agreeable. Obviously I can make no further payments to my pension after 31st Dec. So as it stands, I can't see any reason why I wouldn't make a lump sum payment as I don't need to reduce debt and want to ensure I have as large a pot as possible set aside from this particular employment to grow until retirement.


The pension provider is telling you that there’s no limit to the pension contribution that can be made? That’s surprising given that their business is selling pensions…

The issue here is ‘salary sacrifice’ as per the posts above.

You’d also have to run the numbers on the merits of tax-free redundancy versus an employer pension contribution.


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## Sunny (19 Nov 2021)

Danske Tracker said:


> I have spoken to my pension provider and they have said that as I am employed until the 31st Dec ( however paid the redundancy 2 weeks prior to that) then there is no limit to the lump sum I can make to my pension once Payroll are agreeable. Obviously I can make no further payments to my pension after 31st Dec. So as it stands, I can't see any reason why I wouldn't make a lump sum payment as I don't need to reduce debt and want to ensure I have as large a pot as possible set aside from this particular employment to grow until retirement.



I would seriously question that advice. As Gordon says above, that sounds simply like salary sacrifice.


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## RedOnion (19 Nov 2021)

Gordon Gekko said:


> The issue here is ‘salary sacrifice’ as per the posts above.


Forgive me, I'm being a bit slow today.

If the net after tax amount is being paid into AVC, where's the salary sacrifice issue? Or maybe I've completely misunderstood what @Danske Tracker  is asking?


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## Gordon Gekko (19 Nov 2021)

RedOnion said:


> Forgive me, I'm being a bit slow today.
> 
> If the net after tax amount is being paid into AVC, where's the salary sacrifice issue? Or maybe I've completely misunderstood what @Danske Tracker  is asking?


I think what’s being said is that the redundancy is, say, €X, and the poster is asking the employer to recharacterise it as an employer pension contribution of €X.


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## losttheplot (19 Nov 2021)

I understood it to be receiving redundancy payment and putting it into a pension as a lump sum. Rather than getting the money and transfer to pension, the OP is asking can the employer do it directly.


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## Gordon Gekko (19 Nov 2021)

losttheplot said:


> I understood it to be receiving redundancy payment and putting it into a pension as a lump sum. Rather than getting the money and transfer to pension, the OP is asking can the employer do it directly.


Yes, but then that’s salary sacrifice, plus the AVC is limited to 25% of €115k less the 25% of normal income that the OP’s already doing. Plus some or all of the redundancy may be tax-free anyway.


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## SPC100 (19 Nov 2021)

I only see a request for payroll to send money directly to pension rather than be paid to op and then op reroutes it. I don't see a request for the company to pay it tax free into pension.

I think this is clear as in the op they say they realize they will not get tax relief on it.


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## Gordon Gekko (20 Nov 2021)

SPC100 said:


> I only see a request for payroll to send money directly to pension rather than be paid to op and then op reroutes it. I don't see a request for the company to pay it tax free into pension.
> 
> I think this is clear as in the op they say they realize they will not get tax relief on it.


Maybe, but it sounds to me like an employer pension contribution.


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## Danske Tracker (22 Nov 2021)

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


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## Gordon Gekko (22 Nov 2021)

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?


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## Danske Tracker (22 Nov 2021)

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.


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## RedOnion (22 Nov 2021)

Danske Tracker said:


> 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?



Danske Tracker said:


> 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?


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## Danske Tracker (22 Nov 2021)

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.


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## ashambles (22 Nov 2021)

Danske Tracker said:


> 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.


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## Gordon Gekko (22 Nov 2021)

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.


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## ashambles (22 Nov 2021)

Gordon Gekko said:


> 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.
> 
> ...


This is one thread that discussed carrying forward pension tax relief,





						How many years can I carry forward tax relief?
					

If I make a contribution to a Personal Pension (RAC) that exceeds my limit for tax relief, I understand that I can carry forward excess tax relief into future years until it's used up.    Is there a limit to how many years I can continue carrying forward in respect of the same contribution?



					www.askaboutmoney.com
				




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


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## Gordon Gekko (22 Nov 2021)

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.


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## ashambles (25 Nov 2021)

Gordon Gekko said:


> 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.









						Maximum AVC Contributions - Everlake
					

There isn't a maximum contribution you can pay into your pension. Pay a lump sum to your pension now and carry forward the tax relief.




					globalwealth.ie
				




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.


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## Danske Tracker (26 Nov 2021)

Many thanks for all the contributions to my query


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