Is severance payment pensionable salary?
WRB
Member
Hi, I’m doing some carry forward work for a client who will receive a severance payment of £131,981 (£18,694 of this figure is statutory redundancy pay) how much if any of this amount will he be able to personally contribute to his pension given he has the scope. His latest payslip shows taxable pay of £60,020.75 for the tax year.
Comments
Hi,
To qualify for pension tax relief, the individual must have relevant UK earnings in the tax year equal to the amount contributed. The tax position of redundancy payments depends on what is included. See below links for further information.
https://www.gov.uk/redundancy-your-rights/tax-and-national-insurance
https://www.gov.uk/termination-payments-and-tax-when-you-leave-a-job/what-you-pay-tax-and-national-insurance-on
Any amount of redundancy payment above the £30,000 tax free limit counts towards relevant UK earnings see https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#earnings. This would suggest your client could pay circa £162,000 into the pension.
As the annual allowance is £60,000 for 2025/26, to pay any amount over this will require the use of carry forward. Without knowing what has been contributed in the current and previous three tax years and whether your client was a member of a registered pension scheme we can’t give a definitive answer.
Below is a link to an article which explains how carry forward works in more detail as well as to our carry forward calculator. This will allow you to work out the maximum contribution (considering carry forward) that could be made this tax year.
https://www.quilter.com/help-and-support/technical-insights/technical-insights-articles/carry-forward/
Hope this helps.
Kind regards,
Jon
Thanks for getting back to me. I’ve done the carry forward calculations and the client can contribute the full amount.
Thanks again