Answers · UK 2025/26
Can I put redundancy pay into my pension to avoid tax?
Yes. Redundancy payments above the £30,000 tax-free limit can be sacrificed into a workplace or personal pension to avoid Income Tax. The £30,000 tax-free portion is best taken as cash; only the excess (otherwise taxed at 40%+) is worth diverting.
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UK redundancy + pension salary sacrifice 2025/26. The £30,000 tax-free redundancy amount: take this as cash — already tax-free, no benefit from sacrificing it. The excess (above £30,000): fully taxable Income Tax + employer NI. Sacrificing into pension saves both. Worked example: £50,000 redundancy package, £30,000 tax-free + £20,000 taxable. (a) Take all as cash: £30k tax-free + £20k × 60% (after 40% IT) = £30k + £12k = £42,000 net. (b) £30k cash + £20k into pension: £30k cash + £20k pension (no IT, no NI). Saved £8,000 IT. (c) Add £6,000 employer NI saving back: many employers pass NI saving to your pension → £20k + £3k = £23k in pension. Total benefit: £30k cash + £23k pension = £53k effective value (£11k more than route a). Restrictions: must be agreed in writing BEFORE leaving job; cannot retrospectively recharacterise post-leaving; exceeds Annual Allowance (£60k) may trigger AA charge; if pension already accessed flexibly, MPAA £10k applies. Strategic: best for higher-earners about to retire — gets tax-free 25% lump sum later anyway. Consult adviser — irrevocable decision.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.