Just when you thought you had it all sorted, one of the few people to still be in a final salary pension scheme, a good salary, and making additional pension contributions, suddenly, it all goes wrong.
Redundancy sends you on a very different journey indeed.
However, being the diligent person, paying additional amounts into your pension, perhaps maximising your annual allowance of £40,000, the future looks ok, especially with the large redundancy lump sum you are going to be paid in the present tax year.
Then the tax regime comes tripping merrily in your direction :
1. The redundancy (lets say it was a very generous £150k) is added to your taxable income (apart from the first £30k) and as such, has a huge impact on the actual amount received with higher and additional rate taxes, along with an impact on your personal allowance.
2. Having recovered from that disappointment, there is then the attack on your diligent pension contributions. The redundancy has caused you to exceed £150,000 of earned income, and your pension annual allowance is tapered back to just £10k.
3. Through no fault of your own, and simply down to unfortunate timing, you have exceeded the annual allowance and are now subject to further tax penalties.
All in all, a pretty bad day at the office, and a huge shift to the plans you had for that redundancy lump sum!
It is not just those being made redundant where these rules apply, and that is why more employers are looking to err on the side of caution and reduce benefits for their employees, rather than run the risk of giving rise to tax penalties.
The key here, is always to check with your financial planner, as there can be some very unfortunate tax implications for seemingly trying to do the right thing. After all, who wants all that anxiety on the first day of the rest of their life?
High earners' pensions are cut as employers 'cave in' to red tape