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Redundancy and your pension

Understanding your workplace pension options to navigate your next steps confidently

Redundancy can be challenging and stressful, often creating uncertainty about the future. However, it can also signal the beginning of a positive new chapter in your life. For many, this transition period offers a unique opportunity to reflect on personal and professional goals and consider new directions that might have previously seemed unattainable.

Whether it’s the chance to pursue further education, embark on a completely new career path or even start your own business, redundancy can serve as a catalyst for meaningful change and growth. As you navigate this transition, your workplace pension is one of the most crucial aspects to consider. Understanding your pension options is key to making informed decisions that will impact your financial stability in the long term

What happens to your pension when you’re made redundant?

If you’ve been made redundant, the workplace pension you have been contributing to remains yours. You won’t lose it due to a change in your employment status. However, leaving a job or being made redundant doesn’t automatically grant access to your pension immediately.
The standard rules on how and when you can access your retirement savings still apply. This generally includes accessing your pension from age 55 (rising to 57 in 2028) and typically taking up to 25% of your pension pot as a tax-free lump sum.

The next steps depend on the type of pension plan you were paying into while employed. Two primary types of workplace pensions exist: defined contribution (DC) and defined benefit (DB) plans. If you’re unsure which type you have, you can ask your employer or check documents from your pension provider, such as your annual statement.

Defined Benefit (DB) pensions

If you hold a DB pension, typically found in the public sector, contributions will stop once you leave the job. The value of this pension pot is usually determined by the length of your employment and your salary.

Defined Contribution (DC) pensions

For those with a DC pension, the primary change is that your employer’s contributions will cease. Unlike a DB pension, you may be able to continue making personal contributions.

What can you do with your workplace pension?

Depending on your circumstances and the type of workplace pension you have, several options are available.

Continuing contributions

If you have a DC pension, you might be allowed to continue making contributions and benefit from any applicable government tax relief. The value of any tax relief will depend on your individual circumstances. Remember, you won’t receive further employer contributions after leaving your job.
All contributions, whether from personal, employer or third-party sources, count towards your annual allowance, which is £60,000 for the 2024/25 tax year.

Contributing your redundancy payment to your pension

You may be able to pay a portion of your redundancy payment into your workplace pension, typically applicable to DC pension schemes. This usually requires an agreement with your employer. Note that your redundancy payment might be subject to tax, with the first £30,000 usually being tax-free. Any portion paid into your pension will also count towards your annual allowance.

Transferring your pension

You might consider transferring your pension pot into another workplace or private pension, usually reserved for DC schemes. However, combining pension pots isn’t suitable for everyone, as you could lose features, protections or benefits. Always compare products before making a decision, as the value of your combined pension pot can fluctuate.

Withdrawing your money

Depending on your pension scheme’s rules, you can generally withdraw money from your pension pot if you’re aged 55 or over (rising to 57 in 2028). However, withdrawing from your pension requires several factors to be considered. If you stop working, this might affect your entitlement to the full State Pension if you haven’t accumulated enough qualifying years of National Insurance contributions. Also, taking a flexible income from a DC pension while continuing to work may reduce the amount you and your employer can contribute without facing tax charges due to the Money Purchase Annual Allowance (MPAA).

Leaving your pension as is

You can opt to leave your pension untouched until your retirement age, ensuring you keep your login details and personal information up-to-date. This helps you maintain track of your savings. Update your details by logging into your pension account or contacting your provider.

Take your next steps with confidence

The right option for you depends on various factors, including the type of workplace pension scheme you have. Pension schemes are legally required to provide specific information about your scheme. Understanding your options can give you a clearer idea of what will happen to your pension if you’re made redundant, allowing you to focus more on your future plans.

THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE).

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.

Adam Reeves

Author: Adam Reeves

DipPFS Cert CII (MP&ER)
Independent Financial Planner, Wealth Manager, Director

Last updated on

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Adam was quick to assess & understand my situation, and was able to discuss & communicate in a very concise and simple way the various options available to me, taking time for me to understand and clarify where necessary. My understanding & knowledge of taxation & pensions has increased significantly allowing me to feel much happier making financial decisions for the future.

Rob – West Sussex

Adam and his team undertook in-depth research into our existing QROPS schemes and clearly set out both pros and cons of transferring the funds back to the UK. Having decided to go ahead with the transfer, Adam and his team worked extremely hard to facilitate the transfer. The QROPS pension trustees were not always the most professional or responsive organisation – however we were very grateful for the perseverance and commitment that Adam showed us as clients.

Jonathan – East Sussex

Adam offered a range of financial products , the one he suggested was affordable and proved to be a good choice.  Returns on investments have exceeded my expectations, based on Adam’s advice and guidance. Profits have enabled house improvements to take place.

David - Surrey

Adam arranged an appointment very timely, he explained his role and qualifications as an IFA giving me reassurance , we went through my retirement and investment goals. Adam discussed my options explaining in great detail, I felt relaxed during our discussions allowing me to fully understand my choices. I feel very confident in the financial advice allowing me to enjoy my retirement.

I was very happy with Adam’s recommendations and explanations of financial products which would suit my retirement goals, I feel this has helped me review and reduce my financial risk as I reach retirement, leaving me feeling confident that I can enjoy my retirement plans.

Ron – West Sussex

After initial meeting Adam put together a very detailed and thorough written plan. At our second meeting he went through the whole booklet and explained everything in layman’s terms which made it a lot easier to understand.

I am very happy with everything that was suggested and put in place especially with something as big and important as pensions. Adam and his team have taken a huge weight off my shoulders and I would highly recommend their services to anyone needing help with their financial planning and pension.  Adam couldn’t have been more helpful, and even came outside his normal area to meet me on a number of occasions.

Richard - Kent

Unfortunately I had to claim on my critical illness insurance due to my wife being ill and because of the sound advice Adam gave in acquiring this insurance we ended up being financially safe through a tough time.

Steve - Kent

Adam did a review of our financial situation, confirmed that Flexible Drawdown best suited our needs as a family, and then did all the research into the best product for us. He will continue to monitor it for me. He acted extremely promptly because we had a deadline for requiring the lump sum; went out of his way arranging meetings during non-office hours, was professional yet friendly and explained a difficult subject very well.

Clare – East Sussex

Adam did a thorough review of my pension policies, clearly explained how well they had performed, how flexible they were, how the market regulation has changed, and, crucially, what the tax implications would be if I were to leave them untouched. He accurately assessed my attitude to risk and recommended an up-to-date solution that will offer me the greatest flexibility at retirement.

Greg – East Sussex
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