voluntary redundancy & pension

[chattykathy]

I work in local government and they have offered voluntary redundancy for those of us aged between 50 to 55. It's quite a generous packge - 1.5 x weekly salary x years worked for them (based on actual wage not capped to the normal weekly wage usually used) PLUS 12 weeks pay in lieu of notice PLUS the pension accumulated so far with the lump sum.

I am nearly 54 and had hoped to retire or semi retire around 60. I reckon I'll get about £50k altogether and my pension will be around £18k per year. I'm on a good salary - £47k - so it's a fair whack to give up. However I should have the opportunity of working as an independent consultant to top up my pension which could mean working part time for the same money.

Should I take the money, pay off the mortgage and hope to get other work? I'm in such a dilemna so would appreciate your thoughts.

TIA

[buildersmate]

That is indeed a generous payout compared to the majority of private-sector redundancies. No small wonder Council Tax continues to go through the roof.
A couple of thoughts - since it is only you who can work out what you feel you need to live on: -
You are one of those women affected by the uplifting of the State Pension age from 60 to 65 (progressively). You can find out when you will actually get your pension from this link here.
http://pensions.direc...r/pensions-reform.asp
So you are going to be around 63 before you can factor-in that additional £100 or so per week (in today's money) to supplement your retirement income.
Only the first £30k of redundancy payments are free of tax - the rest is taxable at your marginal rate - which sounds like 40% for you. One way to avoid HMRC clawing back part of it is to put the excess in your pension pot. You can, of course, normally draw 25% of the total pension sum (on your eventual retirement) in cash - but check with the scheme provider.

[buildersmate]

It is almost certain that you will have 30 Qualifying Years already towards your Basic State Pension (check with the Pensions Service). In which case, your BSP doesn't go up by any further NI contributions between now and age 60 that acquire more qualifying years. If you were to become a consultant and set up a limited company to provide your services, you may find that you have a level of freedom in the way that you choose to pay yourself as 'salary' (which are subject to NI once you reach the NI weekly threshold) and 'dividends'. By paying more in dividends you may find it possible to avoiding shoving yet more money into NI. However you should seek specific professional advice on what you plan to do. NI contributions entitle other benefits, of course, including contribution-based JSA (but which a director of a failed limited company can't claim anyway).
Paying off the mortgage is normally a good idea.

[chattykathy]

Thank you, Buildersmate. I will indeed be 65 before I get my BSP (I miss 64 by a couple of weeks) I shall certainly be looking into forming a limited company. One question though - how can I pay the surplus over £30k into my pension pot when I'm drawing the pension? Would it be into another pension pot? Thanks again.

[buildersmate]

You would need to ask your employer about it. Basically you'd pay an element of your redundancy into pension as a voluntary contribution - some schemes call this a Supplementary Pension scheme. (I suppose it is possible your employer doesn't have such a element to your scheme - but I thought all public-sector schemes had this - I have done this before but only into a money-purchase pension scheme [defined contributions] where it is all one single pot of money anyway - yours would have to be a separate pot giving you additional benefits on retirement - because your pension is a final salary one [defined benefits]).

[chattykathy]

Thanks for the information - I'll make enquiries