Redundancy and Your Pension: What to Do with a Workplace Pension Payout

Redundancy can be an unsettling time, and it's completely understandable if your pension is the last thing on your mind. But a few of the decisions you make in the weeks afterwards can matter for years to come. Here's a look at what's worth thinking about.

Your workplace pension is still yours

Here's one thing you don't need to worry about: being made redundant doesn't affect the pension you've built up with that employer. It remains yours, and the normal rules on accessing it (usually from age 55, rising to 57 from 2028) still apply.

How redundancy pay is taxed

The first £30,000 of a genuine redundancy payment is usually tax-free. Anything above that is generally taxed as income, though payments like unused holiday pay or pay in lieu of notice are typically taxed as earnings regardless of the £30,000 threshold.

A pension option worth asking about

If part of your redundancy payment is taxable, some employers will agree to pay that portion directly into your pension as an employer contribution instead of as cash. Handled this way, it can avoid Income Tax on that portion entirely, subject to your available pension annual allowance (£60,000 for most people in 2026/27, with potential carry-forward from previous years) this is worth checking with your provider before assuming how much room you have.

If you're left with several small pots

Redundancy sometimes prompts people to take stock of pensions from previous jobs too. If that's you, our guide on pension consolidation covers what to weigh up before bringing old workplace pensions together.

This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances. Tax treatment depends on individual circumstances and is subject to change. Investments can fall as well as rise in value, and you may get back less than you invest.