What to do with your pension if you’re made redundant

If you’ve been made redundant, any money you’ve already saved into your pension remains yours. Your employer will just stop paying into it after you leave. 

This means you can either:

• do nothing and let your current pension provider manage your money until you retire, or
• transfer your pension to a different provider, such as the one at your new job.

You could also choose to leave your pension where it is for now and decide to transfer it later. Just check if your new pension provider has any deadlines, as some only allow transfers during the first year.

If you don’t do anything, your pension provider will usually continue to manage your money for you. This will happen automatically until you:

• ask for your pension to be paid out – you can currently do this from age 55 (age 57 after April 2028), or
• transfer your money to a different provider.

How your pension is managed depends on the type you have. Your employer can tell you if you’re not sure.

If you have a defined contribution pension, your money will usually stay invested. This means your pension pot can rise or fall, depending on how well the investments perform.

You might also be able to continue paying into this pension – you can ask your pension provider and your new employer if this is an option.

If you had your pension for less than 30 days, you can usually ask for your contributions to be refunded instead.

If you have a defined benefit pension, leaving it alone is likely your best option. These are often called final salary or career average and are typically older or public sector workplace pension schemes.

You’ll still get the income your scheme promised when you retire, which is usually based on your salary, how long you worked for your employer and inflation. You might also be able to take early retirement (from age 55).

You usually cannot pay any more into your pension, unless you ask for any redundancy pay to be paid in or your scheme lets you buy ‘added years’ to increase your pension income.

If you had your pension for less than two years, your provider should offer you a transfer value. This is how much money they’d pay to a new provider. They might also offer to refund your contributions instead.

If you’d like to keep your pensions in one place, consider moving your pension to a different provider.

But you might lose out by doing this, so make sure you understand if you’ll have to give up certain benefits first.

For full help and information, see our guides:

• Transferring your defined contribution pension
• Transferring your defined benefit pension.

If you’re expecting redundancy pay, the first £30,000 is usually tax-free. Anything above this is typically counted as your earnings, which means you’ll pay Income Tax on it. 

To avoid this, you could consider paying some or all of your redundancy pay above £30,000 into your pension instead. This is because you can pay a certain amount into a pension without paying tax – called tax relief.

The yearly limit for tax relief on all pension contributions is usually £60,000. This is called the The annual allowance for tax relief on pension savings and includes all payments into your pension each tax year – yours, your employer’s and any one-off payments.

To qualify for tax relief, your pension contributions must also be equal to or less than the amount you earn. Remember that redundancy pay above £30,000 is counted as your earnings.

For example, if you earn £25,000, you can usually pay up to £25,000 into your pension without paying tax (£20,000 of your money and £5,000 in tax relief). If you did this, your employer could contribute another £35,000 tax-free.

For defined benefit pensions, the annual allowance counts how much your pension has increased, rather than the contributions paid in.

If you’re going to get redundancy pay, you could ask your employer if you have the option of a salary sacrifice redundancy payment.

This means they will pay the money as an employer contribution, without any tax being taken off. They might also add an extra amount because they’ll save money by not paying National Insurance on any redundancy payments above £30,000.

Just make sure you can afford to lock the money away until you’re at least age 55 (age 57 after 2028) – the earliest age you can usually access your pension.

If you don’t have this option, you can still choose to pay the money into your pension after you receive it. But, before making a payment, ask your pension provider if you need to claim some or all of the tax relief yourself.

Before you or your employer pay into your pension, ask all your pension providers how much of your annual allowance you’ve already used.

The standard annual allowance is £60,000 for the 2024/25 tax year, but you might have less than this if you:

• earn over £200,000 (called the The tapered annual allowance for tax-free pension savings), or
• have already taken some money from a defined contribution pension (called the money purchase annual allowance).

You or your employer might also be able to contribute more than your annual allowance and still get tax relief. This is because you can sometimes use unused allowances from the three previous tax years – this is called carry forward.

For more help, see our guides:

• Do you have to pay tax on your redundancy pay?
• How tax relief boosts your pension contributions
• The annual allowance for pension contributions.

When you take your pension, it’s usually taxed along with any other income you have. This means you’ll get tax relief on your redundancy pay now, but you’ll typically pay Income Tax when you take the money later as a pension.

The main exception is if you choose to take some of your pension money as a cash lump sum. If you do, up to 25% is usually tax-free unless all your pensions are worth over £1,073,100.

For more information, see our guide Tax-free lump sum allowances for pensions.

If you’re due to receive a large amount of redundancy pay and you’re not sure what to do with it, it’s worth considering paying for financial advice.

A regulated financial adviser can explain your options and clarify any complicated issues around tax and pensions.

For more help and information, see our guide Choosing a financial adviser.