What Happens to Your Pension If You're Made Redundant

Redundancy is stressful enough without also worrying about what happens to your pension. The good news is that your pension itself is protected and stays yours - but there are some specific interactions between redundancy pay and pension rules worth understanding.

Your pension pot is safe

Money already in your workplace pension belongs to you regardless of why your employment ends. It becomes a deferred pension, exactly as it would if you’d resigned or changed jobs voluntarily (see our article on pensions when you change jobs) - it isn’t reduced, forfeited, or affected by the redundancy itself.

Contributions stop, but you can carry on saving

Once you leave, both your own and your employer’s contributions to that workplace pension stop, since they’re tied to your employment - the kind of gap that, like the career breaks and part-time work behind the gender pension gap, can quietly cost more than it first appears if it isn’t actively bridged. If you want to keep contributing, you can typically continue paying into that same pension personally (some schemes allow this, others don’t), or start or continue contributing to a personal pension or SIPP instead.

Redundancy pay and pension contributions: a useful interaction

Statutory redundancy pay itself is tax-free up to £30,000. But some employers allow enhanced (contractual) redundancy pay above the statutory minimum to be sacrificed into your pension, similar in principle to salary sacrifice. This can be valuable if the payment would otherwise be partly taxable, or if it would push you into a higher tax band or over the £100,000 threshold in the tax year you’re made redundant - directing part of it into your pension instead can reduce or avoid that additional tax (see our articles on the 60% tax trap and salary sacrifice for the underlying mechanics, which apply similarly here if your employer offers this option).

Watch your annual allowance in a redundancy year

If you receive a large redundancy payment and choose to sacrifice a significant portion into your pension, check this doesn’t push your total pension contributions for the year above the £60,000 annual allowance (or a lower tapered allowance if you’re a high earner) - though carry forward from previous years may give you extra headroom if needed (see our dedicated carry-forward article).

If you’re considering accessing your pension early

Redundancy sometimes prompts people to consider accessing a pension earlier than planned to cover a gap in income. This is only possible from the normal minimum pension age (55, rising to 57 from 2028) - redundancy itself doesn’t create an earlier access right. If you are old enough to access a pension and are considering it, remember that taking taxable income (not just the tax-free lump sum) triggers the Money Purchase Annual Allowance, cutting your future contribution allowance to £10,000 a year - worth thinking through carefully if you expect to find new work and want to keep contributing at a normal rate afterward.

A practical checklist

• Confirm what happens to your pension contributions up to your actual leaving date with HR or payroll.
• Ask whether enhanced redundancy pay can be sacrificed into your pension, particularly if it would otherwise be partly taxed or push you over a tax threshold.
• Decide whether to keep contributing to the same scheme, a new personal pension, or pause contributions temporarily while you find new work.
• Update your contact details with the pension scheme so you don’t lose track of it, especially if you don’t immediately find a new job with its own workplace pension.

The bottom line

Redundancy doesn’t put your existing pension at risk, and there’s a genuine tax-planning opportunity if your employer allows enhanced redundancy pay to be sacrificed into your pension. Check this option specifically with HR, particularly if the payment might otherwise push you into a higher tax band or over £100,000 in the tax year you leave.