Ex Gratia payment on early retirement

[Scooby_snax]

Presently 'googling' away to try and find the answer but also thought the members here may have the ready answer.
I may shortly receive an ex gratia payment upon my early retirement. The first £30k is tax free but I believe there maybe a way to commute the remainder into my pension fund and then to make a cash withdrawal from the fund which again would be tax free.
Now this seems too simple for HMRC not to have closed this loophole and get their £ of flesh.
So the question is - is this possible?
Thanks

[b2hbm]

I did something similar when I took early retirement in 2003 so don't know if the same rules apply now.

Basically I took the £30k from the severance payment, commuted the maximum allowed from the original pension fund and then paid the balance of the severance into the pension fund. This increased the pension but the new cash didn't get the same annuity rate as the original fund, but as I was paying in more than the commutation the overall pension worked out about the same. And if I hadn't done that then I'd just have lost 40% in tax, so it was a no-brainer.

Interestingly enough, I don't know how they did it but once I'd paid in the taxable part of my severance I got another chunk of tax-free commutation from the enhanced fund which seemed an excellent tax-avoidance wheeze at the time. Dunno how it worked but the taxman didn't come after me....

[Scooby_snax]

Thanks
Seems similar lines...need to pursue a little further just to see how the mechanics work and I suspect it is my pension dept that will do all this jiggery pokery
Will post another question related to all my upcoming thought processes

[marcosal]

A lot depends upon the type of pension fund you are a member of (Defined Benefit or Defined Contribution). However, The Indand revenue allow you to encash up to 25% of your pension fund as tax free cash. So if your employer pays you £30K tax free and then pays the balance as a discretionary employer contribution (lets say £10K) then the £10K increase in your fund generates an increase in your tax free cash allowance of £2500 and leaving £7500 in your pension plan to buy extra pension (that will be taxed as earned income).

This is not really something that you should be trying to DIY and you should get some professional advice on the tax and pension options open to you.

If you really want to run the risk of not getting professional advice try posting on the pensions section of the Motley Fool financial website (http://boards.fool.co.uk/Messages.asp?bid=50065). There are some professionals on there that post anonymously and could give you a steer in the right direction.

Good luck