If you’re leaving employment due to severance or redundancy, or are considering being part of a voluntary severance scheme (VSS) or a voluntary redundancy exercise, then you may have questions about your financial
future.
You will need to speak to your employer directly for specific information about your severance or redundancy package and the options available to you. This includes:
- details about your salary, including your pensionable pay
- how much severance or redundancy pay you are likely to receive and whether it will be subject to tax
- an estimate of how much of your severance or redundancy package you may be able to put into your pension and the impact that will have on your benefits
You may find the general information below useful when considering the impact of severance on your pension. And you may also wish to get financial advice – please see the ‘what’s right for me’ section below for more details.
Severance or redundancy will not affect the amount of benefits you have built up in your pension to date, but it will affect your ability to build up future benefits.
You can view FAQs relating to VSS here but the terms of your employer's specific exercise may differ.
Severance/redundancy and your pension to date
Any funds and/or benefits that you have built up in your pension to date, will remain safe, even if you leave work due to severance/redundancy or as part of a voluntary severance scheme (VSS) or redundancy exercise.
You can find out roughly what your pension is currently worth by requesting an estimate in your myRPS account here.
Estimates can be redone online for free, as many times and covering as many possible scenarios as you need. Please be aware that these are not a guarantee of benefits and the results will be affected if your circumstances change, for example if you take
your benefits directly after leaving active service, the retirement terms may be more generous than if your benefits are preserved and you take them at a later date.
You can find further instructions for how to request an estimate online in a short video here. If you haven’t already done so, you will need to register for your free myRPS account, before you can request an estimate. This should only take a few minutes to do and you can find out how here.
Your estimate will be based on a number of components, including your pensionable salary. This is your annual salary that is taken into account when calculating your pension contributions. It typically does not include bonuses or overtime.
Please check with your employer if you are not sure which part of your pay counts towards your pension benefits. There’s also a Read As You Need Guide for information here
Unfortunately, there may be some instances where you won’t be able to get an accurate estimate online. For example this may be where a more complex calculation is required, or if you’re close to reaching your Lifetime Allowance (LTA) limit (see tax section below).
If this is the case, then you should receive a message on the website telling you that your estimate cannot be completed. We will then carry out some further manual work and send you an estimate by post instead.
Due to demand we can only carry out one manual estimate request per member. As an alternative you may be able to use the Pension Planner to get a forecast of your estimated benefits. You’ll find the Pension Planner in the ‘Planning for the
future’ section when you log into your myRPS account.
If you’re considering boosting your pension with an augmentation payment where permitted (see boosting your pension section below) then this won’t be reflected in any estimates you receive from the Scheme administrator and you’ll need
to contact your employer directly for an estimate on those. However, you can request an estimate with a BRASS top-up included in your calculation.
If you need help understanding your estimate, take a look at our estimates glossary.
Severance/redundancy and your pension moving forward
If you’re leaving work due to severance or redundancy, then all future payments into your pension will stop. This includes contributions made by your employer, as well as those made by you.
You’ll also have a few decisions to make about what happens next. For example:
- Do you want to use part of your severance or redundancy package to boost your pension?
- Will you take early retirement if applicable?
- Will you leave the pension you’ve built up in the RPS or transfer it elsewhere?
More information about these options can be found in the relevant sections below.
Can I use my severance or redundancy package to boost my pension?
Yes. In most cases you will be able to use part of your severance or redundancy package to give your pension a boost. Depending on what is being offered by your employer, boosting your pension can be done in 1 of 2 ways:
- Making a one off payment as an additional voluntary contribution (AVC)
- Buying more scheme pension and an additional lump sum through a process called pension augmentation. For DC members this may also be referred to as your employer making a special contribution. This option is entirely at the discretion of the employer
and may not be offered in all circumstances. Augmentation is not available as part of the Train Operating Companies’ Voluntary Severance Scheme.
Boosting your pension with a one off contribution
You can ask for part of your severance package to be paid into your pension as a one-off Additional Voluntary Contribution (AVC).
This will be tax free, as long as it’s within your Annual Allowance and Lifetime Allowance (see tax implications below).
And, when it’s time to retire, the money you’ve paid in through AVCs can be taken in a different way to your main Scheme pension. This includes taking it as a lump sum, subject to tax, or transferring it to another scheme.
The main AVC arrangement, open to RPS members, is called BRASS.
As a DB member you can make as many one-off contributions to BRASS as you like, but for many sections there is a maximum amount you can contribute in each tax year. That is either:
- 15% of your gross pay, minus your normal Scheme contributions (this does not apply to Network Rail members who do not have Protected status); or
- 20% of your pensionable pay, plus pensionable Restructuring Premiums if you have them, minus your normal Scheme contributions.
Your employer, usually the payroll department, should also be able to give you an accurate calculation of how much you might be able to pay into
BRASS. If you’re a DB member, you can also use the BRASS calculator to get an idea of how much you can pay into BRASS. The BRASS calculator is available in the Planning for the future section when you log into your myRPS account.
You may wish to take financial advice if you are considering making a one-off contribution to BRASS. Similarly, if you have the option to make an augmentation payment instead of a one-off contribution to BRASS, then you may also wish to take financial
advice as to which is the best option for you.
If you’ve already exceeded your BRASS maximum allowance, you may be able to contribute into another arrangement called AVC Extra (this does not apply to members of the Network Rail Section). This is possible if the pension contributions and BRASS contributions you’ve already made in the current tax year, are less than either your
gross pay or the Annual Allowance tax limit, whichever is lower. If your pension savings exceed the Annual Allowance and any unused allowance you have from the previous three tax years, then you will have to report this to HM Revenue & Customs
(HMRC) in a Self-Assessment tax return. You will then have to pay tax on the amount in excess of the Annual Allowance and any unused Annual Allowance from the previous three years.
If you would like to join the AVC Extra arrangement, you should speak to your employer.
If you’re a DB member, you can find out how a BRASS top-up could benefit your retirement savings by using the Pension Planner in your myRPS account.
Simply enter the amount you are considering paying in and click ‘re-calculate.’ The planner will then show you what impact this could have on your benefits. Or you can request an estimate which includes a BRASS top-up in your calculation.
If the Pension Planner doesn’t show the full impact of making a one-off contribution, it could be because you’ve exceeded your Lifetime Allowance, known as LTA. You can read more about this in the tax section below.
For IWDC members, you can pay as much as you like into your pension as an Additional Voluntary Contribution. However, there are limits on the amount you will get tax relief on. These limits are known as the Annual Allowance and the Lifetime Allowance
– please see the tax implications section below for more details.
If you’re a DC member. You can see the impact making an Additional Voluntary Contribution might have on your pension pot by using the Retirement Modeller in your myRPS account.
If you do decide to make a one off contribution from your severance package, this can usually be done directly through your employer. Your employer will typically make this payment as part of their final contributions into your pension, so it may be deposited
after we’ve already finalised your benefits. If that’s the case, don’t worry, we’ll automatically recalculate your benefits and send you the updated information.
You can find out more about making a one off payment in the video here.
Boosting your pension through augmentation
If permitted by your employer, you may be able to have some of the money you’re entitled to receive as part of your severance or redundancy package paid directly by your employer into your pension, effectively increasing your pension. This is known
as pension augmentation.
Pension augmentation is offered entirely at the discretion of the employer, so you will need to speak to them directly to find out if this is an option available to you.
If it is offered, then an advantage of pension augmentation is that you may pay less tax on the taxable elements of your severance/redundancy package, such as holiday pay or bonuses (if they’re offered). Everyone’s tax affairs do differ though,
so please seek independent financial advice if you’re unsure about how this could work for you.
Broadly speaking, you may also be able to decide how you would like the augmentation payment to be used. For example you can use it to buy more scheme pension - giving you a higher regular income when you retire - as well as an additional lump sum.
Where applicable, please speak to your employer if you are considering augmenting your pension and would like an estimate of how it could impact your pension benefits and to confirm this option is available to you.
You can also find out more about pension augmentation, including the tax implications and the process involved, in the Read As You Need Guide here.
The tax implications of boosting your pension
Whether it’s possible or tax efficient to use part of your severance or redundancy package to boost your pension, will typically depend on three things.
- How it would be taxed if you take it directly as a severance or redundancy payment. This will depend on your marginal rate of tax You can find out more on the Government website here.
You can find out more about tax allowances in our Read As You Need guides and in our simple videos here.
If you’re concerned that you may be approaching your own tax limits, then please speak to your employer or get independent financial advice.
What are my options once I’ve left the company?
Once your severance is finalised all payments into your pension will stop. You then have three main options for what to do with the benefits you’ve already built up. These are:
- Leave the pension you’ve built up in the RPS, until you’re eligible and ready to retire. This means you'll become a preserved member.
The benefits you have now will be kept safe until you’re ready to claim them. If you’re a defined benefit member, then your benefits will also increase every April. This increase is typically in line with the Consumer Prices Index
(CPI). If you are a defined contribution member, or if you have BRASS or AVC Extra funds, these will increase (or potentially decrease) in line with the investment returns achieved on your funds.
If you are currently entitled to favourable early retirement factors on any of your benefit entitlement on retirement from active service, then these factors would no longer be available as a preserved member.
Take early retirement (if applicable)
If you’re aged over 55 during the severance process (or over 50 with a Protected Pension Age), then you may decide to take early retirement straight away. Your pension payments are likely to be lower than they would be if you waited until
your Normal Retirement Age (typically between 60 and 65). This is because, if you are a defined benefit member, an early retirement factor is applied to reflect the fact that benefits are being paid earlier and are also expected to be paid
for longer.
If you’re eligible, then the early retirement factors under this option might be more generous than they would be if you chose to follow option 1 and become a preserved member, before subsequently taking early retirement at a later
date.
You can read more about the impact of when you retire as a DB member here or an IWDC
member here.
Transfer your pension to another provider
Once all payments
into your pension have stopped, you can decide to transfer your pension out of the RPS and to another provider. Transferring your pension does, however, carry significant risks and you should carefully compare the benefits of your current pension
with any alternatives before making a decision. You can read more about transferring your pension here.
What if I have more than one pension in the railways pension scheme?
If you have previous periods of membership you will need to ask for separate estimates for each record you hold. You can switch between your membership records in your myRPS account, using the blue ‘Switch scheme’ drop down menu at the top
of your screen once you’ve logged in.
If you are under 55, there are more rules around taking and/or transferring your benefits. Please refer to the ‘Planning for Retirement’ section on the member website.
And, if you’re a DB member with a protected pension age, please refer to the ‘Protected Pension Age’ Read as you Need guide.
How do I know what’s right for me?
Understanding how severance or redundancy can affect your pension, and knowing what actions to take can be quite daunting.
To help you make the right decisions for you, try speaking to a financial adviser. Liverpool Victoria (LV) has been chosen to give RPS members access to financial advice and can be contacted on 0800 023 4187. You can also find
an
Independent Financial Adviser (IFA) in your area at unbiased.co.uk.
Alternatively, moneyhelper.org.uk, brings together the support and services of three government-backed financial guidance providers: Money Advice Service, The Pensions Advisory
Service and Pension Wise. It offers free support on a wide range of financial matters, online and over the phone, including:
- Pension problems
- Pension basics
- Tax and pensions
A range of tools, designed to help you understand your pension and how it can work for you, are also available on your member website. These include:
- A video library, with a selection of short films covering topics such as tax and saving and
- A retirement budgeting calculator to help you work out how much you might need in retirement in order to afford the lifestyle you
want
By logging in to your myRPS account, you’ll also have access to:
- A pension planner (if you’re a DB member) to show how much your pension might be worth when you stop work
- A retirement modeller (if you’re a DC member) showing how much your total pension pot could be worth when you retire
And you can request estimates for your pension for free, online, as many times as you need.
Who do I contact for further information about severance/redundancy and my pension?
If you have questions about your severance, redundancy or voluntary severance scheme (VSS), including the impact on your pension, you should contact your employer in the first instance.
You can also find additional information in our FAQs here.
What if I’m currently involved in a severance or redundancy exercise?
If you’re already involved in a severance or redundancy exercise, then you should have been contacted by your employer with details of what you need to do next.
If necessary, your employer will then refer you to the scheme administrator, Railpen. You can contact Railpen at csu@railpen.com.
