What Happens to Your Pension When You Are Made Redundant?
When you are made redundant, your workplace pension does not disappear. The money you and your employer have contributed remains yours. However, employer contributions will stop, and you need to decide what to do with the pension pot.
If you have a defined contribution (DC) pension, your pot stays invested and can be left where it is, transferred to a new employer scheme, or moved to a personal pension. If you have a defined benefit (DB) pension, you retain the benefits accrued up to your leaving date.
Immediate Steps to Take
Taking the right actions in the first few weeks after redundancy can make a significant difference to your long-term retirement outcome:
- Do not cash in your pension: Withdrawing your pension early triggers income tax and could push you into a higher tax bracket
- Check your redundancy payment: The first £30,000 of statutory redundancy pay is tax-free and does not need to go into your pension
- Review your pension statement: Request an up-to-date valuation from your pension provider
- Consider salary sacrifice: If you have a notice period, maximising pension contributions during this time can be tax-efficient
- Register for Jobseeker's Allowance: This protects your National Insurance record
Can You Put Redundancy Pay Into Your Pension?
Yes, you can pay some or all of your redundancy money into a pension, subject to the annual allowance (currently £60,000 or 100% of earnings, whichever is lower). This can be a very tax-efficient strategy, especially if your redundancy pay exceeds the £30,000 tax-free threshold.
Common Mistakes After Redundancy
People frequently make these pension mistakes when they are made redundant:
- Cashing in their entire pension: This triggers a large tax bill and permanently reduces retirement income
- Ignoring the pension: Leaving a workplace pension without reviewing charges and investment performance can be costly over time
- Not claiming NI credits: If you are unemployed and claiming benefits, you receive National Insurance credits that count towards your State Pension
- Accepting a DB pension transfer without advice: If offered a transfer value for a defined benefit pension, always take regulated financial advice first
- Making emotional decisions: Redundancy is stressful, but pension decisions made in haste often lead to regret
National Insurance and State Pension Implications
Your State Pension depends on having 35 qualifying years of National Insurance contributions. When you are unemployed after redundancy:
- Claiming JSA or Universal Credit: You automatically receive NI credits, protecting your State Pension entitlement
- Not claiming benefits: If you do not claim benefits, you may have a gap in your NI record. Consider paying voluntary Class 3 contributions (£17.45 per week in 2025/26)
- Check your NI record: Use the government's Check Your State Pension service to see if you have any gaps
Government Support Available
Several government protections and support mechanisms exist for people who have been made redundant:
- Statutory redundancy pay: Based on age, length of service, and weekly pay (capped at £700 per week in 2025/26)
- Jobseeker's Allowance: Provides income support and NI credits while you look for work
- Pension Wise: Free government guidance service for anyone over 50 considering accessing their pension
- MoneyHelper: Free pensions guidance and tools for all ages