Retirement or Loss of Office

seanmoody · Posted: Tue Feb 27, 2007 10:15 am Post subject: Retirement or Loss of Office

Good morning Forum,

We have started receiving payment requests for Loss of Office for employees who are retiring and I am trying to find out if someone can retire and in effect be made redundant at the same time. HMRC web shows how to deal with redundancy payments and also with retirement benefits but I cannot find anything about redundancy/retirement on the same day. Google has let me down on this one.

My inclination is that a leaver should have only 1 leaving reason so would either be retiring or made redundant. I am concerned that as the reason for leaving on our payroll system shows 'retiring' and we have all the necessary paperwork in our pensions department, HMRC could take a dim view of the non-taxable Loss of Office payments that we have been asked to make.

Maybe all we need to do is change the leaving reason to 'redundancy'???

Your guidance here is appreciated.

Sean

Ian Whyteside · Posted: Tue Feb 27, 2007 11:48 am Post subject: Retirement or Loss of Office

This is an interesting one Sean and not uncommon.

I agree with you that there is usually a primary reason for termination of employment but that does not preclude the generation of payments other than redundancy and loss of office compensation.

My feeling is that in your cases the primary reason for termination is Redundancy but because the individuals are of retiring age their departure generates immediate payment of their pension.

Whilst the law has some specific definitions for redundancy, for example, that the work done is no longer needed, or there is a general reduction in trade which necessitates a reduction in the workforce, but these are generally used where an employer fails to clasify a termiantion as redundancy when in fact it is. Take the case where an employee agreed to leave but then discovered the former employer had deleted her post from its establishment. She did not win her case but the tribunal was very close to deciding that she ahd been made redundant.

There is in effect nothing to stop an employer paying compensation for loss of office and allowing the pension to be released as long as the payments made are treated for tax purposes correctly.

The payment to watch out for is any additional lump sum payment generated by a decision of the employer to enhance the pension rights at the point of leaving because unless that is very carefully handled it can be caught by the loss of office rules and the �30k limit.

What I do agree with you is that most HR Management Systems seem to allow only one reason for termination so once again you have to consider what the primary cause of termination is rather than the reasons given in the correspondence.

Hope this helps.

Ian Whyteside

seanmoody · Posted: Tue Feb 27, 2007 12:35 pm Post subject: Retirement or Loss of Office

Thanks Ian,

Looking at the Loss of Office payment I take it that if paid when someone is retiring that the first �30k is tax free.

Sean

Ian Whyteside · Posted: Tue Feb 27, 2007 2:13 pm Post subject: Retirement or Loss of Office

Sean,

Yes, once all the loss of office payments are totalled the first �30 is exempt but remember to consider the implications of pay in lieu of notice, these are not always tax free, also compensation for holidays not taken can never be tax free so they go through payroll.

You need to make sure you know all the payments being made, watch out for payments going out by another method, many people make their own decisions about tax liability and act accordingly.

If necessary give us a list of the payments being made and someone here can give pointers accordingly.

Ian Whyteside