You can approach a pension company or an independent financial adviser and set up a personal pension scheme in your name. Any contributions made by you from your redundancy payment into the fund, or indeed from any employment earnings, are tax-free.
Tax relief is normally given through the relief-at-source scheme. Payments are made net of 20% basic rate tax. This means that if you want £10,000 to go into the scheme, you will have to pay £8,000. HMRC will automatically make up the difference.
As you are a higher-rate taxpayer, a further 20% relief is available to you.You can obtain this by completing a self-assessment tax return at the end of the year. After you get this repayment from HMRC, this will mean you will have effectively paid in £6,000 into your pension but your fund will have received a contribution of £10,000.
To qualify for this relief, you must make the contribution in the same tax year you received your income. As you will be receiving your redundancy pay in June 2015, you must make the contribution by 5 April 2016. The maximum you can contribute is limited by the amount of your employment earnings, including redundancy pay, your annual allowance and by your lifetime allowance.
The annual allowance for the year ending 5 April 2016 is £40,000.
This can be increased by any unused allowance of the three previous tax years. Given that your employer has been contributing into a pension scheme on your behalf, you should check to see how much of this allowance is left. A lifetime limit is placed on the total value of the pension fund that can benefit from tax relief.
This limit is called the lifetime allowance and is currently set at £1.25 million - but it will reduce to £1 million in April 2016. Although you may not think your Civil Service pension is worth this much, the rules of valuation for tax purposes can sometimes result in a valuation that is higher than one would expect.You should therefore check with your pension provider before making a contribution into your new personal pension scheme.
David Wesley-Yates is a chartered tax adviser at Red & Black Accountancy