Redundancy is undoubtedly a difficult time during which there are many factors which need to be taken in to consideration. Last time we looked at Knowing Your Rights which should have provided you with most of the basic information you need to secure a redundancy package should you need it. In this follow on article we will offer you some hopefully helpful advice when it comes to taking care of the financial aspects of redundancy.
At no time is it more important to take care of your finances than when your employment status is unsure. There are a number of key areas which we will look at in turn. We will explore what to do if your find redundancy has a massive negative impact on your finances or if you are fortunate enough to receive a large redundancy package.
What to do to stop redundancy leaving you in debt
You wouldn’t be alone to find yourself struggling on the redundancy package you receive. It is not uncommon for your redundancy pay to only cover you for a matter of weeks rather than months. The most important thing is not to panic; there are a number of steps you can take which can protect you from slipping into dept while you find another job:
- Speak to your mortgage company. You won’t be the first or the last person to find themselves made redundant and mortgage providers can be very understanding if you contact them immediately. They may be able to offer you a ‘payment holiday’ whereby you need not make repayments until you find another job.
- Check your mortgage paperwork. Did you take out Income Payment Protection Insurance? You may find that you are covered for loss of job. This is normally around 50% to 65% of your income up to a maximum benefit of £1K to £2K a month lasting approximately to 12 months (sometimes 24 months). Cover stops when you return to work. A waiting period of 30 or 60 days is typical. Some policies will backdate benefits to day one. Speak with your mortgage company or broker to check.
- Call any companies that you have taken out credit with, this includes credit cards, store cards and loans and explain the situation to them. You may be able to work out a suitable repayment plan until you are back in employment.
- It might also be worth putting on hold any payments you make into savings accounts until your steady income resumes.
Other financial aspects to consider upon redundancy
Upon leaving owing to redundancy here are some additional factors which might want to consider if relevant to you.
- Exercise share options - Some share option schemes will lapse on the date you leave, but others will offer a limited time to exercise them. This is particularly relevant if you feel their value will increase substantially over the short to medium term. It is important to consider your options carefully and ensure you know what impact your redundancy will have on your share options.
- Check your pension - Try to make sure any pension you have accrued is included in your redundancy pay, as this could add up to a significant sum.
- You might also want to consider asking for part of your redundancy pay to be transferred directly into your pension. This will not attract National Insurance contributions, so you might be able to negotiate a higher payment being awarded without it costing your employer anything.
- Try to retain benefits - Ask your employer whether transitional benefits can be included in your redundancy package. From the day you receive your P45 it is possible you might have six months or even more with no life cover, medical insurance or family income protection. It may be possible, however, to at least retain this cover until the normal renewal date. Ensure you discuss this fully with your employer.
These are meant as a guideline only and if you would like further advice speak to a professional (you can find some useful numbers in the resources boxes at the bottom of this page)
Make payouts tax-efficient
If you are fortunate enough to receive a large redundancy package it is vital to know the implications and how maximize your money. This is of particular importance for higher-rate taxpayers as only the first £30,000 of any payment is tax-free. Anything in excess of this figure is taxed at your highest rate so if you are still on your employer's payroll then full PAYE deductions will be made on payments over £30,000. However, if this money is paid after you have left the company and have received your P45, then only 20 per cent tax will be deducted immediately.
You will be required to account for the additional tax in your annual tax return, but this will not have to be made for another year, thus providing you with a temporary cash flow advantage in the interim.
What to do with your money
If you leave with a considerable amount of money it is important to take care of it wisely. It would be advisable to consult an Accountant for a full analysis of your individual situation (see the resource box below for helpful numbers) but here is a suggestion of what you might like to do in the mean time.
- You might want to consider placing the redundancy payment into a high interest account while you review the situation including any debts and liabilities you may have. Normally savings after tax will pay you less than you will pay out on interest for your mortgage or credit cards so you should consider them your first port of call. If there is any money remaining you might want to look at Isas and unit trusts. It is advisable to keep some in a good high-rate internet or telephone-based deposit account.
- We highly recommend that don’t rush into making any decisions. It is important to review your options and seek professional advice where necessary.
For more advice on what to do regarding the financial aspects of redundancy you may find the following numbers helpful:
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Additional resources related to this article
The following organisations are based in, or near to Croydon and may be able to help you with some of the issues discussed in this article - we hope you find them to be useful.
Accountants covering Croydon
Moore Stephens LLP
Tel: 01483 538881
60 Chertsey Street
Tel: 01483 532292
1 Chapel Street
Tel: 01483 455508
Additional resources related to this article
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Legal Disclaimer: Please note that this information is not intended to be exhaustive or be a substitute for legal advice. The application of the law in this area will often depend upon the specific facts and you are advised to seek specific advice on any given scenario.