Spending over a third of our lifetime at work, a job provides financial security, mental stimulation, and social interaction. So, when job security comes into question when facing redundancy, it can be a very worrying time.
There were a record 370,000 redundancies in the last quarter of 2020, which is not surprising given the situation we found ourselves in during the pandemic.
Losing a job brings lots of pressure. However, there are things you can do to future-proof your finances when facing redundancy. By preparing yourself beforehand, you can build a robust plan that will weather any redundancy fuelled storms.
Knowing your entitlement
When faced with redundancy, the best place to start is knowing your rights and where you stand. To receive statutory redundancy, you must have been with your employer for two years or more.
- Half a week’s pay for each full year of employment while under age 22
- One week’s pay for each full year you were aged over 22 but under 41
- One and a half week’s pay for each full year you were 41 or older
- Length of service gets capped at 20 years
Your weekly pay is the average you earned in the 12 weeks before the day you got your redundancy notice.
It’s important to note that Coronavirus doesn’t affect your statutory redundancy rights, following the new law passed by the Government on 31st July 2020. So, even if you were on furlough, your redundancy pay should be based on your normal wage, not your furloughed equivalent, and the statutory still notices apply.
If you were made redundant after 6 April 2021, your weekly pay gets capped at £544, and the maximum statutory redundancy pay you can get is £16,320. You can calculate your statutory redundancy pay here.
If you’re not being made redundant, but you’re negotiating a leaving settlement, it’s common to agree on anything from 3 – 18 months’ pay, plus unused holidays and benefits. The amount will depend on your notice period and salary, among other things.
How to future-proof your finances when facing redundancy
It’s good to talk
When you first learn that you might be made redundant or must leave, it can be a huge shock. Our role at work is such a big part of our lives. For most of us, the day-to-day challenges of work provide a sense of achievement and satisfaction. Our workplace is where we build bonds, learn new skills, and see a lot of our growth.
It’s completely natural to feel in disbelief or frustrated. It’s important to discuss any of your concerns, financial or otherwise. A conversation with loved ones or a professional financial planner will help take a load off your plate. No matter who you turn to, it’s healthy to talk about your financial worries.
Taking stock of what you’ve got
It may take some time to get over the initial shock. But, once you’ve talked things through, it is time to make a plan.
Taking stock of what you’ve got is vital for understanding how much you need to survive financially in the short term or how quickly you need to get back into employment, if at all.
First, you need to get a handle on what you spend. How much debt you have. What spending is essential, and what luxuries will need to stop.
Then you’ll want to start by calculating how much income you still have coming in. Is this enough to take care of your outgoings? Will you be able to draw from any existing investments or savings?
Could any of your debt be repaid to reduce your outgoings? If you’ve agreed to a settlement, you could be expecting a lump sum. In this case, financial planning can help you determine how to organise your finances to help your money go further.
The first £30,000 of any redundancy settlement is usually tax-free.
Any redundancy pay above £30,000 is usually subject to income tax and national insurance.
Holiday pay, unpaid wages, bonuses, and overtime pay are all taxable earnings.
There are various ways to reduce this tax burden. The most common solution is to make the most of your pension contributions, remembering to stick within the annual and lifetime allowances and leave some money aside in an accessible account as a cash buffer.
Deciding the next step
Putting your financial considerations aside, what would you do if you had all the money you ever needed? Could being made redundant be the catalyst for you to make a positive change in your life? Be it starting a new role, beginning a new business venture, or stopping work altogether. Wealth forecasting can help you visualise your options based on what’s financially feasible.
“Difficulties mastered are opportunities won” – Winston Churchill
We understand it’s not easy to think about what you want from life and what you value most. We don’t often stop to ask ourselves these questions. So, to help get some ideas rolling, we always recommend people visualise their goals by answering the three life planning questions here.
Our trusted financial planners are always on hand to answer any queries or give you some clarity about your entitlement following redundancy. Drop us a message, and one of our financial planners will be in touch shortly.