In the current economic climate it is inevitable that many firms are looking to tighten their purse strings and the economic data is by no means encouraging. There is an abundance of information on the internet about the redundancy process, what constitutes unfair dismissal and so on, so we don’t propose to cover all of that here.

For further guidance on this aspect, the Advisory, Conciliation and Arbitration Service (ACAS) offers free and confidential advice on all employment rights issues. Your local Citizens Advice Bureau (CAB) can also provide free and impartial advice and there is a lot of useful information on their website too.

It is worth bearing in mind that there may be an arrangement in your contract for how redundancy pay will be calculated. If this gives you less than the statutory pay, it is the statutory amount that applies. The first £30,000 of any termination payment, including redundancy pay and notice pay, is tax-free.

Statutory redundancy pay is based on your age, how long you have been with your employer and your weekly pay. There is a good redundancy calculator on the directgov.co.uk website.

You need to bear in mind that if you were entitled to benefits such as life assurance, you will lose these. You will normally keep your entitlement to your pension, although the benefits provided may change substantially. Therefore redundancy is a good opportunity to review your pension.

Pensions

If you are lucky enough to have a final salary pension, you should be sent a statement showing your “deferred” annual pension. You can also request a transfer value from the trustees and then compare whether it would make sense to transfer this into a money purchase arrangement. Don’t take the decision to transfer or not lightly.

If you have a group stakeholder or personal pension scheme you should be able to carry on paying in to this and if it was set up on a nil commission basis (as many such schemes are) it can often represent an excellent place to direct future contributions. If it was a money purchase pension but under the “occupational” pension regime, you won’t be able to continue contributing to it but again, the charges could be very low. Therefore, don’t automatically assume that just because you have left the employer you should transfer the pension – there are often many compelling reasons not to. However, if fund choice was poor and charges were not particularly advantageous, consolidating pensions can tidy up your finances and give you a much clearer view of your overall investment strategy.

You may be given the opportunity to draw on your pension early through “early retirement”. Don’t assume that this is the right thing to do. Remember that if you are planning on seeking new employment, the income from the pension could end up all getting taxed at 40% whereas if you delay drawing on your pension until you have properly retired, you might be able to obtain a higher level of income, taxed at a lower rate. 

Insurance

With life assurance it is fairly commonplace for employers to provide staff with at least 4 times salary “death-in-service” life assurance cover. Where firms offer generous pension schemes, and in particular final salary pensions, the death benefits on these are often much more generous and therefore the loss of these should not be underestimated.

When analysing what level of life assurance you need, it is extremely important to look at what income would be lost in the event of death and how your expenditure could change if it needed to. Add in some sensible assumptions for things like cost of living inflation and you have a much more logical approach to the question of “how much life assurance do I need?” than the “traditional” multiple of salary basis.

As stated above, if you lose your job, you will lose insurance cover through work and therefore consideration needs to be given as to whether this needs to be replaced. The need for cover doesn’t just disappear. It makes sense to wait to see what any new employer will offer you but it is important to replace the lost cover as soon as is practical.

Whilst employer-sponsored life assurance is a very worthwhile benefit, it shouldn’t generally be relied upon as your only cover. What if you are in poor health when you leave the company and can’t get a replacement policy?

Other insurance that could be lost on redundancy would include the likes of critical illness cover and income protection and a similar review should be undertaken on these too.

Share Schemes

If you have a share option scheme such as Save As You Earn scheme check what your options are. Different schemes have different rules. For example, with a SAYE scheme, options exercised within six months of the cessation of employment through redundancy are not taxable regardless of the time period between the grant and exercise of the option.

Finally, a period of unemployment may lead to cash flow problems. This is why it is always sensible to keep a sensible cash “float” to cover unexpected events like this. The last thing you really want to be doing is being forced to cash in long-term investments such as stocks and shares ISAs to tide you over when the value of these investments may be depressed. If you have a mortgage, consider asking your lender if it would be possible to take a payment holiday or perhaps make a temporary switch to an interest only basis. Take the opportunity to review your expenditure and see which areas of non-essential spending can be trimmed down.

If you have recently been made redundant or feel that this might be on the cards, feel free to get in touch and we will be happy to spare some time to talk you through your financial planning options.