From time to time, and despite our best laid plans, events can conspire against us. At the moment at Altor, we are dealing with advice for colleagues around redundancy and thought we would share some of the most common problems and solutions. They also have a broader usefulness than just in a redundancy situation.
Firstly, it is important to acknowledge that any major change to your work life, such as a redundancy or even retirement is often more of a struggle than we anticipate. Given what percentage of our lives we spend in work, it is no wonder that research shows that we can have a lot of our identity tied up in what we do. Work can also supply the cadence to our days and weeks, part of our friendship circle and also gives us a sense of being useful and needed. From some people they have a higher sense of being needed from their colleagues than they do from their teenage or adult children. When it comes to this aspect of leaving the workplace, it is enough to be aware of this and not be surprised if emotions run deeper and longer than we anticipate. Ask for help and support wherever it is needed and available.
There are then some very practical things to think about:
- •If you are going to struggle financiallyCheck your entitlement to benefits.You may qualify for Job Seekers Allowance (JSA) or Employment and Support Allowance (ESA).Good resources to help you are:Advice Local –https://advicelocal.uk/Citizens Advice –https://www.citizensadvice.org.uk/Money Helper–https://www.moneyhelper.org.uk/en/benefits
- •Check your entitlement to benefits.
- •You may qualify for Job Seekers Allowance (JSA) or Employment and Support Allowance (ESA).
- •Good resources to help you are:Advice Local –https://advicelocal.uk/Citizens Advice –https://www.citizensadvice.org.uk/Money Helper–https://www.moneyhelper.org.uk/en/benefits
- •Advice Local –https://advicelocal.uk/
- •Citizens Advice –https://www.citizensadvice.org.uk/
- •Money Helper–https://www.moneyhelper.org.uk/en/benefits
- •Make sure that you understand your short-term cash needsIn this situation there should be a lump sum payment which will be larger than you are used to but will run out quickly if you don’t find alternative work.Avoid short-term purchases until you know when income will start again and what expenditure you have coming up.
- •In this situation there should be a lump sum payment which will be larger than you are used to but will run out quickly if you don’t find alternative work.
- •Avoid short-term purchases until you know when income will start again and what expenditure you have coming up.
- •Make the most of the extra cash whilst you have itIf you are a higher rate taxpayer and have a lower tax paying spouse, think about moving the cash into an account in their name.If you have more cash than £85,000 bear in mind that this is the FSCS limit for each UK registered bank and so spread the money around.Aim for the highest interest rate you can but don’t get tempted into long tie-in accounts.A cash management service such as the one we use can help with all three of these.
- •If you are a higher rate taxpayer and have a lower tax paying spouse, think about moving the cash into an account in their name.
- •If you have more cash than £85,000 bear in mind that this is the FSCS limit for each UK registered bank and so spread the money around.
- •Aim for the highest interest rate you can but don’t get tempted into long tie-in accounts.
- •A cash management service such as the one we use can help with all three of these.
- •Make sure that you have accounted for any tax dueThe first £30,000 of a redundancy payment is tax-free and tax on the rest of the lump sum should be taxed by payroll via PAYE.If the addition of these funds will push other income into a higher tax band though, make sure to guesstimate this tax.It will be due by the end of January after the end of the tax year your payments land it, or October if you still file a paper tax return.If you have not had to complete a tax return before, there are plenty of inexpensive online options to help you.Set the tax money aside in a separate savings account.Be aware that a redundancy payment can affect entitlement to benefits such as child benefit, childcare hours and tax-free childcare.
- •The first £30,000 of a redundancy payment is tax-free and tax on the rest of the lump sum should be taxed by payroll via PAYE.
- •If the addition of these funds will push other income into a higher tax band though, make sure to guesstimate this tax.
- •It will be due by the end of January after the end of the tax year your payments land it, or October if you still file a paper tax return.
- •If you have not had to complete a tax return before, there are plenty of inexpensive online options to help you.
- •Set the tax money aside in a separate savings account.
- •Be aware that a redundancy payment can affect entitlement to benefits such as child benefit, childcare hours and tax-free childcare.
- •Deal with debtOnce you know what cash is likely to be surplus to your immediate needs, look at repayment options for debt.Repay the most expensive debt first, which tends to be credit cards, personal loans and car finance.Be careful about early repayment charges on debts.
- •Once you know what cash is likely to be surplus to your immediate needs, look at repayment options for debt.
- •Repay the most expensive debt first, which tends to be credit cards, personal loans and car finance.
- •Be careful about early repayment charges on debts.
- •Consider options to reduce taxTaxable lump sums can sometimes be contributed to your workplace pension to avoid the income tax due.The pension contribution rules are restrictive, so make sure that you are allowed to contribute the excess money.Pensions can only be accessed firm age 55 (soon rising to 57) and so contribute money that you can afford to not access long-term unless you are close to this age
- •Taxable lump sums can sometimes be contributed to your workplace pension to avoid the income tax due.
- •The pension contribution rules are restrictive, so make sure that you are allowed to contribute the excess money.
- •Pensions can only be accessed firm age 55 (soon rising to 57) and so contribute money that you can afford to not access long-term unless you are close to this age
- •Analyse your long-term cashflowIt is important to know what you can afford to spend, on what and when.It is even more important to understand when you can afford to retire and what you need to do to make this work.Our cashflow software system shows Phoenix staff what their future financial life looks like.This service can be accessed via MyChoice, is paid monthly and is part funded by the government as you get tax relief on the cost.
- •It is important to know what you can afford to spend, on what and when.
- •It is even more important to understand when you can afford to retire and what you need to do to make this work.
- •Our cashflow software system shows Phoenix staff what their future financial life looks like.
- •This service can be accessed via MyChoice, is paid monthly and is part funded by the government as you get tax relief on the cost.
- •Invest any surplusWe have already mentioned pensions as a good investment as they avoid income tax.ISAs are also a good way of investing and although you don’t get from tax relief up front, they are tax-free ongoing.
- •We have already mentioned pensions as a good investment as they avoid income tax.
- •ISAs are also a good way of investing and although you don’t get from tax relief up front, they are tax-free ongoing. We have been working with Phoenix staff for nearly 20 years and are currently working with staff on their cashflow planning throughout the UK using the latest technology.
