Time to get busy....Redundancy and the loss of employment

The loss of employment through redundancy or otherwise can for many be a very worrying time. This Life Junction as I refer to them draws you to a halt at a certain point in your life and asks you to consider the options available to you and, most importantly, which way you turn. I have provided some thoughts below.

Retirement/Early Retirement?

The way you turn may well depend on your current circumstances. As an example, if you have reached an age that was close to your anticipated retirement time, you may decide not to look for further employment because of the current economic climate and look at drawing pension benefits. If you received a redundancy payment then you may use this to subsidise your lost income over a time until you do draw pension benefits or until you find new work and income/salary. You may have sufficient tax free cash and taxable pension income to solve your financial needs into the future and an early look at the planning of this is recommended. You should seek independent financial advice to ensure that you have considered all of the varying options.

Redundancy Payments

Please remember that the first £30,000 of any redundancy payment is tax free with the balance being taxed at your highest marginal income tax rate. This may mean that if you are being made redundant in the early part of a tax year (tax year starts on 06^th April) you could find that any amount being paid above the tax free limit (£30,000) is taxed at basic rate tax (currently 20%) up to the new tax threshold of £42,475 (in the tax year 2011/2012). Make sure you keep hold of any tax documents, such as your P45, for future reference. Also, you may want to offset part of the tax on the excess payment by making a pension contribution. This may be achieved by your own arrangement or through your employer before you leave employment. You should take financial advice on this subject promptly if you wish to look at this option.

Further details on how any income tax liability may be calculated is detailed at the HMRC website here: http://www.hmrc.gov.uk/individuals/redundancy-ee.htm

Emergency Deposit Funds

One financial planning point I would recommend to most clients is to consider maintaining an emergency deposit fund, a fund of readily available cash/deposit funds, of around 3-6 months income to cover unexpected expenses. This might be the car breaking down or the roof leaking. Whatever it is, this fund should be sufficient to cover the cost of unexpected and possibly unwanted liability. Bear this in mind when planning and allocating any redundancy payment you may receive.

Benefits

On a more practical note, I am sure you will be polishing up your CV to send to potential employers and you may be entitled to some State benefits, such as unemployment benefit/Job Seekers allowance. It is usually worthwhile looking at what this involves, especially if finding the right work in your chosen field may be difficult.

One useful website to look at this further is the DirectGov website here: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/BenefitsTaxCreditsAndOtherSupport/Employedorlookingforwork/DG_10018757

Protection Policies

You should also look at the terms of any existing protection policies that you may have that could help towards to payments of any outstanding debts that you have. Your outstanding debts and liabilities will need to continue to be serviced even if you are unemployed and early financial planning for this is important.

You may have also lost other benefits on leaving your employment. Some may be tangible, such as the company car, which will now need to be replaced, however, some are less tangible. You may have lost your Death In service life cover (DISB), private medical health insurance (PMI), ill health income replacement cover and ongoing pension contributions. If you and your family need to maintain these protection covers, then do look at the continuation/replacement options available to you at an early stage.

Start your own business?

You may decide that now is a good time to start your own business, with all the knowledge, wisdom and expertise that you have accumulated in your role in the past. There is much help on offer from various organisations to allow you to achieve exciting option and any recent redundancy payment may give you sufficient cash flow to achieve this.

Another useful website if you want to look at the way this could work and what help is available is through Business Link at: http://www.businesslink.gov.uk/bdotg/action/getStarted

Summary

Overall, you can see that early planning is vital to ensure that you are ready for the Life junction that is redundancy and the loss of employment. Whatever route you chose, I wish you prosperity and every success into the future.

As I have noted in previous blogs, we are all different and your ongoing financial planning strategy will be individual to your needs, such as the use of a redundancy payment in your circumstance. Therefore, this article should not be seen or used as individual advice.

Churchouse Financial Planning is not responsible for the content of an external web pages noted above.

Seek Independent Financial Advice (IFA) for your circumstances. Churchouse Financial Planning Limited can be contacted in Guildford, Surrey on (01483) 578800.

Keith Churchouse

Director of Churchouse Financial Planning Limited, Guildford, Surrey.

ISO22222 Certified Financial Planner & Chartered Financial Planner

Churchouse Financial Planning Limited is authorised and regulated by the Financial Services Authority. The Financial Services Authority does not regulate taxation advice.