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How to manage your finances when facing redundancy
Richard Ollive, financial consultant at Wesleyan specialist financial services mutual for lawyers, shares his top tips for managing your finances when facing redundancy.
2020 has been fraught with uncertainty and for many in the profession, it has meant working from home, reduced hours, wage cuts and in more extreme circumstances, redundancy.
Losing your job can be a huge blow, personally and financially, and unfortunately in the current environment is a situation many find themselves in. If you have been made redundant or worry that it might possibly be the case in the near future, here’s some top tips I share with my clients.
Take a minute
Redundancy can have a big emotional impact on any of us. For some, this could lead to worries about how to tell friends and family, concerns about paying the bills, or having to take emergency short-term financial support. For others redundancy becomes an opportunity to take some time out, consider a new career path, or even take early retirement.
However you react to the news, take a minute to look after yourself and your mental wellbeing. There are free services that you can access if you want to talk to someone about redundancy – some may be made available through your employer or can be accessed via other providers. We’ve set up Wesleyan Wellbeing, an online content hub that gives people access to help and health advice.
Once you’ve taken care of yourself, it’s time to start taking care of your finances.
Assess your finances
The best place to start when assessing your finances is to take stock and make a budget that considers any incomes, outgoings and lump sums. Once you’ve got that in place you should have a clear picture of your financial situation, allowing you to take steps to build a short to medium-term plan to see you through - whether that’s reducing spending, clearing debts or identifying any savings that can be made.
When you’re looking at your finances it’s worth reviewing what benefits and insurances you have in place too – in some cases the plans might still be valuable so shouldn’t be cancelled. Some policies like Income Protection, for example, may cover loss of income during this time. Other financial service providers might be able to offer help too like payment breaks on mortgages, credit cards, loans or car finance deals.
Review your payment rights
If you are made redundant there are three types of pay out that you may be entitled to from your employer.
Firstly, there is payment in lieu of notice. When you are given your notice of termination you may be asked to work your notice period – usually defined in your contract, or a week if you’ve been there fewer than two years, and one week for each completed additional year, up to a maximum of 12 weeks. If your employer asks you not to work your notice, they should give you a payment to cover this period.
Secondly, if you’ve accrued holidays and not used them, you are entitled to be paid for them, or at least given the option to use them in your final weeks. In some cases, this could be worth a couple of weeks salary and is worth investigating with your employer.
Finally, you may be entitled to a redundancy payment – effectively compensation for your loss of work. The legal minimum varies depending on your age, but for someone aged between 22 and 40, it’s one full week’s pay for every year of service after two years, increasing to a week and a half for those aged over 41, although some firms may have more generous policies. It’s worth remembering that the first £30,000 is tax-free, too.
It's also important to note that under recent government changes, employees who had been on the furlough scheme and are then made redundant will receive redundancy pay based on their normal wage, rather than their furlough pay.
More broadly, keep in mind that your rights as an employee – including your redundancy rights – are not affected by being on the furlough scheme.
Consider Universal Credit
If your plan is to return to the world of work as quickly as you can, and you find yourself needing some additional financial support, Universal Credit could be an option.
Universal Credit is a benefit you can claim if you’re unemployed. There’s no cap on eligibility when it comes to income, but you may not be entitled if you have more than £16,000 in savings or live with a partner whose savings and income will also be taken into account.
Whether you plan to go back into work, or take early retirement, it’s important to consider the impact of redundancy on your pension plans.
There are two key bits of advice that I share with clients: always consider what’s going into your pension and think carefully about taking anything out.
When you’re made redundant, payments into your pension – both employer and personal, if arranged via your employer – will cease. This means you won’t be accruing contributions as quickly as before which could result in a shortfall in your projected retirement income. It might be prudent for some, if you can afford it, to top up your pension with any savings you have.
Others may consider accessing their pension early. Our advice would be to think carefully about this decision as it could have a long-term impact on your retirement income, with any savings difficult to make up.
For some, redundancy might be the perfect time to think about retirement. If you find yourself in that camp, speak to a financial adviser about the best time to access your pension pot and managing your finances in retirement.
Seek financial help
Everyone’s situation will be different when it comes to redundancy, and it’s worth taking financial advice to help you make decisions armed with all the information you need.
Views expressed in our blogs are those of the authors and do not necessarily reflect those of the Law Society.