Redundancy rarely arrives at a convenient time.
However strong some-one’s finances might look on paper, the sudden loss of an income can shake the whole household, from mortgage repayments to everyday spending. But with a clear head and the right sequence of decisions, the damage can be contained and some people even come out the other side with a stronger financial position than before.
The first piece of advice is also the simplest: slow down. Redundancy is a genuinely stressful life event and under pressure people are more likely to sign a settlement without reading it properly, cash in a pension too early or jump into a new job or business venture out of anxiety rather than sound judgement. Very few redundancy decisions need to be made immediately, so taking a day or two to process the news before tackling paperwork is time well spent.
Once ready to look at the numbers, workers with at least 2 years of service are entitled to statutory redundancy pay, calculated at 2 weeks’ pay per year of service plus one additional week, subject to a cap. Many employers top this up with an enhanced or ex-gratia payment and how that extra sum is structured can significantly affect the tax owed on it.
Anyone with a mortgage should contact their lender early rather than waiting for a missed payment. Most lenders are far more willing to agree a temporary break or restructured repayment plan when approached proactively.
It is also worth totting up a full financial buffer: the redundancy lump sum, savings, any other household income, investments and State supports such as Jobseeker’s Benefit, set against monthly outgoings. That figure shows exactly how many months of breathing room is available, which does a great deal to calm the uncertainty that redundancy brings.
From there, trimming non-essential spending, pausing voluntary pension contributions temporarily and moving savings into a better-paying account can all stretch that buffer further.
Finally, redundancy is often worth viewing as a turning point rather than purely a setback. Some people use the opportunity to retrain or change career, others go freelance and for those closer to retirement age, a well-funded pension can make early retirement a realistic option.
There is no single right answer and the best path depends entirely on individual circumstances. That is precisely why professional financial advice matters so much at this stage. A qualified adviser can look at the whole picture, tax, pensions, insurance and savings together, rather than the redundancy payment in isolation, helping to avoid costly mistakes and turn a stressful moment into a considered plan for what comes next.
This article is written by Adrian Kelly, QFA RPA, a Qualified Financial Advisor and Retirement Planning Advisor. You can contact him through Fairstone Letterkenny (formerly John F. Loughrey Financial Services) by telephone on 074-9124002 or by email on [email protected]