Redundancy: How to deal with ‘overwhelming’ pressure on household finances – payment tips

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Redundancy is a form of dismissal from a job when an employer needs to reduce their workforce. If a worker is made redundant they may be eligible for certain things such as redundancy pay, a notice period, a consultation with the employer, the option to move into a different job and/or time off to find a new job.

Currently, many employers and employees are being supported by government funding courtesy of the furlough scheme and other support measures.

However, these schemes will all be coming to an end as we approach 2021 and Rishi Sunak has ruled out extending them further.

Given that the state “taps” will soon be turned off, many have expressed fears that there may be a wave of unemployment due as employers struggle to afford their staff.

Some of these redundancies may all but be confirmed given that certain employers have announced that they may have to reduce staffing levels.

This was touched on by Shona Lowe, a Private Client & Corporate Director at 1825: “It is a harsh consequence of the economic downturn caused by coronavirus that lots of people in the UK are facing redundancy.

“Well-known high-street names have announced that many jobs are at risk and as the furlough scheme puts more financial responsibility on employers, it’s likely that we will see more of this in the coming months.

“Facing redundancy can feel overwhelming and put a lot of pressure on household finances.

“But, getting in control of your finances and being aware of your overall financial position can help alleviate money stress and make you feel more in control of the future.

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“Following a quick checklist can help you take stock of your overall financial position, check in on personal and professional goals, review what changes might need to be made and decide what’s next.

“There are plenty of free to use resources available for people looking for support with both the Money Advice Service and Pension Wise offering independent advice.

“If you are dealing with a complex financial position it’s worthwhile seeking the support of a specialist financial planner or adviser.

Shona went on to provide guidance on what people can do if they’re facing redundancy.

Her initial tips began with pre-emptive preparation, as she noted that easy actions such as taking a look at overall finances and planning out future obligations can immediately pay dividends.

The main concern for many people facing redundancy though is what they should do with their payment and Shona notes that the answer to this question will largely depend on personal circumstances: “The next thing is to decide what to do with your redundancy payment. This depends hugely on personal circumstances.

“You may have another job to go to so might want to invest this money for a longer-term goal.

“If you are retiring, you might want to invest some and keep hold of some for spending now.

“You might know you need the money immediately to help you meet day to day living costs or you just might not know yet.

For many people though, covering certain essential costs will take priority and Shona detailed that paying off debts and taxes will rarely be a poor decision: “If you are in a position where you don’t need to make full use of your redundancy payment due to another income source or savings, consider whether it’s time to pay off any debt. The interest you are charged on debts can often be higher than the interest paid on savings so paying down debt can make financial sense in the longer term.

“Much will depend on how much your redundancy payment is, your overall tax position and whether your employer will contribute to your pension instead of making some or all of the payment to you. Up to £30,000 of a lump sum redundancy payment will be tax free but tax and national insurance contributions may be payable on non-exempt amounts such as any paid holiday, payments in lieu of notice or the cash value of any assets you receive as part of your package, for example a company car, mobile phone or computer.

“For most people, the tax position should be taken care of by their PAYE code and the correct amount of tax will be payable as it is taxed at source like a normal salary payment but you should still check to make sure. If it isn’t right and you have a balance to pay or a refund to claim, you’ll need to complete a tax return. If your affairs are complex, it may be helpful to have this completed by a professional.

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