Monday 20 July 2009

When the redundancy axe falls

Courtesy of the Scotsman, the top ten tips for financial planning after redundancy.

1. MAKE A BUDGET - It is important to make any redundancy payment last as long as possible. The first step to do this is making a realistic budget – work out how much money you have coming in and going out each month so you can identify where savings can be made. An excellent budget planning tool is available on the Financial Services Authority's Money Made Clear website, at

2. REDUCE YOUR FIXED COSTS - When you have put together a realistic budget, start work on reducing your fixed costs. Shop around for the best deal on your utilities using the various comparison websites that are available, as big savings can be achieved by moving to a cheaper energy supplier. Similarly, look at your TV and phone package. A pay-as-you-go mobile may prove cheaper than one with a monthly tariff.

3. PAY YOURSELF A MONTHLY "INCOME" - Receiving a large amount of redundancy money, if you're fortunate enough, can make you feel quite flush in the early days of unemployment and it can be easy to spend through the payment quickly. If you have made a realistic budget, you can place the redundancy payment into a separate savings account – preferably one that pays a decent interest rate but offers easy access – and pay yourself your planned budget.

4. DO NOT IGNORE YOUR DEBT - Speak to your lenders early, explain your situation and if you are getting into difficulty, try to agree a plan to work with each other until you find alternative employment. Your lender cannot automatically repossess your home if you fall behind with your payments as there are certain repossession procedures that must be followed. If you are worried about repossession, get advice at your local Citizens Advice Bureau. Some councils, housing associations and lenders offer mortgage rescue schemes, which allow you to continue living in your home, as a tenant or part-tenant/part-owner, if you are unable to meet the full payments for your mortgage. Think carefully before signing up to a mortgage rescue scheme. Although some schemes are effective and could help you to keep your home, others may simply increase your debts.

5. DIVERSIFY - For those receiving large redundancy payments, diversify across banking and savings institutions to make use of the £50,000 Financial Services Compensation Scheme guarantee. Also, do not forget you can put substantial amounts with National Savings & Investments, which are 100 per cent backed by the UK government.

6. CHECK FOR PAYMENT INSURANCE - There's a good chance that you may have taken out additional payment protection insurance (PPI) against being made redundant on one or more of your loans or credit cards. Get in touch with your lenders to see if you are able to make a valid claim.

7. USE YOUR ALLOWANCES - You can put up to £3,600 each tax year into a cash individual savings (Isa) account (rising to £5,200 next April, or October for over-fifties). The interest earned will not be subject to income tax. Equity Isas, at £7,200 per tax year (also rising next year) should only be considered for those who do not need the redundancy payment for the next five to seven years.

8. CONSIDER PENSIONS - If you are over 50, consider asking your employer to contribute any taxable payments (ie anything over £30,000) into a pension scheme. It may then possible to take an immediate lump sum and/or income from the pension. This is known as an immediate investing annuity and anyone considering this option should speak to an independent financial adviser.

9. CONSIDER LIFE COVER - Death in service life cover will normally cease when you leave your employer. Consider your personal circumstances and whether you need to obtain temporary life cover; especially if you have a family. This can be obtained online often at a relatively low cost.

10. CLAIM JOBSEEKERS ALLOWANCE - This pays £64.30 a week to anybody with sufficient National Insurance Contribution records. It is not only important from an income perspective but claiming Jobseekers Allowance also credits you with National Insurance Contributions towards a basic state pension .

More Free Redundancy Advice


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