As an employee, we can all be vulnerable to being made redundant and this fear may sadly be increased in the current environment whilst businesses try and consider how, or if job positions can be maintained.
The Government has provided a degree of support through the furlough scheme to help protect an element of employees income, but the Chancellor announced this is due to change in August and it is not clear how businesses may be asked to help with the cost. This potentially could lead to additional redundancies and the following may provide some practical tips on how to deal with some of the financial issues surrounding an unexpected job loss.
If there is a risk of redundancy, you need to be aware of the level of income you require to meet your basic needs.
During this crisis we have spoken to a number of individuals who have found that income requirements have reduced and it is worth taking time to consider your essential costs, for example mortgage and other liabilities, food, utilities, clothing etc.
It would be sensible to look at bank statements for both pre and post lockdown to establish if there is any unnecessary spending that can either be reduced or will not be needed going forward. This can give you an idea of your basic needs and allow you to put together a budget plan if the worst were to happen.
To help in the short term, the Government have asked financial institutions to allow individuals to defer mortgage, credit card and loan repayments, initially for a three month period. This may be an option to reduce short term costs further if this would help whilst seeking a new job role. You do however have to take into account that interest will still be applied during this period, so essentially the term of the loan is being extended.
If you have previously overpaid your mortgage, you may have some additional leeway to reduce or stop payments for longer, or even drawdown on previously overpaid amounts if necessary.
Before stopping any payments, please make sure you speak to your mortgage, loan or credit card provider to consider all of the options available, as they are there to help you through any difficult periods.
Being made redundant could give you an opportunity to consider longer-term plans.
You may decide to have a career change, so consider what skills you have learnt previously and look at the career options that will benefit from those skills. You will be surprised at how many job roles require similar attributes and experience. It is therefore important to make sure your CV is up to date and perhaps speak to a specialist recruiter to look at the options in more detail.
A complete change of lifestyle is a big decision, but redundancy may offer you the scope to change what you do and in some instances can provide you with some funds to help make this change. Perhaps you wish to spend more time with family, travelling, start a new business or take up a new hobby without having so much pressure. You may have capital saved for this purpose and the redundancy pay could give you that opportunity, sooner rather than later. The option of downsizing could be considered and using any equity to help with your dreams. This is where a well thought out financial strategy could come into play.
We are able to help with “lifetime cashflow” planning to show how feasible a change in lifestyle is based on the resources at your disposal. The starting point is to understand what your capital and expenditure needs will be to fulfil your plans, so it helps to consider this in some depth.
The link below provides information from the Government about the process your employer must follow and the Statutory Minimum Payment you will be entitled to receive.
Some employers will pay more than the statutory minimum and payments could be substantial depending on age, salary, and length of employment. If you are in this position it would be sensible to seek advice in respect to the tax position of the payments, (typically the first £30,000 of the redundancy pay is tax-free), and how this could help with your longer term planning. As an example, you could consider sacrificing some or all of the redundancy pay above £30,000 to make a pension contribution to benefit from tax advantages. This would not be suitable for everyone and it would be important to assess all options.
If you are over, or close to the age of 55, it would be worth considering your pension options. Over the years you may have built up substantial pension funds or benefits with employers and they could be key in helping you plan your short, medium and long term future. Whilst you are looking for new work or considering any lifestyle changes, you could utilise the pensions to provide you with some additional cash or income to help meet your income requirements for a period of time. With the right planning, you may even be able to retire completely.
At SG Wealth Management we are able to help you consider all of the options available in these uncertain times. If you wish to discuss any aspect of this further please use our Get In Touch form or email us at email@example.com or call 01603 760866 to arrange an initial discussion with no cost or obligation on your behalf.