With redundancies soaring, what advice is on offer?
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The UK economy has suffered more than most as a result of the global financial crisis and has affected every one of us in one way or another. Unemployment recently hit 1.92 million between September and November 2008 - the highest level since 1997.
As the unemployment rate continues to rise, you yourself, or someone you know may have been affected. There are a number of steps that can be followed to place you in the best position in terms of both employability and financially.
Losing your job can be extremely distressing, but it is important not to panic.
The first thing you should do is to make a visit to your local job centre. As well as increasing your chances of finding a job, this will also help you to find out exactly what benefits you’re entitled to.
If you require any kind of technical or legal advice, make an appointment with your local Citizen Advice Bureau.
You may find that you are entitled to redundancy counselling which can help you to come to terms with this change in your life, as well as offer you support through helping you to get things together. This can be anything from helping you to make the first steps to find a new job, to providing financial advice.
You may think you are strong enough to deal with losing a job on your own, but doing anything towards getting yourself back on track both emotionally and through finding work, is a step in the right direction and is always recommended.
You could be entitled to a redundancy package. It is also important to be aware of your rights as an employee, so read through your employment contract. The law states that employees must be given notice before being made redundant. This tends to be at least 1 week for every year of service, up to a maximum of 12 weeks.
If you completed two or more years service for the company that made you redundant, you qualify for a statutory redundancy payment, which can be calculated by half a weeks pay per year of service for those aged between 18 and 21, a full week between 22 and 41, and anyone aged 42 and over is entitled to 1.5 weeks per year of employment, to a maximum of 20 years. Unfortunately for high earners, the weekly payment was capped at £350 this week.
Beyond this statutory pay, some firms offer additional packages to further compensate staff they have to let go. This is usually calculated by multiplying one months salary by the number of years service completed, with the first £30,000 tax free. Anything above this amount is subject to your tax band, so anyone that earns below £34,800 will be on the lower rate of 20%, and anyone above this amount will be on the higher tax band of 40%.
If you do earn above £34,800 the are certain measures you can take to avoid paying more tax than you need to. Ask your company to hold the payment back until they have issued you with your P45 as this will mean that you will only have to pay 20% of the remaining payout.
If the payment is added to you last pay check, 40% will be deducted at source. The remaining tax is usually paid in the following year's tax return.
You may find it useful to consider negotiating with your company allowing you to put yourself in the best possible financial position. For instance, you may wish to discuss the possibility of swapping your period of notice and any holiday owed as payment.
Consider putting your new found savings towards a pension
You could avoid having to pay any tax on any surplus by paying your payment straight into your pension. Every year individuals are eligible to make payments into their pension scheme equalling a years salary without paying any tax on it.
Depending on your situation, this may be a very appealing option, as those over the age of 49 can make lump sum withdrawals of up to 25% of their pension without having to pay any tax. This is definitely worth considering if you are over the age of 50.
NOTE - As of April 2010, those aged under 55 will be unable to qualify for the 25% tax free sum.
For younger individuals, this may not be the best option, as it would involve locking your money away for many years.
You may have been lucky enough to have taken out unemployment insurance, so make it a priority to chase up your provider to find out what you're entitled to.
For homeowners, redundancy can be a chilling prospect. Over recent months the market has seen a spike in house repossessions and people facing problems with mortgage repayments. You may wish to consider taking out insurance to cover your mortgage should the worst happen. Ensure you understand what the insurance offers, as many providers have tightened their conditions due to the current economic climate.
To qualify for unemployment insurance you must not have been informed by your employer of any job cuts, and will not be covered if you were to be made redundant within 120 to 190 days (depending on providers) of taking out the policy.
It is worth going through any existing insurance policies you have, as you some products cover redundancy as an extra.
If you begin to struggle with your mortgage repayments, you should always contact your mortgage provider and make them aware. This is extremely important, as if the worst were to happen, the fact that you didn't inform them of your issues could cause you big problems later on.
Several lenders currently offering between 3 and 6 month payment deferrals based on your current financial situation. Again, being able to prove that you are actively looking for a job will work in your favour.
Once your payment comes through, you need to know what to do with it, and for many this means finding the best savings option. Earlier we covered the option of depositinf funds to your pension, but for those that are not in a good position to lock their savings away for a number of years, it is well worth considering fixed rate bonds and ISA's, as these tend to provide higher returns than regular savings accounts.
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