Managing Your Finances After Redundancy: A Guide to Financial Stability
If you or someone close to you is facing redundancy, it can bring a range of emotions. No single pathway is the same, and each experience is unique.
This is why we are sharing a series of blogs from experts who are experienced in supporting you around this time, so you can access what is right for you.
In this blog, we ask Giselle Clayton, an Independent Financial Adviser from our brilliant partners Amber River True Bearing, and host of our ‘MoneyMiM sessions in our community, how to best prepare from a financial perspective.
Disclaimer: This is not financial advice. Please consult a qualified financial adviser for personalised guidance. The figures quoted below are correct at the time of posting.
Statutory Redundancy Pay
If you have worked for your employer for two years or more, you are entitled to statutory redundancy pay, calculated as follows:
- Under 22 years old: Half a week’s pay per year of service
- Aged 22 to 41: One week’s pay per year of service
- Over 41 years old: One and a half weeks’ pay per year of service
Redundancy pay is capped at 20 years of service, and any amount up to £30,000 is tax-free. Payments above this amount are subject to income tax and National Insurance deductions.
Notice Period & Pay
Your employer must provide a statutory notice period before terminating your employment:
- Less than 2 years’ service: 1 week’s notice
- 2 to 12 years’ service: 1 week per year of service
- More than 12 years: 12 weeks’ notice
You may also receive pay in lieu of notice (PILON), allowing you to leave immediately while still receiving your notice pay.
Managing Your Redundancy Pay
Giselle says “Receiving a lump sum can be beneficial, but careful financial planning is essential” have a think about the following:
1. Cover Immediate Expenses – Prioritise essential costs such as mortgage/rent, utilities, and groceries.
2. Emergency Savings – Set aside 3-6 months’ worth of expenses as a financial buffer.
3. Debt Repayment – Paying off high-interest debts like credit cards or loans can reduce financial pressure.
4. Tax-Efficient Savings – Use tax-free options such as an ISA (up to £20,000 per tax year) to maximise your money.
5. Pension Contributions – Contributions to a pension scheme benefit from tax relief, increasing your long-term savings.
What Happens to Your Pension?
“Your pension isn’t “frozen” after redundancy, but its growth may be impacted,” continues Giselle,
- Defined Benefit (DB) Pensions: Your pension remains in the scheme and will be paid upon retirement, adjusted for inflation.
- Defined Contribution (DC) Pensions: Contributions stop unless you continue payments elsewhere. You may also transfer your pension to a different provider if beneficial.
- Early Access: If you’re 55 or older, you may access your pension early, but this could reduce future income.
Reducing Tax Liabilities on Redundancy Pay
If your redundancy package exceeds £30,000, consider options to reduce tax:
- Pension Contributions – Paying redundancy money into a pension can attract tax relief.
- Spreading Payments – If possible, negotiate phased redundancy payments to remain within tax-free thresholds.
- Utilising ISAs – Holding funds in an ISA protects savings from future taxation.
Seeking Professional Advice
Speaking to a financial adviser can help you make the most of your redundancy pay, manage taxes, and secure your financial future. If you’re uncertain about your next steps, seek guidance to optimise your money and ensure long-term financial stability.
By understanding your entitlements and planning strategically, you can turn redundancy into a financial opportunity rather than a setback.
For tailored financial guidance, consult an independent financial adviser today.
Giselle
Email: giselle.clayton@amberrivertb.com
WWW: https://amberriver.com/offices/amber-river-true-bearing/
Amber River True Bearing is a trading name of True Bearing Ltd, which is authorised and regulated by the Financial Conduct Authority. FCA No. 486512. Registered in England. Registered Number 4806442.
Registered Office: Assurance House, Chorley Business & Technology Centre, Euxton Lane, Chorley, Lancashire, PR7 6TE
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