February 22nd, 2009
Redundancy Payment? Be Wise, See These 6 Tips

With the business sector beginning to look like a war zone, job security is no longer a sure thing and none of us is safe from the dreaded tap on the shoulder.

Being made redundant can be one of life’s most traumatic events, but charting a clear course is more effective than hitting the panic button.

Most laid-off workers receive a redundancy payout comprised largely of unused annual leave plus severance pay, measured as a number of weeks’ or a years’ wages.

The golden rule with any such payment is to think first and spend later. There’s no knowing how long the money will need to last.

Park it in a cash-management account or any online savings account, where it can safely earn you extra money. This will also give you valuable breathing space to decide how to use the cash while considering other job options.

Be careful about using large chunks of a payout to reduce debts such as your mortgage loan. I’m all for paying off debt, but unless you have a job lined up you need to be as financially flexible as possible.

That said, if you can get rid of any high-interest credit-card debt, you should immediately. Once you get a job, you may want to pump any money left over from your payout into your mortgage.

With a clear idea of how much you have, you can plan your finances to see you through to re-employment. A budget is an essential tool here.

Be prepared to slash non-essential spending. If you don’t do it now, you may be forced to significantly tighten your belt further down the track later.

Get in touch with the job centre as soon as possible to register for benefits. You have to do this immediately as it is your right to have the job seekers allowance on offer and to have your NI paid by the government.

If you’re under 21, you may be eligible for other Allowances. Those too young for the age pension can ask for advice on what other help is on offer.

Be aware that after six months, if you still haven’t secured an employment, you may have to produce evidence of any savings and perhaps the amount of redundancy payment received so as to justify why the government should continue paying you the allowance.

With these steps taken care of, you’re likely to know how much you have to live on until you find work.

One of the biggest headaches facing retrenched workers is keeping up the monthly mortgage repayments.

If you’re ahead with your loan payments, you may be able to claw back or take payment leave but the key thing is to speak to your mortgage provider immediately.

If that’s not the case, and meeting the repayments is likely to be a struggle, see if you can renegotiate your mortgage.

Lenders will often try to work out a solution, and under the consumer credit code you should be able to request a delay or restructuring of repayments, or an extension of the loan term.

Your bank may also let you switch to interest-only repayments.

All these options are likely to involve fees and charges as well as dragging your mortgage out a bit longer-but if you’re in financial survival mode, that’s likely to be a secondary concern.

As a last resort, you may be eligible for the Government’s mortgage assistance scheme, under which the Government makes loan repayments to the lender on your behalf, ask for help from your local council. Conditions might apply, though.

  1. Avoid making hasty decisions about how you’ll use a redundancy payment
  2. Making your payout earn interest of around 4% to 5% while providing valuable breathing space is a clever idea
  3. Be careful about using a large chunk of the payout to reduce debt. This could leave you strapped for cash if you don’t land another job quickly
  4. Take stock of your overall savings and draft up a budget to see you through to re-employment
  5. Get in touch with Job centre early.
  6. If you are struggling to make interest repayments talk to your mortgage lender before they start calling you

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