There is no event more likely to put pressure on your finances than losing your job. And at a time when 2.4 million people are unemployed – the highest level since Labour came to power – the situation is grimmer than ever for anyone trying to re-enter the job market. You may find you have to wait longer than expected to find a new position, but there are ways to make the transition easier.
”Redundancy ranks right up there with divorce,” says Julia Whittle, principal at the financial advisory group Punter Southall Financial Management. ”Being made redundant is hugely stressful.”
She recommends taking action as soon as you know your job may be on the line – don’t just hope for the best. This is the time to tell your employer if you would be happy to take a pay cut, go part time, or job share in order to save your position; your employer may not have considered these options.
”If there are no other options and your job has to go, the company must look for alternative suitable roles,” says Whittle. “This may mean a demotion, but that may be better than no job at all. It is always easier to find a job when you are already employed.” Consider, also, whether you could retrain to do a different job within the organisation, or whether you have skills of which your employer is unaware.
If you can’t decide whether to accept a new position, you can ask for a four-week trial period, says Catherine Torazzo, spokesman for Citizens Advice. “If you find it unsuitable you may leave and you could still retain your right to a redundancy payment.”
The devil is in the detail
Have your package checked by a professional before you agree to it. Some companies will pay for a solicitor to do this. If you can’t afford it, Citizens Advice or a Law Centre will do it free of charge. If you are in a union, then go to your union representative for a check.
As the economic downturn tightens, it is less and less likely that companies will pay more than the statutory amount – a dismal one week’s pay per year’s service for most people, up to a maximum of £350 per week, and capped at 20 weeks.
The amount will depend to some degree on your age and length of service. Employers must give notice of at least one week per year’s service and pay this at your usual rate of pay, capped at 12 weeks. If you have any outstanding holiday to take, this will be added on.
Although the first £30,000 of a redundancy package is usually free of tax and National Insurance, you shouldn’t take this for granted, says David Hewison, associate director at the accountancy firm Smith & Williamson. “The crucial point is what your employment contract says about notice.
“Sometimes covenants are included about how long after leaving the company the employee may work elsewhere. If the company chooses to pay you up to the end of the period, it may not be tax deductible.”
If you are a higher-rate taxpayer with severance pay of more than £30,000, it is in your interests for it to be paid to you after you leave, rather than while you are still employed, so that only 20 per cent tax is deducted. “You will have to pay the rest in 18 months’ time,” says Whittle. “But in the meantime it could be a useful sum in your hands.”
Release capital from shares or pension
There are lots of ways to raise capital if you need to generate more income for the interim. If you have shares, your pension fund may be able to buy these from you – a clever way to release cash. If you are over 50, you can release cash from your pension now anyway. Make sure you take independent financial advice about releasing cash from any investment, as there may be penalties or other good reasons not to.
Change your spending
You don’t need to uproot your children from their independent school just yet, but you will have to reduce your outgoings, at least temporarily. Either reduce debts in order to reduce your outgoings, or if you can bear the risk, think about gearing up to cover costs in the interim, suggests Whittle.
Reduce spending on luxuries by, for example, suspending club memberships. The main thing is to work out how long you have got before things get very difficult, and aim to cover that period. “If you still don’t have a job after that period is up, then will be the time to take emergency measures,” says Whittle.
Torazzo adds: “Once you have received your redundancy pay, be very careful about what you spend the money on until you have taken advice on how it may affect your benefits position. You may be treated as still having the money even if you have spent it”
Managing benefits
Many people will worry about losing employee benefits such as family medical cover and life insurance. Ask your old employer if you can keep these benefits for a period of time, even at a discounted charge, to cover the gap between jobs.
Whittle says: “You may have a period of six months or more where you have no life cover, no permanent health insurance, no critical illness or family income protection and no medical insurance. If you know there is another job on the horizon, you may be able to keep some of these going for a period.
“And even if your non-employment period is a lot longer, there may be ways of transferring policies to you personally which would reduce premiums and avoid having to revert to new conditions, for example for rules about pre-existing conditions under medical insurance.”
Ask, too, about your pension. “Depending on the length of your termination or contract terms, try to make sure pension accrual is included in your severance pay if you are in a defined benefit scheme, or further pension contributions are included for defined contribution schemes,” says Whittle. “This can be worth very significant sums.”
Also ask if you can keep any share options you have – particularly if the value of the options is likely to increase in the near future – this may be at the discretion of the trustees.
Similarly, check the terms of your employee share scheme. “You won’t necessarily have to be kicked out when you leave the company, and it may be possible to continue at the Trustees’ discretion,” says Whittle. “Leaving these schemes early could mean a loss of tax benefits as well as interest. Interest is often paid at a different rate if you do not complete the appropriate term.”
It may not have occurred to you to sign up for Jobseeker’s Allowance while you are
in between positions, but if you don’t you will not keep up your National Insurance Contribution record in the interim, and this could make a difference to your entitlements later on.
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Don’t cut yourself off
It might seem tempting to stop contacting friends and former colleagues, but it is better if you can keep your networks going to help you find a new job faster. Consider using a recruitment consultant, as many do not charge until you have been placed in a new job. Do not rule out retraining or switching career. Most importantly, don’t just put on a brave face.
If you are taking positive action to find a new job, people around you will find it easier to support you. But try to manage your family’s expectations as well as asking for support.
“People have often built up a certain lifestyle that needs supporting, and you often see families carrying on as normal with the poor breadwinner shouldering all the burden,” says Denise Knowles, from the relationship counselling service Relate. “This won’t help anyone. It is better to cancel the expensive holiday in the south of France, and explain that Christmas will be on a budget this year, than try to keep up the pretence that everything is normal.”
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