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Don't let redundancy affect your financial plans

Although the Furlough Scheme has been extended until March next year, we have already seen redundancies at the highest level since 2009 and unemployment reaching a 3-year high and still rising. The pandemic has affected every age of the workforce but is likely to disproportionately affect the over 50s and, in turn, their plans for retirement.

With 1 in 4 older workers furloughed during the Covid-19 pandemic, increasing redundancy is likely to hit the over 50s hard.  A report by The Centre for Ageing Better finds that the older workforce is more likely to fall into long term unemployment. Just under a third of over 50s who lose their job could find themselves still unemployed 12 months later. This could be due to the lack of employment options available in areas that the over 50s are more likely to specialise in.

I’ve been made redundant, what now?

Being out of work at a later age may seem like a scary concept and from a financial viewpoint, there are important factors to consider.

Initially, your spending may need to be reviewed and cutbacks may need to be made, even if they are only temporary. Of course, core expenditure, such as mortgages or credit card payments, should be prioritised, and it is the other “luxuries” that should be evaluated and paused. This could be anything from subscriptions to holidays and golf club memberships.

If you are receiving a redundancy package, it is important to understand the possible tax implications of any pay-outs, such as the difference in taxation for any holiday pay you may choose to take. And if you are fortunate enough to receive a large redundancy package you should be aware that only the first £30,000 of any payment is tax-free. If your redundancy package includes any non-cash benefits you may have received from your employer such as a company car, it may be more likely that your package will exceed the tax-free threshold.

A drop or complete stop in both you and your employer’s pension contributions could seriously affect your pension plans, not least if this also includes a stop on any other benefits you may have received from your employer, such as a company car, phone or health benefits that may need to be replaced. So, it’s really important you take the opportunity to step back and re-evaluate the financial plans you have for the future. 

What are my options?

Whether you have already been made redundant or fear an uncertain future with your current employer, it is important to evaluate your financial situation. Ask yourself: are you equipped to deal with a sudden loss of employment? How would redundancy impact your financial plans in the long term? Do you have a plan for the worst-case scenario? Or could you in fact afford to retire earlier than you had originally planned?

At TPO we can help to answer these questions and give you confidence in your financial future. We offer a free cash flow forecasting service for anyone with £100,000 or more in savings, investments or pensions, to help you plan for the future and maximise available tax efficiencies. We can review your pension pots and other assets to help build a clear picture of your options going forward.

Starting to draw on your pension may seem daunting, having spent a life time building it up, however if you have been made redundant after age 55, now might be the right time to consider retirement. At ages 55 and above, you are entitled to take 25% of your pension pot as a tax-free lump-sum, the rest is taxable at your regular income tax rate. By forecasting your cashflow, we can work with you to give you the confidence to know if you can afford to retire earlier than originally intended, with peace of mind that you can live comfortably through your retirement years. 

If earlier retirement is not right for you and your financial situation, cashflow forecasting can help you to budget correctly and determine what steps need to be taken to keep you comfortable until and into retirement. This may include  delaying your State Pension which could result in you inevitably receiving a higher weekly State Pension amount, or even a lump sum payment.

If you’d like to speak to an independent financial adviser about your own personal financial plans, whether you’re concerned about redundancies or not, then why not get in touch. We can map out your financial future so you have the confidence that your wealth will last you for as long as you need it. 

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Please note: The financial conduct authority (FCA) does not regulate cash flow planning. Investment returns are not garanteed, and you may get back less than you originally invested. Past performance is not a guide to future returns.