On the Money

Redundancy and financial planning

Leitrim Observer reporter

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Leitrim Observer reporter

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Clonmel workers seeking improved redundancy offer

The Covid-19 Pandemic has significantly impacted all areas of the economy and one of the unfortunate consequences of this is that many people have recently been made redundant by their employers.
It has impacted companies across the full spectrum from one person operations to large multi-nations like Aer Lingus, Bank of Ireland and Debenhams. Many more are expected to be announced over the coming months.
If you are one of the unlucky ones facing redundancy or have recently gone through a redundancy, what are the main issues you need to be aware of?
Redundancy can occur for a number of reasons. The business is closing, they need less staff, change of ownership or a different way of doing the work. Redundancies can also be Voluntary or Compulsory depending on the situation. Everyone’s circumstances will differ and it’s important to make yourself aware of your entitlements to ensure you are treated fairly and within the law.
Most people who are made redundant will be entitled to a Lump Sum redundancy payment. Any full-time employee who has worked for their employer for a minimum of 2 years will qualify for Statutory Redundancy. Employers may also at their discretion make additional ex gratia redundancy payments to employees being made redundant. The Statutory Redundancy payment is made exempt from tax but any ex-gratia payments made by the employer may be subject to some taxation.
The non-statutory redundancy payment paid by an employer, although not exempt from tax, does qualify for tax relief. In order to determine how much Tax relief you must use a formula called Standard Capital Superannuation Benefit (SCSB)*. This also takes into account any tax-free lump sums you are entitled to from your pension or have already received. It is very important to seek advice on waiving your rights to a tax-free lump sum before signing any redundancy agreements.
Once you get your lump sum it is important to review your situation. You may be lucky and pick up work straight away or you may have to survive for a period of time on a reduced income.
Here are some of the questions you need to ask yourself.
Have you already got savings? If not, have you sufficient funds set aside that is the equivalent of 6 months Nett Salary or as much as you can afford.
Can you pay down Expensive Debt/Short Term Debt (E.g. Credit Card, Car loan) to reduce monthly outgoings?
If you are not starting another job immediately, set up a Standing Order to pay yourself a monthly salary equivalent to your previous Nett income. This should be paid on the same day as your salary used to be paid. This allows you to continue to budget as normal. You also then have a timeline within which to seek new employment.
Invest the balance, if any in a risk appropriate Product. Seek professional advice and undertake a Risk Profile Questionnaire before making any Investment decisions.

Outgoings
Conduct a full review of your outgoings. Document them all and firstly reduce or eliminate expensive and unnecessary Monthly Direct Debits.

Review your Health Insurance. Was your Health Insurance paid for by your employer? If so are you in a position to replace this cover. Do not let this lapse for more than 13 weeks.
Your contract of employment may have included life cover of 3X or 4X salary. You will now need to replace this cover. Use this as an opportunity to do a full review of your Life Cover requirements.

Pension Implications
Those being made redundant should be provided with leaving service options by their pension scheme administrator. This will outline your choices around your pension. It is very important to speak with a professional advisor before making any final decisions.
What to do with Pension from the employment you have just left. Is the scheme a Defined Benefit or Defined Contribution Scheme? Have you been offered a Transfer Value or Enhanced Transfer Value?
Should you move it to a Personal Retirement Bond, or is there an option to transfer it to new employer scheme if applicable?
Do you have pensions from other earlier employers? This could be a good time to consolidate all of your old pensions?
Do you want/need early access to your Pension benefits?

Tax Implications
When did you last complete a Tax Return? Do you use Revenue online? Do you have an accountant?
If you do not work for the remainder of the year you may be due a rebate of tax paid to date?
Have you claimed back expenses in the past 4 years? Medical bills, prescriptions etc?
You need to do a tax return for the year of Redundancy.
While redundancy can be a worrying and stressful time, it also provides an opportunity to review your current situation and make choices about your future direction. Those people that are pro-active in dealing with their changed circumstances and who reach out for advice and support tend to fare better. Everyone’s situation is unique but we all benefit from the right advice when making important decisions.

Conor Harte BFS QFA CFP® is a Financial Planner with Wealthwise Financial Planning who are based in Block C, Hartley Business Park , Carrick on Shannon, www.wealthwise.ie All details and views contained within this article are for informational purposes only and does not constitute advice. Wealthwise Financial Planning makes no representations as to the accuracy, completeness or suitability of any information and will not be liable for any errors, omissions or any losses arising from its use. Wealthwise Financial Ltd T/A Wealthwise Financial Planning is Regulated by the central Bank of Ireland.#CI66141