Redundancies often come with the silver lining of a substantial cash sum. Depending on your time of life at the point of redundancy, you may be able to consider this the beginning of your retirement plan, or you may be planning to return to work. Either way, careful consideration of what to do with the money comes into play.

Getting a redundancy payment can help soften the blow of losing your job. Working out what to do with your redundancy package, however, can be a bit of a minefield. Whatever you think you might like to do with the money, as your first step you should take advice from experts about how you should use your redundancy pay.

Is my redundancy payment tax free?

Only the first £30,000 of your redundancy payment is tax free(source), and no national insurance contributions are deducted either. Do check you don't find yourself paying these, as some smaller companies without a human resources department might not know the rules.

Can I have my redundancy paid directly into my pension pot?

You can ask your employer to make a lump-sum payment from your redundancy amount into your pension fund rather than giving it to you directly. Your employer does not have to agree to do this, but most will. It’s worth considering if you’re going to be receiving more than the £30k tax-free amount. However, a starting point here would be to take independent financial advice first, so you can be sure you’re heading in the right direction and so that you can ensure you’re not going to exceed your annual pension allowance.

Can I put my redundancy money into my pension fund?

You can pay a certain amount into your pension on your own initiative, tax-free. In some circumstances, you’ll be able to take a lump sum back out of your pension afterwards, again tax-free.

Should I use my redundancy pay to clear my debts?

Clearly, using your redundancy money to top up your pension would only be a sensible one for you if your financial circumstances are such that you will not need access to the money in the short or medium term.

Before contemplating investing your lump sum, you should first consider using your redundancy payment to pay off any debts you have. Reducing your levels of outstanding personal debt with the surplus capital from redundancy payments, is always a good starting point, as without a regular income for a period of time, you may find credit repayments becoming an immediate cashflow problem.

Can I use my redundancy pay to clear or reduce my mortgage?

If your redundancy payment is quite large and you have a mortgage, you could consider paying it off. This offers peace of mind and helps you avoid some of the potential bills from the taxman, but can limit your future flexibility.
 

What could I invest my Redundancy Payment In?

First of all, you could put your redundancy payment into a simple high interest savings account while you and your financial advisor discuss what your best options are. An independent financial adviser will work with you to ensure their advice matches your needs.

What constitutes a good investment from your perspective depends to a great extent on your own current and likely future circumstances, your own attitude towards risk and what you might want to personally do in the future.

Should I invest my redundancy pay into an ISA?

ISAs (Independent Savings Accounts) are excellent tax-efficient savings instruments, available in a variety of forms to suit your requirements. You are limited to how much you can put into an ISA in any one year, so if your redundancy payment is a large one, you may need to look beyond ISAs, and our expert team will help determine what’s best for you.

What if I’m given my company car as part of my redundancy?

Any non-cash benefits that form part of your redundancy package, such as a company car or a laptop, for example, will be given a cash value and added to your redundancy pay for tax purposes. Do bear in mind though, that these added amounts might then take your total settlement over the £30,000 limit.

What if I’m owed holiday pay at redundancy?

Holiday pay is treated in the same way as wages, so, tax and National Insurance contributions will be deducted as usual from these payments before you get them.

Unpaid wages, bonus or overtime will have tax and NI contributions deducted, even if you receive the amounts after your employment has ended.

Will my redundancy pay include commissions?

Where employment involves regular commission or bonuses, these can be taken into account when calculating redundancy pay using the average wage for the previous 12 weeks. These payments would then qualify for the £30,000 tax free exemption. You should not though, that where these payments are not considered part of the employee’s normal weekly wage then these payments will not qualify.

Although redundancy can be a time of uncertainty, it can also bring with it new opportunities. Potential future financial freedom and greater financial security is an obvious opportunity when talking about redundancy pay, and we can help you navigate the best path to that brighter future. Although we can’t completely take away the stress of redundancy, we can help you to feel more confident about the future with our expert advice and help.

Start planning your future. Speak to us today.

Contact Us

Seventy Financial Planning
The Apple Store, Haggs Farm,
Haggs Road, Follifoot, Harrogate,
HG3 1EQ

01423 611004

[email protected]

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