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Your Money > Family Finances Articles > How to survive...
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By Richard Evans
After a year of the credit crisis, people are starting to feel the effects in the most painful way possible - losing their jobs. Those working in construction, for example, have been particularly hard hit in recent weeks. Redundancy is an event that can blow you apart financially - or one that you can survive relatively comfortably. Some even benefit, when they pocket a decent slice of redundancy money and get a new job straight away. The key is to be prepared. So what steps can you take to avoid being made redundant and to be ready for it if it does happen? One key tool of your financial survival kit (which will help in any emergency, not just losing your job) is a pot of "rainy day" money. This is cash kept in an easy-access account ready to meet any unexpected disaster; experts recommend an amount equal to three to six months' salary. So someone on typical earnings of around £25,000 should aim to have at least £6,000 tucked away. It may sound a lot, but any less could leave you vulnerable if the worst happens. It is also possible to take out unemployment insurance, which will pay you a monthly income if you are made redundant. "We are getting more enquiries about this type of cover," says Matt Morris of Lifesearch, a financial adviser specialising in insurance. "It's a straightforward product which involves no underwriting - in other words, the premium does not depend on factors such as sex or occupation." A 30-year-old should expect to pay about £30 a month for a monthly income of £1,000, says Mr Morris, and the payouts are not subject to tax or National Insurance, so if you choose an income equal to your take-home pay your lifestyle shouldn't suffer. But it's important to note that you will receive these payments for a maximum of a year, while there is usually a three-month gap between losing your job and receiving the first payout. And you won't be eligible to claim if you take voluntary redundancy. "If you fear that your job might be at risk, this type of insurance can provide a safety net," says Mr Morris. "But if you have specific knowledge that redundancy is on the cards, you must disclose this to the insurer, who will almost certainly decline to cover you." Another way to avoid the perils of redundancy is to boost your chances of keeping your job. "The key to surviving in an organisation is good networking," says Michael Moran, the chief executive of Fairplace, an "outplacement" agency that helps employers find jobs for redundant employees. "It is essential that those with the power to hire know of you and your capabilities." Even if this does not keep you in your existing role, it should increase your chances of being offered an alternative by your existing employer or of finding a new job elsewhere, adds Mr Moran - or even of being rehired in the future. "Never burn your bridges," he says. "If you think you may be made redundant, work your way quickly around your contacts in the company to help you find a new job. And it's not unheard of for companies to rehire redundant staff when they have weathered their financial problems." But even assiduous networkers won't always be able to avoid losing their job. Companies have to follow certain procedures when they make people redundant and must pay either the statutory redundancy payment or the amount agreed in your contract, if higher. If they don't follow the procedure or fail to pay the amount you are entitled to, you can take them to an employment tribunal. (Citizens Advice, the charity, has more details on its website.) Statutory redundancy payments are calculated as follows: you get one and a half weeks' pay for each complete year of employment if you are aged 41 or over; a week's pay for each complete year for those aged between 22 and 40; or half a week's pay for each complete year if under 22. "Good employers typically pay twice as much redundancy as the statutory minimum," says Mr Moran. "You could get two to three months' more money." And redundancy pay is tax-free. "You can receive up to £30,000 in redundancy money before it is subject to tax and National Insurance," says Stephen Herring of BDO Stoy Hayward, the accountancy firm. But if you get payment in lieu of notice instead (or in addition), this money may well be taxable, he says. If you are fortunate enough to be due more than £30,000 redundancy money, you will be taxed at your highest rate of income tax on the excess. But there is a way round this, says Mr Herring. " If your employer puts any amount over £30,000 into your pension fund, you won't pay any tax. This tax-efficient route can be a good idea if you don't need access to the money there and then." You could also be entitled to a rebate of the tax you have already paid on your normal salary. This is because you get your tax-free personal allowance in weekly or monthly slices throughout the tax year; if your salary is suddenly cut off six months into the tax year, say, you'll have clocked up just half of your tax-free allowance. If you earn no more that year, the taxman will rebate the other half. "If you do lose your job, tell the taxman at the end of the tax year - you'll probably get a refund," says Mr Herring. "But if you have no intention of getting a new job before the end of the tax year, tell the Revenue straight away - they may send you an immediate refund." It's a good idea to check your finances generally if you are made redundant, he adds. "Those paying into a personal pension, for example, could find themselves contributing too much over the course of the year if they don't reduce their payments on redundancy. If you contribute more to your pension than your total earnings that year, you lose the tax advantages." You'll probably be entitled to certain state benefits if you don't find another job, although many won't be paid straight away. Citizens Advice can provide you with more information and help you make a claim. When you start looking for a new job, there are better strategies than sending your CV to every employer you can think of, says Mr Moran. "Redundancy is not the worst thing in life but it is stressful. Give yourself time to adjust to the transition. Don't take a scattergun approach, firing off your CV to all and sundry." He suggests using any career counselling or outplacement advice that's offered and tackling the search for a job in an organised way. "Identify organisations that have a propensity to hire people with your set of skills," he says. "Of these, target 15 or so. Identify the person who can hire and use your networks to find a connection and arrange a meeting. "Then the trick is to make yourself someone they want to hire. Here, it's important not to let redundancy damage your self-confidence. Remember that, credit crunch or not, finding good people is still very difficult." Useful links: |
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