Out of Work

I think I can claim to be a specialist in giving redundancy advice because that was my main occupation in the late 1970s and early 1980s when my clients employed by the likes of British Rail as was, British Steel as was, Daily Mirror and Glaxo. I still advise some of those clients.

Even when you are expecting it, the news of redundancy is still a shock and, of course, lots of people in the public sector are expecting the chop shortly. So the first thing to do is to get your personal finances in as much order as possible. This means paying off any expensive credit card debt or personal loans and seeing how you can reduce your household bills. And while you can play around moving from one energy supplier to another, I think you will find it much more useful to reassess your shopping habits. I buy most of my groceries in my house and have become a keen fan of shops like Aldi and Iceland. I believe that all the fresh fruit and vegetables is on a par and cheaper than the major supermarkets while Iceland has lots of branded products at lower prices. I particularly like Aldi’s German meats even though their special offers in central aisles are a bit bizarre at times. I also choose Aldi for breakfast cereals (notably muesli etc), white loaves at 47p a go and milk at £1 for 4 pints. That’s the same price currently in Iceland and in Tesco. Compare that to £1.65 payable at my local Co-op and £1.60 at my local newsagents. On the other hand, it’s not all one way. By far the cheapest source of salt, for example, is for 750g is just 27p at Tesco but 50p at Iceland and in almost identical containers – one blue, one red.

If you want one or two factsheets on cutting household costs, please let me have your name and snail mail address.

Tax Planning

As you are well aware, the first £30,000 of a redundancy payment is tax free. Above that, tax at 20% used to be deducted but now the canny taxman is going to force companies to deduct your top rate of tax with a reclaim after the end of a tax year. If you think it is going to take you some time to find a new job, and you are receiving a large redundancy payment, it may then be worth your while minimising any other taxable income in the same tax year that you are made redundant. This way you should be able to claim back some tax at the beginning of the following tax year.

If you have built up cash resources then you need to take a good look at them. You obviously want to earn a better return and might want, again, interest paid in the next tax year. And although 5 year accounts currently offering interest returns of 5% (paid annually) are obviously attractive, your money is likely to be tied up for 5 years which might not be a good idea unless you have a lot of it. If you have cash ISAs, you could earn a better return by switching to a different ISA provider. If you have stocks and shares ISAs then it might be worthwhile switching from capital growth investments to income funds. The highest paying of them are likely to be high yielding corporate bond funds which invest in quoted fixed interest securities. Their tax free interest return is around 6%-7% but one or two actually still pay 10% although obviously with a much higher risk profile.

Pensions

On leaving the company you also have a number of pension options if you are in a company pension scheme. If you are in the public sector then that’s likely to be a defined benefit pension scheme which is extremely valuable. One point to note here is that if you are contributing to an AVC scheme run by, for example, Prudential for USS – University Superannuation Scheme – you can take 100% of the AVC money as tax free cash and so reduce the amount of cash payable by the main pension scheme. That, in return, means you receive a higher inflation-linked pension. Not a lot of people know this!

General Conclusions

Being made redundant is a nasty experience because it saps your esteem. I have been made redundant twice when I was a middle marketing manager in my 40s and quickly decided that twice was quite enough. Your three main options going forward are to find a new job, go self-employed or retire. But in the meantime, and possibly in retirement, organising your personal finances more efficiently is a key to survival in a harsh landscape of pay freezes and above average inflation. Now is the time for everybody to reduce their commitments to credit card companies and banks because UK interest rates are going to go up at some time and banks will be adding ever more costs to personal accounts to pay for their errors – not only the credit crunch but also the latest fiasco over Payment Protection Insurance.

Finally, don't forget that you may well be entitled to some modest State benefits and you may well want to sign on to maintain your National Insurance contributions record.

If there is anything I can advise you on personally, please let me know.