Making the most of your redundancy pay

Money Advice Service

Getting a redundancy payment can help soften the blow of losing your job. But working out what to do with your redundancy package can be a bit of a minefield. Whatever you decide, don’t leave the lump sum in a bank account that doesn’t pay any interest.

First things first – check all the money is yours

You can work out your statutory redundancy pay using GOV.UK’s calculator.

Even if the money’s in your account, don’t assume your employer has got their tax calculations right.

  • You might owe extra tax on your payout (usually only if it exceeds £30,000), so before spending the cash on other things, contact HM Revenue & Customs to check you don’t owe any tax.
  • The tax you owe depends on your income from all sources for the whole year, so it might not be possible to know at this stage if you will have to pay extra tax. It’s best to put some money aside just in case.

Use your lump sum as regular income

Use our Budget planner to work out how much you will need each week or month, and how long you can make the money last.

Even if the money is for everyday use, you won’t need it all at once. Leave it in an easy-access savings account, or a current account with a high interest rate.

Your redundancy pay can also double up as an emergency fund for unexpected costs. If you have to run it down, try to build it up once you return to work. There’s no rule about how big the pot should be, but most people aim for three to six months’ spending.

Keep up payments on essential extras

If your employment package included extras, such as private health insurance or a car allowance, you might want to budget for them, or consider doing without.

Clear debts

Interest charged on debts is nearly always higher than the interest paid on savings, so it almost always makes sense to pay them off – especially expensive store cards. There are exceptions: if you have interest-free (or very cheap) debt or if there are penalties for early repayment.

Paying into your pension

You get tax relief on the amount you pay into a pension scheme, for example if you’re a basic-rate taxpayer and you pay in £80, the taxman will top it up to £100. But pensions can be tricky, so if you’re unsure what’s the best for you it’s worthwhile getting advice from an independent financial adviser.

But pensions can be tricky, so if you’re unsure what’s the best for you it’s worth getting advice from an independent financial adviser.

Invest in other ways

Many people who don’t need their redundancy money straight away decide to save it or invest it.

Deciding where you want to save or invest will depend on how long you plan to save, how quickly you want to be able to get at your money, and how much risk you are prepared to take.

If, for example, you get a £20,000 lump sum, you might want to keep some of it for everyday use and invest the rest.

Start your own business

Redundancy could be the opportunity you’ve been waiting for, but setting up the business you’ve always dreamed of is not without its pitfalls.

Plan, prepare, and do as much research as you can before committing any cash.

Get some training

Paying for retraining to broaden your skills could make you more employable in the future, or give you the confidence to start something completely new. However, remember that training could make you unavailable for work and affect your entitlement to benefits.

More about training on the National Careers Service website.

This article is provided by the Money Advice Service.

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Some important information about Rest Less Money

We want you to understand the positives, but also the limitations of using our site. We operate in a journalistic manner and therefore all information, guidance or suggestions provided are intended to be general in nature, and you should not rely on any of the information on the site in connection with the making of any financial decision.

When we set out to build Rest Less Money, we wanted to be a trusted place where you could find helpful information about financial matters affecting the over 50s. As a free to use resource, we try hard to provide the best information we can, but we cannot guarantee that we won’t occasionally make mistakes. So please note that you use the information on our site at your own risk, and we can’t accept liability if things go wrong.

Key things to remember when using Rest Less Money:

We do not offer financial advice – As a journalistic site, it’s important to know that we do not provide financial advice. You should always do your own research before choosing any financial product so that you can be certain it is right for you and your specific circumstances. If you are in any doubt, please seek professional financial advice from a regulated financial advisor.

No Liability – please note that you use the information on Rest Less Money at your own risk and we can’t accept liability for how you choose to use the information given on our site. We will often provide links to content or products and services available on other third-party websites. These are provided purely for your convenience and we cannot be held responsible for any content, or any of the products and services offered on any website that we link to.

 

Accuracy of Information – We try to make sure that all the information provided on Rest Less Money is correct at the time of publishing as we want it to be the most helpful resource possible. Sadly, we are not perfect however, and so we can make no guarantees as to the completeness, accuracy, adequacy or suitability of the information available on the site.
Whilst we work hard to try and provide accurate information, deals and prices can change, so whilst they may be correct at the time of writing, providers may subsequently decide to alter them later – so always double check first.

A final note on the Rest Less Community Forums – always remember that anyone can post their opinion on the Rest Less Community Forums, so it can be very different from our own opinion and may not be factual or well researched. Always be wary of any content posted on the forums and be sure to do your own research and due diligence on anything suggested. 

We hope you find Rest Less Money a useful resource and we would welcome your feedback at [email protected] on how to make it even better. For more information on any of the above you can read our full terms and conditions.

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