Being made redundant is never a nice experience, however, redundancy pay can soften the blow and even provide a springboard. Although you need to ensure you have enough money to see you through until you start earning again, losing your job could be the perfect time to overpay on your mortgage or start a new business.
– Debt repayment
It is an option to pay down your debts first. The interest you pay on expensive debt, like credit cards or store cards, may be higher than what you could make putting your money into a savings account or investing it. The exceptions being if your debt is interest free or if there are early-repayment penalties.
– Mortgage overpayments
If you are thinking of using a lump sum to overpay on your mortgage, check to make sure your lender won’t charge you for overpaying. Many banks offer an overpayment calculator on their website which can be used to determine the savings you could make by considering overpayments on your mortgage.
– Can you afford to retire?
If you are nearing retirement age, you may consider the idea of retiring early. Depending on your circumstances, this may be more achievable than you think. An individual could use their cash to pay off any outstanding loans and mortgages, and as a result, maintain their standard of living to retire.
– Pay more into your pension
If you can afford to do so, it may be worth considering paying some of your redundancy payment into your pension to boost your retirement savings. For those approaching retirement, this may be a particularly attractive way of providing a final boost to the value of your pension pot. As £30,000 of a redundancy payment is tax free, and the remainder is taxed as earned income, if you are receiving a payment of over £30,000, it may be worth asking your employer to put the money in a pension, which may mean you are able to avoid paying tax on the excess. However, be mindful of the £40,000 annual limit for pension contributions – if you pay in more than this, the excess will not receive tax relief from the government.
– Save it
If you have little, or no, savings, now is the time to change that. Savings account interest rates may be very low at the moment, but we all need some money tucked away in case something unexpected happens. A good ballpark figure is three months’ worth of your typical salary in an easy access savings account.
– Invest it
If you won’t need the money for at least five years, then investing it could be the best way to make that money grow as stock markets have consistently delivered higher returns than savings accounts. Some questions to ask yourself are how long you are willing to tie your money up for as well as your risk appetite. Speak to our wealth management team for advice on investing your redundancy payment.
– Start up a business
Around 600,000 new companies are registered every year in the UK, now could be the time to start that business you’ve always dreamed about.
For more tailored advice regarding your redundancy payment and the best options for you, speak to our wealth management team (01254 679131 / firstname.lastname@example.org).