I hold a managerial position earning £120,000 per year, but have seen colleagues at my company at a similar level face redundancy recently.
I’m worried about losing my job, and having not been at the company for very long my redundancy package won’t be that big.
What can I do to prepare and put myself in a strong financial position so that if I do lose my job I am able to fund a period of unemployment until I find something new, without this affecting my retirement saving plans and standard of living.
Harvey Dorset, of This is Money, replies: Yours is a concern that many will have been also facing over the past year.
Figures from the Chartered Institute of Personnel and Development indicate that a sixth of employers expect AI to shrink their workforce over the next year, with junior roles the ones most at risk.
In the summer, data from the body showed that only 57 per cent of private sector employers had plans to recruit staff in the three months to the end of the year, down from 65 per cent a year ago.
With the jobs market in a rut, it pays to prepare for the worst and batten down the hatches in case of an unexpected fallow period
This week, the NHS announced it would slash its headcount by some 18,000 in cuts to administrative staff and managers.
Meanwhile, the UK’s jobless rate rose to five per cent in the three months to September, its higher since early 2021, according to figures from the Office for National Statistics.
For those without the necessary savings or extra income to fall back on, redundancy can be hard to manage.
With the jobs market in a rut too, it pays to prepare for the worst and batten down the hatches in case of an unexpected fallow period.
To find out what you need to do to make sure you can maintain your standard of living and not fall behind if you do get made redundant is Money spoke to Scottish Widows retirement expert Susan Hope.
Susan Hope replies: Losing your job can take a toll, both financially and emotionally, on you, but once your initial emotions settle, turn to the practicalities.
If you’re worried that redundancy could be coming down the line, try and prepare as much as you can in advance by building a savings buffer that can cover your essentials. Then, if you’re receiving a redundancy lump sum, you should also factor this into your plan.
Where it’s appropriate, speaking to a financial adviser can really help with this, but there are some simple things you can do to prepare.
Susan Hope says you should give every pound a purpose
Get clear on finances
First, assess your baseline financial needs.
List your essential expenses — rent/mortgage, bills, food, transport — and compare them to any income or redundancy payments you’ll have.
Tackle any debts methodically, prioritise paying off high-interest ones first.
While it is still considered ‘good debt’ given the low interest rate, affording your mortgage payments is something to keep on top of so you always feel in control of your money.
If you do need support, it is always best to speak to your lender directly.
It’s also a good time to think about your wider financial resilience, not just redundancy.
If illness or injury were to stop you from working for a while, an income protection policy could help by providing a regular tax-free payment to replace your lost earnings.
It’s not designed to cover redundancy, but can act as a useful safety net to help you keep up with essential costs and protect your long-term plans, like your retirement savings.
Next, understand your financial buffer. Work out how many months your savings or redundancy pay can cover your essential outgoings.
In an ideal scenario, you’ll want to have built a buffer of between 3-6 months before redundancy. That gives you your ‘runway’ — how long you can manage before needing new income.
Then, check what’s ending and what you can keep. Speak to HR about benefits that stop when you leave — life cover, private healthcare, pension contributions — and whether any can be extended or transferred privately.
If you can, negotiate a pension top-up before you leave. That can reduce the taxable portion of redundancy pay if you’re receiving more than £30,000 since only the first £30,000 is tax-free).
Finally, give every pound a purpose. This could include a ‘to me, love me’ self-care pot to treat yourself with every now and then or mini-budgets for your redundancy money, such as:
• Living costs – day-to-day bills and essentials
• Emergency fund – for unexpected expenses
• Short-term savings – for upcoming plans or job-hunting costs
• ‘To me, love me’ fund – a small wellbeing and self-care pot just for you
Protecting your long-term financial security
When it comes to reviewing your retirement plans, the first step is to decide what type of retirement lifestyle you want, how much it’ll cost and what you need to do to get there.
Understanding how much longer, or not, you may need to keep working to achieve your retirement goals will ensure you’re on the right track.
Nowadays, there are loads of online tools and calculators, readily available for free and super easy to use, which can help you answer these and lift your retirement planning out of the ‘drawer of doom’:
• What do I have already in my pension fund?
• How much am I paying per month?
• What would I like to retire with?
• What age would I like to retire?
Then:
• Check your state pension entitlement via the free HMRC app. You’ll see if you have NI gaps you can fill — possibly using some redundancy pay —to boost your future income.
• Review all work pensions by logging into your pension provider’s website to get updated forecasts
• Be clear on your retirement lifestyle goals. Use your pension provider’s calculator and retirementlivingstandards.org.uk to see whether you’re on track for a ‘basic’ or ‘comfortable’ retirement.
• Seek expert advice. A regulated financial advisor (find one through unbiased.org or Vouchedfor.org) can help you plan the best route forward.
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