8 things to consider if you are about to receive redundancy pay
By TheBoldAge. Published 2021-01-30BOLD-Living
Understanding your options when receiving redundancy pay could be crucial to helping you manage your finances.
1. TaxAny tax which will need to be deducted from your redundancy payment needs to be considered. Some people may find they end up in a higher tax bracket, depending on their income and redundancy pay.
2. Your budgetCalculate your assets, including pensions, savings, Isas, property and investments. Also consider your liabilities – such as a mortgage, other debt, childcare, insurance and utility bills.Look at any other household income and expenses. If the money needed each month is more than what’s coming in, consider what you can do to cover your costs. The Money Advice Service has a budget planner at moneyadviceservice.org.uk/en/tools/budget-planner.
3. DebtsIf you can afford to, it might be worth using some of your redundancy payment to pay off expensive debts.
4. Your mortgageDepending on your circumstances, it may be worth overpaying on your mortgage. Doing this could save someone thousands of pounds in the longer term, depending on the outstanding balance, interest rate and how long is left on the loan.
5. Your retirementIf you are nearing retirement age, you may consider the idea of retiring early. For some people this may be realistic, if they can maintain their living standards.
6. Where you’ll keep your company pensionYou can keep your pension with your previous employer until you retire. Or you could move it to a new workplace pension scheme, or a private pension, to keep savings together.But there can be transfer costs, investment charges are not all the same and the range of investment options varies between schemes – so check before moving your pension.
7. Your pension contributionsIt may be worth considering paying some of your redundancy pay into your pension. There are limits on the tax relief you can receive from pension contributions each year, so check carefully.
8. ScamsUnfortunately, some people won’t think twice about scamming someone out of their redundancy pay. If you are looking for somewhere to keep it beyond your current account, do your research. Before handing over any money, check a firm is regulated by the Financial Conduct Authority (FCA).
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