29th January 2021
Latest reports from The Office for National Statistics have indicated that Covid-19 is continuing to drive job losses across the UK. It found that for September to November 2020 the estimated UK unemployment rate for all people rose to 5%. This means that an estimated 1.72 million people were unemployed, up 418,000 on the same period the previous year and up 202,000 on the quarter.
Below is an overview of some of the key areas individuals should think about if they are made redundant.
For example, someone who has an annual salary of £36k, has earned £15k so far this tax year and is offered £50k redundancy would owe £4,000 in tax on their redundancy pay.
This is because, the first £30k of their redundancy pay is tax free, but the remaining £20k is taxable. As they have earned £15k so far this year, even with the £20k added to this, they are still within the basic rate tax band, so tax of £4,000 is due on the redundancy pay (20% of £20k).
Please note, individuals could end up in a higher rate tax bracket, depending on their income and redundancy pay.
For example, a debt of £3,000 with a rate of 18% APR, could take 10 years and 10 months to pay off if paying £50 a month, with total interest of £3,495 paid. If that monthly payment was increased to £100 a month, the debt would be paid off in 3 years and 4 months, and interest paid would be only £908. If this was increased to £300 a month, the debt would be paid in 10 months, with total interest of £252 paid.
For example – With a £200,000 mortgage which has a 3% rate of interest over 25 years, you could pay £84,527 in interest over the 25 years. If this is overpaid by £200 a month, the interest reduces to £62,905 over 19 years. If this is overpaid by £400 a month, the interest reduces to £50,209, over 15 years and 6 months, and if this is overpaid by £600 a month, the interest reduces to £41,825 over 13 years.
For example, someone earning £30,000 per year, once they have paid income tax (£3,020), National Insurance (£2,460), pension contributions via salary sacrifice (£2,400), mortgage (£6,000) and loans (£2,400), they may end up with a disposable annual income of around £13,720. Realising that you may only need a retirement income of less than half of your salary to maintain your standard of living can be an eye opener, and make retirement a more realistic option.
Jonathan Watts-Lay, Director, WEALTH at work,
comments; “People
facing redundancy need support to make the most of their finances. It can be a
really challenging time, and it is crucial that individuals are helped to
understand how to manage their finances such as how to budget, manage debt or cut
down their spending and bills. It’s also important that they understand how much
they will actually receive from their redundancy pay after tax, how to make it
last if they don’t get a new job quickly, or even how it could help them afford
retirement when perhaps they thought it wasn’t a possibility. It’s encouraging
that many leading companies already have in place, or are putting in place
redundancy support for employees to help them navigate these issues at a very
difficult time.”
Links to websites external to those of Wealth at Work Limited (also referred to here as 'we', 'us', 'our' 'ours') will usually contain some content that is not written by us and over which we have no authority and which we do not endorse. Therefore please be aware that we do not accept responsibility for the content of any third party site(s) except content that is specifically attributed to us or our employees and where we are the authors of such content. Further, we accept no responsibility for any malicious codes (or their consequences) of external sites. Nor do we endorse any organisation or publication to which we link and make no representations about them.