Sometimes employers offer voluntary redundancy to avoid having to make compulsory redundancies. Being in this situation can have its benefits, but it’s important to weigh up all the pros and cons before taking voluntary redundancy.
Taking voluntary redundancy - can you afford to?
On the surface, voluntary redundancy might seem like a great idea.
A lump-sum payout, which is usually bigger than what your employer is contractually bound to give you, and the opportunity to do something different? Sounds good!
But it’s important to work out how much money you would have to live on.
Confirm your redundancy settlement
Get a redundancy settlement figure in writing from your employer.
Start off by finding out exactly how much you’re going to get from your employer.
You should be offered a settlement based on:
- Your age
- Current salary, and
- The length of time you’ve been doing your job
The figure is likely to be higher than the amount you’d get as statutory redundancy pay.
Are you insured if you take voluntary redundancy?
Many people get a nasty surprise when they discover their payment protection insurance doesn’t kick in when they take voluntary redundancy. Check the small print.
Next, check to see if you’ve got payment protection insurance on your:
- Credit card, or
- Short-term income protection insurance
Which pays out if you lose your job.
Find out whether you’ll be covered if you take voluntary redundancy.
If you opt for redundancy rather than have it forced on you, insurance companies usually won’t pay out.
That means you’ll need to continue to meet your repayments each month – a big expense if you’ve no money coming in.
What benefits are you entitled to if you take voluntary redundancy?
As soon as you stop working, get in touch with your local Jobcentre Plus or Jobs and Benefits Office.
But remember that benefits such as Jobseeker’s Allowance (or Universal Credit) and Housing Benefit won’t kick in immediately.
And, if you’re claiming income-based benefits, what you’ll get will depend on your savings – including your redundancy package – and any other income you have.
- Use a benefit calculator on the GOV.UK website to find out what you might be entitled to
- Call or visit your local Jobcentre Plus to claim any benefits you’re entitled to
- If you live in Northern Ireland, contact your local Jobs and Benefits Office
Use our Budget planner
Use our Budget planner to work out how much money you have coming in and what you’re spending it on.
Look at the money you’ve got going out each month and work out what you’ll need to cover your bills, debts and living expenses.
How long will your redundancy money keep you going for? Voluntary redundancy could change your life – just make sure you’re changing it for the better.
Search the job market
If you’re keen to move to a new job, change career, retrain or even start your own business, taking voluntary redundancy could be a good first step.
But find out what the job market’s like out there, and be very realistic about how long you can last without a regular income.
- Check out the current job market on the GOV.UK website
- Changing your career following redundancy
- Thinking of starting up in business?
This article is provided by the Money Advice Service.