As Covid-19 lockdown restrictions ease, there are still concerns about what it means for the economy. As the furlough scheme ends, you may be worried about what it means for your job role or you may have already been made redundant. While it’s the short-term challenges that are often the focus, it can affect long-term financial security too.
The Job Retention Scheme, also known as the furlough scheme, has paid employees unable to work due to the pandemic 80% of their wages (up to £2,500 per month) since April. In October, as Covid-19 restrictions lift, it will wind down. This will place some businesses in a difficult position.
A poll by the Bank of England suggested unemployment would increase to 3.5 million. This would be an unemployment rate of 11% compared to April’s official unemployment rate of 3.9%.
If you’re worried about job security, it can be worth taking a step back now to review your finances.
1. Understand the short-term financial challenges
If you’re being made redundant, the first step to take is to secure your short-term finances.
Check what redundancy payment you’ll receive and what assets you can use to tide you over in the coming weeks, this may include an emergency fund.
Your focus should be on keeping on top of debt repayments and essentials, such as utility bills. Check what outgoings you have and whether you can meet these with the existing assets you have. If you need help, seek it, including asking for a repayment holiday on debt if needed. Be proactive, it’s better to ask for a holiday than fall behind on repayments. You’ll still need to pay the money back eventually, but a holiday can give you some breathing space while you search for a new job.
2. Review your assets
Your emergency fund was designed to provide you with financial security at times like this. But it’s also worth reviewing other assets and understanding how they can support you.
These may include savings and investments. While you may not need them immediately, knowing that they’re there if you do can provide peace of mind and a sense of security during what may be a stressful time.
Once you have an income coming in again, it’s worth doing a follow-up review too. This can help you see where you need to divert savings to build funds back up. Even if you’ve not depleted assets while searching for a job, not contributing to them during this time can have an impact. Check to see if you’re still on track to meet goals.
3. Assess if you’ll lose benefits from your employer
Your employer may have provided additional benefits that were valuable to you, such as death in service insurance or other forms of financial protection.
While you may be trying to reduce your outgoings at this time, it may be wise to seek personal protection to improve your security depending on your priorities. Even if you decide you don’t need to replace these benefits, it’s important to understand what has been lost and how it could affect your long-term security.
4. Check your pension
When you’ve lost your job, pensions are unlikely to be high on your priority list. But once things have settled down and you have an income coming in, it’s an area to review.
Even taking just a few months out of contributing to a pension can mean you’re no longer on track to meet goals, especially when you consider employer contributions and tax relief will have stopped too. In some cases, you may need to increase pension contributions to meet your goals.
If you’re over the age of 55, you may be considering accessing your pension early. Make sure you understand the long-term implications of this before you make any decision. Taking a lump sum or income will affect your income in retirement. Accessing your pension may also mean the amount you can tax-efficiently save into a pension is reduced, impacting your ability to replace what you’ve taken.
Whether you’re thinking about taking a lump sum to tide you over or retiring early, please get in touch to understand what this would mean in the long term.
What’s being done to support those that are made redundant?
The government has taken some steps to support those made redundant due to Covid-19.
First, a new law was passed in July to ensure furloughed employees receive statutory redundancy pay based on their normal wages, rather than a reduced furlough wage. You’re normally entitled to statutory redundancy pay if you’ve been working for your current employer for two or more years.
- Half a week’s pay for each full year you were under 22
- One week’s pay for each full year you were 22 or older, but under 41
- One and a half week’s pay for each full year you were 41 or older
Length of service is capped at 20 years. Redundancy pay, including any severance pay, under £30,000 is not taxable.
If you’re made redundant, you may seek to claim benefit to support you in the short term. In March’s Budget, the application process for benefits was temporarily relaxed. Receiving some benefits will depend on your National Insurance (NI) contributions so it’s worth checking your NI record.
Chancellor Rishi Sunak’s Summer Statement also included measures to help people facing redundancy. Many of the steps focused on supporting young workers but there were some measures all could benefit from, including doubling the number of work coaches at Jobcentre Plus and a job-finding support service for those out of work for less than three months.
The Chancellor is expected to deliver the Autumn Budget in the coming weeks, which may include further measures as the situation progresses.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until age 55. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.