Coping with Redundancy – what happens now?

Unfortunately these days redundancy has become a regular occurrence. Most of us will know someone be it a relative or friend that’s it’s happened to and the aftermath is confusing and upsetting.

In this article we will look simply at what happens in the event of redundancy happening – what are the next steps?

• How much are we going to get?
• What are the tax implications?
• What can we do to make sure we protect and make the most of this lump sum?

How much will the redundancy payment be?

There are two parts to a redundancy payment. The first part is the statutory amount. This is a lump sum payment based on your pay.

All eligible employees are entitled to 2 weeks pay (up to a max of €600 per week) for every year of service, no matter what your age, plus a further one week’s pay. Pay means your gross wages before PAYE (tax) and PRSI are deducted.

The additional amount the company offers really depends on the company. You may pay tax on some of this lump sum.

What are the tax implications?

There are 3 main ways to calculate the maximum tax free portion. You pay tax on the rest at your normal rate.

• The “Basic Exemption” amount is €10,160 plus €765 for each full year of service.
  Example: If you had 12.5 years service, the calculation is worked out as €10,160 x 12 or €19,340. Thus if you are offered a lump sum from the company of €30,000 (excluding the Statutory amount) then you’ll pay tax and PRSI on just €10,660 (€30,000 - €19,340).
• The “Increased Exemption” amount is the same as Basic plus €10,000 if you give up your right to a pension lump sum, if any.
• The Standard Capital Superannuation Benefit “SCSB” uses your average pay for the last 3 years and can benefit those of you with long service. We multiply your average salary by the number of full year’s service and divide by 15. Also, the pension lump sum is deducted if you don’t give up your right to it. “Top slicing relief” may also apply; it compares the tax rate on your lump sum with your average tax rate over the last 3 years.

What can we do to make sure we protect and make the most of this lump sum?

Now you have your lump sum and as you ponder your next career move you want to make the most of this lump sum and use it wisely.

There are many options out there and everyone will have some advice for you.

Here are a couple of questions to ask yourself.

• What are your new incomings and outgoings
• Review all existing savings and policies
• Review all loans and mortgages
• What is your current family situation and what are your future plans
• Will you need to have access to some or all of this lump sum

Everyone’s financial situation will differ – so it’s worth consulting an independent financial advisor at this stage as they will be able to work through the different scenarios with you – and weigh up whether you should use it to help clear some or all debts or whether to invest some for the future – this will give you a clear picture of all your options and some peace of mind as you move forward.

Remember while paying off loans is great, however if you put all this money into your mortgage and you need some at a later stage you may have to re-mortgage to release equity so it’s good to split the money up and use some to pay off debts and put aside some for savings.

There are many different deposit options out there based on differing amounts and terms so you need to suit these terms to your needs – do you need an account with access or can you put the money away for a year or more. Usually the more restrictions on a savings account and the less access the better the interest rate available but make sure you are aware of the small print and shop around.

Investing is another option and this doesn’t need to be risky. Currently a lot of our clients are looking for options where they will not lose any of their money but would like some diversification and the possibility of a greater return as interest rates decrease.

There are lots of different options out there be it deposit or investment based. So again you need to ask yourself:

• Do you need access to some or the entire sum?
• What term you would be comfortable locking the money away for with possibly no access

Here are a couple of the different options available at the moment.

BCP Split Deposit Bond 6

• 100% or 90% capital protection
• Minimum investment €5,000
• Term is 3 years 6 months with 25% of investment maturing after 1 year with 5% gross interest
• 75% of the investment tracks the performance of a basket of 25 high quality companies with strong cash flows and sustainable long term growth prospects diversified by geographic regions and sector
• BCP Asset management has specialised in Capital Secure Bonds for over 17 years – since 1992, 61 BCP bonds have matured, of which 53 have paid out gains to investors.
• This product is deposit based and the capital is secured by Bank of Ireland. The provisions of the Irish Deposit guarantee Scheme apply
• This option is available for investments, pensions & ARF’s/AMRF’s

Bank of Scotland Phoenix 2

• 100% capital protection
• Minimum investment €25000
• Investment tracks the performance of the Dow Jones Eurostoxx 50 Index- this covers 50 stocks from 12 Euro zone countries.
• 8% minimum return or 50% of any rise in Dow Jones EuroStoxx 50 Index, whichever is higher
• No cap on returns – unlimited growth potential
• 3 years 11 months term

New Ireland Secure Advantage 3

• 100% capital protection
• Minimum investment €5,000
• Investment tracks the combined returns of 5 mainstream global indices – invested across 4 continents, across countries, currencies, industries and companies
• Term is 5 years 11 months (An option exists to fully encash on the 3rd anniversary*)
• No cap on potential return
• Ability to manage market volatility to investors’ advantage
• Reduces exposure to equities when volatility is high
• Increases exposure to equities when volatility is low.
• Option available to place 25% of total capital on deposit with secure return of 5% gross fixed for 12 months with access (Min total investment €10,000)

I have just listed the main features of these products but if you’d like any more information just give me a call on 01-8527784 or email me on Caitriona@thewealthshop.com or you can contact us directly on our live advice feature.

There are many opportunities and options available – the key is to collect and understand as much as the information as you can get your hands on and from independent sources.

Another area to examine as you leave your job and take your redundancy is your pension that you’ve been paying into for years – what happens with this and what are your options if you need or would like to take this with you into your next career move.

Our next editorial will look at some options surrounding this area.