Make redundancy work for you
Redundancy is a fact of life that simply has to be swallowed – especially in a recession. As the UK economy continues to stutter towards a recovery, a wave of redundancies has already ripped through the private sector, while the public sector is starting to reduce its headcount following October's spending review.
But whether you've been employed for six months or 26 years, knowing what your options are if you're made redundant will help you bounce back more quickly.
"Be prepared," says Owen Morgan, commercial director for HR consultancy Penna. "Even if redundancy hasn't yet been announced, knowing what package you would get can help you plan your strategy."
If you're approaching or are already 55-plus, early retirement could be an option. "The earliest age at which you can take pension benefits is 55, but flexibility around pensions means retiring is no longer black and white," explains Tom McPhail, head of pensions research at Hargreaves Lansdown.
"You can take income from your pension and continue to work." This might be worth considering if you'd like to shift to part-time, take on consultancy work or set up your own business.
You can also flex your pension income. As well as taking 25% of your pension as tax-free cash, you can go into an unsecured pension (USP), also known as income drawdown, rather than buying an annuity, you can vary your income or even switch it off altogether.
The rules allow you to take anything up to 120% of an amount roughly equivalent to what you would have received if you'd taken an annuity.
Alison Bailey, head of policy and technical development at The Pensions Advisory Service, recommends undertaking a spot of research to find out whether this is a viable option. "Talk to your pension scheme trustees to get an idea of what you'd receive if you retired now and at different ages," she says.
If early retirement is on the cards, you might also want to consider topping up your pension to benefit from tax relief on your contributions.
This means that for every £10,000 going into the pension pot, you only pay £8,000 if you're a basic-rate taxpayer, with the balance coming from the taxman; it's even more attractive for higher-rate taxpayers. Of this, you could take 25% as tax-free cash, leaving 75% invested in an income drawdown pension.
A couple of factors may make topping up your pension more compelling. Your employer's pension contribution might mean it matches all or part of your contributions or, in the case of final salary schemes, offers a preferential rate when you buy extra years' service.
Changes to the pension rules and the risk of cuts to your income may mean it's important to top up this tax year.
"We're expecting to see the maximum annual contribution fall to around £40,000 next year. But your pension might also be hit if you delay and are made redundant, as you won't necessarily have the earnings to justify continuing contributions," McPhail explains.
Prepare for redundancy
If early retirement isn't an option, whether due to your age or your finances, then you may need to prepare yourself for a job hunt.
Simon North, managing director of career consultancy Position Ignition, recommends undertaking a skills audit: "Think about what you can do and what sort of an employer would value these attributes. You'll then be in a position to look realistically at the options available."
You may also want to take advantage of any training offered, as this will not only broaden your options but may also help you secure another position.
"Whether it's an accountancy or a first aid course, it shows prospective employers you're the sort of person who wants to develop and take on new responsibilities," Morgan explains, adding that it's also useful to step up your networking by signing up to career-based networking sites such as LinkedIn (linkedin.com).
Another valuable move is to overhaul your finances in preparation for potential redundancy. First of all, bump up your savings balance.
Although you might have many years' service and be in line for a reasonable pay off, it's worth building up a financial cushion – and consider boosting your pension contributions to get the maximum contribution from your employer.
Check the details of your insurance policies. Payment protection insurance and accident, sickness and unemployment policies may include cover for unemployment, so make sure you know what's available if you need to make a claim.
It's also important to think about how redundancy will affect you psychologically. According to Morgan, the process can be difficult to come to terms with.
He points to the Kubler-Ross model, which outlines five different phases in response to a major shock or loss, to explain how you might feel.
"Being made redundant can be an emotional rollercoaster, as you'll experience different feelings about the redundancy at different stages," he says.
"These include anger, frustration, bargaining, despair and finally acceptance. It can be a challenge, but if you understand what's happening, it becomes easier to deal with."
Negotiate a better deal
Being well prepared for redundancy will also make it much easier to get the best possible deal. If you can, Richard Simcox, a spokesperson for the Public and Commercial Services Union, recommends contacting your union representative if you have any concerns about redundancy.
"You do have negotiating power, and your union representative will help you secure the best deal. Even where caps are in place, as is the case in the civil service, it's still possible to negotiate on terms."
Pay offs aside, there are plenty of other elements of a redundancy package that can be drawn into the equation.
For example, Clive Rich, principal of legal firm Rich Futures, says that things like help with retraining, consultancy work, introductions and good references can be put on the table at this point.
More flexible ways of working may also be an option. Offering to go part-time or job-sharing with a colleague could enable an organisation to reassess its plans to cull the headcount, enabling you to keep some of your income.
"Maximise your bargaining power," Rich adds. "People often underestimate their position. Evaluate what expertise you have and how this will affect the department if it lets you go.
"This could include things such as the network of people you know, as well as your individual skills and experience. This will also help you take a positive outlook and put you in a much better position when it comes to negotiations."
Both your actions and state of mind post-redundancy will be vital in helping you get back on your feet. You should recognise from day one that the redundancy is not your fault and that you are just a casualty (probably one of many) of your employer's circumstances.
It's also important to keep talking. Many people have been through a similar trauma and hearing about their experiences will give you a context for your situation.
Regarding the process as part of your current job will help you get organised and seek out new opportunities before your pay dries up.
For example, use all the contacts you can muster – professional and personal. Social and professional networking sites are a useful way of reaching lots of people at once.
Lastly, even if you feel bitter about your redundancy, swallow your pride and don't burn your bridges. After all, you have nothing to lose and everything to gain by keeping on good terms with your employer and your HR department.
An alternative to an annuity, income drawdown (also known as an unsecured pension) allows you to take income from your pension fund while the fund remains invested and so continues to benefit from any fund growth. The drawdown of income has to be calculated carefully as taking too much income could exhaust the pension fund so experts say the annual drawdown must not exceed what the assets would normally yield in an average year. The invested pension fund could also be hit by market turbulence and the value of the assets could fall.
A type of derivative often lumped together with options, but slightly different. The original derivative was a future used by farmers to set the price of their produce in advance before they sowed the seeds so that after the harvest, crops would be sold at the pre-agreed price no matter what the movements of the market. So a future is a contract to buy or sell a fixed quantity of a particular commodity, currency or security (share, bond) for delivery at a fixed date in the future for a fixed price. At the end of a futures contract, the holder is obliged to pay or receive the difference between the price set in the contract and the market price on the expiry date, which can generate massive profits or vast losses.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.