Volunteers needed! Could it be time to quit your job?

12 July 2019

Tempted by the generous redundancy package your employer is offering? Here, we weigh up the pros and cons – from the employee benefits you’ll lose to the opportunities you could gain starting afresh and doing something different



Seeking volunteers to quit their jobs is a way for employers to avoid going through a more painful redundancy process, so there are often incentives above and beyond a standard redundancy package.

“Expect a package that is worth more than a compulsory redundancy,” says Michelle Tudor, employment lawyer and senior associate at Barlow Robbins Solicitors. “Your employer might use a higher multiplier to work out your redundancy pay, remove the caps or enhance it by a set amount.”

Additional incentives can also come into play. These might include the removal of any notice period, access to career retraining, or an early retirement package.

However much you receive, the first £30,000 of your redundancy pay will be tax-free, although your employer is required to deduct tax and national insurance from any wages and holiday pay it owes you.

While the package might appear extremely attractive, you will usually be given plenty of time to decide whether it is right for you.

“Employers normally give staff at least six weeks to decide whether they want to volunteer for redundancy,” says Vanda Cox, director of chartered financial planner EQ Workplace.

“Use this time to really understand your options. Your employer will have the final say on who goes, but make sure you know exactly how it might affect you before you volunteer.”


Redundancy – how much would you get?

If your role is made redundant, there are rules governing minimum statutory redundancy pay. If you are an employee and have been working for your current employer for at least two years, you will be entitled to the following:

• Half a week’s pay for each full year you were under 22 years old

• One week’s pay for each full year you were aged 22-41

• One and a half week’s pay for each full year you were 41-plus

There are several caps in place too for the maximum sums employers are required to pay. Weekly pay is capped at £525; length of service is capped at 20 years; and the maximum statutory redundancy pay you can receive is £15,750.

It’s also important to note that some employers will offer more generous redundancy pay, especially if they are seeking voluntary redundancies.

Financial implications

Your finances should be one of your key considerations. Although you might be in line for a five-figure payoff, your regular pay and any employee benefits will stop.

“Think about your overall financial position,” says Sarah Lord, partner in financial planning at accountancy and audit firm Mazars.

“If you’re in the final push, it could be an opportunity to take early retirement but if you’re early or mid-career, you’ll need to assess whether the money will cover your bills until you find a new income stream.”

With contributions to your pension stopping, there is also a risk your retirement savings will be derailed. As a result, where your settlement exceeds the £30,000 tax-free pay, Ms Lord suggests diverting some of the excess into your pension.

“Providing you’re not close to the lifetime limit (£1.05 million in the 2019/20 tax year) and you have sufficient annual allowance (£40,000) or can carry forward any unused allowance from the previous three tax years, it can be very tax-efficient,” she explains.

This diverted redundancy pay would be paid into your pension as an employer contribution, so you wouldn’t need to pay any tax on the money until you withdrew it. Then, as well as being able to take 25% of it tax-free, you might also benefit from being in a lower income tax bracket.

Your employer could also enhance this pension contribution with the savings it makes on national insurance.

“If your employer paid this to you as part of your redundancy settlement, it would pay national insurance at 13.8%,” explains Ms Cox. “Some employers are also happy to put this into your pension.”

Taking voluntary redundancy may also mean replicating some of your employee benefits, especially life insurance and protection policies that are in place to cover your family.

“The cost of replacing benefits such as private medical insurance and life insurance can be high, especially as you get older,” says Helen Richardson, an independent financial adviser at Ascot Lloyd.

Voluntary redundancy can affect other elements of your finances.

Ms Richardson explains: “Protection policies covering unemployment do not pay out in the event of voluntary redundancy. It may be better to seek compulsory redundancy if these policy terms would affect your financial health but consider the figures carefully.”


“I’d planned to retire early, but I’m really enjoying my new career”

When Richard Frost, 50, was offered redundancy in 2016, his first thoughts were of retirement. “I’d been a civil engineer for 27 years, working for the last 17 in the rail industry,” he explains. “I had no firm plans but retiring at age 55 seemed like a great idea.”

With this in mind, he spoke to his financial adviser, Explore Wealth Management, to see how the figures stacked up. It looked at his finances and confirmed that, with a redundancy payment and by working as a consultant for the next few years, his retirement plans were on track.

But Richard’s plans changed dramatically when he stopped working. “I’d decided to take six months off to work out what to do. To keep busy, I booked a week-long furniture-making course,” he explains.

Three more woodwork courses and a short break in the Lake District later, and Richard went back to his financial adviser.

“I’d really enjoyed the courses and while I was in the Lakes, my friends and I had been chatting about what we’d do if we had the chance,” he says. “When I said that I would have gone into furniture making, I thought ‘why don’t I do that now?’”

After looking at how such a move would affect his finances, his adviser recommended that he went for it. “He said to me: ‘What’s the worst that could happen? Give it two years and if it doesn’t work, go back to your original plan,” says Richard.

With this advice, he used some of his redundancy pay to fund a year’s woodwork course at Waters and Acland Fine Furniture School in Cumbria before setting up his own design company, Richard Frost Design (Richardfrostdesign.co.uk), specialising in bespoke fine furniture. “I’ve already made several pieces to commission; it’s very exciting,” he says, adding that his age-55 retirement plans are now on hold. “One day I’ll retire but, for now, I’m really enjoying my new career.”

Is it right for you?

Although the deal will be a major factor in your considerations, there are plenty of other things to weigh up. If you want to stay in employment, it is prudent to explore your prospects.

“Speak to a recruitment consultant,” says Ms Tudor. “They will be able to give you an opinion on how quickly you could find another job and where you might benefit from additional training.”

But your future remuneration doesn’t necessarily have to come through employment. Voluntary redundancy can often be a springboard for setting up a business or taking early retirement or a combination of these options.

“Portfolio working [freelancing on a number of projects for different organisations] is increasingly common nowadays and if you’re over 55, you could take advantage of pension freedoms to supplement your income from your retirement savings,” Ms Cox explains.

There is also a bit of a numbers game to play. As well as thinking about the strength of the company, and whether compulsory redundancies with potentially smaller settlements are a possibility, it is also worth looking at the chance of being selected for voluntary redundancy.

Even if you do put your name in the hat, there is no guarantee your employer will select you. For some people, having signalled a desire to leave can make it difficult to remain with the company, so be prepared for this outcome.


Five tips on voluntary redundancy

• Think carefully about what you want to do. Voluntary redundancy can be an opportunity to change career, set up a business or take early retirement.

• Assess your employer’s financial strength. If its finances are under pressure, this could be a forerunner to compulsory redundancies with potentially smaller settlements.

• Speak to a recruitment consultant to understand your prospects in the job market and whether you need to retrain.

• Work out the financial implications of quitting your job including how long your redundancy pay migh last and whether there will be additional expenses such as life insurance or replacing a company car.

• Negotiate, negotiate, negotiate. Everything from your mobile phone to the level of redundancy pay you receive is up for grabs, so don’t be afraid to ask for extras.

Negotiating a good deal

A set redundancy package may be on the table, but Ms Cox says there is often room for negotiation.

“Just about anything is up for grabs,” she explains. “It will often depend on how flexible the employer is, but you might be able to secure training or negotiate part-time work to fit in with your retirement plans.”

If a company is cutting staff to save money, consider asking for items such as your laptop, mobile and even your company car. As these items date quickly, they will be of little use to your employer. It may also be possible to negotiate an extension on your employee benefits, which could be useful if you are in the middle of treatment on your company’s private medical insurance.

“Employers will sometimes let you keep your benefits for a further six months,” says Ms Tudor. “It’s always worth asking.”

Training can also be up for negotiation. Many employers provide outplacement services to help with career advice but some will also be willing to pay for training, even if it is for a completely different job.

While there is plenty of upheaval associated with voluntary redundancy, it can be a very rewarding choice.

This article first appeared in our sister magazine, Money Observer.

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