Redundancy payment - what to do with it?

aclivity

Hi There, looking for a bit of advice as I'm undergoing a lot of confusion at the moment. I'll set the scene first before asking my questions:

I'm currently undergoing consultation in my work and have been told that my role is "potentially at risk" (although in practical terms I understand that I am not going to find another role in the company, given the situation and my role no longer being required).

I've been with the company 7 years, and the predicted settlement payment is quite generous; if PILON is included it will be in the order of £30 - £32k.

My mortgage is currently standing at just under £58k, and we have no other debts, having recently paid off all credit cards and we don't have any other loans (I've been an avid reader, if not contributor, to the "debt free wannabe" forum for a while). Savings are not massive, standing at around £7k, in an offset account against the mortgage. We currently pay £900 / month on the mortgage, which is overpaying as the monthly amount hasn't changed since taking the mortgage out and the interest rates dropped. Currently there is about 6 years left on the mortgage term.

My wife has only returned to work this year after a gap of 9 years, we have 4 children from the ages of 6 to 9. She decided to retrain from her previous employment in marketing and is now working as a pre-school assistant, and as such her salary is quite low (for example, she doesn't earn enough to trouble the tax man very much ... her monthly salary is around £500, so wouldn't even cover half of the ).

So, best case scenario is that I find work straight away or soon after I finish at my current job in mid August. In that case the need to decide what to do with my redundancy payment is less urgent (although spending it on a flashy car or holiday isn't really what I had in mind, probably offset against the mortgage for the remainder of the term, then being used to help my children as they reach adulthood).

Worst case scenario for me is that I am unable to find a new role. My experiences and skills are quite "niche", and only really apply to large IT organisations. With the downturn in the economy, equivalent roles are not coming up very often. If I don't find work, am I better to pay the whole amount (or a large chunk) of the settlement to the mortgage lender, or keep it in savings / extract it monthly to keep going? If I do the latter, then ask for state help in terms of benefits, will they tell me that I have to spend all of my money from savings & redundancy before I can get any benefits? If I do the former, and leave myself with a low mortgage of c. £20k but no money in savings, again would I be eligible for benefit, having c. £180k in "assets", i.e. owning most of the house that we live in?

In addition to the savings, we have about 10k in accounts set up for our children, basically we don't give them any pocket money but there are standing orders set up to give them money each month in their own accounts. If they get given any money for Christmas or birthdays, we try to get them to spend half, save half (although that doesn't always work). The accounts are called "young savers" but essentially they are in our names and the childrens names, and they appear on my online banking screen. I can transfer money out of them via online banking (I don't, but technically I could). Can I ensure that their money is not counted as an asset against which benefits calculations would apply?

Sorry for the stream of consciousness in this post ... as could be expected, I'm a little nervous about the situation. The thing I am most worried about is my children's future, also I don't want to end up having to move them out of their current school unless I really have to; I changed schools often as I was growing up as my dad moved for work and it was unsettling, so I want to avoid that for them. I realise my situation is not as bleak as some people are experiencing, but other than a brief fortnight in my early 20's, I have no experience in state benefits - at the age of 42 I have been earning for 24 years, since leaving school at 18!

Thanks in advance for any advice.

Andy

aclivity

I wonder if there was too much rambling in my first post - I'll summarise the key question instead:

Whilst the usual advice* is to pay off debts, is that still the case when paying off a large chunk of my mortgage would leave me with no redundancy settlement left?

Thanks in advance

Andy

* the usual advice is on the site here: w_w_w.moneysavingexpert.com/savings/pay-off-debts however I cannot post links as I am a new user of the site

Caz3121

You will be entitled to contribution based JSA for 26 weeks irrespective of savings
You are unlikely to be entitled to any means tested benefits (have a look for deprivation of capital)
Even if there were no savings you would not qualify for income based JSA after the 6 months due to wife's income

In your situation I would probably bank a few months cash and offset until you secure other employment then look again at the best use for it. Probably don't want to throw it all at the mortgage at this stage as you will struggle to pay the bills on one low income

best of luck with the job search

Andyboy

Caz3121 wrote: »

You will be entitled to contribution based JSA for 25 weeks irrespective of savings
You are unlikely to be entitled to any means tested benefits (have a look for deprivation of capital)
Even if there were no savings you would not qualify for income based JSA after the 6 months due to wife's income

In your situation I would probably bank a few months cash and offset until you secure other employment then look again at the best use for it. Probably don't want to throw it all at the mortgage at this stage as you will struggle to pay the bills on one low income

best of luck with the job search

I agree with Caz.

Having been recently made redundant I am using money to pay off mortgage but over a 3 year term. This allows for any changes in circumstances whilst still hitting the biggest debt.

Good luck and keep looking at the Redundancy forums for help and inspiration. You never know where it may lead you.:)

aclivity

Sorry it's taken me so long to say thanks for the advice here, it's only after I spotted the "thanks" button on my other thread that I have come back here to use it.

It was very useful to look up the term "deprivation of capital", explained all of the issues that I was thinking about.

Andy

lady1964

We are in a similar situation, we have around £48k left to pay on our offset mortgage and other half lost his job back in April. We had been hugely over-paying our mortgage for some time and also have 2 endowment policies that have around 6 years left. There would be enough in these to pay off the mortgage but we had planned to continue over-paying the mortgage until such time as it was paid off - possibly 4 years time - and leave the endowments running as a nice savings boost in 6 years.

However, job loss changed our plans and with the savings we have already, we knew other half won't get income based JSA (he's currently getting contributions based). I finish my job next month so no income from August so we will be living off savings, hopefully my income protection insurance will pay out and JSA.

We thought hard and decided to just pay the amount we should be paying on our mortgage - £50 per month - and keep paying the endowments and wait & see what happens, we've reduced our outgoings by £950 per month this way. Should other half still be unemployed in a few months time, we will probably cash the endowments in to pay off the mortgage.

Have you considered just paying the amount you're meant to and not overpay? We simply changed the DD (or SO, whichever means we pay by) and we've had no comeback from our mortgage lender.
This might be worth a though for you.