Redundancy Payment

funkey_monkey

Hi,

I'm being made redundant and as part of this I will be getting approx £20k payment by my employer.
I have already paid the £15k max into my ISA for this year.

What options do I have for this money? The savings accounts I have currently are sitting at around the 2% interest mark.

Any advice appreciated.

Thanks.

bowlhead99

The Santander 123 current account pays 3% on £20k, so that would give you the best guaranteed return without using multiple accounts.

If you already have a job lined up and don't need the money for the next 10-20 years you could invest it. The most efficient way could be within a pension, reducing your current year tax bill, but you won't be able to access it until age 55. So alternatively just buying some investment fund that you move into an ISA when next year's allowance comes round.

It's unlikely that putting it in a savings account st 2% is worthwhile because whether you don't need the money in the short term (in which case, use investments) or you do need the money in the short term ( in which case, use high-interest current accounts), it's unlikely that you really want to get just 2% or less, which will barely cover inflation over the next year.

gazapc

Do you have a job lined up an/or skills in demand? If not then using some of the cash to fund improving yourself is likely to be both rewarding and also good financially in the long term.

In this sort of case all sorts of variables come into play and its very difficult for strangers to offer suggestions when they don't know anything about your financial or personal position and goals other than you've filled this years ISA.

colsten

when do you need how much of the money? how old are you? when do you expect to return to work? what are your pension arrangements?

atush

If you wont need the money and you have cash savings and have maxed this years ISA, then pension.

funkey_monkey

I'm 85% confident about havign a job lined up. I am planning on a property purchase within the next year if I settle well in next job. However, I have sufficient funds already in place to handle this matter. I'm 36 years old and have no commitments.

kidmugsy

funkey_monkey wrote: »

I'm 85% confident about havign a job lined up. I am planning on a property purchase within the next year if I settle well in next job. However, I have sufficient funds already in place to handle this matter. I'm 36 years old and have no commitments.

Then hold back on the pension contribution until both the job and the property position is clearer. As already suggested, an interest-bearing current account could be the best answer. You might be wise to open it while you are still employed.

HardCoreProgrammer

atush wrote: »

If you wont need the money and you have cash savings and have maxed this years ISA, then pension.

You seem to be a big fan of pensions. Unfortunately, in this case I see little tax/monetary benefit.
There is no tax to pay on redundancy payment up to 30k, so there is no extra tax mitigation benefit (e.g. for somebody who gets 40k redundancy and puts 10k in the pension, who would otherwise pay 40% tax) by sticking it in a pension.
Once in a pension, you cannot get the money out until at least 57 and probably getting the money out is subject to pension/tax rules in 21 years time (OP is 36). All that time, the money is sitting duck for government tax grabs.
There is nothing magical about a pension. If on higher tax rate, move all high-yielding shares/income funds into ISAs, all low-yielding shares/growth funds outside ISAs, then drip-feed the redundancy money into the low-yielding shares/funds. Done and dusted.

HardCoreProgrammer

Posted twice in error. Duplicate removed.

colsten

HardCoreProgrammer wrote: »

You seem to be a big fan of pensions.

anyone seriously thinking about their income in their later years will be a big fan of their own pension provisions.

HardCoreProgrammer wrote: »

There is nothing magical about a pension.

You could argue there is actually quite a lot magical about a pension. As you rightly say, the money is locked up until you are in your late fifties at least. This saves you from yourself, and any urge to spend the money. Money in pensions is also protected in several ways - it doesn't need to be declared for means-tested benefits, and it doesn't form part of a person's estate for tax purposes. In a pension, you also don't need to account, and pay, for dividend tax and CGT. Nobody can predict future taxation and legislation but it would take a very suicidal government to significantly upset what will be the largest electorate for several decades hence.