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What to do with redundancy payment?

I'm a regular poster here but don't want to be identifiable.

Our small team of four have been called to a meeting with HR tomorrow and I have very good reason to believe that one of us will be made redundant. Two of us would volunteer, if asked and I think I have a good chance of being the one (assuming there is only one) who goes. I think I'm happy to do this but am hoping for a reality check if I give you my circumstances or perhaps some things to bear in mind.

I've been at my current job for 19 years and am a 55 year old woman (56 in September). I am lucky to be in a final salary pension scheme that I'm confident won't revert to money purchase before my retirement date. I'm a widow and my only child is in his 20s and lives away from home.

Anyway, the place I work is very fair and the redundancy terms are very good so I have worked out that if I were to go, I would get approximately £76,000. I know that this is taxable and this figure would fall to around £57,000 after tax at 40%.
I have two debts, a mortgage of £48,000 (house worth about £475,000) and the remains of a car loan £5000. I have £23,000 in premium bonds and no other debts.

I'm thinking that the best thing to do would be to clear my mortgage but I'm worried that I would struggle to find another job at my age. I have friends who have not been able to find any kind of work after leaving a job in their 50s.

I have a partner who I don't live with and he owns a house about 100 miles away. Our plans were to eventually move him in with me but I'm now thinking it might be better for me to sell my house and move in with him. His house is smaller than mine and worth about £250,000 but is in a superb position right near the Crossrail in Reading so I'm thinking his house will be rising much faster in value than mine. He is self-employed and has no immediate plans to retire. His house is also much more convenient for his job than mine BUT it would need some work before I would be happy to move in :D

Would I be mad to volunteer for redundancy? The job I do is in IT but is quite (very) specialist and pertinent only really to the system that my current employer uses so not easily transferable. I'm not too bothered about what kind of work I would do, I could do most office type jobs and would also consider retail. I'm open to anything, really. I know I should expect a large wage drop.

Help!
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Comments

  • PeacefulWaters
    PeacefulWaters Posts: 8,495 Forumite
    When does your final salary scheme start paying out with reduction?

    How much a month do you think you could reasonably live off?
  • Hi,

    I can retire now if I want to lose most of it. My plan was always going to be to retire at 60. I was planning to take the largest lump sum I could (I have a genetic disorder that means I won't make old bones).

    I think I could live very nicely on about £1000 a month provided I had no mortgage or transport costs.
  • El_Torro
    El_Torro Posts: 2,005 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    You have a lot of equity tied up in your house. How soon do you plan to move in with your partner? If you kept your current property as a buy to let how much profit would you make each month? Or if you're not up for being a landlord then selling and investing the profit could give you a decent return.

    In your position I'd definitely be tempted to take the redundancy as the opportunity may not arise again before you plan to retire. Kind of depends on how sure you are about moving in with your partner :)
  • xylophone
    xylophone Posts: 45,750 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    I wonder if it might be worth considering asking your employer to pay as much as possible of your redundancy into your DB pension scheme, sell your house, buy a two bedroom flat near your partner, consider a DC pension scheme which you can access at need, use the balance of your capital as a supplement to income from a part time job? Have looked at jobs availability in Reading?
  • I did consider renting my house out but there's a complicating factor in that I would need to buy my partners (long gone but still on the mortgage) ex for £85,000 so would need to raise that lump sum. Now, I might be able to do that on a very short-term basis but getting it back from the rent on my house would take time. If I made his ex a reasonable offer seeing how I'd be saving her the estate agents commission and did the work required (about £15,000 I reckon) then I would have a good profit but savings rates are pretty low so how much could I expect to earn on say £375,000 or so?

    My house would rent for about £2000 a month.

    Moving in with my partner will happen whether I am redundant or not, we're just not in any great hurry although this might force our hands.
  • xylophone wrote: »
    I wonder if it might be worth considering asking your employer to pay as much as possible of your redundancy into your DB pension scheme, sell your house, buy a two bedroom flat near your partner, consider a DC pension scheme which you can access at need, use the balance of your capital as a supplement to income from a part time job? Have looked at jobs availability in Reading?

    I don't know what a DC scheme is.

    No need to buy a flat near my partner, I'd rather buy some equity in his house so no estate agent fees.

    I think the job market is fairly buoyant in Reading, it's just my age that gives me cause for concern.
  • Lakeuk
    Lakeuk Posts: 1,084 Forumite
    Part of the Furniture
    Check if you have better pension terms if in a reducancy situation, a lot of company final salary schemes offer full terms of the scheme without reduction if you're made redundant, used to be from age 50 but government recently changed it to minimum from 55.
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    I've been at my current job for 19 years and am a 55 year old woman (56 in September). I am lucky to be in a final salary pension scheme ... the redundancy terms are very good so I have worked out that if I were to go, I would get approximately £76,000. I know that this is taxable and this figure would fall to around £57,000 after tax at 40%.

    I suggest you start by making a large enough contribution to a personal pension to avoid 40% income tax this year. Then next year you may be a 20% tax payer and can draw money out accordingly. Before then you could take the 25% Tax-Free Lump Sum.

    Effectively you'd be exploiting your age to use the personal pension as an almost instantly available savings scheme. True you'll earn no interest worth mentioning, but if the money isn't in there for long that doesn't matter.

    P.S. You should probably clear the car debt if it's expensive.
    Free the dunston one next time too.
  • Lakeuk wrote: »
    Check if you have better pension terms if in a reducancy situation, a lot of company final salary schemes offer full terms of the scheme without reduction if you're made redundant, used to be from age 50 but government recently changed it to minimum from 55.

    I think I can do this but at the pension trustees discretion. I think it depends on the wording of my redundancy notice. If it says I have been 'asked to retire' rather than having been made redundant.
  • kidmugsy wrote: »
    I suggest you start by making a large enough contribution to a personal pension to avoid 40% income tax this year. Then next year you may be a 20% tax payer and can draw money out accordingly. Before then you could take the 25% Tax-Free Lump Sum.

    Effectively you'd be exploiting your age to use the personal pension as an almost instantly available savings scheme. True you'll earn no interest worth mentioning, but if the money isn't in there for long that doesn't matter.

    P.S. You should probably clear the car debt if it's expensive.

    Do I need a financial advisor to do this? I wouldn't know where to start.

    I will clear the car loan, I think.
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