Sometimes employers offer voluntary redundancy to avoid having to make compulsory redundancies. Being in this situation can have its benefits, but it’s important to weigh up all the pros and cons before taking voluntary redundancy.
What’s in this guide
Can you afford to take voluntary redundancy?
Voluntary redundancy might seem like a great idea as you get a lump-sum payout that’s usually bigger than what your employer is contractually bound to give you.
But before you decide, it’s important to work out how much money you would have to live on.
Confirm your redundancy settlement
Important
Make sure you get a redundancy settlement figure in writing from your employer.
Start by finding out exactly how much you’re going to get from your employer.
You should be offered a settlement based on:
- your age
- current salary, and
- the length of time you’ve been doing your job.
The figure is likely to be higher than the amount you’d get as statutory redundancy pay.
Are you insured if you take voluntary redundancy?
Check the small print
Many people get a nasty surprise when they discover their payment protection insurance doesn’t kick in when they take voluntary redundancy. Make sure you read the small print.
Next, check to see if you’ve got payment protection insurance, which pays out if you lose your job, on your:
- loan
- mortgage
- credit card, or
- short-term income protection insurance.
Find out whether you’ll be covered if you take voluntary redundancy.
If you opt for redundancy rather than have it forced on you, insurance companies usually won’t pay out.
That means you’ll need to continue to meet your repayments each month. That’s a big expense if you haven’t got any money coming in.
What benefits are you entitled to if you take voluntary redundancy?
As soon as you stop working, it’s a good idea to find out if you're entitled to any extra support.
If you've paid enough qualifying National Insurance Contributions and are looking for new work you may be able to claim new-style Jobseeker’s Allowance (JSA).
You can apply for new-style JSA regardless of how much your household income and savings are and it's paid for up to six months.
If your household income is still very low (or you don't qualify for new-style JSA), you might be able to claim Universal Credit to help with essential living costs and other expenses, such as your rent or bringing up children.
If you're already claiming means-tested benefits, such as tax credits or Housing Benefit, losing your job may mean that you have to apply for Universal Credit instead.
What you’ll get will depend on your household income and your savings – including your redundancy package.
- To find out what you might be entitled to use our Benefits Calculator. On the results page there will be links for how you can apply online.
- If you can't claim benefits you’re entitled to online, call or visit your local Jobcentre Plus. Find the one nearest to you on the DWP website
- If you live in Northern Ireland, contact your local Jobs and Benefits Office. Find the one closest to you on the nidirect website
Make a budget
Look at the money you’ve got going out each month and work out what you’ll need to cover your bills, debts and living expenses.
How long will your redundancy money keep you going for? Voluntary redundancy could change your life – just make sure you’re changing it for the better.
Join our Facebook group
Join our private Budgeting and Saving Facebook group for money-saving tips and support from a community of savers
Search the job market
If you’re keen to move to a new job, change career, retrain or even start your own business, taking voluntary redundancy could be a good first step.
But it’s worth finding out what the job market’s like out there. And be realistic about how long you can last without a regular income.
