At the time of writing (January 2021), unemployment in Ireland stands at 25% of the workforce due in large part to the Covid-19 pandemic. This is a striking figure, one not seen in over 40 years and one that is heavily comprised sadly of redundancies. It could be a case of LIFO (Last in first out) or a restructuring, but that is of little comfort to those who are experiencing it. Unless you have been employed for a number of years it is unlikely that an employer redundancy payment, if any, will be meaningful enough to provide for your needs in the short to medium term. So where do you go from here?
A wee PUP
You may possibly be currently in receipt of the PUP (Pandemic Unemployment Payment) at €350 a week. While it may be tempting to think this will be sufficient payment for now it could also be misleading to think so. The average rental price of a 3-bed house in Dublin currently stands at €1,914 per month. The PUP payment stands at €1,516 per month that’s before consideration of expenses for children, food or caring for the family. The current jobseeker’s benefit, a figure the government will reduce all PUP recipients down to, stands at €203 per week or a 58% decrease to the current PUP payment. Clearly a review and reduction in expenses is needed, at least in the short term, to assess your new terrain and decide the best steps forward.
Is my pension impacted?
If you did receive a lump sum redundancy payment and you decided to choose the highest tax-free payment available this may have a knock-on effect on the tax-free lump sum you can take at retirement or if retiring early. If over the course of your career you have received more than one redundancy payment these sums will be accrued also and offset against any tax-free lump sum at retirement. The current tax-free lifetime threshold is €200,000 and this applies to statutory payments and lump sum pension payments received previously or to be received. Anything beyond the €200,00 limit is taxable and this includes Ex-Gratia payments and payments made in Lieu of notice.
How should I best allocate these funds?
This would largely depend on your individual circumstances and objectives. Financial Planning at its core is about prioritisation and that may mean for example covering daily expenses prior to finding a new role, contacting existing service providers to seek a renegotiation of terms, taking six months off to assess what you want to do next or, circumstances providing, using your redundancy payment to lower your mortgage balance. As Financial Planners we could only advise on the multiplicity of options once we know your financial reality as well as your life obligations.
Redundancy is often said to be like a traffic light. Temporary in nature and prone to change. It’s your drive to return to the work force that turns it green.
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