Having originally targeted 1,400 employee acceptances in early August 2020, Bank of Ireland made the news in September when it was revealed that some 2,000 members of staff applied for their Voluntary redundancy scheme, equating to more than 19% of their overall workforce. The departures were blamed on persistently low interest rates and Covid-19 and will take place on a phased basis through 2020 and 2021 with similar announcements having been made by AIB in recent months while Ulster Bank is anticipated to make announcements in early 2021.
It’s fair to say that job cuts are nothing new in Irish Banking and the fact that all of Irelands major retail banks have reduced their staff numbers by a combined 45% since the Financial Crash of 2008 speaks to this truth. But what about the employee?
How is Voluntary redundancy different?
In terms of differentials, it is important to state Voluntary Redundancy and the severance payment one receives is treated differently than an imposed redundancy. It is the obligation of employers to make this clear during the stages of negotiation, but it is worth remembering and weighing up the benefits of both staying and leaving. Unlike a statutory redundancy payment, voluntary severance pay is taxable. Another key consideration is Jobseekers Allowance. If you leave your role voluntarily you may not be entitled to Jobseekers’ Allowance and if entitled, in many instances a waiting period may be applied which can typically be anything from 5 to 12 weeks.
Who should take Voluntary Redundancy?
If viewed from the perspective of the individual, the taking of voluntary redundancy could be justified across any age group or stage of responsibility whether that means a single person or a family of four. As Financial Planners we would take a more nuanced view on the decision-making process that arrives to that conclusion. The obvious party to consider first is the near retiree who has built up a decade (or even several decades) of employment and is tempted by the lump sum on offer. While understandable, it is important to note that if there were a say, 5 year waiting period before receiving monthly pension payments, personal or State, barring personal investment returns and savings there will likely be no other source of income during this waiting period. It is not uncommon for former employees in their late 50’s and early 60’s to seek part/full employment to fill this stop-gap period having underestimated their annual living expenses.
An individual in their 30’s or 40’s often has a different set of considerations to take into account such as childcare, education costs and mortgage payments, but may opt to take the voluntary redundancy and indeed use the whole payment to lower their mortgage if their partner is in full time employment and can shoulder the burden while a new job search begins.
What happens to my PRSI contributions?
For both young and old there is also the consideration of keeping your PRSI contributions preserved in order to safeguard your long-term State entitlements. In the case of ceasing employment, whether employee or self-employed, if you have paid a minimum of 520 contributions you can opt to pay voluntary PRSI contributions to keep your pension entitlements intact. It is important though to be aware that applications must be made within 12 months of the last PRSI contribution being paid (if self-employed) or credited (if previously employed).
In all instances it is wise to seek financial advice in order to optimise your options and consider the long view thoroughly before signing that consent form.
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