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Contact us | www.future-financial.co.uk | E-mail your comments | Archive | |
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Protecting your income The first casualties of the credit crunch were those within the financial services community, where banks quickly started to lay off people in an effort to cut costs. Unfortunately, this trend is likely to expand into the 'real world' as businesses find they can no longer get adequate finance from the banks to sustain them through the downturn. Increasing levels of redundancies are likely during the next few months and beyond and it is therefore important to be aware of the steps you can take to protect yourself. First, companies proposing to make 20 or more people redundant must consult a union or staff representative 30 days before any notices are issued (extended to 90 days for firms making 100+ redundant). Employers should also consult each person to be made redundant in a 'dismissal meeting' which sets out the severance package.
One of the most difficult decisions any employer faces is how to select those who will be made redundant. The criteria must be fair and can reflect skills, adaptability, performance and attendance; it cannot be based on union membership or legitimate activities, maternity or other potentially discriminatory aspects. Employers must also, where possible, offer alternative employment as well as time to make a transition without loss of rights; they must also allow reasonable time off for the employee to seek new employment. State benefits can take the immediate financial pain out of the situation and include an age-based Statutory Redundancy Payment (SRP) which, subject to length of service, can provide up to £9,900 in tax free benefits. Employers can pay more than the SRP and anything up to £30,000 (other than contractual payments) is normally free of tax. If any part of a redundancy package is likely to become liable to tax, employers could be asked to put it into a pension contribution; this would save employer and employee National Insurance costs and might appeal to the over 50s (over 55s from April 2010) who can immediately draw 25% as a tax free lump sum and then buy an annuity with the balance of the fund, or leave it within the pension fund. Few people are likely to receive more than the minimum SRP so it is important to consider the adequacy of personal insurance. Many mortgage payment protection schemes include not just illness and accident, but also unemployment. These schemes normally, however, only cover interest payments, not capital, nor do they provide for general living expenses. It is possible to arrange insurance to cover more general income replacement in the event of unemployment - although the market is contracting due to underwriters' fears of increasing numbers of claims during a recession. Such insurance is frequently hedged around with restrictions - many schemes will not cover the self-employed or those working for family businesses - and cover is normally only available for up to one or two years. On the other hand, few people believe that the recession will last for very long, so cover lasting 12 or 24 months should be adequate for most. As ever, you should take individual professional advice before making any decision relating to your personal finances. Key Points: > Unemployment is likely to grow in a downturn > State benefits are minimal but can be topped up > Pension contributions save tax and NI |
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©futurefinancial This publication represents our understanding of law and Inland Revenue practice as at the date of publication. It does not provide individual tailored investment advice and is for guidance only. Rules may vary for Scotland and Northern Ireland. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. The value of land and buildings is generally a matter of a valuer’s opinion rather than fact. The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get the full amount you invested. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Your home may be repossessed if you do not keep up repayments on your mortgage. Loans are subject to status and written details are available on request. Always seek independent advice from a qualified financial adviser. Think carefully before securing other debts against your home. Fees for mortgage advice maybe charged and for details of these please contact us. The Financial Services Authority does not regulate all the activities undertaken by the company, including taxation advice and overseas mortgages. |
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