Being Made Redundant

The Client

Susan is aged 53 and married to Andrew, who is aged 57, retired and a basic rate income tax-payer.
She has held a very senior position with a prominent public sector employer for many years and is used to being well remunerated, commensurate with her responsibilities, experience and expertise.
As part of an effort by her employer to ease some of the financial difficulties it finds itself in, resulting from stiff competition in a very tough sector, Susan has just received the unexpected news that she is to be made redundant in a few months time.
Susan and Andrew want to be able to make sense of the ramifications of this news, not least because they are both now concerned that their preferred lifestyle is at risk and that there is a danger they will run out of money.
Also, because of the level of Susan's earned income in this tax year, coupled with her redundancy settlement, pension and 'Golden Handshake' entitlements, they are particularly worried about the prospect of being caught by the new top income tax rate of 50%.
They are also concerned about the recent legislation which would see her Personal Allowance withdrawn once her earnings exceed £100,000, resulting in an effective tax charge of 60% on a proportion of her income.

To assess and explain to Susan and Andrew the implications of Susan's redundancy from a financial, taxation and longer-term lifestyle point of view.
Given the impending legislation which would mean Susan would have to wait until at least age 55 before being able to access her pension benefits, we needed to determine whether she should take them immediately whilst she had the opportunity, or defer them for at least 2 years.
To establish whether Susan needed to find new employment and until what age she would need to continue working to maintain her and Andrew's lifestyle and achieve financial independence.
To minimise the amount of income tax Susan would have to pay on her income.

Constructed a bespoke financial plan for Susan and Andrew, which showed them clearly what their financial future looked like.
Determined the shortfalls and risks to them achieving their objectives and then, following in-depth discussions, outlined the actions required in order that they could maintain their desired lifestyle and never run out of money.
Identified that Susan would need to search for a new job within a particular salary range and return to work until she was aged 56, whereupon she would be able to retire safe in the knowledge that she and Andrew would be able to realise their goals.
Demonstrated that despite suffering a small actuarial reduction in the value of her pension benefits, it would make almost no difference to Susan and Andrew's long-term financial position to take the benefits immediately, and indeed, it would protect their plans in the event that Susan could not find new employment either quickly or at all.
Encouraged Susan to take advantage of the option to spread her 'Golden Handshake' payment across 3 tax years, in order to avoid the 50% rate of income tax.
Created a broad tax saving strategy, which among other things, involved the optimisation of asset ownership between Susan and Andrew, and sensibly maximising pension contributions.

Provided Susan and Andrew with clarity about the difficult and important decisions they needed to make - and showed them that their financial independence day was not as far away as they had thought.
Saved around £20,000 in income tax by spreading the Golden Handshake payment over 3 tax years and thereby avoiding the 50% income tax rate.
Prevented the loss of Susan's Personal Allowance and an effective income tax rate of 60% on a proportion of her income, by maximising pension contributions, saving around £1,300 per annum whilst she continues to work.
Transferred income producing assets to Andrew and saved around £1,200 per annum in income tax.