Bouncing back

By DAILY MAIL REPORTER
Updated: 19:00 EST, 1 November 2001

WHEN one door closes, another opens, so the saying goes - but the pause between needs careful planning if you are made redundant.

The first step is to get a P45 form from your employer. This shows your gross pay and the amount of tax paid so far in the tax year, which runs from April to April.

If you have been employed for two years or more, you are entitled to a statutory redundancy payment. This is calculated by multiplying one week's gross pay by the total number of years worked. Unfortunately caps are applied - the weekly pay is capped at £240 and the payment only applies to 20 years of service. For the years you worked aged 41 or over, that figure is multiplied by 1.5. The years worked when you were between 18 and 21 are multiplied by 0.5.

Employers can be more generous than this. The first £30,000 of any redundancy payment should be paid taxfree, and the rest is taxed at your normal rate. But Maurice Fitzpatrick, of accountants Tenon, says that this will happen only if your employer clears the way with the Revenue first. The payment must also be a genuine redundancy package and not a settlement set out in the terms of your employment contract.

Employee benefits such as life assurance, pension contributions and medical insurance will also all finish on redundancy. You may be able to make arrangements to continue them yourself. Bob Marriott, of independent financial adviser (IFA) Marsh Financial Services, says: 'You need to estimate how long it will take you to get re- employed. Then you can decide what you keep, what you can replace and what you can lose.'

He says life cover should be kept on, perhaps as a shorter-term policy to reduce costs, but incapacity cover would no longer be relevant because there are no wages to replace if you fall ill.

With no regular income, saving into a pension would be difficult and it makes sense to stop contributions. However, in some circumstances, you can maintain your allowance for up to a year and pay all your contributions into the pension as a lump sum once you start a new job.

Wanda Eustace, 44, from Weymouth in Dorset, has recently been made redundant from her job in computers with a retail company. It changed its computer systems and wanted to outsource the operation, making Wanda and her team redundant. She has taken advice from independent financial adviser WMC Investment Managers, which was called in by the company to help the team with their financial affairs.

As she was employed for 14 years, her redundancy payment is sufficient for her to take a career break for at least six months. Wanda says: 'I enjoyed my job, but the door is now opening for me to do something I really want to do, rather than something I just fell into.'

Unemployment benefit, now called Jobseeker's Allowance (JSA), comes in two varieties: contribution-based and income-based.

You will be put on to the contribution one first, worth £53.05 a week to a single person aged 25 and over, with no dependants. To be eligible, you must have paid at least 25 weekly Class 1 National Insurance contributions in the year you are made redundant and the year before - or 50 contributions in both. After six months you move to the income-based benefit, again worth £53.05 for the single person aged 25 or over.

Anyone with savings over £8,000, or a partner who works more than 24 hours a week, is unlikely to get this JSA. Savings of £3,000 or over will mean the JSA is reduced. If you don't qualify for the contributions-based benefit, you would go straight on to the income-based one.

Another benefit, Income Support Mortgage Interest (ISMI), helps to pay the interest - but not capital - on mortgages up to £100,000. But you have to wait 39 weeks to get it if you took out a loan after October 1, 1995. If the loan started before this date, you have to wait for eight weeks, then get 50% of the benefit for the next 18 weeks before going on to the full rate.

If you are nervous about redundancy, you might consider asking your mortgage lender about mortgage payment protection insurance, sometimes called accident, sickness and unemployment insurance, which helps pay the monthly bill. The policies can cost about £3 for just unemployment cover and £5 for comprehensive cover per £100 of benefit. For example, it could cost you £15 a month to cover a £300 monthly mortgage bill.

But beware, you generally have to be out of work for between 30 and 60 days before these kick in. The policy must have been started, in general, 60 days before you claim - and many provide cover for only 12 months.