Financial planning for an uncertain job market: part 1 - what to do if you’ve lost your job

• I’ve been made redundant - what money am I entitled to?
• How can I reduce my outgoings?
• What about existing debts?
• Can I claim on insurance?
• Am I entitled to benefits?
• I haven’t lost my job yet – but I’m nervous

The figures are a sobering read: Between April and June 2020, the number of people in work fell by 220,000, the Office for National Statistics reported. It’s the largest quarterly decrease since the depths of the financial crisis in 2009, and there’s no sign of a let-up just yet.

If you’re one of the many people who have already lost their job because of coronavirus, this series is for you. Our posts will take you through the process of protecting your bank balance while there’s no salary coming in, and help you better position yourself to find a new job. They could also give you the inspiration and confidence you need to embark on your own small business.

If you’re still in employment, there’s something for you here too. In particular, our tips for financial planning aren’t just to help people pick up the pieces after redundancy, but better protect those still on payroll should the worst happen. Think of it as a contingency plan and you could save yourself no small amount of panic further down the line.

Future blog posts will look at ways to enhance your CV, where to find work and how to impress at interview. For now, we’ll concentrate on the pressing matter of how to pay bills in the meantime, plus any benefits you might be in line to receive. Losing an income can feel terrifying at the time but, as this post shows, there are ways to tackle the worst of it and plenty of support available.

I’ve been made redundant - what money am I entitled to?

If you’ve been made redundant there’s a chance you’ll be able to claim redundancy pay, either ‘statutory’ (what the law says you’re entitled to) or ‘contractual’ (extra money your contract says you can get on top of the statutory amount).

To qualify for statutory redundancy pay you’ll need to have been employed in your current workplace for two years continuously, to be officially classed as an ‘employee’, and to have lost your job because there was a genuine need to make redundancies. Unfortunately it’s not available if you’ve been in your current job less than two years, or if you’re self-employed.

In terms of the payout you can expect, there’s a handy calculator on the GOV.UK website. Bear in mind that the maximum weekly amount you can get is £538, and you can only get redundancy pay for a maximum of 20 years’ work (so if you’ve been at your job for 25 years, you’ll only get redundancy pay for 20 of them). You won't pay any tax on your statutory redundancy pay. If you work for a firm with more generous redundancy terms the first £30,000 is still tax-free.

If you’ve been on furlough, don’t fret. It won’t affect your statutory rights to redundancy pay or the relevant amount of notice, and will be calculated based on your normal (i.e. pre-furlough) wage.

Once you’ve received your final pay, check not only that the redundancy amount is correct, but that any ‘pay in lieu’ is there too if you’re not working your full notice. Holiday pay you’re entitled to and any outstanding bonus or expenses should also be included. If there’s a problem, your nearest Citizens Advice should be able to guide you. You can also get independent employment advice from ACAS (the Advisory, Conciliation and Arbitration Service). Call it on 0300 123 1100 (8am to 6pm Mon to Fri). 

How can I reduce my outgoings?

Start by creating a spreadsheet of your household income and outgoings and eliminate expenses you can temporarily live without. These could include the daily takeaway coffee after the school run, holidays, subscriptions to your favourite hobby magazine etc. The key question to ask yourself is whether you ‘need’ or ‘want’ these things. Once you’ve figured out what’s not necessary, you can prioritise future spending so you’re only paying for the real essentials.

If you think you might fall back into the trap of over-spending, consider keeping a spending diary or applying for a prepaid card. These are great budgeting tools as you can generally only spend what you’ve loaded on them. Most have mobile apps which will show your balance and spend, making it easier to keep track of where your money’s going.

Some prepaid card accounts come with added rewards, such as cash-back and discounts. Cash-back is usually earned at selected stores and retailers. However, you should check that what you will potentially claw back will be enough to cover costs you may have to pay for using the card. Find out more in our dedicated blog post on the subject.

But giving your family finances a makeover doesn’t just mean cutting out frivolous spending. You can also reduce expenditure by looking for cheaper options on energy bills or car insurance. The latter is particularly worth investigating as the unemployed often (but not always) pay higher rates for their car insurance. You should notify your provider if you're out of work and if the premiums jump it could be worth getting quotes from other companies and moving to a new policy.

There are numerous other ways to make your money last longer. According to the Money Advice Service, for instance, just turning the central heating down by one degree can save an average of £55 each year.

What about existing debts?

You should consider getting in touch with any creditors to discuss ways you can stay on top of existing debts. Don’t bury your head in the sand here. Some might be willing to temporarily accept lower monthly payments, which could take the heat off.

In March, banks agreed to offer a ‘payment holiday’ on mortgages and other loans secured on your mortgage, to people who were struggling to keep up repayments. It’s proved a popular option – according to the lenders' trade body UK Finance, 1.9 million customers have taken a payment holiday since the coronavirus crisis began. That's one in six of all mortgages in the UK.

You can apply for a payment holiday until 31st October 2020 and, once it’s been granted, it'll last for three months. Bear in mind that interest will still accrue in this period, which means you’ll owe more once you do start to repay again.

You might be able to get help with paying the interest on your mortgage through the government’s Support for Mortgage Interest. More information is available here.

Can I claim on insurance?

Potentially, yes. Check your mortgage, loans or credit card agreements for any sign of mortgage payment protection insurance (MPPI) or payment protection insurance (PPI). The first will cover your mortgage repayments when you’re not earning for a limited period, while PPI will cover some or all of your loan repayments or card repayments for up to 12 or 24 months.

Because of the way payment protection policies were sold in the past, it’s possible that you’ve got a policy without realising it, so it’s always worth asking your lender.

Short-term income protection insurance is another policy that could help in the event of job loss. If you’ve had the foresight to take out this insurance (it’s not something that’s attached to other products), you could receive a monthly payout to make up for lost wages. Make the claim as soon as you lose your job and check the terms of your policy thoroughly, as many providers stipulate taking temporary work to tide you over will invalidate your claim.

Am I entitled to benefits?

There’s a good chance you’ll be able to make a claim, although exactly what you’re entitled to will depend on how long you were working for, your National Insurance Contributions to date, the circumstances around how you left your job and what position you’re in as a household.

Navigating the benefits system can seem bewildering and put many people off making a claim. Others are reluctant because they feel they don’t deserve it, for whatever reason. Fortunately, there exist plenty of organisations to guide you through the process and impress on people the importance of taking government help when they need it, not least because it will pay your National Insurance Contributions, which can have an impact on your eventual state pension.

If you’re made redundant, start by looking at Jobseeker's Allowance (JSA), which could give you up to £74.35 a week. Call Jobcentre Plus on 0800 055 6688 to find out how to make a claim (or, equally, claim online). Note that it can take several weeks, even months, to get your hands on the payments so if you're strapped for cash in the meantime, ask about a 'short-term advance’, where the money you're due is paid a little earlier.

Universal Credit is another important benefit for anyone who’s been made unemployed, providing they have savings of less than £16,000. The standard amount is £409.89 a month but that could increase if you have kids at home or rent to pay. This is a means-tested benefit, so any savings or capital you (or your partner, if you live together) have over £6,000 (including redundancy pay) will be taken into account and affect the amount you get.

You can find out more about how benefits work and what you might be entitled to on the GOV.UK website.

I haven’t lost my job yet – but I’m nervous. Are there any steps I can take to protect family finances in the meantime?

Absolutely. These are uncertain times and even if your job isn’t in any immediate danger it’s worth reviewing your family finances, starting with a full budget to make sure you're spending within your means.

It’s also a good time to take advantage of your credit score. If you're in secure employment at present you’re likely to enjoy a better score than if you’d just lost your job, making you a more attractive proposition to lenders and putting you in line to receive better rates. If your existing debts aren’t cheap, compare loans online to find a better option. You might also check out balance transfer deals and best bank accounts.

If you’re in a position to pay off debts with savings, do that now. Credit card and loan repayments will simply add further stress if you do lose your job. But don’t clear out the nest egg completely – keeping an emergency fund in reserve is also sound financial planning.

Our final piece of advice? To keep reading these posts. Later in the series we tackle ways to freshen up your CV, where to search for new employment, and how start a side hustle to supplement your main salary. Should you be worried about your current job, or want extra income, these tips could stand you in good stead.