The financial impact of redundancy
As UK businesses cut jobs in the wake of coronavirus, what steps can people take to keep their heads above water?
By Steve Smethurst
Ellie Jackson and her husband Scott* have had an eventful few months. As first-time buyers they moved into their new home on the outskirts of Manchester in December 2019, just in time for the birth of their second child in March.
Ellie picks up the story. “Scott had been working an account manager for a large technology company for around 18 months and was in the process of getting his temporary contract made permanent.
“Then, the day before we went into lockdown, he got a call to say that all contracts were being terminated. He got an extra month's pay, but by then my maternity pay had dropped to the statutory amount, which was not enough to support us. It was incredibly frustrating.”
The Jacksons had already tightened their belts as they knew from their first child that money would be tight. Ellie says that fortunately they’d built up some savings, switched to the cheapest utility suppliers and shopped at the better-value supermarkets. However, they now had a mortgage and had recently increased their costs by buying a bigger car.
Mortgage holidays and Universal Credit
“I was really worried about what we would do and how we would manage,” says Ellie. “We realised we'd need to apply for Universal Credit, but that takes five weeks to come through. Our first step was to get a mortgage holiday. That was our main worry because we didn't want to default so early into our 25-year term.
“Thankfully it was a simple process,” says Ellie. The car finance company also offered a three-month repayment break, which eased their concerns. Since then, they’ve added a further three months to their mortgage holiday. “But even with this grace period, there's the worry that it will be over too soon,” says Ellie.
“It has been stressful,” she says, “but because so many people are in the same boat, it meant that you didn't feel alone.”
Prioritise council tax, mortgage and rent
Alistair Cunningham, financial planning director at Wingate Financial Planning , says that the Jacksons have handled their situation well.
“The first step is to look at any liability where there's a legal obligation to pay, such as council tax. Then you need to look at expenses that are essential for day-to-day living like mortgage and rent. There are provisions in the coronavirus legislation that mean you can defer mortgage payments and landlords can't be quite so tough on evictions,” he says.
“Then you can start to look at costs that, while essential, aren’t going to put you at the same risk of legal troubles. This includes your car, heating, lighting and food. There might be room to cut back or see if there’s others who can help. It’s a sad fact that food banks are helping lots of people currently.”
Alistair says that people may need to assess what will happen if they don't meet their obligations on contracts. “Different providers do different things but the implication of having a credit provider come after to enforce a phone contract is far less severe than if they were coming after you for your house. However, in all cases, it is best to speak to your creditor first.”
Think twice before cancelling insurance
On the insurance side, if somebody feels they can't afford to maintain premiums for life insurance or contents insurance in the wake of redundancy, Alistair would “strongly encourage” them to contact their insurer.
He says: “If someone is finding things difficult because they've been made redundant, they'll find it even more difficult if they have an event that causes them to claim on contents insurance. My advice is always is to think how bad it could get if the event that the insurance is meant to cover actually comes to fruition.”
When it comes to investments, he says, most modern contracts – whether pensions or savings ¬– won't have penalty terms for cancelling regular payments. But certain older contracts like endowments that have life insurance built into them, or pension policies with guarantee rates might be too valuable to lose. “It's wise to check with provider that you won't lose any benefits if you cancel or postpone premiums,” he says.
Likewise, some investments may have been arranged to cover just this sort of event. “As part of a plan, there’s not necessarily an issue with using them in the short-term, but I am very cautious about people taking out tax-free lump sums from pension plans and that sort of thing, because it's going to have a negative effect and reduce their benefits later in life.”
A change for the better?
As Ellie mentioned, it can be a worrying time and many people feel under pressure. This is normal, assures Charlotte Ashley-Roberts , who became a careers adviser in 2009 after being made redundant from the pharmaceutical industry. She has since supported more than 5,000 people, almost all of whom have experienced redundancy.
She says: “My experience is that, with regard to the emotional aspect of redundancy, people go through a change curve similar to the Elisabeth Kubler Ross grief curve following the news that they are being made redundant.”
Charlotte’s change curve:
- Denial: “I’m only at risk, maybe they’ll change their minds”
- Anger: “I can’t believe this is happening, how dare they do this in the middle of a global pandemic?!”
- Bargaining: “I’ll take any job. It doesn’t matter if I drop £5k a year”
- Depression/lowest point: “I’m never going to find anything”
- Acceptance: “I’m ready to find a job that I deserve”
She explains that people might move through these stages quickly – for some it may be a couple of days, but for others it could take months. “What’s important to remember is that all of these stages are normal. It’s just the roller coaster we all go through when we're made redundant. Knowing that this is the process helps because, when you're in the midst of it, it feels unwieldy. People can feel powerless or that it's personal but this is totally normal.”
Many are tempted to take temporary jobs, she says, which can lead to permanent roles, but you may need to overhaul your CV and think about any transferable skills.
“In some ways, it’s an opportunity to try out something that you perhaps wouldn't have had the opportunity to try before,” says Charlotte. Although it may not be as easy as you think to pick one up.
“If you've been earning £40k+ a year, and you apply for a job as a delivery driver, you might find the employer thinking: ‘As soon as they find something else, they'll leave us in the lurch,’ she says. “I had one client who wanted to be a thatcher – it was minimum wage, but it really interested him. He had to get across that money wasn't driving his decision, it was his passion for the work.”
And when looking for a new job, it’s important to challenge the thoughts that you have when you feel like you haven't got anything to give. Think about what skills you are qualified for, and how you can use those transferably, she advises.
Another tip she shares is to find five people who you trust and whose opinion you value. “Ask them what they think your strengths are and why they think you’re good at what you do. If you’re feeling brave, maybe even ask them about an area that you might improve on.
“I ask most of my clients to do it, as it's a really good exercise, especially if they're suffering from imposter syndrome. I can't think of anyone who wasn't relieved and a little bit surprised to discover what other people really think about them in a good way.”
It’s also worth remembering that sometimes, being made redundant empowers people to make a change. This has been the case for Ellie’s partner, Scott.
Ellie says: “The job market is so quiet, he’s had to think outside the box. He's always wanted to run a food business and has started a business in lockdown making handmade pies with fillings like mushrooms, chestnuts and ale, which has been going really well, so he's going to pursue that. It shows that good things can come out of everything, even redundancy during a pandemic.”
Finally, remember that redundancy expert Charlotte says that “a year after they'd be made redundant, almost everybody says it’s the best thing that ever happened, because it gave them that kick to make a change.”
* Name and location have been changed
Aviva will always try to be compassionate and support people through temporary setbacks and offer payment holidays where possible. Health customers also have access to a 24-hour stress helpline (see below).
- Find out about our 24-hour stress helpline
- We may be able to offer a payment holiday if you’re experiencing temporary financial problems. Find out about the COVID-19 support available
- How do payment holidays work?