How to Make Informed Decisions During a Difficult Time
Being told your role is being made redundant can be one of life’s most challenging moments.
Alongside the emotional impact comes a series of important financial decisions, many of which can affect your finances for years to come.
While redundancy is rarely expected, it doesn’t have to define your future.
With the right advice and careful planning, it can become an opportunity to review your finances, make the most of your redundancy package and plan confidently for whatever comes next.
Understanding Your Redundancy Package
Imagine two employees who both receive redundancy packages worth €70,000.
One accepts the package without fully understanding how it’s structured or how each payment is taxed.
The other takes time to review the package, understands the tax treatment of each element and considers how it fits into their wider financial plan.
Although both receive the same package, one may be in a much stronger financial position simply because they understood their options before making any decisions.
What’s Included in a Redundancy Package?
Every redundancy package is different.
It may include a combination of:
- Statutory redundancy.
- An ex-gratia payment.
- Outstanding salary or bonuses.
- Payment for unused annual leave.
- Payment in lieu of notice.
Understanding exactly what you’re receiving before signing any agreement can help you make more informed financial decisions.
Understanding the Tax Position
One of the biggest misconceptions is that every redundancy payment is tax-free.
In reality, different parts of your redundancy package may be taxed in different ways.
For example:
- Statutory redundancy payments are generally tax-free.
- Genuine ex-gratia payments may qualify for valuable tax relief, subject to Revenue rules.
- Salary, bonuses, holiday pay and payments in lieu of notice are generally taxed in the same way as your normal income.
Knowing how your package is structured can have a significant impact on the amount you ultimately receive.
A Simple Example
Imagine your redundancy package totals €70,000, made up of:
| Payment | Amount |
|---|---|
| Statutory redundancy | €25,000 |
| Ex-gratia payment | €30,000 |
| Outstanding salary and holiday pay | €15,000 |
While the statutory redundancy payment is generally tax-free and the ex-gratia payment may qualify for tax exemptions or reliefs (depending on your circumstances), the salary and holiday pay would normally be subject to Income Tax, USC and PRSI.
Taking advice before agreeing to a settlement can help ensure you understand the financial implications of each payment.
Don’t Overlook Your Pension
For many people, redundancy is the first time they’ve seriously considered their pension.
When your employment ends:
- Employer pension contributions usually stop.
- Your pension remains your asset.
- You may have several options depending on your pension scheme.
These options could include:
- Leaving your pension where it is.
- Transferring it to another pension arrangement.
- Consolidating it with other pensions.
- Reviewing your investment strategy.
- Accessing pension benefits if you’re eligible.
The right decision depends on your age, future employment plans and retirement goals.
Could Redundancy Create an Opportunity?
Although redundancy is rarely welcome, it can provide an opportunity to review your financial future.
Many people use redundancy as a chance to:
- Review their retirement plans.
- Maximise pension contributions where appropriate.
- Reduce debt.
- Build an emergency fund.
- Start a new business or change career.
Taking a step back and creating a financial plan can help turn a difficult situation into a positive new beginning.
Why You Shouldn’t Rush Important Decisions
It’s completely understandable to want certainty as quickly as possible.
However, some of the biggest financial mistakes happen when important decisions are made under pressure.
Professional financial advice can help you:
- Maximise your redundancy package.
- Avoid paying unnecessary tax.
- Protect valuable pension benefits.
- Make informed financial decisions.
- Feel more confident about your next steps.
How Oaktree Financial Services Can Help
Every redundancy situation is different.
That’s why every financial plan should be tailored to the individual.
At Oaktree Financial Services, we regularly help clients understand their redundancy package and make informed financial decisions.
We can help you understand:
- Your redundancy package.
- The tax treatment of your payments.
- Your pension options.
- Whether making a pension contribution could improve your tax position.
- How your redundancy fits into your wider financial plan.
Our aim is to provide clarity and confidence so you can make decisions that support both your immediate finances and your long-term future.
Adrian Godwin is a Senior Financial Consultant and the co-founder and managing director of Oaktree Financial Services. With a background in accounting and tax advising, Adrian specialises in estate planning and wealth management.Adrian offers clients reassurance through best practice solutions. His unique skill set and qualifications enable clients to develop comprehensive life plans that align with their goals.
