Redundancy is one of those life events that can knock the confidence out of even the most resilient people. Even when it’s expected, the moment it becomes reality can feel overwhelming. Recently, a prospective client came to me in exactly that position – anxious, uncertain, and understandably worried about what the future might hold.
What happened next became a perfect example of how the right financial planning can transform a stressful situation into a genuine opportunity for long-term security.
The Situation: Sudden Change and Big Concerns
My client had earned £40,000 so far this tax year and had just been informed they would be receiving a redundancy package of £99,000. Their immediate question – one I hear often – was:
“How much of this am I going to lose in tax?”
It’s a natural worry. Redundancy payments often cause income to spike unexpectedly, pushing individuals into higher tax brackets and reducing their personal allowance – a double hit that can significantly increase how much tax they owe.
The First Look at the Numbers
When we examined the figures, the picture looked challenging:
- The first £30,000 of a redundancy payment is tax-free.
- But the remaining £73,000 is fully taxable.
- This pushed their total taxable income for the year to £109,000.
Crossing the £100,000 income threshold triggers the tapering of the personal allowance – effectively creating a tax trap where the marginal rate can reach an eye-watering 60%.
In this case, the client was set to lose a portion of their personal allowance and face a tax bill of over £32,000.
Not the fresh start or financial breathing room they were hoping for.
The Strategy: Using Pensions to Turn the Tables
This is where tailored financial planning becomes invaluable.
After discussing their long-term goals – particularly the desire for a more flexible and secure retirement – we explored ways to reduce their immediate tax burden and set them up for the future.
The solution:
A £30,000 net pension contribution (equivalent to £37,500 gross).
And the results were transformational.
Here’s what that single decision achieved:
✅ 1. Restored Their Full Personal Allowance
By reducing their adjusted net income below £100,000, we prevented the personal allowance taper – saving tax right away.
✅ 2. Cut Their Tax Bill by More Than Half
Instead of losing over £32,000 to tax, the pension contribution significantly reduced their liability, keeping more of their redundancy payment working for them.
✅ 3. Turned Redundancy Into Retirement Strength
Their £30,000 net contribution became £37,500 in their pension, boosted by tax relief.
The real magic?
It only effectively cost them £20,700 to get £37,500 invested for their future — an uplift of 81%.
A powerful outcome at a moment when they were expecting the worst.
From Stress to Stability – and a New Partnership
The client was so relieved and encouraged by the outcome that they chose to formally onboard with SN Financial Services to support their planning going forward.
And something even more rewarding happened…
They’ve since referred a work colleague who is facing the exact same redundancy scenario — a sign of trust, appreciation, and the real impact that good advice can have during life’s most uncertain moments.
This Is Why Financial Planning Matters
What started as a moment of panic became a chance to:
- Reduce tax
- Boost retirement savings
- Gain clarity
- Make informed decisions
- Build long-term financial security
Redundancy doesn’t have to feel like a setback. With the right guidance, it can become a catalyst for taking control – not just of the immediate situation, but of your future.
If You’re Facing Redundancy, Don’t Navigate It Alone
Whether redundancy is looming or already happening, the key is understanding your options before decisions are made.
There are often smart, powerful strategies available – but timing is crucial.
If you or someone you know is dealing with redundancy, I’m here to help you turn a difficult moment into a long-term gain, just as we did in this case.
Brian Walker https://snfinancial.co.uk/about-us/
Useful link https://snfinancial.co.uk/news/how-to-prepare-for-retirement-checklist/
