Redundancy is one of those life events that you hope never to experience. However, new research from the Chartered Institute of Personnel and Development (CIPD) has revealed that 1 in 4 UK employers are planning redundancies in 2025, rising to 27% in the private sector.
Moreover, according to the Centre for Ageing Better, employees over the age of 50 who are made redundant are three times less likely to return to work within three months than those younger than them.
Keep reading to discover practical strategies for coping if you lose your job when you’re nearing your planned retirement age.
Understand your entitlement to redundancy pay
If you’re an employee and you’ve been working for your current company for two years or more, you’ll usually be entitled to statutory redundancy pay.
How much you’ll get is based on your age, weekly pay, and the number of years you worked for your employer (length of service is capped at 20 years).
You won’t be entitled to statutory redundancy pay if your employer offers to keep you on or they provide suitable alternative work which you refuse without a valid reason.
According to the CIPD research, half of employers planning redundancies in spring 2025 were offering enhanced packages that exceeded the statutory minimum in 2024.
Make the most of your redundancy payout
If you’re not sure when or if you’ll return to work, it’s important to make the most of any payout you receive. It might be helpful to:
- Understand your tax liabilities – Up to £30,000 of your redundancy pay is usually tax-free, but any amount above this is likely to be taxed at your marginal rate.
- Pay off high-interest debts – Clearing the balance on expensive credit cards and personal loans could save you a considerable amount in interest payments.
- Invest some of your payout – If you have other income streams or your payout is sufficient to last a long time, investing some of your money could help you build retirement wealth over time.
Continue to make pension contributions
If you’re made redundant, you and your employer typically stop contributing to your workplace pension.
Yet, some employers’ schemes allow members to continue paying into their fund after redundancy. If this is an option, maintaining regular contributions could allow you to continue building your retirement pot in a tax-efficient environment.
However, you can’t usually continue paying into a defined benefit (final salary) scheme and not all providers will allow you to do so if you have a defined contribution pension.
If you find yourself in either of these situations, you could transfer your pension into a new workplace or private scheme, but you might incur charges or lose some of your benefits.
Alternatively, consider setting up a new pension to continue building your retirement wealth.
Make voluntary Class 3 National Insurance contributions
To receive the full new State Pension (£230.25 a week in 2025/26), you usually need 35 qualifying years on your National Insurance (NI) record.
If you’re made redundant before making enough National Insurance contributions (NICs), you might have a shortfall in your State Pension when the time comes to claim it.
You can request a State Pension forecast on the government website to find out how much you can expect to receive.
If it looks like you might not be entitled to the full amount, it could be worth making voluntary Class 3 NICs to top up your NI record. However, it’s important to check the criteria for making such contributions, as not everyone is eligible to do so. Also, voluntary contributions do not always increase your State Pension, for example, if you were contracted out.
Assess whether early retirement is an option
If you’re not far off your preferred retirement age, you might decide not to return to work.
However, it’s crucial to assess whether you have enough in savings, investments, and other sources of income to support you in retirement.
According to the Office for National Statistics’ life expectancy calculator, a 50-year-old man can expect to live 84 years on average, and a woman of the same age has an average life expectancy of 87 years.
So, if you retire at 50, you may need sufficient wealth to support your chosen lifestyle for more than 30 years.
At Sovereign, we can use advanced cashflow modelling software to give you a clear picture of how your finances might look in retirement, based on your current situation. This could help you make an informed decision about whether early retirement is possible.
Get in touch
If you’re made redundant when you’re close to retirement, this could create uncertainty and worry. Having a sound financial plan in place could provide invaluable clarity, confidence, and peace of mind.
To learn more about working with us, please email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, cashflow planning or tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Workplace pensions are regulated by The Pension Regulator.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Approved by Best Practice IFA Group Ltd on 15/8/25