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City redundancies: how to cope financially
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For those who have been made redundant, or fear they will be, this is obviously a stressful time. You and your family are more financially vulnerable between jobs than at almost any other time. Here is a checklist of points to help you cope financially.

1. Protection

Ask your employer about transitional benefits as part of your leaving package - particularly if you know there is another job on the horizon. You may have a period of six months or more where you have no life cover, no permanent health insurance, no critical illness or family income protection no medical insurance.

These will stop from the day you stop being employed by the firm. You may be able to keep some of these going for a specified period to help you cover the gap. Even if your non-employment period is a lot longer there may be ways of transferring benefit policies from your old employment to you personally which would reduce premiums and avoid having to revert to new conditions, i.e. pre-existing conditions rules under medical insurance.

2. Mortgage

Gearing is fine if you have the stomach for it and can afford the consequences. If not, reduce debt down to a manageable amount. Check your existing mortgage rates with new rates - re-mortgaging can be well worthwhile - but do check redemption penalties.

The "one account" with lenders such as RBS and traditional offsetting mortgages can work well - and with reasonable rates. The advantage of this is that for individuals with large mortgages and large bonuses the mortgage can be paid down easily and increased again as required without redemption penalties or application fees, thereby producing a maximum amount of flexibility and minimum amount of interest paid. However, it is basically a current account and you will need to pay in some of your income into this account for it to work.

Check to see if you have a Mortgage Protection policy - these are sometimes sold with your mortgage and could prove very handy.

School Fees are often the largest annual expenditure and one that is usually a high priority. Look into pre-funded schemes that some schools offer - and if you are over 50 you may be able to use pension tax free cash as an efficient funding vehicle.

3. Tax

Make sure you have the right investment structures or tax wrappers in place to reduce taxation to a minimum. You may be paying 40pc tax when you need only pay 18pc.

Regardless of the investments held, if you are able to use a capital gains tax approach to income generation from a portfolio rather than attract an income tax of 40pc, there can be a significant uplift in your net returns. For example, on a portfolio of £200,000 the savings may be £4,000 on an income of 6pc which is the equivalent of an annual capital uplift of 2pc per annum.

4. Liquidity

Create a contingency plan to cover expected expenses over the short term. Use cash alternatives where possible to reduce the tax liability or put some in your partner's name if they have unused personal allowances or pay tax at a lower rate than you.

If you have cash in your SIPP, you may be able to convert this into liquid capital transferring existing shares that you own into your SIPP - the pension then pays you the purchase price. You will have to pay stamp duty though.

5. Cash

Capital Gains Tax vehicles

Gross rates of around 7.25pc are available in the new CGT vehicles. This means you will be taxed at 18pc (assuming you have used your CGT allowance for the year, otherwise it will be less) rather than 40pc. The downside is that you may only get your capital back and nothing more if equity markets fall below a certain amount.

Cash structures

These can work well over fixed periods with guaranteed rates from around 6.21pc. They can be useful for paying a given amount at a given time - e.g. a forthcoming tax bill on your bonus.

Cash Bonds

Also open ended cash funds within bonds, where the tax liability can be deferred to a period where your tax rates may be lower.

Index-linked Gilts

Index linked gilts are also a good safe haven: there is no CGT payable; they are a low risk government stock with good income yields and the chance of some capital uplift given inflationary economic climate. Generally AERs are around 6pc.

6. Investments

Don't en-cash and move out of the market unless you have to. Use current market downturn to rationalise and clean out the dead wood in your portfolio. If you are in good shape you will maximise the upside when market conditions improve.

When it comes to investments never was the saying 'time-in the market is more important than timing the market" so true. In an inflationary environment you should definitely be holding real assets and discretionary management can add value now rather than the long equity approach.

In addition, you can usually gear against your portfolio and for the optimists this could prove excellent value.

7. Pensions

Do not ignore your pension contributions unless you absolutely have to - it is a very good way of getting the equivalent of top level tax relief on your bonus. Although the basic rate is claimed back through the pension scheme, the additional 20pc is paid directly to you. Remember, you can fill in a claim form in between tax returns.

There are many useful options for drawing capital out of pension schemes - you don't have to buy an annuity until you are 75 - and of course if you if you want to hold cash there are currently some excellent rates to be had.

Julia Whittle, Principal, Punter Southall Financial Management

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