How to deal with ‘redundancy anxiety’

Whether you are early career, somewhere in the middle, or an older worker, we suggest four ways in which you can deal with anxiety over losing your job.

Who hasn’t experienced the stomach-sick 3am thoughts about what would happen if you were to lose your job? From fears about how long you will be able to cover your mortgage or rent, to concerns about how you will afford food shopping, many people are likely to experience some kind of ‘redundancy anxiety’ given that the UK is already in recession, according to the Bank of England.

Fears about losing your job aren’t unusual, but it’s important to try and safeguard your mental health. For example, if you start working excessively long hours to demonstrate your worth to your boss, this may not only lead to burn-out, but it is unlikely to save your job if your employer is forced into cost-cutting measures, or if they are intent on a ‘restructure’.

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So, whether you are early career, mid-career or coming towards the end of your working life, we suggest ways in which you can deal with anxiety over potential job loss and avoid losing too much time to rumination.

1) Know your finances and be prepared

It’s only by understanding your monthly expenditure that you can work out what you might be able to live without. For example, from cancelling subscriptions to the likes of Pasta Evangelists and streaming services such as Disney+, to reading the contract for your gym membership, being aware of which costs can be eliminated or trimmed if necessary is vital. I’m not an Excel whizz, but I do find a spreadsheet useful for listing your outgoings, as even a maths no-hoper like me can use the SUM tool to add up the columns.

At the time of writing, the UK is experiencing a cost-of-living crisis, so many people have already been forced to cut back on luxuries. However, some direct debits are set up to auto-renew, and other cancellations require you to give sufficient notice, so it pays to be aware of cut-off dates and when you might be unwittingly tied in again.

In terms of preparing for the worst, review the overall benefits package your employer provides, which if you are lucky, is likely to be more than your annual salary. For example, many firms offer life insurance and private health care, which may be particularly valuable if you have dependents, and given that NHS waiting lists post-pandemic are under pressure. The cost of medical insurance rises when you are older, so if you are aware of exactly what work benefits you have, this puts you in a stronger position to negotiate a potential extension should the axe fall at work.

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Take some time to form a mental plan B of the steps you would take if the worst were to happen. If you know that you will really struggle to pay the bills should you not find another job quickly, consider whether you could take in a lodger, for example, to help bring some money in.

Spend some time getting your LinkedIn profile up to date and make as many useful connections as possible. It sounds trite, but you never know when your professional network might be able to help or make a useful introduction. Even if fears over your job come to nothing, time updating your profile won’t be wasted and it could lead to a better opportunity in the future. In addition, ensuring that your CV reflects your most-recent experience means you can hit the ground running if you need to apply for other roles.

Take a few minutes to take stock of your wardrobe, too. Do you have something suitable for interview? If possible, identify a go-to outfit rather than wait and face having to fork out for something in a rush at a time when your eye will be on your budget.

Consider speaking to a recruitment consultant. They may be able to shed some light on how easily you may be able to walk into a new job at a suitable salary level. Also, take some time to look at job vacancies that appeal. What kinds of skills are they asking for? Can you do any part-time courses or volunteer work to upskill?

2) Know your rights: statutory redundancy and enhanced payouts

If you have been working for your employer for at least two years, you are entitled to:

• half a week’s pay for each full year you were under 22
• one week’s pay for each full year you were 22 or older, but under 41
• one and half week’s pay for each full year you were 41 or older

Your weekly pay is the average you earned per week over the 12 weeks before the day you got your redundancy notice, and the length of service is capped at 20 years.

If you were made redundant on or after 6 April 2022, your weekly pay is capped at £571, and the maximum statutory redundancy pay you can get is £17,130. All statistics are taken from the gov.uk website.

However, many employers will offer above statutory redundancy pay, especially if they are seeking voluntary redundancies. And it is in this instance that you may also be able to negotiate a package. Also, it may be possible to extend benefits such as medical insurance cover for, say, a few months after you leave the firm if you are already undergoing treatment.

If you walk away from a company with a redundancy payment, you do not pay tax on the first £30,000.

If you are at risk of redundancy, and you like the company you work for, don’t forget to visit the internal vacancies webpage, as there may be a way for you to make a welcome change of direction career-wise without losing your income.

3) Is redundancy your route to early retirement?

If you are 55, you could take advantage of pension freedoms and access your pension from this age. Money from your pension, along with a redundancy payout, could sustain you until you reach state pension age.

If you are close to 55, and have sufficient savings, you may be able to live on them and your redundancy payout until you can take advantage of pension freedoms.

However, any decision to access pension wealth should not be a snap one, and you must ensure that your pension pot can support you during your lifetime.

Becky O’Connor, interactive investor’s head of pensions and savings, says: “It can be difficult to predict what will happen to your pension pot value as a result of changes in stock market performance and things such as inflation. It can also be hard to predict your own outgoings over your retirement. Even with a careful budget, you can be hit by sudden and unexpected expenses later in life. There is also always the chance you might live a lot longer than anticipated.

“When forecasting your sustainable withdrawal rate, it’s best to err on the side of caution. Don’t factor in too-optimistic investment growth rates and build in a buffer. Remember that although your expenses are likely to be higher in the early years of retirement and drop off, there can also be financial demands later that you didn’t foresee, for instance, helping out adult children or even grandchildren.”

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It’s vital to bear in mind that you might have a bigger tax bill in one tax year as a result of a redundancy payout, so it is important to make plans based on a net redundancy amount rather than gross.

As well as retirement being a new financial chapter in your life, it is also a big personal adjustment with a new daily routine. Before you retire, it is worth planning how you will spend - and fund - your time once the thrill of not having to go to your 9 to 5 fades.

If you are early career or mid-career, retirement is not an option, and you will need your redundancy money to pay vital bills until you can find another source of income. However, if you think you can afford to, and you received a generous package, it may be worth diverting some of the redundancy cash into your pension, as you won’t pay any tax on it, and the power of compounding means this could benefit you over the long term.

Bear in mind, however, that for pensions the Annual Allowance is £40,000 or up to your maximum earnings, whichever is lower, so ensure you don’t go over this limit when you pay redundancy money into your pension, or you will be taxed. 

If you have a very large redundancy payout, you might be able to use any annual allowance you did not use from the previous three tax years– known as ‘carry forward’.

4) Don’t look back, look forwards

Redundancy can sometimes work out for the best, but it is also an extremely stressful and worrying time and any form of rejection never makes people feel good. However, losing your job might give you the opportunity to move into a field of work you always wanted to. Maybe you could set up a business or turn a hobby or passion into a job.

Case study: how the threat of redundancy led to a side hustle and a new career

After her degree in archaeology and environmental science, Becky Wash (pictured above) started working in museums and was a curator by the time she was 25. However, in her early thirties, she was faced with redundancy. Huge cuts were being made, and she realised that compared to other roles within the local authority, her job could be among the first to go.

“Fortunately, the museum was a registered charity, so with the support of the trustees and my manager there was a possibility of fundraising my salary,” says Becky. “But it honestly felt impossible, so I decided I needed a back up. I have always loved crafts, and this passion was obvious in my work in museums and I would run craft events to attract visitors.

“So, I turned my hobby into a small business. I was using the ‘environmental science’ part of my degree and focused on recycled crafts, and named it Retro from Scratch. I made a variety of things, but it was very clear that I enjoyed recycling old books and giving them a new lease of life; and other people loved this idea too.”

Six years passed and with a lot of hard work, the team continued to fundraise Becky’s salary at the museum, but amid uncertainty over raising enough funds from one year to the next, she continued making her notebooks and selling them online and at fairs in her spare time.

“My business had successfully built up, and I was now at a point where I had to make a decision and one of them had to go,” says Becky. “I knew I had to take the risk of running my own business full time and so, in 2017, I left my 16-year career in museums behind.”

Becky is sure that it was the best decision for her. “I have multiple sclerosis and being my own boss gives me flexibility, which is especially useful for hospital appointments. I can manage my health easier by taking breaks when I need to, and I have certainly noticed a difference. I also get to spend more time with my family.

“There are still big uncertainties with being self-employed, but I definitely feel I have more control over them now. It’s by no means easy, I work a similar number of hours to what I used to, but all throughout the day, especially evenings. I don’t get sick pay or holiday pay, and I’ve had to organise my own pension plan.”

For people who fear they might be made redundant, or who are tempted to change careers, Becky says, “if I hadn’t been faced with redundancy, then it wouldn’t have pushed me to set up my own business and I wouldn’t be where I am now. I never saw redundancy as the end of my career; but an opportunity to start something new.”