Money Helpdesk: Should I take the money and run?

Published on Saturday 10 January 2009 13:52

THE company I work for is struggling to keep going and is offering redundancy to some employees. I am tempted to volunteer now as I am concerned that if I don't and the company later slides into administration, I will be out of a job without any financial cushion.

What happens to staff when a company goes bust? I don't want to end up with little or nothing.

AM, Aberdeen

Valerie Smart, head of tax at PricewaterhouseCoopers in Scotland, with additional contribution from Bruce Cartwright, head of business recovery services at PWC, writes:

FIRSTLY, it is not necessarily the case that if your employer 'goes bust' you will lose your job.

In many cases the insolvency practitioner brought in to administer the business can work with the stakeholders to find a solution – often by continuing to trade the business and finding a party who will take over the business as a going concern. In this instance, existing employee rights remain the same.

If, however, the business cannot be saved and it is necessary to make all or some of the employees redundant, then the employees will be entitled to statutory payments.

Employees will be advised of their rights by the insolvency practitioner and his team and will be assisted in claiming any arrears of wages, holiday pay, compensatory notice pay and statutory redundancy.

Employees may claim statutory redundancy if they have been employed by the company for two or more years. All claims are subject to the statutory maximum limit, which is currently 330 per week of entitlement (to be increased to 350 next month), and this is tax-free up to 30,000. Any benefits and/or earnings received in employees' notice period will be deducted from the compensatory notice pay.

However, employees should be conscious that in these circumstances of redundancy any contractual benefits provided by the company, such as private medical insurance and life assurance, will terminate. The position in respect of employer pension schemes is fairly complex, but there is legislation in place to protect existing benefits that employees may have.

For those who are considering voluntary redundancy it is worth bearing in mind that while the size of the package may be greater than the statutory entitlement, what is actually included will vary from business to business, and elements such as holiday in lieu and notice payments may not be exempt from tax.

Ultimately, your role may be unaffected should the firm go into administration, so it is crucial that you weigh up all your options very carefully.

A free booklet, Redundancy & Insolvency – A Guide For Employees, is available from citizens advice bureaux.

Safe returns for old uncle's 230,000

COULD you give advice on a two-year savings option for my elderly uncle? He has 230,000 to invest which he can put away without touching for two years. What savings options have the best returns?

Also, will he have to split his money rather than putting all his eggs in one basket after all that has happened to other savers in the last year?

AS, Edinburgh

Michelle Slade, savings expert at MoneyFacts, writes:

IF HE doesn't need access to the money for two years then you could consider a fixed-rate bond. These accounts tend to pay higher rates than variable savings accounts as the provider can guarantee that they will have your money for the term of the bond. The highest-paying two-year fixed-rate bonds at the moment include: Close Brothers, paying 5%, Bank of Cyprus UK, paying 4.30%, and Anglo Irish Bank, paying 4.20%. Progressive BS pay 4.05%, Stroud & Swindon BS, Julian Hodge Bank and Wesleyan Bank all pay 4%.

However, in the uncertain times we are living through, he may feel happier investing in accounts with high street names he recognises. For the best of these, see our article on Page 9.

In order to make sure that the money is 100% protected, he should spread the money around. Make sure that you invest no more than 50,000 per provider.

Selected Irish banks, including Anglo Irish, currently have a guarantee of 100% of all money invested, but this was only for two years and would run out during your two-year term, so it is worth sticking to the 50,000 rule.

Also, the guarantee is only as good as the Irish government's ability to meet it.

Help! My pension keeps on plunging

I HAVE a company pension invested in a managed fund. Over the past year, I have watched in horror as in spite of my making contributions every month, it has still lost a quarter of its value.

No one seems to have a clue what is going to happen to my investments in 2009. Everyone is tipping something different to do well this year. What should I do with my pension investments? I am 42.

KM, Glasgow

Tom McPhail, Hargreaves Lansdown's head of pensions research, writes:

THE good news is that you are still far enough away from retirement that you don't need to panic about your investment losses. There is a strong probability that by the time you reach your retirement, your pension fund will have recovered your losses. In addition, in the meantime you are buying another slice of investments every month with your regular savings, and these regular savings should do very well in the longer term because investments are now relatively cheap.

As for the investment markets, it is indeed true that there is a lot of uncertainty about what lies in store for us this year. It may be unexciting, but unless you are planning on trying to second guess market movements and to make asset allocation decisions, the best thing you can do is to simply keep on making your regular contributions into your managed fund.