Is my redundancy payout enough?

A redundancy payout often lands as a single, unfamiliar lump sum at a moment that's already unsettling. It's tempting to look at the headline figure and feel either reassured or alarmed. Neither reaction is that useful on its own. What actually matters is turning that lump sum into a number of months, and deciding what those months are for.

Why the headline figure isn't the real number

In the UK, the first £30,000 of a genuine redundancy payment is usually tax-free, but anything beyond that, and certain other elements bundled into a settlement, can be taxable. Notice pay, holiday pay, and any additional settlement amount often get taxed as normal income. The number in the letter and the number that actually lands in your account after tax can be meaningfully different, and it's the second one that matters for planning.

The two numbers that actually matter

Rather than one figure, it helps to work out two separate things:

1. Your runway number. Essential monthly spending, not lifestyle spending, multiplied by however many months you want this payout to cover before new income needs to arrive. This is the number that tells you how much real time you actually have.

2. Your "then what" number. If the plan is to retrain, take a longer break, or use this as a springboard into something different rather than the next similar job straightaway, that path usually has its own cost, courses, reduced income while building something new, or simply a longer runway than a straightforward job search needs.

What people usually miss

A few things come up repeatedly once someone actually sits down and works through this properly rather than just watching the balance:

Treating the whole payout as spendable. Tax due above the £30,000 threshold, and on notice or holiday pay bundled into the settlement, quietly shrinks the real available figure below the headline number.

Underestimating how long a genuine transition takes. Whether that's finding the next role or building something new, it's common for the real timeline to run longer than the first few optimistic months assumed, especially for more senior or specialised roles.

Spending staying at the old level while income has stopped. A budget built around a working salary rarely gets revisited immediately, and a payout that looked generous on day one can shrink faster than expected if day-to-day spending doesn't adjust.

The backdrop that makes this harder right now

None of this happens in a vacuum. A few things about the current environment make getting this right more urgent, not less:

Inflation has been stickier than expected. Even at more "normal" headline rates, prices for everyday essentials have kept climbing, which quietly erodes a fixed runway faster than most people plan for. A number that works on paper today can fall short a few months in if it wasn't stress-tested against inflation.

Cash sitting in a typical current or easy-access savings account is losing real value. A redundancy payout often sits in an easy-access account by necessity, since it needs to stay available, but when inflation runs ahead of the interest being paid, that buffer is quietly shrinking in what it can actually buy the longer a transition takes.

Pensions are no longer the inheritance tax shelter they used to be. Legislation confirmed in 2026 means that from 6 April 2027, most unused pension funds and death benefits will be counted as part of your estate for inheritance tax, closing a gap that pensions have used for decades as a tax-efficient way to pass on wealth. Worth knowing if any part of a settlement is being considered for a pension contribution.

The room to shelter cash from tax is also shrinking. From April 2027, the Cash ISA allowance for anyone under 65 is falling from £20,000 to £12,000, with the rest of the £20,000 total ISA allowance only usable in stocks and shares or similar wrappers. Worth factoring in if a lump sum is being held for a while before it's needed.

General economic uncertainty, whatever's dominating the headlines this year, is a reason to build a plan with some flexibility in it, not a reason to delay building one at all.

So what's your actual number?

Generic rules of thumb get you a ballpark, but your real number depends on things a calculator can't guess: what's actually taxable in your specific settlement, what your genuine monthly essentials look like, and what the "then what" after this payout is actually for. That's a personal calculation, not a population average.

This article is educational and does not constitute regulated financial advice. Figures such as safe withdrawal rates are general population guidelines, not a personalised projection. Always consult a qualified financial adviser before making significant financial decisions.