index | page back | next page

The Life of Brian Riley, Phase 5

A.

Review of previous advice.

1. The need for and benefits provided by Redundancy Insurance have been highlighted by Brian's current situation.

2. The safety net which could be provided by a well structured emergency fund is also apparent.

3. Less seriously, but nevertheless a consideration, it may have been prudent to have insured against producing twins if this ran in the family!

B.

1. The Statutory Redundancy payment is made by the Employer, unless in liquidation when the DWP will pay; not a consideration in Brian's case as he was employed by the local authority.

2. Minimum payments under current rules are dependent on age as follows:

   18-21 0.5 weeks pay for each year employed
   22-40 1.0 weeks pay for each year employed
   41-65 1.5 weeks pay for each year employed
   Maximum allowable wage is £270 per week.
   The maximum payment is up to 30 weeks pay.

   As Brian is 33 he should get at least one week's pay for each year of service and as he has been with the Council for 12 years at a salary in excess of the maximum he will be entitled to approximately £3,240. However a Council is likely to be more generous and his payment will be free of tax.

3. His investments during his period of searching for new employment should take account of his need for low/no risk and should be reasonably accessible. The favoured home under such circumstances will probably be Deposit based; a 60 or 90 day account could be used bearing in mind the loss of interest that would happen if withdrawals were made. He could look to using some of his existing investments to top-up his earnings/State Benefits. The interest on his cash ISA can be withdrawn.

4. His pension with the local authority will now need to be considered. If no action is taken; it will be preserved; a transfer may be possible when he restarts work; he will be able to take advantage of the Transfer Club if he returns to a similar occupation; he could also use a PPP of a Section 32 buy out. It is too soon to take final decisions and retaining the preserved pension will probably be the most sensible option. The "Wait and See" theory holds water even though Brian eventually opts for self employment.

C.

The advantages and disadvantages of self employment are summarised below:

Advantages	Disadvantages
Independence	No income guarantees
Income Tax Allowances	No future redundancy payments
Availability of PPP	No employer contributions to pension
Control of business	Responsible for business
Flexibility of working hours	All hours are working hours
Less NIC to pay	No entitlement to S2P or equivalent

Balancing the pros and cons of self employment must be a combination of the practical and the emotional. Many who are capable of dealing with the administrative work do not relish the comparative insecurity; many who can deal with the 'ups and downs' do not have the discipline to keep the paperwork up to date. How do you think they will cope with the inevitable pressures whilst trying to raise a young family?

D.

Business advice re:

1. National Insurance and Tax

   • retain all receipts and proof of expenditure.

   • keep bank statements safe and in page order

   • appoint a qualified Accountant with experience of the type of business you are setting up; interview a number and choose the best for you.

   • put money in a separate bank account in anticipation of future tax and NI bills

   • check Jack's NIC record as he is nearest to State Pension Age and therefore has less time to make up any shortfall

   • Brian, Simon and Jack have formed a partnership and must give immediate attention to drawing up a Partnership Agreement detailing drawings, profit sharing percentages, arrangements on the death, withdrawal or retirement of any one of them and the requirements for the appointment of any additional partners.

2. Protection

   • They may consider using Term Assurance in a Flexible Trust to ensure that, in the event of the death of any one of them (or any new Partner), there will be sufficient funds available to fulfil the obligations imposed by the Partnership Agreement.

   • As an alternative to Term Assurance they may consider the use of a Universal Life Policy in order to provide benefits other than simply life assurance e.g. Critical Illness

   • The ability to plan time will be of particular importance during the early years so they may be prudent to effect Private Medical Insurance to ensure that any urgent or necessary treatment can be carried out at a time convenient to them.

   • To ensure that, in the event of illness or accident, the Partnership does not have to provide an income for a non-producer the individuals could effect Income Protection Insurance.

   • They will also need some form of Professional Indemnity Insurance.

E.

1. As he is now self-employed his Redundancy Insurance will be invalid

2. If he has opted for Private Medical Insurance as part of his business protection he may wish to extend this to cover his family as well.

3. The adequacy of his current plans in respect of the following should be considered to take account of his new liabilities and responsibilities.

   • Life Assurance

   • Critical Illness Cover

   • Pension provision

   • Emergency fund levels

REMEMBER You should not use any information contained on this page as the basis of any action until you have discussed matters with your financial adviser.