26 March 2020
As the coronavirus pandemic takes its toll on business, many employees will be concerned about the impact on their personal finances. Quilter is today setting out some of the key financial planning questions that staff should ask if they are faced with the prospect of a period of reduced pay, unpaid leave, furlough or redundancy.
Quilter financial planning expert Rachael Griffin says:
“This is a deeply concerning period for so many people across the country. Many are worried about their health and the wellbeing of their friends and family, but also the long-term financial impact on their household.
“Regrettably, some businesses will face severe challenges. Although we hope that measures to protect jobs will help to minimise the damage, some people may be asked to take a period of unpaid leave, reduce or waive some of their pay and benefits, be placed on furlough, or accept redundancy.
“Of course the immediate concern in that situation will be meeting any income shortfall, and in difficult times it is important to have cash savings available to help manage financial disruption. But there are other key steps people can take to protect their finances if they are confronted with the prospect of a reduction in earnings or job loss.”
The key steps include:
- Check the terms of your income protection and life cover
- Check if you are covered for redundancy
- Understand your continuous service benefits
- Check your other protection policies
- Know your pension rights
- Look for additional advice and guidance
Check the terms of your income protection and life cover
Many people will have income protection and life cover in place in case of serious illness or death. Policies may be arranged in the form of group cover via an employer or arranged directly with an insurer either by the individual or through a financial adviser.
If confronted with a period of reduced pay, unpaid leave or redundancy it is crucial to check the terms of your cover to be clear about if and how it is affected.
In some cases you may still retain cover during a period of unpaid leave, but this will depend on the terms of the policy. Some protection arranged by your employer will have terms that mean you may still be covered while you’re on the payroll.
The amount you could claim under these policies might also be affected. For example, if the policy is based on average earnings over the last 12 month then any sum paid out would be reduced if you have a period of reduced pay or unpaid leave and claim within the next year.
Check if you are covered for redundancy
Most income protection policies only apply if you are unable to work due to illness and injury.
Although some also cover other causes of unemployment, and there are specific insurance plans that can be purchased to cover redundancy, these are relatively rare and many insurers are not offering redundancy cover to new customers in the current environment.
If you do have a policy that covers redundancy you may only be eligible to make a claim if that was enforced, and accepting an offer voluntarily could invalidate a claim.
In addition, policies may not pay out immediately in the event of a job loss so check when it would kick-in so you can plan accordingly.
Understand your continuous service benefits
Many employers offer staff benefits like additional holiday allowances, increased entitlement to pension contributions and other rewards for longevity of service. These may be linked to the length of continuous employment.
If individuals are asked to take unpaid leave they should check whether their entitlement to these employment perks will be affected. The key question is whether their continuous service record will be broken.
Check your other protection policies
Many people will also have medical insurance, critical illness and other forms of insurance arranged through their employer.
Before accepting a period of unpaid leave, check whether these benefits will be suspended or will continue to be in place. In some cases eligibility will depend on a deduction being made from your salary so if you are unpaid you may lose cover.
Know your pension rights
Employees should ask if there will be any impact on their pension from a period of unpaid leave or reduced earnings.
Although you can choose to stop contributions for a period of time known as a temporary ‘pension holiday’, employers cannot ask people to opt out of an auto-enrolment workplace pension as this constitutes a breach of legislation. Don’t forget, if you stop contributing, you may lose your employer’s ongoing pension contribution so it is not a step to be taken lightly, and when you ask to rejoin your employer may not have to action your request straightaway; employers only have to action one request to rejoin every twelve months.
The minimum contribution rate is currently 8% of earnings (known as qualifying earnings), of which at least 3% comes from the employer, with the balance paid by the employee. The amount may drop if your earnings are reduced but it should still represent the same percentage of pay.
Look for additional advice and guidance
Some employers can arrange financial advice for staff so ask if they can direct you to someone that can provide specialist financial planning.
Otherwise, you can go online to find a financial adviser, using a website such as Unbiased. Always check that they are regulated to give advice in the UK.
Information and resources can also be found over the phone and on websites from organisations like the Money Advice Service.
Quilter Financial Planning proposition director Charlotte Nixon says:
“As well as the loss of income, there are other financial considerations to think about if you are made redundant or experience a reduction in earnings from employment.
“Many employers offer life cover and income protection as part of the overall employee reward package, so find out if you will lose those benefits. The same goes for other insurance policies you might have, like critical illness cover.
“Redundancy cover was once more common within protection policies but is now relatively rare. Be absolutely certain to check what you are covered for and don’t assume you have it under a protection policy as-standard.”
Ian Martin, financial planner and employee benefits consultant at Quilter adds:
“For those people whose jobs are affected by Covid-19, it is important to ask not only how it will impact your income, but whether there is a knock on impact on other employee benefits.
“If you make a claim on a life, critical illness or income protection policy arranged through your company then the payment might be calculated based on average earnings, so a future claim could be lower due to a period of reduced pay.”
For more information contact
0207 7789 638
07469 144 535
Notes to Editors:
About Quilter plc:
Quilter plc is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.
Quilter plc oversees £110.4 billion in customer investments (as at 31 December 2019).
It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset investment solutions; and discretionary fund management.
The business is comprised of two segments: Advice and Wealth Management and Wealth Platforms.
Advice and Wealth Management encompasses the financial advice business, Quilter Financial Planning; the discretionary fund management business, Quilter Cheviot; and Quilter Investors, the Multi-asset investment solutions business.
Wealth Platforms includes Old Mutual Wealth UK platform and Quilter International, including AAM Advisory in Singapore.
The Old Mutual Wealth Heritage life assurance business was acquired by ReAssure Group Plc on 2 January 2020.
Since its IPO in June 2018, Quilter plc’s businesses have progressively rebranded to Quilter, as follows:
- Quilter Financial Planning (previously Intrinsic)
- Quilter Private Client Advisers (previously Old Mutual Wealth Private Client Advisers)
- Quilter Financial Advisers (previously Charles Derby Group)
- Quilter Financial Adviser School
- Quilter Cheviot
- Quilter Investors
- Old Mutual Wealth (becoming Quilter Wealth Solutions in 2020)
- Quilter International (previously Old Mutual International)
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