Redundancy or severance payment
A redundancy or severance payment can create both immediate uncertainty and a significant liquidity event.
For internationally mobile employees, the position may also involve multiple tax jurisdictions, equity compensation, pensions, deferred benefits and decisions about whether to remain, relocate or retire.
Josh Clancey works alongside employment lawyers, tax advisers, HR and reward professionals where a client's severance package needs to be incorporated into a wider financial plan.
The package should be understood before the money is allocated
A termination package may include more than one component.
That can include:
- contractual notice
- payment in lieu of notice
- statutory or contractual redundancy
- severance
- bonus
- unused leave
- deferred compensation
- equity awards
- pension contributions
- end-of-service benefits
- restrictive-covenant payments
The employment lawyer and tax adviser should establish the legal and tax treatment of each element.
Financial planning can then focus on what the client actually has available and what the money needs to achieve.
Common planning areas after redundancy or severance
Immediate cash flow
The first priority is often understanding how long the client can comfortably fund normal expenditure without employment income.
Pension funding
A client may lose employer pension contributions at the same time as receiving a lump sum.
That can affect retirement planning.
Equity compensation
Unvested or vested RSUs, options and deferred awards may be affected by termination.
Relocation decisions
The end of employment may trigger a move to another country or a return home.
Retirement
For some clients, redundancy accelerates a decision they were already considering.
Investment of surplus proceeds
Once short-term needs are covered, part of the severance payment may become long-term investment capital.
Questions to ask when a client receives a redundancy or severance payment
What does the package actually include?
Each component should be identified separately.
How much will the client receive net?
The headline settlement can differ materially from the amount available after tax and deductions.
How long might the client be without employment income?
That determines the level of cash reserve required.
Will the client remain in the same country?
A move can affect tax, visas, pensions, banking and investments.
What employer benefits are ending?
Pension contributions, insurance and other benefits may need replacement.
Are equity awards affected?
Termination provisions can differ across RSUs, options and deferred compensation.
Could the client retire instead of finding another role?
Cash-flow modelling can test whether work is still financially necessary.
Useful resources for advisers working with redundancy and severance cases
UAE End-of-Service Benefits and Executive Departures
A focused technical brief covering the financial-planning issues that can arise when executives leave employment in the UAE.
Equity Compensation for Internationally Mobile Executives
A technical brief covering RSUs, share awards and other equity compensation where employment ends or the client moves jurisdiction.
The Professional Adviser's Guide to International Executive Financial Planning
A broader guide covering compensation, pensions, mobility, investment and long-term wealth planning.
International Executive Checklist
A practical checklist for reviewing benefits, compensation, pensions and financial arrangements when an executive leaves employment.
The Professional Adviser's Guide to Clients Leaving the UAE
The Professional Adviser's Guide to Clients Leaving the UAE
A broader guide covering the financial issues that can arise when employment termination also triggers an international move.
Client Moving Country Checklist
A practical checklist for reviewing financial arrangements where redundancy is followed by relocation.
Liquidity should be separated from long-term capital
A severance payment can look like investable wealth while the client still faces significant short-term uncertainty.
Before investing, the plan should usually distinguish between:
- normal living costs
- tax liabilities
- relocation costs
- mortgage or rent
- school fees
- insurance
- visa or residency costs
- emergency reserves
- long-term capital
The client should not have to sell long-term investments simply because the job search takes longer than expected.
A sensible cash reserve can therefore be one of the most important parts of the planning.
Redundancy can become a wider financial reset
The end of employment may change several parts of the client's financial plan at once.
The client may decide to:
- take several months away from work
- return to their home country
- move elsewhere
- start a business
- reduce working hours
- retrain
- retire earlier
- repay debt
- invest part of the settlement
Cash-flow modelling can help test those options before the client commits to one path.
The question is not only "What should I do with the severance payment?"
It is also:
"What does this payment allow me to do next?"
When should the referral happen?
A referral can be useful where the client:
has been made redundant
is negotiating a severance package
has received a significant lump sum
may leave their current country
has employer shares or deferred compensation
is losing pension or insurance benefits
is considering early retirement
is unsure how much cash to retain
wants to invest part of the settlement
Have a client receiving a substantial severance or redundancy payment?
If the client needs to understand how the settlement affects cash flow, investments, pensions, relocation or retirement, an initial discussion can help establish where financial planning should sit alongside the employment-law and tax advice.