Voluntary redundancy: should you take it?

The short answer: voluntary redundancy is worth taking if the package will carry you until you’re likely to find something else, or bridge you to your pension, and your job may be at risk anyway. It’s a poor deal if the money runs out long before you’re likely to be working again. Before you decide, run five numbers: the payout after tax, how many months it covers, what happens to your pension, what benefits you could get, and how long people in your line of work usually take to find a new job.

What you’re entitled to

Volunteering doesn’t mean giving up your rights. Voluntary redundancy is still a dismissal in law, not a resignation. So if you’ve worked there for at least two years, you get at least statutory redundancy pay, your notice (or pay in lieu of it) and any unused holiday. Most voluntary schemes pay more than the legal minimum, because the employer is asking you to go.

Common enhanced terms include using your real weekly pay instead of the £751 cap, paying more weeks per year of service, or adding a fixed lump sum. Ask for the scheme rules in writing so you can check the sums yourself.

Number one: what you’ll actually get

Take someone aged 50 on £40,000. Here’s the statutory figure next to a typical enhanced scheme that pays twice the statutory weeks on real pay:

The first £30,000 of redundancy pay is tax-free. Above that it’s taxed at your normal rate. The after-tax column assumes you earned £30,000 in the tax year before leaving. Notice pay and holiday pay come on top and are taxed like wages. See is redundancy pay taxed for the detail.

Number two: how long it lasts

This is the figure that matters most. Divide the payout by your monthly take-home pay (£2,581 on £40,000) to see how many months of normal income it replaces:

After 15 years, the statutory payment covers about 5.7 months. The enhanced package covers about 11.6. If people in your field usually find work within three or four months, either could be a good deal. If you expect it to take a year, the statutory figure alone won’t get you there.

Your spending matters as much as your income. Cutting back while you look for work stretches the money further, and the calculation looks very different if your partner’s income covers the essentials.

Number three: your pension

Leaving means your employer stops paying into your pension, which is a real cost. On £40,000 with a 5% employer contribution, that’s about £2,000 a year you won’t get until you’re back in work.

• Defined contribution pensions: your pot stays invested. You can leave it, move it, or combine it with a new employer’s scheme later.
• Final salary and public sector schemes: check what happens if you leave at your age. In some schemes, redundancy from 55 means you can take your pension straight away with no reduction for taking it early. That can be worth more than the cash.
• Taking money out: the earliest you can usually draw a private pension is 55, rising to 57 from 6 April 2028.

Our guide to redundancy and your pension covers your options.

Number four: benefits

You shouldn’t be sanctioned for taking voluntary redundancy as long as your employer was running a redundancy process. But your payout counts as savings for Universal Credit:

• Under £6,000 in savings: no effect.
• £6,000 to £16,000: your Universal Credit is reduced.
• Over £16,000: you can’t get Universal Credit until your savings drop below that.

New Style Jobseeker’s Allowance is different. It depends on the National Insurance you’ve paid, not your savings, so a big payout doesn’t stop it. Claiming it also keeps your National Insurance record topped up for your State Pension.

Number five: what happens if you stay

Voluntary schemes usually come before compulsory ones. If not enough people volunteer, your employer may move to compulsory redundancies, and the terms can be less generous, sometimes just the statutory minimum. On the other hand, if your role is safe, staying keeps your salary, pension contributions and service record. Ask directly whether compulsory redundancies are planned, and whether your role is in the pool.

Negotiating before you sign

The first offer isn’t always the last, especially when your employer needs volunteers. Things worth asking about:

• A higher payment, or using your real pay instead of the capped figure.
• Your leaving date, including moving the payment into a new tax year if it’s above £30,000.
• Paying part of it into your pension, which can save tax and National Insurance.
• An agreed reference, and keeping your laptop or phone.
• Outplacement support or training.

Most voluntary deals are written up as a settlement agreement, which means you give up the right to bring claims in exchange for the money. You must get independent legal advice before signing, and your employer usually pays towards it.

Questions to ask before you decide

• What exactly is the offer, and how is each part worked out?
• When would I leave, and when would I be paid?
• Will I work my notice or be paid in lieu?
• What happens to my pension, and can I take it early?
• Can I withdraw my name if I change my mind?

Check the statutory figure with the redundancy pay calculator, and our guide to redundancy pay explains the rules.

This is general information, not legal or financial advice. Acas offers free, confidential guidance on redundancy, and a union representative can help you weigh up an offer.