Being made redundant can be a traumatic experience for some—and a valuable opportunity for others. When the employment market is buoyant, redundancy can feel like a windfall. A sizeable, mostly tax-free lump sum offers the chance to reset, take stock, or even leap into a better-paying job.
In such cases, the most common question we’re asked is:
“What’s the best use of this lump sum?”
Should you clear your mortgage? Pay off short-term debts? Top up your pension? Invest? Or maybe treat yourself to a holiday or a new car?
But there’s also the less fortunate scenario: receiving a redundancy payment during a downturn in the job market. In this case, the lump sum becomes a vital financial lifeline. Clients in this position often ask:
- How do I manage my budget effectively?
- Can I arrange to defer mortgage repayments with my bank?
- How do I prepare for earning less in the future?
Both types of clients—those optimistic and those uncertain—often overlook one crucial area: existing company benefits.
Let’s start with one of the most important and least understood.
Group Life Insurance: Don’t Miss the Conversion Option
Most employers offer group life insurance, typically covering three to five times your salary if you die while employed. However, this benefit ends the moment you leave the company. What many people don’t realise is that a large number of these schemes include a “conversion option.”
This option allows you to convert your group cover into a personal life insurance policy—no medical underwriting required—regardless of your health status. You can take out this policy for a term of your choice, usually up to age 80 or 85, depending on the insurer.
This is hugely important.
Why? Because if you had a period of ill health or were diagnosed with a long-term condition during your employment, your cover under the group scheme would have remained intact. But once you’ve left, if you apply for new life cover, your medical history could result in higher premiums—or outright rejection. This can become a major issue, particularly for those applying for mortgage protection, which is a requirement for securing a home loan in Ireland.
However, with a conversion option, you can request a similar level of cover from the insurer (e.g., Aviva) without any medical underwriting. Yes, you’ll pay the full premium yourself—but your family will be protected, even for claims linked to pre-existing conditions.
So the key question to ask when you’re leaving a company is this:
Do I have a conversion option on the group death-in-service scheme?
What About My Company Pension?
This is a more positive topic, as you typically have several good options available. However, before making any decisions about your redundancy package—especially tax-related ones—it’s critical to get specialised pension advice. Choices made now can have long-term consequences, particularly for your retirement planning.
Here are the four main options for your pension after redundancy:
1. Retained Benefits:
Your pension stays in the existing scheme, marked as “paid-up.” You’ll remain invested under the scheme’s rules, charges, and performance.
2. Transfer to a New Company Pension:
If you start a new job with a pension scheme, you may transfer the value of your old pension into the new scheme.
3. Transfer to a PRB:
By transferring into a Personal Retirement Bond (PRB), you move your pension into a policy in your own name. You control how it’s invested and managed. This can offer flexibility and potential benefits—but as always, getting specialised advice is essential to avoid costly mistakes.
4. Transfer to a PRSA:
Transferring into a Personal Retirement Savings Account (PRSA) is technically possible. However, if your fund exceeds €10,000, pension legislation requires a Certificate of Benefit Comparison. This report typically costs €1,000–€2,000, depending on how complex your setup is—making it a barrier for many. Hopefully, this will be addressed in future reforms.
So, What Should I Do With My Lump Sum?
As with all financial decisions, the right approach is personal. However, a golden rule is: use this opportunity to clear expensive short-term debt (like credit cards or car loans) if your financial situation allows.
If you’ve secured a new job quickly and don’t need the redundancy payment for day-to-day living, using it to reduce your liabilities is one of the most effective ways to strengthen your long-term financial health.
At Rockwell, our financial advisors have helped hundreds of clients navigate the complexities of redundancy. Whether you’re weighing up your pension options, exploring how to protect your family, or figuring out the smartest use of your lump sum—we’re here to help.
Click the link below to book a consultation.
