Economic times have been hard in the past few years. Between the pandemic, cost of living crisis, inflation, the rise in employer costs, and now Trump’s tariffs, a great deal of uncertainty has been injected into the working world.
Rising business costs and lowered confidence in the economy have, sadly, meant that redundancies are once again on the agenda for many firms in the UK.
According to the Office for National Statistics (ONS), there were 4.2 redundancies per 1,000 employees from November 2024 to January 2025, equivalent to 124,000 people losing their jobs.
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Many of these people losing their jobs are among the over-50s. In the same time period, 32,000 over-50s were made redundant, up from around 29,000 compared to November 2023 to January 2024.
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Meanwhile, 93,000 people under the age of 50 were made redundant between November 2024 and January 2025.
Furthermore, in 2024 the Department for Work and Pensions found there were 3.6 million people aged 50 to 64 years who were economically inactive in the UK, meaning they are not employed and not actively seeking work.
While 29.4% said this was because they were retired, the more than 70% remaining cited reasons for not being in work such as sickness or disability, caring for a family member, among others.
Elaine Smith, senior programme manager for the campaign group the Centre for Ageing Better, says: “Workers over the age of 50 who are made redundant can experience particular challenges, as they are three times less likely to return to work within three months than those under 50.”
If you’re approaching retirement and made redundant, your pension is likely to be a key part of your retirement fund. Here’s how redundancy could impact your retirement planning.
What can I do with my redundancy payment?
If you’re made redundant and you’ve worked for a company for at least two years, you are normally entitled to receive a payout.
Statutory redundancy pay is usually calculated by providing you with a half a week’s pay for every full year you worked while under the age of 22, a week’s pay for every full year between 22 and 41, and a week and a half’s pay for each full year you were 41 or older.
The total number of years this will apply to is 20, and your weekly pay is calculated as the average you earned in the 12 weeks before the day you were given your redundancy notice.
If you were made redundant on or after 6 April 2024, the weekly pay is capped at £700 and the maximum statutory redundancy pay you can get is £21,000. If you were made redundant before 6 April 2024, these amounts will be lower.
The government has also produced a redundancy payment calculator that you can use to see how much you are entitled to.
The first £30,000 of a statutory redundancy payment is paid tax-free, so you have some flexibility to use this money to its full extent.
One option is to put some of this money into boosting your pension, possibly meaning that you could retire earlier, or with a larger total pension income.
Your employer may pay some, or all, of your payout directly into your pension through what’s known as ‘redundancy sacrifice’.
However, be sure that you don’t need this money to meet living costs and that you’re not breaching your annual pension allowance, otherwise you may be stuck trying to make ends meet before you can withdraw your pension.
You can pay up to £60,000 (or 100% of your earnings, whichever is lower) into your pension in the 2025/26 tax year and receive tax relief.
Becky O’Connor, director of public affairs at PensionBee, says: “The financial and tax benefits, including tax relief, of adding a redundancy payment in your pension are significant – especially if you are approaching the age you can access your pension money, anyway, with the added bonus of some tax relief and ideally some investment growth, too.”
How will redundancy affect my pension?
When you’re made redundant, any workplace pension payments you made during your employment will still belong to you. The only change is that your employer will stop contributing to that pension on your behalf.
If your pension is a defined contribution (DC) pension, you have options. You may continue making contributions if your pension scheme allows. Alternatively, you can move your pension pot to a new employer’s scheme if your new workplace offers a better alternative, or move it into a personal pension – like a self-invested personal pension (SIPP) or a ready-made pension plan.
One reason to move your pension is if you can benefit from lower charges elsewhere or a wider investment choice. At retirement, the size of your pot will depend on how much you’ve contributed over time, and on the performance of your investments.
If you have a defined benefit (DB) pension or final salary scheme, although you can transfer your pension to a new workplace pension scheme, or personal pension, you’re likely to leave your pension where it is.
Defined benefit schemes are the gold standard, and the Financial Conduct Authority (FCA) states that you must seek financial advice before transferring a defined benefit pension if it’s worth £30,000 or more. Unlike defined contribution pensions, they aren’t linked to investment returns. With a DB scheme, the amount you receive at retirement is guaranteed, based on your final salary and length of service.
Can I continue to pay into my pension?
You may be able to continue paying into your workplace pension, but this depends on your particular scheme’s rules. For example, the government’s Nest workplace pension allows you to continue contributions.
Alternatively, you can move your pension pot to a new employer’s scheme or your private pension and continue contributing. However, you typically can’t continue contributing to a defined benefit pension once you’ve left that company.
Will I have a shortfall in my state pension?
You may face a shortfall in your state pension if you’re made redundant before building up enough ‘qualifying years’ of National Insurance (NI) contributions. To receive the full new state pension (£230.25 per week in the 2025/26 tax year), you usually need 35 qualifying years of NI contributions.
You can find out how much state pension you’re on track to receive by applying for a forecast (applying online at Gov.UK is the quickest method). The forecast will show your current NI record and how much you’re likely to get if you continue working up to the state pension age.
You may be entitled to claim NI credits if you get certain benefits or have caring responsibilities.
Alternatively, you can make up for any shortfall by buying voluntary Class 3 NICs. The amount certain missing years cost to buy back varies, but they typically cost between £800 and £900.
Buying a missing year can boost your state pension by around £329 a year. Always check to see if you qualify for National Insurance credits before making voluntary contributions.
Can I retire early? What will the impact be?
If you’re considering early retirement after redundancy, consider the potential shortfall in your pension income. Redundancy over 50 can have a big impact on retirement savings, with those affected saving £29,000 less in their pensions, on average, according to analysis by Legal & General.
For example, someone earning £40,000 a year and contributing 10% of their salary into their pension pays about £333 a month. If they retire early, at 57 instead of 67, assuming a 6% annual return after fees, they’d need an extra £55,000 to bridge the 10-year gap, according to the wealth manager Evelyn Partners.
Gary Smith, partner in financial planning at Evelyn Partners, says: “They will be sacrificing 10 years of pension tax relief, employer contributions and investment growth, as well as having to fund a retiree lifestyle for 10 more years.
“If someone pays a redundancy lump sum into their pot that could go some or all of the way to compensating for ongoing contributions, though, depending on the sums involved.”
Can I afford to retire?
According to the Pensions and Lifetime Savings Association (PLSA), a single person needs an income of £31,300 for a ‘moderate’ standard of living in retirement, rising to £43,100 for a couple.
If you are in a couple, and you both get the full new state pension – which is now £11,973 per year – then you’d need to receive an additional pension income of about £19,154 per a year between you to afford a ‘moderate’ standard of retirement living. A single person who gets the full new state pension would need extra pension income of £19,327 a year.
You can use one of the many online calculators to see if you are saving enough for your retirement.
However, retirement could cost less than you think. You’ll probably pay less tax in retirement, as you won’t be paying National Insurance (NI) on your income, and you can use your tax allowances to maximise your income.
You also have more choice than ever with your pension savings following the introduction of pension freedoms in April 2015. For example, you might remain invested in a flexible drawdown plan, taking only as much income as you need.
