Being made redundant is never easy. However, if you are made redundant it is important you Seek Financial Advice from a professional to ensure all important financial options are considered. Things worth reviewing include taxation, superannuation, insurances, Centrelink entitlements, and investments & cashflow. A summary of each is outlined below:
Some redundancy payments can be received tax-free if it qualifies as a ‘genuine redundancy’. A genuine redundancy payment must meet all of the following conditions:
- The employee is dismissed before the earlier of the following:
- The day he or she turned 65, or
- The day he or she would reach the age or complete the period of service (as the case may be). This is only applicable if the employee’s employment would have terminated when he or she reached a particular age or completed a particular period of service.
- If the dismissal was not at arm’s length – the payment does not exceed the amount that could reasonably be expected to be made if the dismissal were at arm’s length.
- At the time of the dismissal, there was no arrangement between the employee and the employer, or between the employer and another person, to employ the employee after the dismissal.
Once you finish work you will no longer be receiving Superannuation Guarantee (SG) payments from your employer. Accordingly, it is a good catalyst to review your investment choice, insurance and beneficiaries.
You may be eligible to access part, or all of your superannuation balance as a lump-sum or income stream and it may be available to you tax-free. It is important you seek advice as to the taxation consequences of any superannuation withdrawals.
A review of your insurance may be required if you are made redundant. For example, you may no longer be eligible to claim on income protection policies. It would therefore be good to review if you should maintain your various policies.
- Centrelink Entitlements
If you are under Age Pension age (currently 65) and are actively looking for new employment, you may be eligible for income support payments via the NewStart Allowance. However, in most cases, an allowance will not start immediately as waiting periods apply. An Ordinary Waiting Period of 1 week will apply and depending on your level of assets a Liquid Asset Waiting Period of up to 13 weeks may apply. This waiting period would be served concurrently with any Income Maintenance Period. An Income Maintenance Period is dependent on your redundancy payout.
If you are over Age Pension age, you can review your eligibility for the Age Pension.
- Investments and Cashflow
As part of your redundancy you may be paid a lump-sum amount. It is important to review your investment options and cashflow following a redundancy to ensure you have enough to live on and are invested wisely for the medium to long term.
There are a lot of factors that need to be considered when you are offered a voluntary redundancy, or are made redundant. Ensure the redundancy works for you by seeking comprehensive advice on all aspects of your financial situation.