Redundancy…..it’s not all bad news – what to do with the money?

A guest blog, by Chantel Oosthuizen from In-Toto Financial Planning.

It’s not all bad news…If you are leaving your employer due to redundancy, you have a great opportunity to make a fresh start.

Now could be the best time for you to think about a career change, become self-employed or consider retiring if you are close to retirement.

Firstly, you must ensure that you know what type of payment you may be entitled to receive. The types of payments you may receive in the event of a genuine redundancy include:

• A genuine redundancy payment, which is tax-free up to a limit based on your full years of service with your employer.
• An Employment Termination Payment (ETP), which is a lump sum payment you may receive when your employment arrangement has come to an end. Examples include genuine redundancy payments exceeding the tax-free limit, unused sick leave, unused rostered days off, payments in lieu of notice and golden handshakes (also known as ‘ex-gratia’ payments).
• Other payments you receive from your employer including accrued annual leave, accrued long service leave and your final pay.

Each of these payments are paid as cash, less any applicable taxes.

The next step is to plan what to do with the lump sum payment from your employer. There is no hard and fast rule on how to allocate the lump sum payment – some people just put all the funds into their savings account. Here is a list of important questions to consider, before making decisions on how to use the funds from your redundancy payment.

Important questions to consider before deciding on how to use the funds from your redundancy payment

If you are planning on finding a new job or become self-employed:

• How will you meet your living expenses until you find another job or start earning again?
• Will you be eligible for the Newstart Allowance or other relevant social security benefit?
• For people aged 55 and over, should you use some of your superannuation to pay yourself a pension while looking for another job?
• Will you need to move your superannuation to another fund?
• Do you have any insurances connected with your job?
• Do you have any personal insurance policies and does it cover redundancy?
• Where can you put your employer’s payments?

If you’d like to retire upon leaving your employer:

• Have you accumulated enough wealth within and outside superannuation to provide an income to meet your ongoing lifestyle needs?
• For people aged 55 and over, should you use some of your superannuation to pay yourself a pension?
• Will you be eligible for the Age Pension or other relevant social security benefit?
• Do you have a will and if yes, do you need to review it?

A financial planner can help you to go through and come up with a plan to make the most out of the redundancy payments or any funds that you have. They go through a comprehensive analysis with you to determine how to make the best use of your funds and in the process of doing so, can also assist with:

• making the most of your super to help you become financially secure in retirement
• ensure you and your family are financially protected in the event of death or disability, by having appropriate insurance cover, and
• determine whether you are eligible for any Government income support payments.

Contact Finance Detective today and we can put you in touch with our financial planners.