Making the best of redundancy

Redundacy

Making the best of redundancy

Have you been made redundant or suspect it may happen? You could be faced with new emotional and financial issues that you need to make informed decisions about. It’s not an easy thing to sort through but the following information provides a quick overview of some things to consider

COMING TO TERMS WITH REDUNDANCY

Being ‘retrenched’ is a shock. You could be in a state of disbelief, acceptance or happy at the thought of a payout. It may sound ridiculous, but redundancy could provide you with the money and the opportunity to change direction. The key is to emotionally and financially handle the transition. Generally, a redundancy payment is where:

• You are required to leave your job because your role is no longer needed or no longer required in a certain location

•You are under age 65 at the time of receipt of the payment

•There is no arrangement for future employment made on \ your behalf or by your employer

•The amount paid must not exceed an amount for a dismissal that is reasonable ‘on an arm’s length basis

If the conditions above are satisfied, then you may be entitled to a tax free amount.

In the 2012-13 financial year, the tax-free amount of a genuine redundancy payout is defined as the first $8,806 received plus $4,404 for every year of completed service. Any redundancy payments exceeding this are described as an ‘employment termination payment’ (ETP) and are subject to different tax rates when cashed out. You can only take your ETP amount in cash.

CHECK YOUR PAYMENT AMOUNT

It’s important to have someone check your employer’s calculations to ensure that you are being paid the correct amount. Make sure all your relevant years of service have been included and that the payment is consistent with your company’s stated redundancy policy or your contract. You should speak to your financial adviser as early as possible to make sure you are receiving all the benefits you are entitled to.

WHAT SHOULD YOU DO WITH YOUR MONEY?

It’s tempting to view a redundancy payout as an opportunity to have a holiday or pay off some debts. Before doing that you need to make sure that you can cover your living expenses for the next few months until you find a new job. If you have large debts, and you do want to reduce them, make sure you pay off the most costly ones first.

SOME OPTIONS TO CONSIDER

If your home loan provider offers a mortgage offset account, this can be an excellent way of reducing your loan interest payments while still being able to access the money. Even if you are an aggressive investor by nature, using the proceeds to have a flutter on the share market can be a risky move.

Before making any changes, you should speak to your financial adviser to ensure you get the best outcome for you.