+ Issues to consider? [more info]
+ Financial Planning – Why is it important? [more info]
+ What payments can I expect to receive? [more info]
+ Other payments you will need to make decisions on [more info]
+ Centrelink Benefits [more info]
+ Handy tips to remember [more info]

Issues to Consider

Very soon, you will need to make some important decisions regarding your redundancy payment.

• You will need to be able to understand the various components of your employer redundancy payment & how they can be best used to achieve your overall financial objectives.
• You may have to address some retirement fund benefits such as insurance benefit continuation and ongoing investment strategy.
• You will need to understand your cashflow requirements to fund living expenses whilst you transition to new employment.
• You may need to get in touch with Centrelink as any unused leave component of your redundancy payout could delay the time it takes to receive benefits.
• If you are concerned about loan repayments you may be best to contact your lender and negotiate, before they call you. There may be unemployment insurance on your loan so enquire as some consumer loans have this feature or you may have taken optional loan insurance.

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Financial Planning – Why is it important?

Financial Planning is the process whereby you can, together with an adviser, develop a strategy to move towards meeting your financial goals after considering your personal goals, present position, resources, responsibilities and personality.
The basic pillars that we consider are:

1. Pay off debt
2. Pay less tax (Be tax efficient – legally)
3. Maintain adequate risk protection
4. Accumulate worthwhile assets
5. Eventually retire and enjoy a dignified retirement lifestyle

What are your personal priorities?

Your planner can assume the role of your “Personal Financial Trainer” so you have the advantage of his/her experience, knowledge and research facilities.

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What payments can I expect to recieve?

Depending on your situation they may be 4 lump sum payments you may be entitled to:

1. Unused annual leave
2. Unused long service leave
3. The taxable portion of your redundancy, known as “employer eligible termination payment (ETP)
4. The tax free portion of your redundancy

Unused annual leave

Your employer must pay you for the annual leave that you have accrued, but have not taken. The total amount of your unused annual leave paid to you as a lump sum is added to your taxable income in the financial year that you receive the payment. However, the tax that you pay on this amount is limited to a maximum of 30% plus Medicare levy. Your after-tax unused annual leave will be paid into your bank account and it cannot be directly rolled over into a superannuation fund.

Unused long service leave

To be paid a lump sum for unused long service leave, you need to have been employed with your current employer for at least ten years; however employers have a statutory obligation to pay pro-rated long service leave upon retrenchment after five years. If you are entitled to long service leave, but have not yet taken it, your employer must pay you a lump sum amount for this. Your after-tax unused long service leave will be paid into your bank account and it cannot be directly rolled over into a superannuation fund.

The amount of Tax you pay depends on the following:

                                        Portion added to
Period of accrual            your taxable income     Tax rate applied

Before 16th August 1978                5%              Marginal tax rate + medicare levy
After 16th August 1978                 100%            Maximum 30% + medicare levy

Bona fide Redundancy

In 2008/2009 tax year the tax-free amount is equal to $7,350 + an additional $3,676 for every full year of service completed. Therefore tax free portion for 10 years of complete service is $45,010. ((7,350+ (3,766 x 10) = 45,010)) This portion is paid direct to you. If your total redundancy is less than this; the entire amount is tax-free and not included in your tax return and can not be rolled into Superannuation.

Eligible Termination Payments (ETP)

Amounts over your tax free amount are taxable. Your ETP must be taken in cash and not rolled over to your superannuation. If cashed they are taxed according to their components (this needs to be calculated for each individual according to their redundancy payment):

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Other Payments you will have to make a decision on:

Your superannuation termination payment:
Can you stay in the employer fund or roll-over to a personal fund and what is the best option for you?

You may be entitled to a Transitional Termination Payment if you have a qualifying contract with your employer that was in place before 10 May, 2006. If this is the case you will most certainly need specific advice on your options.

Super fund insured benefits

• Fully consider the Insurance benefit continuation option
• Most often overlooked item and many people lose cover and have to re-apply often having to undergo medical examinations to receive cover.

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Centrelink Benefits

The Newstart Allowance payment rates for 2008–09 listed below are a guide only. Income and assets tests will be used to work out how much you can get.

You will not usually be paid for the first week you are eligible for Newstart Allowance. This is called an "ordinary waiting period". Other waiting periods apply if you:

1. have money available to you (liquid assets) of more than $6,000 (if you have a partner or dependent children) or $3,000 (if you are single) on the day you or your partner became unemployed or unable to work because of sickness or accident, you may have to serve a "liquid assets waiting period" of up to 13 weeks.

There are other conditions so please follow the following links for more information:   

http://www.centrelink.gov.au/internet/internet.nsf/payments/newstart_rates.htm

http://www.centrelink.gov.au/internet/internet.nsf/filestores/ah1263_0609/$file/ah1263_0609en.pdf

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Handy Tips to remember

• Take particular care with the investment of any Eligible Termination Payment (ETP) so that any concessional tax rates on certain components may be fully realised to your benefit.
• Review superannuation benefits properly.
• Understand your entitlements to Newstart Allowance.  We calculate your entitlement with assistance from specialist Centrelink FIS personnel.
• Do a realistic budget. Interim measures that are flexible followed by longer-term measures once the future becomes clearer.
• Remain as financially flexible as possible, particularly in the initial stage – be careful of using money to reduce loans.  Ensure a draw back facility is available so as not to lock away funds or use offset account.
• Seek qualified & quality advice – you should do this first.