Redundancy

Knowledge is power when it comes to redundancy and early retirement. As most of us will never have had our jobs made redundant before, we won’t have gathered any of the required information on the subject.

That’s why we’ve put together a series of FAQs to answer some of the key questions during a tough time.

How do I start planning my finances after a redundancy?

If you are about to receive a redundancy payment there are several issues you need to consider:

  • You will need to be able to understand the various components of your employer redundancy payment and these can be used to achieve your overall financial objectives.
  • Before you make any changes to your superannuation arrangements, consider your insurance coverage as well as your ongoing investment strategy.
  • What are your cash-flow requirements? How you are going to fund your living expenses while you transition to new employment or retirement?
  • You may need to get in touch with Centrelink as you may be eligible for assistance. If you have an unused leave component in your redundancy payout, this could have an impact on when you become eligible for Centrelink assistance.

To find out more about redundancy and early retirement, click here to make a complimentary initial appointment with a Bridges Financial Planner.

Bridges Financial Services Pty Limited (Bridges). ABN 60 003 474 977. ASX Participant. AFSL No 240837. Part of the IOOF group. This is general advice only and has been prepared without taking into account your particular objectives, financial situation and needs. Before making an investment decision based on this information, you should assess your own circumstances or consult a financial planner. In referring customers to Bridges, Greater Bank does not accept responsibility for any acts, omissions or advice of Bridges and its authorised representatives.
What makes up my redundancy payment?

Depending on your situation, you may be entitled to all or some of the following lump-sum payments:

  • unused annual leave
  • unused long service leave
  • the tax-free portion of the redundancy
  • the taxable portion of the redundancy, known as the ‘employment termination payment’.

To find out more about redundancy and early retirement, click here to make a complimentary initial appointment with a Bridges Financial Planner.

Bridges Financial Services Pty Limited (Bridges). ABN 60 003 474 977. ASX Participant. AFSL No 240837. Part of the IOOF group. This is general advice only and has been prepared without taking into account your particular objectives, financial situation and needs. Before making an investment decision based on this information, you should assess your own circumstances or consult a financial planner. In referring customers to Bridges, Greater Bank does not accept responsibility for any acts, omissions or advice of Bridges and its authorised representatives.
How will my unused annual leave be paid?

Your employer must pay out the annual leave that you have accrued. The total amount of the unused annual leave, paid out as a lump sum, is added to your taxable income in the financial year that you receive the payment. However, the tax you will pay on this amount is limited to a maximum of 30 per cent plus Medicare levy.

Your after-tax annual leave payment will be paid into your bank account. It cannot be directly rolled over into a superannuation fund.

To find out more about redundancy and early retirement, click here to make a complimentary initial appointment with a Bridges Financial Planner.

Bridges Financial Services Pty Limited (Bridges). ABN 60 003 474 977. ASX Participant. AFSL No 240837. Part of the IOOF group. This is general advice only and has been prepared without taking into account your particular objectives, financial situation and needs. Before making an investment decision based on this information, you should assess your own circumstances or consult a financial planner. In referring customers to Bridges, Greater Bank does not accept responsibility for any acts, omissions or advice of Bridges and its authorised representatives.
How will my unused long service leave be paid?

If you are entitled to long service leave, but have not yet taken it, your employer must pay your entitlement as a lump sum. The amount of tax you will pay on genuine redundancy depends on the following:  

Period of accrual Portion added to taxable income Tax rate applied
Before 16/8/78 5% Marginal + Medicare levy
After 15/8/78 100% Marginal 30% + Medicare levy

Your unused long service leave will be paid into your bank account. It cannot be directly rolled over into a superannuation fund.

To find out more about redundancy and early retirement, click here to make a complimentary initial appointment with a Bridges Financial Planner.

Bridges Financial Services Pty Limited (Bridges). ABN 60 003 474 977. ASX Participant. AFSL No 240837. Part of the IOOF group. This is general advice only and has been prepared without taking into account your particular objectives, financial situation and needs. Before making an investment decision based on this information, you should assess your own circumstances or consult a financial planner. In referring customers to Bridges, Greater Bank does not accept responsibility for any acts, omissions or advice of Bridges and its authorised representatives.
How can I calculate my tax-free genuine redundancy amount?
  • You will only be entitled to a tax-free amount if a genuine or bona fide redundancy is paid and you are under age 65.
  • The formula for the 2014/15 tax-free genuine redundancy amount is $9,514 + $4,758 for each completed year of service. Amounts in excess of the tax-free component are treated as employment termination payments
  • For example if you had completed 10 years of service your tax-free portion would be $57,094, calculated as $9,514 + ($4,758 x 10).
  • If your total redundancy payment is less than the tax-free amount, then your entire payment (excluding any unused annual leave/long service leave) will be tax-free.
  • The tax-free portion of your payout will be paid into your bank account. It cannot be directly rolled over into a superannuation fund.
  • You do not need to include the tax-free portion of your redundancy payment on your tax return.

To find out more about redundancy and early retirement, click here to make a complimentary initial appointment with a Bridges Financial Planner.

Bridges Financial Services Pty Limited (Bridges). ABN 60 003 474 977. ASX Participant. AFSL No 240837. Part of the IOOF group. This is general advice only and has been prepared without taking into account your particular objectives, financial situation and needs. Before making an investment decision based on this information, you should assess your own circumstances or consult a financial planner. In referring customers to Bridges, Greater Bank does not accept responsibility for any acts, omissions or advice of Bridges and its authorised representatives.
How will my employment termination payment be paid?

An employment termination payment (ETP) is the term used for the remainder of your redundancy payment. Your ETP, therefore, is equal to:

Your total redundancy payment

  • less your unused annual leave
  • less your unused long service leave
  • less the tax-free portion of your redundancy.

Your ETP will be paid into your bank account. It cannot be directly rolled over into a superannuation fund.

To find out more about redundancy and early retirement, click here to make a complimentary initial appointment with a Bridges Financial Planner.

Bridges Financial Services Pty Limited (Bridges). ABN 60 003 474 977. ASX Participant. AFSL No 240837. Part of the IOOF group. This is general advice only and has been prepared without taking into account your particular objectives, financial situation and needs. Before making an investment decision based on this information, you should assess your own circumstances or consult a financial planner. In referring customers to Bridges, Greater Bank does not accept responsibility for any acts, omissions or advice of Bridges and its authorised representatives.
Will my redundancy affect my super or insurance?

Yes, as you are no longer employed your employer no longer needs to pay superannuation guarantee payments on your behalf and any salary-sacrifice amounts you nominated will also cease.

While some employer superannuation funds allow you to remain in the fund, some funds will automatically roll you over into a personal superannuation fund. Your employer superannuation fund should write to you to let you know.

If you start a new job, you may be able to remain in your super fund or join your new employer’s super fund. Remember that if you have more than one superannuation account, you are paying more than one set of fees and charges so you may consider consolidating your accounts. Before doing so, however, you should consider your superannuation options carefully, particularly around the insurance options that are available, and speak to a financial planner.

When your employment status changes, (ie you leave employment or change employers) your superannuation arrangements may also change and this could affect your life and total and permanent disablement insurance arrangements. Before closing your existing super fund, ensure that your new fund offers an adequate level of insurance cover.

To find out more about redundancy and early retirement, click here to make a complimentary initial appointment with a Bridges Financial Planner.

Bridges Financial Services Pty Limited (Bridges). ABN 60 003 474 977. ASX Participant. AFSL No 240837. Part of the IOOF group. This is general advice only and has been prepared without taking into account your particular objectives, financial situation and needs. Before making an investment decision based on this information, you should assess your own circumstances or consult a financial planner. In referring customers to Bridges, Greater Bank does not accept responsibility for any acts, omissions or advice of Bridges and its authorised representatives.
Are there any pitfalls that I should avoid?

Yes, if you have been paid a lump sum for unused annual leave and/or long service leave you may not be eligible to receive Newstart Allowance for some time, so it’s important that you set aside funds for any bills or everyday expenses during this time so that you don’t spend your payment all at once.

To find out more about redundancy and early retirement, click here to make a complimentary initial appointment with a Bridges Financial Planner.

Bridges Financial Services Pty Limited (Bridges). ABN 60 003 474 977. ASX Participant. AFSL No 240837. Part of the IOOF group. This is general advice only and has been prepared without taking into account your particular objectives, financial situation and needs. Before making an investment decision based on this information, you should assess your own circumstances or consult a financial planner. In referring customers to Bridges, Greater Bank does not accept responsibility for any acts, omissions or advice of Bridges and its authorised representatives.
What is the difference between a redundancy and a 'genuine' redundancy?

A redundancy is ‘genuine’ or ‘bona fide’ when:

  • The employer has made a definite decision that the job of an employee ceases to exist.
  • The termination is not on account of any personal act of default of the employee.
  • The dismissed employee is below normal retirement age.
  • From 1 July 2012, the availability of an ETP tax offset for ‘golden handshakes’ will be limited. This will not affect those whose employment ends due to genuine redundancy, invalidity or death, or where compensation is due for an employment-related dispute.

To find out more about redundancy and early retirement, click here to make a complimentary initial appointment with a Bridges Financial Planner.

Bridges Financial Services Pty Limited (Bridges). ABN 60 003 474 977. ASX Participant. AFSL No 240837. Part of the IOOF group. This is general advice only and has been prepared without taking into account your particular objectives, financial situation and needs. Before making an investment decision based on this information, you should assess your own circumstances or consult a financial planner. In referring customers to Bridges, Greater Bank does not accept responsibility for any acts, omissions or advice of Bridges and its authorised representatives.
Where can I get help with my finances?

Before you decide what your next steps are, speak to a Bridges financial planner. A Bridges financial planner can explain the components of your redundancy package and how these may affect your eligibility for Centrelink benefits and then help you put a plan in place. Your initial consultation is complimentary and obligation free.

To find out more about redundancy and early retirement, click here to make a complimentary initial appointment with a Bridges Financial Planner.

Bridges Financial Services Pty Limited (Bridges). ABN 60 003 474 977. ASX Participant. AFSL No 240837. Part of the IOOF group. This is general advice only and has been prepared without taking into account your particular objectives, financial situation and needs. Before making an investment decision based on this information, you should assess your own circumstances or consult a financial planner. In referring customers to Bridges, Greater Bank does not accept responsibility for any acts, omissions or advice of Bridges and its authorised representatives.