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. But regardless of what your next steps might be, it’s important that you:
- understand the payments you may receive from your employer and what tax treatments apply
- consider the financial issues likely to be relevant to your age and career goals, and
- speak to a financial adviser to find out how you could manage your redundancy payments effectively.
Types of payments
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.
The table below summarises the tax treatment of these payments in the 2018/19 financial year in the event of a genuine redundancy.
Tax payable in 2018/2019
|Genuine redundancy payment||Tax-free up to a maximum of $10,399 + ($5,200 x each completed year of service)|
|Employee Termination Payment
– First $205,000 taxed at 32% and excess taxed at 47%
|Accrued annual leave||100% of payment taxed at maximum rate of 32%|
|Accrued long service leave
|Final pay||100% of payment taxed at your marginal rate|
Financial issues to consider
When you take a redundancy, you will need to decide what you are going to do with the payments you are eligible to receive. Other financial issues you may need to consider will depend on whether you intend to find a new job or you plan to retire.
If you plan on finding a new job, some of the important questions you should address include
1. How will you meet your living expenses until you find another job
2. Will you be eligible for the Newstart Allowance or other relevant social security benefit?
3. Will you need to move your superannuation to another fund?
4. Should you merge your superannuation into one account?
5. Should you use some of your superannuation to pay yourself a pension?
6. Will any insurance policies taken out on your life cease when you leave your employer?
7. What should you do with any left over redundancy pay when you find another job?
Some key questions to consider if you’d like to retire upon leaving your employer are:
1. Have you accumulated enough wealth within and outside superannuation to provide an income to meet your ongoing lifestyle needs?
2. Should you use some of your superannuation to pay yourself a pension (if eligible1)?
3. Will you be eligible for the Age Pension or other relevant social security benefit?
4. Do you need to review your estate plans?
5. Do you need to review your insurances?
Value of advice
After reading this information, we recommend you speak to a financial adviser, who could help you:
- decide what to do with the payments you are eligible to receive from your employer
- make 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.
Important information and disclaimer
This document has been published by Mark Welch & Lachlan Carmody, EPG Wealth, Pty. Ltd. Authorised Representative(s) of Apogee Financial Planning Limited (ABN 28 056 426 932) (“Licensee”), an Australian Financial Services Licensee, registered office at 105 –153 Miller St North Sydney NSW 2060 and a member of the National Australia Bank Limited group of companies (“NAB Group”) .
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Accordingly, reliance should not be placed on the information contained in this document as the basis for making any financial investment, insurance or other decision. Please seek personal advice prior to acting on this information.