Reasons to think before you spend that redundancy payment.

Posted by Malcolm Campbell on 27 August 2015

As a legal firm who deal with many employment matters including redundancy, we often meet with clients who are dealing with being made redundant from their current employment. As part of the process of redundancy, the client may receive a payment from their previous employer and for some clients, this can be a considerable amount of money.

Whilst we do not provide financial advice, we do recommend that our clients, especially when their final payment is a substantial sum of money, seek professional financial advice as to what the best use of this lump sum of money is and to ensure that they implement strategies to sustain their lifestyle until new employment is secured.

From Centrelink’s point of view, any lump sum redundancy payment will be seen by them as regular income whilst you are job-seeking. The income-maintenance or preclusion from social security period is equivalent to the number of weeks pay you receive when you were made redundant i.e. 8 weeks redundancy pay will mean a preclusion period of 8 weeks. The preclusion period is the possible period of time you will not be entitled to Centrelink benefits. When put in this light, it is even more important that advice is sought to enable you to ensure that any lump sum received is used wisely.

Centrelink does advise however that “any portion of a redundancy payment that's rolled over into deferred annuities, super bonds, super schemes, allocated pensions or approved deposit funds is not included when calculating the income maintenance period.” This highlights even more so, the need for professional financial advice to ensure a redundancy payment is made to work for you in the most effective manner possible.

If you need to discuss your redundancy or would like a referral to a quality financial advisor, please contact us.