As the mining boom slows and many Australian businesses struggle to remain competitive in a global market, cost cutting and retrenchments have become a normal part of being in the workforce. Being made redundant is never an easy, but if it’s handled well it can be financially and personally rewarding.
Australia’s unemployment rate edged up to 5.8 per cent in August and is forecast to reach 6.2 per cent in 2014. In a tough economic environment, even well established businesses are cutting costs by introducing laboursaving new technologies and outsourcing. But the news is not all bad.
The strongest job markets
According to the latest CommSec State of the States report, Western Australia still has the best performing economy but the strongest job markets are NSW, Victoria and the ACT.
As new investment in mining and engineering falls, commercial and residential construction activity is picking up in all states and territories except Tasmania. Public sector positions grew the most in the year to August, although the new federal government is promising cutbacks. Other sectors providing job growth are transport, wholesale trade, education and training as well as health and community services.
Lower interest rates are expected to provide a boost for retailers. Employment is shrinking in the agricultural and manufacturing industries, although both industries still employ more people than the mining sector.
The ever-changing workplace
When redundancy strikes, the important thing is not to take it personally. Redundancy is not a reflection of the worker but the constantly changing nature of the workplace. The challenge is to make the most of your situation financially.
What you do with your payout will depend on your age and stage of life. If you are close to retirement and in a good financial position, a large payout can help feather your retirement nest. If you are young and have another job to go to, a large payout can be a windfall. But if your future employment is uncertain, you need to proceed with caution.
Whatever your circumstances, it’s vital to get as much out of your payout as possible. The first thing you should do when you are made redundant or considering voluntary redundancy is to check all the details of your payment. Your adviser can help with this and work with you to prepare a financial strategy.
Review insurance and loans
As you take stock of your financial position you need to know what Government assistance you may be entitled to. It is a good idea to contact Centrelink to check your eligibility for income support, the Age Pension and a Health Care Card.
In the meantime, you could consider putting your payout in a bank cash account or a mortgage offset account until your plans are clearer. Money in an offset account helps reduce the amount of interest you pay on your mortgage but it can be withdrawn at any time.
If you are retrenched unexpectedly, you may have loans or other financial obligations that become hard to manage. You may be able to reduce or suspend payments for a period but the earlier you discuss your situation with the lender the better.
Topping up your super
If you don’t have a mortgage and you are over 55 you might consider putting some or all of your payout into your superannuation fund.
Before you do this, make sure you understand your age-based contribution caps because there are hefty tax penalties for exceeding them. If you are over 55 you may be able to set up a transition to retirement pension to supplement your income while you look for work.
Once you find work, you can continue the pension and salary sacrifice some of your wage back into super (depending on superannuation caps) to rebuild your nest egg and save tax. We recommend you seek help from your financial adviser to explain this in more detail.
Trying something new
Some people find that being made redundant gives them the push they needed to try their hand at something completely new. Government support is available for people who wish to start up their own small business or you might decide to retrain for an entirely new career. Whatever you decide to do, having a sound financial plan is the key to success and happiness after redundancy.
This taxation information is based on the continuation of present laws and their interpretation and is a general statement only. Individual circumstances may vary.