Redundancy: plan your payout

With the business sector beginning to look like a war zone, job security is no longer a sure thing and none of us is safe from the dreaded tap on the shoulder.

Being made redundant can be one of life’s most traumatic events, but charting a clear course is more effective than hitting the panic button.

Most laid-off workers receive a redundancy payout comprised largely of unused annual leave plus severance pay, measured as a number of weeks’ wages.

The golden rule with any such payment is to think first and spend later. There’s no knowing how long the money will need to last.

Park it in a cash-management account or online savings account, where it can safely earn between four and five per cent. This will also give you valuable breathing space to decide how to use the cash while considering job options.

Be careful about using large chunks of a payout to reduce debts such as your home loan. I’m all for paying off debt, but unless you have a job lined up you need to be as financially flexible as possible.

That said, if you can get rid of a high-interest credit-card debt, you should. Once you get a job, you may want to pump any money left over from your payout into your home loan.

With a clear idea of how much you have, you can plan your finances to see you through to re-employment. A budget is an essential tool here.

Be prepared to slash non-essential spending. If you don’t do it now, you may be forced to significantly tighten your belt further down the track.

Get in touch with Centrelink as soon as possible to register for benefits.

If you’re under 21, you may be eligible for Youth Allowance. Those too young for the age pension can register for Newstart Allowance, though this is subject to an income and an assets test.

The rate is around $450 a fortnight for a single person with no kids.

Be aware that if your payout includes a component of annual leave, sick leave or long-service leave, Centrelink may delay the date on which you can begin to receive benefits.

With these steps taken care of, you’re likely to know how much you have to live on until you find work.

One of the biggest headaches facing retrenched workers is keeping up the monthly mortgage repayments.

If you’re ahead with your loan payments, you may be able to claw back some of the funds via a redraw facility.

If that’s not the case, and meeting the repayments is likely to be a struggle, see if you can renegotiate the loan.

Lenders will often try to work out a solution, and under the consumer credit code you should be able to request a delay or restructuring of repayments, or an extension of the loan term.

Your bank may also let you switch to interest-only repayments.

All these options are likely to involve fees and charges as well as dragging your mortgage out a bit longer-but if you’re in financial survival mode, that’s likely to be a secondary concern.

As a last resort, you may be eligible for the NSW Government’s mortgage assistance scheme, under which the Government makes loan repayments to the lender on your behalf.

Conditions apply, though. To be eligible, your mortgage must be below $350,000 and your annual income less than $90,000. The maximum help you can expect to receive is $20,000 a year.

To find out more, visit www.housing. nsw.gov.au or call 1800 806 653.

Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Federal Government’s Financial Literacy Foundation and chief commentator for Money Magazine.

Paul’s tips

• Avoid making hasty decisions about how you’ll use a redundancy payment
• Parking your payout in a cash management account or online saver lets you earn interest of around 4% to 5% while providing valuable breathing space
• Be careful about using a large chunk of the payout to reduce debt. This could leave you strapped for cash if you don’t land another job quickly
• Take stock of your overall savings and draft up a budget to see you through to re-employment
• Get in touch with Centrelink early. Any unused leave component of your redundancy payout could delay the time it takes to receive any benefits
• If you are struggling to make interest repayments talk to your lender before they start calling you

Make sure you get a fair deal

The Advertiser reports that Australian workers need to make sure their redundancy payments are fair.

They report that research from a new global study by Right Management has found that employees laid off in Australia earn close to the least amount of severance pay worldwide.

Recent employment figures have indicated a slowing job market. At the same time it has emerged that of 28 countries surveyed on severance pay and conditions, Australia is well down the rankings in 21st position.

If an employee is retrenched because of restructuring or downsizing, they receive on average 22 per cent less than their global counterparts, with 2.79 weeks severance pay a year of service, compared with a worldwide average of 3.6 weeks a year of service.

For top executives the story is a little different. In Australia, they receive a significantly better severance package than most employees. They get 15 per cent more severance pay per year of service and greatly enhanced (more than 50 per cent) continuation of health and monetary benefits