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How to stave off financial stress in redundancy
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The Australian & New Zealand Grapegrower & Winemaker reported in its December 2005 issue that termination, redundancy or resignation usually happens at short notice and, not surprisingly, are events that professionals do not tend to diarise.
According to leading wealth management and stock broking firm, Prescott Securities, sudden loss of employment, whether voluntary or imposed, can quickly throw an unsuspecting individual into financial and emotional turmoil.
“For many people, changing or losing a job can be a time of anxiety and confusion, while for others it provides a welcome opportunity to reassess lifestyle and career objectives,” Prescott Securities senior adviser Helen Dundon, said.
“Whatever the case, it is a time when many important personal and financial decisions must be made that could potentially save or cost many thousands of dollars and impact your future way of life.
“In line with this, it is essential to put in place an effective contingency plan, in consultation with a professional, as soon as possible to ensure you and your family are provided for.”
Dundon said there were three possible outcomes from retrenchment or leaving an employer.
“People will either find a new job relatively quickly, not be able to find employment and have to rely on Government assistance or, if they are a suitable age, they will enter early retirement,” she said.
“Whatever the case, there are a number of considerations that need to be taken into account to ensure this transition is made as smoothly as possible.”
Dundon said seeking professional financial advice should be first on the list.
“It is important to work out all your options as soon as possible to minimise the financial strain of such a huge life change,” she said.
“It may be worth considering setting up a readily accessible cash fund that contains at least one year’s living expenses to act as a financial buffer while you are not earning.
“In addition, it is important to clear all debt, especially credit cards and home mortgages where the interest is not tax deductible. This will help to free you from any liabilities or financial obligations while there is uncertainty about your future.”
Dundon said that during times of stress, health problems could flare up, making it important to maintain medical insurance and benefits.
“In addition, it is important to note that leaving an employer may result in the loss of life insurance benefits through a group scheme or via a superannuation fund,” she said.
“Some schemes offer the option of transferring your insurance without medical evidence within a set period, usually of 30 days.”
She emphasised the need to consider tax implications when negotiating separation payments.
“Once you have been informed that your employment will be terminated for whatever reason, it is a good idea to find out about your potential entitlements as soon as possible,” she said.
“Your employer is required to provide you with a statement which will indicate exactly how the payment is to be dealt with from a tax perspective and other considerations.
“How this money is taxed and whether it can be rolled over into superannuation depends on the type of payment it is.
“For example, unused annual and long service leave cannot be rolled over and tax will need to be paid, however, the balance over the tax free redundancy amount and unused sick leave can be rolled over.
“If there is any confusion, seek professional advice as soon as possible.”