Dealing with Redundancy and the role that Superannuation plays

Making the right decisions on what to with your superannuation should be very high on your list of things to do after being made redundant. Some of the things that you will have to think about are whether:

?You can remain with your current super fund.
?You can switch to another super fund
?You can start an income stream investment.
?You can have some, or all, of your super paid out as a lump sum.

The first thing that you would need to do before you can make any decisions is to make sure what the current status of your super is, as this will determine what you will be allowed to do with it. Some possible benefit scenarios are:

Preserved Benefit: Your will money will have to remain in a super fund (your current one or another eligible fund). Funds will only be released if you meet a condition of release (e.g. reaching your ?preservation age?, severe financial hardship, permanently leaving Australia, terminal illness etc.)

Restricted Non-Preserved Benefit: Most funds in this category were commenced before 1 July 1999. If your employer contributed to the fund it, will become ?unrestricted non-preserved? (see below) upon the termination of your employment. Otherwise it will be treated in the same way as a preserved benefit fund (see above).

Unrestricted Non-Preserved Benefit: This is the scenario where you have the most options. Your money can stay in your current fund, be rolled over into another eligible fund, be paid out as a lump sum or be used to start an income stream investment.

Understanding the status of your fund will help you to make the decision on whether to pursue one of the following options:

Taking your money out as a lump sum
A major factor in deciding whether to cash in your super is how much tax you will pay when doing so. The answer is that the longer you leave it in the fund the less money will go to the taxman. If you are under 55 and taking the cash out under a special condition of release you will pay 21.5% tax. If you are between 55 and 60 you will not have to pay tax on the first $145 000 and then 16.5%. After age 60 you will not have to pay any tax.

Keeping your money in your super fund
The main benefits of keeping your money in super is that any investment earnings will be taxed at a much lower rate (15%) than what you would have to pay in the ?open market? (46.5%). If you can manage to keep your money in super until after age 60 you will not have to pay any lump sum tax. These are obviously significant benefits. If you do decide to keep your funds in super the next major question becomes whether you will stay with your current fund or whether you should join another eligible fund.

Placing your funds into a different super fund
It is sometimes the case that you have virtually no choice in having to roll over your super into a new fund (this is especially the case with employer sponsored funds where you have to be currently employed by a company to be eligible for membership). In other cases it would simply make more sense to move to a new fund (e.g. where you could expect a better return on investment, or when you consolidate several funds into one in order to save on administration and fees).

It would of course be prudent to spend some time to research the best new ?home? for your super. Some of the things that you should consider are:
?Is the fund administered by a provider with a good track record and solid management systems?
?Does the fund offer a variety of investment options?
?Is the fund proactive in communication and does it provide ready access to information?

Using your super to commence an income stream investment
If some, or all, of your super is available to you as a lump sum income you could benefit from commencing an income stream investment (e.g. an account based pension). The main benefits associated with this option are:
?The deferment or elimination of lump sum tax
?The possibility of making use of tax-free earnings within a pension fund (e.g. If you receive income payments from an income stream commenced from a taxed super fund, it will be tax free after age 60)
?A possible 15% tax offset if you are between 55 and 59.