November 30 2023
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Is super paid on redundancy payments?
If you get made redundant, you may be eligible to receive a redundancy payment. But here’s the thing: your employer generally doesn’t need to pay super on the redundancy payment they pay you. This is because an employer is required by law to pay Super Guarantee (SG) contributions for an eligible employee and this is based on the employee’s ordinary time earnings (OTE). ATO says redundancy payments don’t count as OTE, because the payment is meant as compensation for losing your job, not for the work you did.
The same goes for payments you might get for unused annual leave, long service leave, or sick leave – they're not seen as OTE, so they don't come with super.
However, if your employer chooses to pay you instead of giving you the required notice when terminating you, that's a bit different. ATO considers this type of payment as OTE, so your employer generally needs to make super contributions on these payments.
| Redundancy payment |
No |
| Termination payments – in lieu of notice |
Yes |
| Termination payments – unused annual leave, long service leave or sick leave |
No |
What happens to your super if you’ve been made redundant?
Generally, not much changes in the short term. While you’d no longer receive SG contributions until you find a new job, you can stick with the same super fund. Things like fees and costs and how you invest your super normally don’t change as a result but you should check with your fund.
Also, if your super account becomes an inactive low-balance super account, it may be transferred to the ATO. Generally, this happens if all of the following criteria are met:
- no money has been added to the account within the last 16 months
- there’s less than $6,000 in the account
- you haven’t met a prescribed condition of release (retirement, death, terminal medical condition, permanent incapacity, attaining age 65 and attaining preservation age)
- the account is not a defined benefit account
- there’s no insurance on the account
- the account is not held in a self-managed super fund (SMSF) or small Australian Prudential Regulation Authority (APRA) fund.
If you don’t want your super account to be transferred to the ATO, you can tell your super fund in writing. There are also other circumstances where the account is not considered an inactive low-balance account if you take certain actions in relation to your fund.
Read more about inactive low-balance super accounts on the ATO website.
What happens to your insurance under super if you’ve been made redundant?
Generally, you can still keep your insurance cover as long as you have enough super balance to pay for the insurance premiums. However, you should check with your fund whether your redundancy can impact your cover in any way under the applicable terms and conditions.
For example:
- calculations of Income Protection benefits might be based on the last 12 months of income, and time out of work may reduce this
- if you were insured under Rest Corporate, you’ll be moved to the Retained Category within Rest Corporate or to Rest Super, depending on your insurance cover type. This may have an impact on your premiums and the level of cover.
And although your insurance cover won’t be cancelled directly because of your redundancy, it might be cancelled if:
- you don't make any contributions or rollover funds to your super account for 16 continuous months (for Rest members, this period is 13 months)
- you haven’t told your super fund that you want to keep your cover.
It might sound a bit complicated, but staying across your insurance is important, especially during times of change like losing your job. If you're unsure about anything, it's a good idea to talk to your super fund or a financial adviser. If you’re a Rest member, you can also check the terms and conditions in the relevant Insurance Guide.
Can you access your super if you’ve been made redundant?
There are limited circumstances, known as conditions of release, where you can access your super early. One such condition of release is if you’re facing severe financial hardship, or in other words, if you’re facing really tough money situations.
If you’ve been made redundant, it may be possible to access some of your super early if you're eligible to claim under severe financial hardship reasons. But you’ll need to apply for it, and it comes with strict rules (see below for details) so you may not be able to access the money immediately.
Severe financial hardship is when you can’t afford your and your immediate family’s reasonable living expenses. These are things that you can’t go without, like bills, groceries, rent or medical costs.
Are you eligible?
If you haven’t met your preservation age plus 39 weeks
You may be eligible to access your super for financial hardship reasons if you meet all of the following:
- you’ve been receiving Commonwealth income support payments for 26 continuous weeks
- you can’t meet reasonable and immediate family and living expenses.
There are other rules to note:
- You can only access between $1,000 and $10,000 as a lump sum.
- If your super balance is below $1,000, you can withdraw up to your remaining balance after tax.
- You can only receive a payment once in any 12-month period.
If you’ve met your preservation age plus 39 weeks
If you’ve reached your preservation age plus 39 weeks, different criteria apply and you must meet all of the following:
- you’ve been receiving Commonwealth income support payments for a cumulative period of 39 weeks since reaching preservation age
- you’re not gainfully employed when you apply (that is, you’re unemployed or working less than 10 hours a week).
To find out more about accessing your super due to financial hardship, visit the ATO website.
What is the preservation age?
The preservation age is the earliest age that you can generally access your super on a retirement basis. The preservation age is different for everyone and will depend on your birth year.
