They take the entire payment in cash, oblivious to the fact they may be short-changing themselves.

Coming to terms with redundancy can be a traumatic event for employees who are suddenly downsized and find themselves facing financial uncertainty. But retrenched workers who take their entire payout in cash may be paying more tax than they need to.

Kate Anderson, technical analyst with Zurich Financial Services, says most people are baffled by what goes into their redundancy package, let alone which bits are subject to various tax rates.

"All too often, they take the entire payment in cash, oblivious to the fact they may be short-changing themselves. While the 'bona fide redundancy' portion of the payout isn't taxed, provided it falls with certain Tax Office limits, people aged under 55 pay up to 30 per cent tax on any 'excess' amount accumulated since 1983, plus Medicare."

The "excess" amount includes any over-generous redundancy payments by your employer, and things like annual and long service leave.

But if you elect to roll over this "excess" money, or "golden handshake", into superannuation, it will attract only 15 per cent tax on entering the fund (unless you are a high-income earner and the superannuation surcharge applies).

"By not giving in to the temptation of taking the lot as cash, you will have effectively more than halved the tax payable," she says.

The money need not be locked away in the superannuation system for good if you should need to access it before retirement, however.

"These moneys are classified as 'unrestricted, non-preserved' by your superannuation fund, which in plain English means you can withdraw them at any time," she says. "The only drawback is that if you redraw the money before age 55, it will attract an exit tax of 20 per cent plus Medicare.

"This isn't really an issue unless you decide to take the money out quickly, say in three months' time, in which case you'll end up paying a couple of per cent more tax than you would have in the first place. But if you take it out a few years down the track, your investment should have had time to reap the rewards of the tax-effective superannuation environment. And while you have to pay the exit tax, you should still be well ahead."

While the initial money invested can be withdrawn at any time, recent legislative changes dictate that any earnings from it have to stay in the fund until retirement age.

Anderson recommends that anyone with a substantial payout in the offing should seek the advice of a financial planner to help them make the best decisions, taking into account their individual circumstances.