Faced with retrenchment? Here’s how to navigate stormy financial waters during lockdown

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Couple sorting out their finances. (Photo: Getty Images)
Couple sorting out their finances. (Photo: Getty Images)

The effect of a nationwide lockdown on businesses – big and small alike – is unimaginable.

These are unprecedented times and it’s therefore difficult to establish the long-term toll it will take on the country’s economy.

While companies are putting plans in place to survive the financial uncertainty, some are taking more drastic measures than others. Many employees are faced with the frightening reality of a pay-cut or even retrenchment.

Alfred Ramosedi, CEO at Bayport Financial Services, says one of the biggest mistakes people make following an unexpected loss of income is to fall into arrears with payments before making arrangements with their creditors.

“This is likely to cause added financial stress and impact your credit health, affecting you even after you’ve recovered financially,” he says. “The start of a downward spiral which could be avoided.”

Ramosedi cautions against rushing to sell your car or cancel your insurance but does emphasise the need for proactive steps in ensuring you get out on top.

“By doing your homework and taking control of the situation, it’s possible to emerge from retrenchment unscathed or even better-off financially than before,” he reassures.

This is what he recommends: 

1. Notify your creditors

Inform creditors and other service providers immediately, especially those who collect payments via debit order. Ask what payment arrangements can be made. 

Your policies, such as retirement annuity, life cover, car and home insurance, may offer retrenchment cover in the form of premium waivers, where you can pause your premium payments for six to 12 months while your cover remains intact.

Also find out if you have an income protection policy and if it covers retrenchment. Some income protection policies may pay up to 75% of your taxable salary for up to six months after retrenchment.

2. Check for credit insurance

Not many people know that debts like short-term loans, credit cards and car finances often come with credit insurance. This insurance can be claimed in the case of retrenchment.

“This benefit could cover your instalments up to 12 months, depending on your policy,” Ramosedi says. “Bayport, for example, has paid out over R267 million in credit insurance settlements over the past five years.”

It’s important to note, however, that you’ll only be able to claim this benefit if you’re up to date with your payments. “Hence the importance of speaking to your credit providers immediately before you default on a payment.”

3. Claim UIF benefits

As long as you and your employer have been contributing to the Unemployment Insurance Fund (UIF) while you were working and you have a termination letter from the company, you’ll be entitled to claim unemployment benefits from the fund in the case of retrenchment.

This benefit should be claimed within six months of retrenchment and can pay out up to 12 months, or until your benefits have been exhausted or you find employment.  

4. Capitalise on tax benefits

Your retrenchment package could possibly be tax-free (this is subject to certain conditions).

Along with your pension pay-out – if applicable – you could bank on receiving a relatively large amount.

But Ramosedi warns against dipping into your retirement benefits portion.

“Rather re-invest your pension funds into a retirement annuity so that you don’t impact your future retirement benefits,” he advises.

5. Back to basics

Push pause on purchasing luxury and non-essential items.

“You’d be surprised how far a shoestring budget can get you,” Ramosedi advises.

“Plan well and shop smartly.”

6. Don’t be afraid to ask for help

Your pride may very well take a knock during this time but know retrenchment could come knocking on anyone’s door.

“And it’s something you’ll recover from, as long as you keep your head up, stay proactive and ask for help when you need it.

“Accept assistance from friends and family and seek advice from professionals.”

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