As South Africa grapples with the harsh reality of a challenging economic climate and high rate of unemployment, the threat of retrenchment looms over many households. In such situations, it is imperative to have a plan in place to safeguard your financial and personal future. The process begins with staying calm, understanding the steps, and knowing your rights.
By law, your employer must provide you with two key things: a notice of retrenchment including the reason for the retrenchment, the alternatives your employer considered, and any proposed assistance; plus a consultation, where you have the opportunity to discuss the retrenchments with the employer.
“People often underestimate the immense shock that comes with retrenchment. Therefore, it is wise to take a few days to process the news and refrain from making rushed financial decisions while in an emotional state of mind,” cautions Martin Hatidani, Senior Manager for Retirement at NMG Benefits.
When faced with retrenchment, or if you have recently been retrenched, below are some essential steps to consider:
Know what to expect:
On retrenchment, you can anticipate several key financial elements from your employer, including:
- Your final salary (notice pay), which may also include any outstanding leave.
- Severance pay, typically comprising one week’s remuneration for every year of service, although some companies may provide more.
- Pro-rata bonuses, depending on the terms of your employment contract.
- All the retirement savings in your company’s retirement fund.
“Your retrenchment package may be the last money you receive for a while. You need to make sure you manage it in the most effective way possible, so consulting with your financial advisor at this time would be wise,” advises Hatidani.
Know your options with retirement savings:
In the face of retrenchment, you have four choices regarding your retirement savings. You can:
- Transfer them to another pension or provident fund.
- Preserve your savings in a preservation fund or a retirement annuity.
- Withdraw some of your money in cash and preserve the remaining amount.
- Withdraw your money in cash.
Consider your options carefully. “If possible, your best course of action is to keep your money invested for your retirement. If this is not feasible, think about taking only a portion of your money as cash to ensure you have some savings set aside for retirement. Taking all your money in cash should be a last resort.”
Watch your spending:
Emotions can often cloud judgment, leading to poor spending decisions when facing retrenchment. This is the time to be rigorous with your budget, cutting back to the essentials until you’re back on your feet.
Try to stay positive:
“View retrenchment as a new beginning, not a dead end. Although it is challenging, maintaining a positive mindset will make your journey a bit bearable. Allow yourself a set ‘mourning period’ for negative emotions, but then move forward with hope and renewed energy,” Hatidani concludes.
