Bayport offers expert advice for taking control of your finances following retrenchment
Without proper guidance and support, retrenchment tends to affect people in one of two ways – either sending them into an absolute panic causing them to make rushed decisions that they may regret, or they avoid reality and get themselves into unnecessary financial trouble.
“One of the biggest mistakes that people make following retrenchment or a similar change in circumstances is to fall into arrears with payments before making arrangements with their creditors,” says Alfred Ramosedi, Chief Executive Officer at Bayport Financial Services. “This is likely to cause added financial stress and impact your credit health, affecting you even after you’ve recovered financially – the start of a downward spiral which could be avoided.”
While you shouldn’t rush to sell your car, cancel your insurance or run for the hills, you do need to be proactive and take some steps to ensure that you get out on top. By doing your homework and taking control of the situation, it is possible to emerge from retrenchment unscathed or even better-off financially than before. Ramosedi gives the following practical advice:
Call your creditors and other service providers immediately, especially those who take a debit order off of your account and notify them of your change of circumstances. Ask them 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 twelve 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.
You may well not know that if you have debts such as a short-term loan, a credit card or car finance, you are likely to have credit insurance that can be claimed in the case of retrenchment. This benefit could cover your instalments up to twelve months, depending on your policy. Bayport, for example, has paid out over R267 million in credit insurance settlements over the past 5 years.
It is important to note, however, that you will only be able to claim this benefit if you are up to date with your payments, hence the importance of speaking to your credit providers immediately before you default on a payment.
As long as you and your employer have been contributing towards UIF while you were working, and you have a termination letter from the company, you will be entitled to claim unemployment benefits from the Fund in the case of retrenchment.
This benefit, is to be claimed within six months of retrenchment, can pay out up to 12 months – until your benefits have been exhausted or you find employment. Note, however that the pay-out is based on your contributions and the calculations can be very unpredictable, so be careful to not rely on these too much.
With your retrenchment package possibly being tax-free subject to certain conditions, along with your pension pay-out (if applicable) you could get out a relatively large amount. While the severance pay will assist with covering your day-to-day expenses until you find new employment, be wary of dipping into the retirement benefits portion. Rather re-invest your pension funds into a retirement annuity so that you don’t impact your future retirement benefits.
Push pause on purchasing luxuries and non-essential items. You may be surprised by how far you can get on a shoestring budget if you adjust your expectations, plan well and shop smartly.
Other than groceries, cut back on entertainment, look at what subscriptions can be cancelled and consider what you can do yourself instead of paying externally, such as laundry, car washes and home repairs.
While your pride may take a knock during this time, know that retrenchment is a reality that can happen to everyone, and is something that you will recover from – as long as you keep your head up, stay proactive, and ask for help when you need it. If friends or family offer assistance, accept it, and reach out to professionals for their advice.