Surviving retrenchment or loss of income
Facing retrenchment or loss of income is a very frightening experience and it’s never an easy topic to discuss.
But it’s important, especially considering how the coronavirus lockdown has affected many businesses. As they count the economic costs of the pandemic, many started to cut back on staff to stay afloat, in many instances as a last resort.
Your tax benefits
While being retrenched is a financial blow, legally it allows you to access many benefits. This includes better tax rates.
You can take up to R500 000 tax free from a combination of your retrenchment package and pension. This assumes, however, that you have not withdrawn from a retirement fund previously.
While the retrenchment package itself is there to assist you with your day-to-day expenses, try not to use the retirement benefits portion for daily living as this could have a material impact on your future retirement benefit.
Think of your retirement fund only as an emergency in case you are unable to find work after your UIF and severance package payment has run out.
Insurance that covers your debt
If you have debts such as a short-term loan, credit card or even car finance, there is a good chance you have credit insurance.
In many cases the credit insurance will provide cover for between 6 and 12 months of your credit installments if you were permanently employed.
There are usually time limits before you can claim. You can also only claim against your credit insurance if you are up to date on your payments.
In order for the retrenchment claim to be processed, you would have to provide the following documents:
- Section 189 Letter or Letter of Retrenchment on a company letterhead with valid company stamp.
- Certified copy of ID
- Certificate of service
- Stamped UI 19
- Settlement agreement/ Loan agreement
- Employment contract (where required)
Steps to take if you are retrenched
Even if you have planned for a possible retrenchment, when the news breaks it can still cause much upheaval and stress. But there are things you can do to make the process easier.
- Draw up a survival budget: This is how much you need to survive – accept immediately that you will have to cut back on luxuries and “nice to haves”. It may take longer to find a new job than you expected, and you need to make your benefits last as long as possible.
Remember, if you adjust your lifestyle sooner rather than later, the retrenchment will have less of an impact on your longer-term finances.
- Sign up for UIF online: Once you know your unemployment benefits, you will have a better idea of how much of your survival budget will be covered. Even if you chose to take the severance package, as long as your company has issued a section 189 letter, you can apply for unemployment benefits.
You can receive unemployment benefits for up to 12 months. UIF applications can be done online at https://www.ufiling.co.za/uif/unemployment-benefits
- Speak to your creditors and don’t just let your debt repayments lapse as that will negatively affect your credit score and could result in long-term legal problems.
- Speak to your car and home insurer. Your policy may include cover that waives your insurance premiums for a period of time after being retrenched, which means you still have insurance in place even when you cannot afford the premiums. However, you need to notify the insurer rather than just leaving the debit order to bounce. If the debit order bounces, your cover will lapse.
- What to do with your home loan. If you are retrenched and have a home loan, contact your home loan provider immediately. In most cases you may have some form of credit insurance in place.
Remember that any restructuring of a loan will result in higher interest payments over time, but it can provide breathing space rather than losing your home.
Don’t rush into a new venture
Don’t panic by immediately using your retrenchment package to start a small business. Setting up a business takes a great deal of research and planning, and most small businesses fail in their first year.
If working for yourself is a dream you have always had, use the opportunity but make sure you have a proper business plan and business case. You can also find ways of earning an income, even a small one, without paying out capital.
Turning to side-hustles
Many people are turning to side hustles as a way to make more money in these trying times.
However, before you start, you need to do your homework and make sure you understand whether this is going to provide you with a real income. Often people realise too late that the business is actually costing them money.
Helping your family when times are tough
Whilst recognising that everyone’s situation is completely different, most people not only feel obliged but are also expected to help out parents, siblings or cousins.
Here are four tips on how you can survive when times are tough, while still helping family out:
Communication is so important in any relationship, even more so, when it comes to your finances and family members. If family members are accustomed to a fixed monthly amount and you cannot afford it anymore, be honest and let them know the reasons why.
Now that you have started the conversation, be sure you prepare beforehand; come with a number you can commit to and let it be known that it is only what you can afford going forward.
3. Set boundaries
Boundaries are important for healthy relationships, set them. Please remember saying “NO” is will not be the end of the world.
4. Let go of guilt
Finally, let go of the guilt of not being able to help out as much as you want or is required of you.
A job is not the source of your self-worth
In today’s intense work culture — where burnout has become the rule rather than the exception — it can be easy to equate your job with your identity, and a lot of our self-worth is often attached to our job. Perceived failure in that area carries the risk of negatively influencing our perception of ourselves.
In reality, you are not your job. You exist beyond the boundaries of the role you inhabit. Understand that your self-worth is not defined by your career, but it is about how you act and what you do in your daily life.
If you have been retrenched or lost your income, make a conscious decision to be kind to yourself. Realise that retrenchment is a fact of the market, and not a judgement of who you are.
Exercise regularly, don’t drink too much alcohol and eat healthy, balanced meals. Be aware that no matter how mentally strong you think you are, the effects of retrenchment can be insidious, and may hit you like a freight train - you have a duty to be kind to yourself until your fortune changes.
Your five-tip action plan:
1. Be honest about your retrenchment with those around you;
2. Don’t waste time questioning why you, and not someone else, was retrenched;
3. Use this opportunity to enhance your skills. If finances allow, register for a course or a trade. Alternatively, volunteer your services in areas where you may be able to learn a new skill;
4. Get your CV up to date as soon as possible. The longer someone is without work, the harder it is for them to find employment;
5. Apply for as many jobs for which you have the required skills as possible; and get a reference from the company that retrenched you that describes its reasons for retrenchment and ask it to highlight the value you added to the organisation.
Disclaimer: The advice contained on this blog is for general purposes only and does not take into account individual circumstances, objectives or financial needs. Accordingly, readers are advised to seek appropriate advice from licensed professionals prior to making any investment, or taking up a financial product or service.