Navigating Retrenchment: A guide to financial resilience

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As South Africa grapples with the harsh reality of a challenging economic climate, the threat of retrenchment looms over many households. According to the trading economics report, the country’s unemployment rate, remains at a concerning 32.6%, and is a stark reminder of the need for financial preparedness in these uncertain times.

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, advises employee benefits firm NMG Benefits.

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; and 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.
Hatidani emphasises the importance of speaking to a qualified financial advisor during this time, saying, “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.”

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, advises Hatidani “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.

Talk to a qualified financial advisor: While concerns about costs may discourage some from seeking professional financial advice, the truth is that the guidance of an experienced advisor can save you significantly more money than the fees incurred. It is an investment in securing your financial future.

In conclusion, “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.”

In the face of adversity, preparation and professional advice can be the beacon of hope that guides you towards financial resilience and a brighter future.