Securing your income in shaky times

Jaco Gouws, Protection Product Head at Old Mutual.

Losing your source of income due to retrenchment is a daunting reality that many of us face. The retrenchment process can often be long and drawn out, taking both an emotional and financial toll. “Unfortunately, due to the current tough economic environment South African businesses find themselves in, retrenchment is a possibility that managers and employees have to prepare themselves for,” says Jaco Gouws, Protection Product Head at Old Mutual.

According to Stats SA1, employment figures for the first quarter of 2017 are down by 48 000 jobs, from 9 692 million jobs in the first quarter of 2016 to 9 644 million. “Regardless of the state of the economy, retrenchment usually catches people by surprise and can lead to panic,” says Gouws. “The emotional shift from being employed to unemployed is stressful, and the added financial pressures of losing your income can make it very tough.”

According to Gouws, retrenchment cover can help to bridge this income gap during an already stressful time. “Depending on the cover, retrenchment benefits are able to pay you up to six months’ worth of income. This gives you the freedom to look for a new job without the pressure of not earning a monthly income.”

Gouws highlights the importance of consulting an accredited financial adviser to ensure that this type of cover is part of your holistic financial plan. “Losing a job can have severe knock-on effects – from not being able to afford bond or car payments or being unable to pay for your child’s education, to being unable to afford necessities like groceries and toiletries,” he says. “A financial adviser will help you select the right solution for your needs and will also explain the details of your cover, like waiting periods and having to be with a company for a certain amount of time.”

Gouws suggests that on top of taking out retrenchment cover, it is always a good idea to save for a rainy day. “Saving part of your income each month for an emergency, in addition to having retrenchment cover, will also help you to survive financially if retrenched.”

He points out some useful steps to take if you are currently going through retrenchment:

• Inform your creditors about the retrenchment and make alternative payment arrangements for any debt settlements
• Do not cash out your pension savings, no matter how tempting, as this has severe tax implications and can affect your ability to retire comfortably. This money should be re-invested, and a financial adviser will be able to assist with tax issues and help to reduce any fees when transferring the funds to a preservation fund
• Know your legal rights when it comes to retrenchment and ensure that your employer provides you with valid reasons and compensation.

Gouws emphasises the value of advice during uncertain times. “Although it’s not something we like to think about, planning for the setbacks will help to reduce stress and anxiety in the event of retrenchment by easing financial worries. Working with your financial adviser to ensure you are prepared for the worst will ensure you stay on track to meet your financial goals and don’t have to dig into savings or go into unnecessary debt to cushion any financial blows.”