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10 Tips to (Financially) Survive Retrenchment

9 April 2020

It’s arguably one of the worst moments in anybody’s life.

Retrenchment is just plain unpleasant, regardless of how much your company or organisation has tried to support you or minimise the emotional blow.

In tough economic times, it has become widespread business practice. Thousands of loyal, committed people with decades of work experience have been through this weighty process. Many have been resilient and emerged stronger. Others have struggled to recover, even years later. Sound knowledge and decisive, informed action have been the saving grace of those who have pulled through. Glacier by Sanlam offers a range of investment solutions for those wanting to preserve their retirement savings following a retrenchment or wanting to invest discretionary savings for their future security. So, after you and your family have absorbed the initial shock of your retrenchment notice, Sherwin Govender, Business Development Manager at Glacier by Sanlam, offers some tips to help you (financially) survive this stressful time.

Tip #1: Don’t Take it Personally

It’s easy to take retrenchment personally. You’re a loyal human who dedicated much of your time and energy to your job. The reality is that it’s not your fault. You didn’t do anything wrong. Your company probably came to a point where they needed to make a financial decision for its future existence. Retrenchment is the least favourable practice and last line of defence in business, but often is unavoidable. The sooner you come to terms with this, the sooner you can move on to the new possibilities that await you.

Tip #2: Overhaul Your CV and Get it Out There

This may seem obvious, but looking for a new job takes time, and in many instances, you may not even make shortlists. Ask the HR specialist handling your retrenchment about the possibility of redeployment. Often in big organisations, there may be opportunities in other divisions. Be open to the possibility that you may need to take a pay-cut in a new role.

Don’t be disheartened that you’re not getting any call-backs for jobs you have applied for. Review your CV and tailor it to jobs on offer, highlighting the skills and experience that you have that fit the job spec. This doesn’t mean lying about your skills or experience. Falsification of your qualifications is a criminal offence.

Tip #3: Reinvent Yourself and Your Career, But…

…within reason. If you are thinking of starting a new business venture, be realistic about the projects and business ideas that you get tempted into. A new business – or even buying an existing one that looks profitable on paper – can drain you financially. Develop a coherent business plan and get a reputable business consultancy or your business banker to vet the details. Now is not the time to take uncalculated risks.

Tip #4: Cut Your Household Budget

Bills will continue to reach you, while the salary that you have been receiving monthly, won’t. Now is the time to go through your monthly household budget with a fine-tooth comb. You need to be strict and clinical about the expenses that are unavoidable (e.g. your bond repayment or kids’ school fees) and those that are luxuries and can be suspended until you are have a regular income again.

Tip #5: Appoint a Financial Planner

This truly is the best time to get a financial planner. There are some big, important financial decisions to be made, and a qualified financial planner can help you make them with confidence. For example, if you have been working for the same company for a number of years, you probably have built up a sizeable pension fund. There are some investment decisions that you need to make about the future of this money. You don’t want to make any mistakes. Getting advice from a financial planner experienced in retrenchments becomes invaluable. Also, if you have medical aid through your company, you need to decide what to do when this benefit comes to an end.

Tip #6: Stay Away From Your Pension Fund

Cashing in 100% of your pension fund can be the most financially damaging decision you can make. Your retirement savings is your money, but not today. It may be tempting to cash it all in and treat your pension fund like you’ve just won the Lotto, but don’t forget why you have this money saved up in the first place. If you cash in the entire pot, you’re robbing yourself at age 60 – it’s that simple. Before you cash in even a portion of the fund, find out how much tax you’ll have to pay on that money (see our example). That should be reason enough for you to keep your pension fund invested.

Tip #7: Transfer Your Pension Fund Into a Preservation Fund

As the name suggests, preservation funds protect your pension money. You can withdraw it later but the longer it stays there, the better. Together with your financial planner, you can decide how the money is invested. See our example for the financial benefits of transferring into (and keeping your money invested in) a preservation fund.

Tip #8: Calculate How You Will Live Until You Start Earning Again

As mentioned earlier, cashing in your pension fund is not a good idea. If you are worried about covering your living expenses, find out the following, before you touch your retirement savings:

  • What retrenchment or severance package is your company offering you? Your employment contract should include this information.
  • How long will the retrenchment package last? Take into account your monthly living expenses, and where you can cut unnecessary spending.
  • What other savings or investments do you have access to? It’s not ideal to dip into any investments, but in emergencies your savings (other than your pension fund) can tide you over until you start earning again.

Tip #9: Check If You Have Retrenchment Cover

Check the cover on your credit card or retail store accounts. Perhaps there is built-in retrenchment cover you didn’t know about, that is included in your service fees. If you have a policy that covers retrenchment specifically, good for you. It could help ease your financial burden.

Tip #10: Speak Up

Don’t be embarrassed to ask for better interest rates, reduced instalments on your accounts or even payment holidays. But whatever you do, don’t ignore your debt obligations. If you are struggling to keep up your debt payments, a conversation with the credit manager at your bank or a debt counsellor will go a long way in preventing judgements and blacklisting. Remember, your credit record is taken into account when you apply for a job, so you want to keep that as clean as possible.

James and Thando

In the table below*, Sherwin illustrates the different decisions (and their later consequences) made by two people who are both retrenched at the same time and who are both aged 45. We’ve assumed that each has built up a pension fund of R1.5 million at the time of retrenchment.

Age at retrenchment45 years45 years
Pension fund valueR1.5 millionR1.5 million
Amount cashed outR1.5 millionR100 000
Tax paid on cash-outR292 500R0
Amount transferred to preservation fundR0R1.4 million
Age when contribution to new pension fund starts46 years46 years
Monthly contribution to a new pension fundR2000R2000
Growth rate10% p.a.10% p.a.
Age at retirement60 years60 years
Total retirement savingsR728 000R6.3 million
Tax-free lump sum that can be cashed outR0R400 000

*This is for illustration purposes only. Personal financial circumstances have to be taken into account in order to make informed decisions, and for this reason enlisting the help of a financial planner is essential.

Glacier Financial Solutions (Pty) Ltd and Sanlam Life Insurance Ltd are licensed financial services providers

Sanlam Life Insurance is a licensed financial service provider.
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