As an employee going through a retrenchment process, it is easy to get caught up in a host of emotions.
A practical checklist of financial to do’s beyond sorting out your severance pay and retirement benefits can keep you focussed and minimise the financial fallout that can follow retrenchment.
As soon as you know you are being retrenched, take a look at how you can reign your budget in.
Focus on replacing your medical scheme and group life cover while you work out your last days. Tackle the others in the first few days after you stop working.
Continue investing in yourself by enhancing your knowledge or skills – there may be many long days before you are on your feet again and your biggest struggle will be to stay positive enough to make the most of any opportunities.
Retrenchment financial to do’s
Your budget
As soon as you know you are going to be retrenched, revise your budget. If you have a family who will be impacted by your retrenchment, talk to them about how you need to go into survival mode.
Put on hold any decisions regarding big purchases.
Your aim should be to make whatever money you get last as long as possible, as you do not know how long you will be out of work.
Work out the minimum amount you can live on, without luxuries, and draw only that from your severance pay. Also think about what you can downscale if you think you may be out of work for long – getting rid of a second car or moving to cheaper accommodation, for example.
If you are fortunate enough to be re-employed quickly and end up with extra money from your severance pay, you should use it wisely to pay off debt or save. However, while there is uncertainty, live as frugally as you can to make your severance pay last. Use the Smart About Money Budget Planner
Unemployment insurance
If you have been contributing to the Unemployment Insurance Fund (UIF), make sure you claim.
If you are a higher earner, you may get only a small portion of your income, but every bit will help you keep up financially while you are not earning.
You have a year to apply and if you have been contributing for four years before you were retrenched, you can claim for up to a year while unemployed.
The benefits you can claim are based on your income, but the highest income on which you can claim is capped.
The UIF pays the first 238 days (eight months) at a rate between 38% and 60% of your salary, with lower earners qualifying for a higher percentage.
From 239 to 365 days the benefit is a flat rate of 20% of your income up to the maximum income level.
Medical scheme membership
If you had medical scheme cover, try to keep it up. If your employer was subsidising your contributions, you will lose that subsidy when you lose your job, and paying the full contribution yourself, will increase your financial commitments. Work this into your revised budget.
If you can, negotiate the continuation of subsidised cover for a period as part of your retrenchment package.
If you were a member of an open medical scheme, you can stay on that scheme as long as you pay the full contribution.
If you belonged to a scheme that restricted membership to the employees of your employer, find out if you can stay on the scheme – some employers allow you to stay on for a period after retrenchment – possibly until you find new employment. Restricted scheme membership is often cheaper than membership of a similar open scheme.
If you are not able to extend your membership of a restricted scheme, you will have to look for an alternative open medical scheme.
If you are worried about how you will cope financially, consider downgrading your medical scheme cover to a cheaper option. This is likely to involve restrictions on the doctors and hospitals you use.
Try to avoid giving up your membership completely, as you will not only lose cover you may need, but it could cost you when you do resume your membership.
If you have a break in membership of more than three months and then join a scheme, you could face a three-month general waiting period and a 12-month waiting period on any existing health condition. Read more: What waiting periods can my medical scheme apply?
If you are over the age of 35 when you join again, you may also face higher contribution rates as a result of late-joiner penalties.
Late-joiner penalties are charged as an additional percentage of your contribution, and are for life. Most medical schemes are not sympathetic to the fact that you gave up your membership because you lost your job. Read more: Will I pay a late-joiner penalty if I join a medical scheme?
Life cover
Similarly, try to avoid cancelling any premiums on essential life or disability policies. You are entitled to a grace period but after that your policy will lapse. Read more: What happens if you skip a payment on a life , disability or severe illness policy?
If your policy lapses you will not only lose your cover, but you may also find that when you start earning again and want to reinstate your cover, it will cost you a lot more than it did previously. This is likely as you will be older and possibly have some more health conditions than when you first took out cover.
Check if any of your policies that are in your own name have premium waivers that will pay your premiums for a period after your retrenchment.
Some life and income protection policies offer income replacement after retrenchment for up to six months, but this benefit is typically only available six months after you take out cover.
If you had group life cover through your employer, you will lose this cover when you stop working. If you can afford the premiums, consider converting your group life cover to individual life cover.
Some group life schemes have what is known as a conversion or continuation benefit, which allows you to convert group life cover into cover in your own name as long as you pay the relevant premiums.
This conversion cover can start at a cheaper rate than what you would pay if you took out replacement cover in your own name. Read more: What does it mean if there is a conversion benefit?
Debt
If you have store cards, credit card debt, an overdraft, personal loan, vehicle finance or a home loan, check the agreements to see if you have credit life insurance.
Credit life insurance may cover your instalments for up to 12 months after you are retrenched. Read more: What is credit life cover?
Any debt taken out after August 2017 should have this cover.
If you do not have credit life cover, or you are still unable to pay your debt after the credit life cover ends, inform your credit provider of your situation and look for a compromise - a lower interest rate, reduced instalments on your accounts or even payment holidays.
Do not just leave your debt unpaid. The credit provider will ultimately get a judgment against you, which will negatively affect your credit record. A bad credit record will cost you, as credit providers may be unwilling to lend to you, or will charge you more in interest on a loan, even if you are working again.
If all else fails sell a car, home or any other valuable you bought on credit before it is repossessed.
You may feel overwhelmed at the time of your retrenchment and it may feel easier to simply use your severance pay and retirement benefit to settle debts rather than to negotiate with credit providers.
However, it may take some time before you find another job. If you use the financial buffer provided by your lump sum settlement and possibly the tax-free retirement benefit to settle debts, you may not have enough money for living expenses.
Negotiating more favourable repayment terms can buy you some time.
Invest in yourself
If you are retrenched, you need to cut your expenses as much as you can, but it may 
be worth spending some money on learning new skills or getting some life coaching to boost your confidence and help you find work.
Try some free online courses and keep busy – things like volunteer work and keeping fit will help you stay positive and socially engaged. There is no telling how chance conversations can lead to you seeing, or even being offered, opportunities.
