Article by Neesa Moodley
Interview with Hardi Swart, CFP®
Publication: 18 November 2019, Moneyweb, Personal Finance
Being ‘let go’ will become a reality for thousands in the coming year. Here’s what to do if it happens to you.
When life gives you lemons prepare for the day you might have to turn them into lemonade. This is basically the advice financial advisors are giving to people who fear they might be retrenched.
Irvin Tsimane, a Liberty financial advisor, says that since retrenchment is a life-changing event, it is a good time to speak to your financial advisor to determine what your immediate income needs are, as well as what debt, if any, should be prioritised and what money should be preserved.
Financial planner of the year 2019 and MD of Autus Private Clients, Hardi Swart, agrees, saying that when you are about to be retrenched, it is not only the loss of income you have to deal with but also the identity crisis associated with retrenchment and the feelings of uncertainty and the worries of not being able to provide for your family.
Here’s what you should do:
1. Take stock
Swart says a budget becomes critical if you know you are about to be retrenched. This means you must identify all your current expenses so you can determine which costs you can eliminate and which expenses you can decrease.
2. Have the awkward conversations
“This is not the time to be coy. Rather have an open conversation with your family and those who are financially dependent on you. They need to understand that there is likely to be pressure on cash flow. This means they will have to start limiting their spending and giving up certain luxuries,” Swart says.
3. Sign up to claim from UIF
If Unemployment Insurance Fund (UIF) contributions were deducted from your salary while you were working (this will appear as a deduction on your payslip), then you are entitled to claim UIF when you are retrenched. It is important to note that you must lodge your UIF claim within six months of the date you stop working.
You will need to register for UIF by completing a registration form and you have to produce a copy of your barcoded South African identity document, copies of your last six payslips, a service certificate from your employer, and a UI-19 form filled in and signed by your employer.
Once you have all this and proof of your registration as someone seeking work, you must go to the nearest Labour Centre in your area and ask to sign the unemployment register. The Department of Labour takes about eight weeks to get back to you, and you will have to sign the unemployment register every four weeks to prove that you still need to claim the UIF benefits.
Your salary and UIF contributions over the last four years will determine how much you receive in benefits from the UIF. For example, if you earned R15 000 a month and were employed for four years (48 months), you would be entitled to R35 297.87 in UIF benefits and this would be paid out over eight months, with payments of R4 412.33 a month.
4. Contact your creditors
This is critical. Ideally, the sooner you contact your creditors to let them know about the change in your circumstances, the better. Your retrenchment is going to impact your ability to pay back your debt. “Be honest with your creditors and, where possible, try to renegotiate your current payment plan,” Swart advises.
5. Check your numbers
This is not just about checking what the company owes you. You should also check if you have any retrenchment cover attached to your life policy or income protection policy. Some insurers, such as Liberty, offer standalone retrenchment insurance, which pays out a maximum of R30 000 a month for up to six months. This payout, however, is not linked to your income but is based on the cover amount you selected when taking out the policy.
Swart adds that you should find out precisely what your severance package looks like. Typically, a retrenched employee is paid one week’s pay for each completed year of service. “However, many employment contracts come with retrenchment policies in place, which will provide the employee with a higher level of severance pay than the national minimum. You also need to determine all other payments that are owed to you; unclaimed leave, notice pay, commission, overtime, and other payments unique to your position,” he advises.
How are retrenchment payouts taxed?
Tsimane says the tax applicable to retrenchment packages is similar to that paid upon retirement. “You get the first R500 000 of your payout free of tax [assuming no previous withdrawals],” he says, adding that the balance will be taxed as detailed below.
2020 tax year (March 1, 2019 to February 29, 2020)
Taxable income from retrenchment payout
Rate of tax
R0-R500 000
0% taxable income
R500 001 – R700 000
18% of taxable income above R500 000
R700 001 – R1 050 000
R36 000 +27% of taxable income above R700 000
R1 050 001 and above
R130 500 +36% of taxable income above R1 050 000
Source: South African Revenue Service
Thousands of retrenchments in 2019
In the last year, the lives of thousands of South Africans changed when their employers announced pending job losses. According to the Commission for Conciliation, Mediation and Arbitration’s 2018/2019 annual report, a total of 529 large-scale retrenchment referrals were received in the past year. Of the 38 588 employees who were the subjects of these large-scale retrenchment referrals, 21 391 were retrenched, while 15 787 jobs were saved.
Some of the more publicised recent and upcoming retrenchment cases include:
ArcelorMittal (Saldanha Steel plant) – 1 000 employees
South African Airways – 1 000 employees
South African Post Office – 776 employees
Absa – 870 employees
Standard Bank – 1 200 employees
Sibanye-Stillwater – 3 000 employees
MultiChoice – 2 000 employees
Tongaat Hulett – 5 000 employees.
While economists have gone on record stating that the country has narrowly escaped a recession, the outlook remains bleak. Late last week, credit rating agency Moody’s revealed that it only expected the South African economy to grow by 1% next year.
Managing director of the Banking Association of South Africa, Cas Coovadia, says retrenchments in the banking sector and elsewhere are happening due to low business growth. “Businesses are restructuring just to remain efficient … just to remain afloat and keep their heads above water,” he says.
Article reference: ( http://ow.ly/WKdt50xdFdq )
Hardi Swart CFP® , Managing Director Family Wealth Custodians and Financial Planner of the Year 2019
The information contained herein should not be construed as advice as defined in the FAIS Act.
Contact Hardi Swart at hardi@familywealth.co.za
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