HOW TO PRE­PARE FOR RE­TRENCH­MENT

With an es­ti­mated 60 000 em­ploy­ees fac­ing re­trench­ment over the past year, it would be wise to con­sider what you would do if you were to lose your job and how you could pre­pare for this be­fore it hap­pens.

Finweek English Edition - - FRONT PAGE - By Buhle Nd­weni editorial@fin­week.co.za

nearly 60 000 jobs have been sub­ject to re­trench­ment over the past year, with the min­ing sec­tor hard­est hit, ac­cord­ing to re­search by trade union Sol­i­dar­ity. These numbers are based only on me­dia re­ports and re­trench­ment no­tices since April 2015, and the ac­tual num­ber could be sub­stan­tially higher, the union said.

Sol­i­dar­ity gen­eral sec­re­tary Gideon du Plessis warned that the cur­rent pat­tern and wave of re­trench­ments are “very sim­i­lar to the sit­u­a­tion at the end of 2008 and the be­gin­ning of 2009, which was the pre­cur­sor to the re­ces­sion”. With more job cuts likely, how can you pro­tect your­self against the fi­nan­cial im­pli­ca­tions of re­trench­ment?

The key is to start mak­ing a plan now, while you are still em­ployed. So­nia du Plessis, a cer­ti­fied fi­nan­cial plan­ner at Bren­thurst Wealth Man­age­ment, says the aim should be to have three to six

months’ salary saved in the money mar­ket as a nest egg.

Even if there are no talks about re­trench­ment at your work­place, it’s a good idea to save about 10% of your monthly salary to­wards this nest egg, she says. Once sav­ing to­wards that goal is ac­com­plished, the money can be chan­nelled to­wards other things like re­duc­ing debt.

John Manyike, Old Mu­tual’s head of fi­nan­cial ed­u­ca­tion, says you should chat to a fi­nan­cial ad­viser to find the most suit­able savings ve­hi­cle for your emer­gency fund. Op­tions in­clude a fixed de­posit at a bank or a unit trust, and the right ve­hi­cle would de­pend on the in­di­vid­ual’s risk ap­petite and af­ford­abil­ity mea­sures.

RE­TRENCH­MENT IN­SURANCE

Fi­nan­cial ser­vice providers also of­fer re­trench­ment in­surance, which could be an op­tion.

The ideal is to self-fund a pe­riod of un­em­ploy­ment fol­low­ing re­trench­ment by us­ing your emer­gency savings, but this is not a re­al­is­tic op­tion for ev­ery­one. “If one is al­ready liv­ing from hand to mouth, then we can as­sume that this is prob­a­bly not an op­tion as savings and in­vest­ment would be lim­ited. So the an­swer then is to in­sure,” says Hesta van der Westhuizen, ad­vi­sory part­ner at Ci­tadel. How­ever, re­trench­ment in­surance can be ex­pen­sive, and there is usu­ally a six-month wait­ing pe­riod be­fore pay­ments will be made. Typ­i­cally, the re­trenched per­son is paid for six months, un­less they are em­ployed again within three months.

It is there­fore im­por­tant to read the fine print in the ben­e­fits be­fore sign­ing and to avoid du­pli­cat­ing in­surance ben­e­fits, says Van der Westhuizen. Your home loan agree­ment can, for ex­am­ple, al­ready in­clude au­to­matic re­trench­ment cover, so make sure you know what you are pay­ing for. Some big cor­po­rates also in­clude re­trench­ment cover in their em­ployee ben­e­fits.

“Re­trench­ment cover is of­fered as ad­di­tions or rider ben­e­fits in both long-term in­surance poli­cies and short-term poli­cies. So one can add the ben­e­fit to, for ex­am­ple, your life pol­icy,” adds van der Westhuizen. Be cau­tious, how­ever, of over-in­sur­ing your­self, says Manyike.

Wouter Fourie, cer­ti­fied fi­nan­cial plan­ner and chief ex­ec­u­tive at As­cor In­de­pen­dent Wealth Man­agers, says even though it’s dif­fi­cult to plan specif­i­cally for re­trench­ment, it’s al­ways good to plan for the un­fore­seen.

“Spe­cial in­surance prod­ucts that pay out when you lose your job are usu­ally very ex­pen­sive and many of them have a wait­ing pe­riod, which means that it will not help you to take out a pol­icy when you hear that you will be re­trenched,” says Fourie.

In terms of vol­un­tary re­trench­ment, Manyike says most in­sur­ers would be cau­tious of in­sur­ing such a per­son, but he ad­vises con­sumers to speak to a fi­nan­cial ad­viser to get the full de­tails on whether the in­surance un­der­writer would ac­tu­ally pay out in the case of vol­un­tary re­trench­ment.

"Re­trench­ment cover is of­fered as ad­di­tions or rider ben­e­fits in both long-term in­surance poli­cies and short­term poli­cies."

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