Johannesburg- Insurance company Liberty has published its claim statistics for 2020.
They show a significant increase in retrenchment claims following the beginning of the Covid-19 pandemic and hard lockdown in April.
Retrenchment claims peaked between August and October in 2020 on the back of a lag effect from the start of lockdown.
During these three months, retrenchment claims peaked at over 60 a month. Compared to just over 10 a month during January and February in the same year, showing the effects of the economic contraction at the start of the pandemic.
What are practical tips to rebound from retrenchment?
One has to start by understanding their retrenchment package and the different amounts one will receive or have access to.
These amounts are usually made up of:
• Normal income This entails the employee’s last salary, notice pay, leave pay, etc, which is generally taxed at the marginal income tax rate of between 18% and 45%.
• Severance benefits The Basic Conditions of Employment Act gives guidance as to what one should receive, which is a minimum of one week’s remuneration for every completed year of service.
• Retirement fund benefits Your retirement fund benefit is the actual fund value of your pension and/or provident fund. When faced with retrenchment, you will need to carefully assess the different options and how they can affect your retirement savings. It is important to consider not just your immediate circumstances but also your long-term plans.
Marguerite Marais, a technical legal adviser at PSG Wealth, says that if you find yourself dealing with a retrenchment, the best approach is to proactively take control of the situation.
“Note that any amount taken as a cash lump sum will be taxed according to the retirement lump-sum tables,” warns Marais, “together with any severance benefits or retirement lump sums taken before, whereas any amount transferred to an approved retirement fund will be transferred tax-free.”
The best starting point after retrenchment is to reassess your position by doing the following:
• Review your monthly budget – make a list of your expenses and assess what you can cut back on. Use your retrenchment package wisely. Consider saving a portion for another rainy day.
• Maintain your emergency fund and stick to your long-term savings goals. You will need to readjust your financial and savings goals in the short term, until you again find employment, but maintain your emergency fund and long-term goals.
• Consider your strengths, skills, and experiences, and the industry you hope to work in, then plan your next steps to start earning an income to continue saving.
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