Presented by Old Mutual

The impact of retrenchments needs to be dealt with holistically

By Priya Naicker, Head of Strategic Retail Marketing at Old Mutual

During the 2019/20 year, 42% of jobs that were likely to be cut in large-scale retrenchments were saved through the intervention of the Commission for Conciliation, Mediation, and Arbitration (CCMA), which translates to 21 846 jobs that were saved.

However, this was merely a drop in the bucket in a year where jobs started bleeding in March when the lockdown was first announced to the current date.

The CCMA annual report for 2019/2020 reflects that the total number of retrenchments recorded through facilitated processes was 28 354.

Stats SA tells us that by the third quarter of last year, job losses were seen in all industries, showing a decrease of 616 000 employees in September 2020 compared to September the previous year.

While retrenchment is sobering, it is vital to look past the statistics to the very real people who are impacted by retrenchment and have very real decisions to face in the aftermath.

When you have been retrenched

Your initial reaction to being retrenched is likely to be shock.

During this often stressful and traumatic change, a financial planner can prove invaluable, guiding you through the different financial aspects that need to be considered and dealt with.

Debt is an unpleasant reality that you must deal with, but there are steps you can take to minimise the impact of your retrenchment.

  • Find out if you have any credit life policies that will cover your debt in case of retrenchment.

Approach your creditors as soon as possible to inform them you have been retrenched.

Enquire about options available to you from your credit provider for example payment holidays, revised repayment terms or reduced interest rates on your debt until you get back on your feet.

A financial planner will help guide you with your choices depending on your life stage.

For example, if you are mid-career (aged 25 to 45), your choices and decisions will differ compared to someone who is closer to retirement (aged 45 to 55).

If you are still in the prime of your working years, you may want to reassess your career path.

You can either seek employment with a new employer or potentially look at starting your own business.

Countless successful entrepreneurs have started businesses after being retrenched.

Your adviser can provide a confidential sounding board when it comes to assessing your skill set, your goals and your options.

When it comes to your retirement savings, you may have several options available to you, depending on your circumstances.

It is at this point that it is necessary to seek professional financial advice.

The options that you utilise at this point may impact your future retirement.

The following are options available to you, that people in similar situations have chosen to take when faced with retrenchments.

  • You can choose to withdraw your retirement benefits, which will have an impact on your savings at retirement in the future and has immediate tax implications.
  • You can leave your savings invested in the current retirement fund where allowed, or you can transfer your savings to a preservation fund.
  • If you have already found another job, you can transfer your savings (tax-free) to the retirement fund offered by your new employer.
  • If you are closer to retirement (aged 45 to 50), it might make sense to settle your debt in order to reduce your monthly expenses which means you might have to withdraw your retirement benefit.

Your adviser will help you review your retirement savings and discuss the impact of retiring early.

A very important consideration here is if your retrenchment package will sufficiently cater for your future income needs.

It is of utmost importance to consider if you may need another job and continue working to first strengthen your savings or whether your retrenchment package sufficiently bolsters your savings so that you can retire early.

When you have to retrench employees

Retrenchment is an emotionally and mentally intensive process all round, not least for the employer or human resources staff member who must be the bearer of the bad news.

Ensure that the staff who are being retrenched are made aware of all the options available to them:

  • You could implement a toolkit or resources to help them deal with the difficult financial choices they face.
  • Provide legal and technical support so retrenched staff are suitably advised during this turbulent time.
  • Money management is a vital skill that employees will need in the months ahead. Equip your staff with access to money management tools and financial education.
  • Your human resources department can help retrenched employees review their CV and tailor it in line with potential career paths or identified opportunities.

When you are the surviving employee

It is not uncommon for those employees who have survived a mass retrenchment process to suffer a form of “survivor guilt”.

While survivor guilt is usually associated with a traumatic event, companies are starting to recognise that this is not an uncommon syndrome following mass retrenchments.

According to the Harvard Business Review, studies show that nearly three-quarters (74%) of employees retained after retrenchments saw their productivity decline in the following period, while 69% said that the quality of their company’s product or service deteriorated.

When these respondents were asked why they felt that way, they expressed feelings of guilt, anxiety, and anger.

Jennifer Moss, author of Unlocking Happiness at Work, says work colleagues often become your closest friends and losing a colleague to retrenchment can easily evoke feelings of grief.

“Grief doesn’t just come with sadness and loss. Grief can also come fully-loaded with guilt, anger, uncertainty, denial, regret, and so much more,” she explains.

To help employees avoid becoming distracted by survivor guilt, you can:

  • Put renewed effort into teambuilding to build up staff morale.
  • Promote active listening and open-door policies to negate fears about further job cuts or address increased workloads. Meet with employees to review their current workload and get their input on how much extra work they can reasonably take on.
  • Help employees to focus on the future by talking about the way forward or the progress of the business so they are reassured.
  • Brainstorm new ways to improve the business or processes.

Click here to find out how Old Mutual can assist you

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The impact of retrenchments needs to be dealt with holistically