WeCreativez WhatsApp Support
Welcome to SimWealth. Lets Chat.
Hi, my name is Thandekile, how can I help?

How to utilise your Severance Benefit?

Contact Us

How to utilise your Severance Benefit?

With the wake of digitisation and the 4th industrial revolution and our economy hitting a slump in terms of growth, many large corporate firms are pursuing retrenchments to reduce overhead expenses whilst modernising their systems and processes to attain more efficiencies. This has meant many people whose roles were once integral to the corporations survival or core to its operations have become obsolete. 

What we are seeing is many large businesses issuing out what is called a section 189A of the Labour Relations Act (“LRA”) which permits employers to dismiss employees for operational requirements. These are defined as requirements based on economic, technological, structural or similar needs of the employer.

This has meant that many people will or have been left without an income. With our economy performing poorly (3.2% decline in GDP) this has meant that not only are jobs being lost, but also jobs are scarce to find. Many of these individuals who are likely to lose employment will be compensated by way of a severance benefit. This leaves us with an imperative question; what do you do with the severance benefit which you receive from your employer if you have been retrenched or seems as though you will be retrenched? 

Let us start by explaining what a severance benefit is; a severance benefit is a lump sum amount received by arrangement with a person’s employer in respect of relinquishment, termination, loss, repudiation, cancellation or variation of employment. 

Once any individual is placed in such a precarious position, you want to be in a position which you are able to meet your monthly commitments, perhaps pursue a life-long dream of venturing into business, or perhaps start looking for alternative employment. Whatever the situation may be, you want to financially plan accordingly and that’s where the principles and elements of financial planning become essential. 

Developing a financial planning strategy that will see you through these tough times will ensure that while your current circumstances may have plenty of financial uncertainty, you are still in a position to meet all your obligations. These could range from paying of school fees to day-to-day living expenses, and credit facilities you may have.  

Personal financial management becomes important, and for some individuals this is a daunting task, as your debt could be mounting, and expenses increasing the solution is therefore to seek a financial planner or wealth manager to assist. The services of a financial planner or wealth manager that will consider your financial standing holistically, by implementing a financial plan that will address;

  • Personal Financial Management
  • Investment Planning 
  • Tax Planning 
  • Retirement Planning 
  • Risk and Insurance Management and, 
  • Estate Planning 

It is also worthwhile to understand the tax implications of cashing in your severance benefit packages, as the rules for these could get somewhat convoluted the best way to navigate through this, is by seeking professional financial planning/wealth management advice. By doing so you limit the chances of making the incorrect decision on how you can utilise these benefits efficiently.

It is also worthwhile to understand the tax implications of cashing in your severance benefit packages, as the rules for these could get somewhat convoluted the best way to navigate through this, is by seeking professional financial planning/wealth management advice. By doing so you limit the chances of making the incorrect decision on how you can utilise these benefits efficiently.

Once you have initiated a financial plan, this will allow you to go back to the drawing board and plan accordingly for the 4th industrial revolution by re-skilling yourself, or venturing into a business. 

Share this post?

Sanele NkosiManaging Director

Sanele Nkosi is a Wealth Manager by profession. Having obtained an undergraduate degree in Finance from the University of Johannesburg. He is currently pursuing an Honours in Financial Planning. He started in the investment and asset management industry through the Investec Advisor’s In The Making Programme, strongly developing his passion for wealth management and financial planning. He finds great pleasure in assisting clients realise their financial goals, through well executed financial planning. With insurmountable experience gained in the industry, by working for some of the biggest asset management firms in South Africa. He has also improved and enhanced his skills and experience by completing the Association of Savings and Investments of South Africa (ASISA) Program, and other professional qualifications. He is an avid believer in creating a culture of setting long-term financial and life goals, and pursuing them with diligence and discipline.

Leave a Reply

Your email address will not be published. Required fields are marked *