The impact on people’s lives and finances from the spread of Covid-19 is putting strain on conventional long-term savings and life insurance policies, with many having been laid off, paid only a portion of their usual salaries or temporarily being absent from work without pay.

This is resulting in people looking into quick-gain measures to reduce costs, with many often cancelling life insurance and suspending or reducing payments to retirement policies.

Financial services and short-term insurance provider Momentum Consultants and Actuaries executive director Blessing Utete says the company has had to adapt fast, as have other financial services providers, in meeting employers' requests to reduce costs and offer unprecedented policy amendments to help manage cash flows.

He notes that nothing in recent history has been as disrupting to the financial services sector as the international Covid-19 pandemic has been. “Unfortunately, the reality is that a lot of employers are struggling, which is reflected by figures from Statistic South Africa (Stats SA),” states Utete.

According to the results of a recent Stats SA business impact survey, one in five South African businesses have laid off staff as a result of the impact of the Covid-19 pandemic, with just under a third saying they had reduced staff working hours.

Although President Cyril Ramaphosa has announced a gradual lifting of the strict lockdown restrictions, the impact of Covid-19 on businesses and their employees will be far reaching.

“Unfortunately, as businesses experience unprecedented cost pressures, employee benefits are often seen as a discretionary expense, which is concerning at times when employees will need the resources more than ever,” he says.

This has resulted in a lot of employers cutting payrolls or reducing working hours, thereby resulting in a lot of employers requesting a suspension in paying retirement contributions so they can at least pay salaries.

In this regard, Utete points out that three options are available from Momentum, to help employers meet reduced cash flow demands.

The first option is in relation to employees who face temporary absence from work without pay, which he says is what some businesses have done in April. “With people being at home and not being paid, it has resulted in them requesting from us not to pay retirement contributions for as long as they are temporarily absent from work.”

The second option, from a cash flow perspective, is that clients have the option to reduce their pensionable salary for a period of time, thereby resulting in lowered premiums. “This can help clients manage their cash flow during times of financial difficulty,” says Utete.

The third option is a temporary postponement of retirement fund contributions. “This is a temporary suspension in fund contributions while employees are still being paid,” he points out.

These measures have been endorsed by the regulator, Utete highlights.

However, the challenge with these options is that a lot of schemes come with life cover, disability cover and funeral cover for employees. In this regard, he suggests that employers do not tap into their life cover part of premiums. “We are in a pandemic situation and employees who suspend their cover will not be covered for as long as they are not paying premiums, this will affect their cover for life insurance, disability cover and funeral cover.”

Utete says life cover and its related covers could prove vital in times with health-related risks and uncertainties.

“What we are suggesting is that if any of these options are taken, clients still pay their life insurance premiums so their cover remains intact. It is a tough one, but in these current times of uncertainty, life insurance could not be more important,” he states.

Utete also highlights that many people do not have additional life cover, besides what their employer might provide them.

“Not being able to pay employee retirement fund contributions and group life cover premiums will have a far reaching impact on working South Africans and their families,” he concludes.