Given the increasingly complex retirement fund landscape and ever-expanding regulatory requirements, implementing a scheme for employees to save for retirement may seem like a daunting prospect for a business.
Michelle Acton, Principal Consultant of Old Mutual Corporate Consultants says that research conducted by the 2016 Old Mutual Savings & Investment Monitor shows the strong need for businesses to implement retirement fund benefits. “As many as 63% of consumers – specifically metro, working South Africans – are experiencing severe financial stress and, as a result, depleting their savings and increasingly relying on credit.
“Not only do formalised employee benefit arrangements help staff to achieve financial wellbeing in retirement, they also ensure that family members are provided for, should an employee responsible for household income die.”
Broadly speaking, says Acton, employers who want to provide retirement benefits for their employees have two options available.
“A standalone fund, whereby the employer establishes a retirement fund specifically for its employees, is managed by a board of trustees comprised of both employer and employee representatives. The other option is an umbrella fund, which is a fund that accommodates the employees of multiple employers and is managed by a professional board of trustees.”
Acton says that employers are increasingly opting to outsource non-core activities to expert providers. So instead of managing employee benefits in-house, they are opting for umbrella funds.
“Umbrella funds are a cost-effective and efficient way for a company to provide a comprehensive set of retirement fund benefits for its staff, while allowing the company to maintain focus on its core business, whether that is mining, manufacturing or retail,” says Acton.
Acton explains that umbrella funds have evolved substantially over the past 10 years, and today are capable of managing the most complex company requirements.
“Umbrella funds offer participating employers various levels of control in relation to the benefits provided to their employees,” she says.
For those companies with an existing standalone retirement fund, Acton says that deciding whether or not to move to an umbrella fund is not a simple decision and can’t be determined based on cost alone.
“There are pros and cons to both types of funds and the most appropriate solution will depend on the size of the company and number of employees, as well as the nature of the existing employee benefit arrangements and the company’s willingness and ability to deal with the complexity and risks associated with the standalone fund’s management.”
“It is important for employers to consider all these elements and then select the fund type that best suits the company and its employees.”
Acton adds that even once the decision to move to an umbrella fund has been made, choosing the right umbrella fund is also not a simple task. “Selecting an appropriate umbrella fund is a complex decision that requires careful consideration, including a detailed evaluation of the various umbrella fund options available. Employers should gain an in-depth understanding of the features and flexibility of the specific solutions being offered, before selecting an option for their employees,” concludes Acton.