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By Christoff Potgieter*

Christoff Potgieter

It is a well-known fact that most South Africans will not have enough, or very little money saved for retirement. Forward-thinking employers, especially small to medium enterprises, are increasingly devising plans to assist employees with retirement planning.

But it presents a challenge. Setting up a company pension fund can be onerous and add to the already high administrative and compliance burden companies experience. Much like IT or payroll or communication services are outsourced, companies can engage with an external provider, experienced in investment and retirement planning, to set up a scheme for its employees. This is a growing trend, away from the traditional company pension schemes that have been in place for decades.

Engaging with an advisory firm offers these benefits:

  • Ease of administration
  • Reduced costs
  • Competitive fee structure for the members of the employee benefits scheme
  • Choice of investment options
  • Reduced risk

Financial advisors play an essential advisory role in the employee benefits industry. As intermediaries between the financial institutions and the consumers, financial advisors are mandated to align the client’s financial needs and requirements with the right solutions for the final product.

When it comes to employer-sponsored retirement plans, companies differ in size, location, requirements, occupational structure, and fringe benefits offered to their employees – therefore life, dread disease, disability, funeral cover and pension/ provident fund contributions will be unique to each company. As an employer providing employee benefits, you can achieve the following:

  • Provide protection for your employees with appropriate risk cover (life, dread disease, disability, funeral cover).
  • Increase job satisfaction/security for employees.
  • Job/ benefit attraction for potential new employees.
  • The employees in an umbrella fund qualify for a “group rate” thus the cost of risk cover, remarkably, is considerably lower when compared to individual policies.

Another consideration to take into account is which type of advisor to engage with. There are two types of financial advisors – tied or independent. A tied or a multi-tied agent will be restricted to a list of funds or providers within the agreement of that said company of which the advisor represents. An independent advisor is not connected to any specific product and/or product supplier or asset manager and is, therefore, able to deliver independent unbiased advice to a company seeking to set up an outsourced employee benefits scheme.

A popular option is using an umbrella fund. Brenthurst Wealth has invested 100% into its own umbrella fund, available to business owners who are considering the implementation of a designated group scheme for all employees. This is especially important because of proposed legislative changes which might see employers being forced to join the GEPF (Government Employment Pension Fund), as part of the government’s plans to devise regulations to make it compulsory for all working South Africans to contribute to some form of retirement investment.

The Department of Finance (Treasury) is planning to make it compulsory for the plus-minus six million South Africans currently working and who do not have access to an employer-sponsored retirement plan to join a mandatory retirement system. This is to encourage retirement saving and thus reduce the burden of people on retirement for social grants, which the government will indirectly provide to these employees upon normal retirement.

As with all investments, fees need to be carefully scrutinized. An umbrella fund scheme is typically divided into three sections:

  • Section one: Risk product fees
  • Section two: Pension/Provident fund fees
  • Section three: Pension/Provident fund performance fees

An independent advisor will carefully consider the goals of the scheme and investigate the options and related fee structures to advise which would be the most cost-effective solution for the members of the scheme. This is a critical part of devising a suitable strategy as fees can have a significant impact on the outcome for members.

Clients (employers) and members of schemes should be entitled to see all the facts and figures about fees paid and how money is paid and invested on their behalf. The advisor for the client is the one that should be upfront and transparent on all fees.

The advisor is paid a fee to ensure that the client is not caught off-guard when uncovering the correct fee structure and to ensure that the client is well educated and understands the product that they are purchasing.

It is not up to the client to understand the technical workings of a pension funds scheme nor check up and do the work for the advisor, but the advisor must guide the client to the correct product for the client’s needs and affordability ensuring that their employees will have enough in their pension on retirement.

As with all investment issues, there are complex issues to consider and a wide range of options. It is advisable to engage with an experienced, qualified advisor to select what is most suited to your company’s needs and the best interests of employees.

  • Christoff Potgieter is part of the employee benefits team and is based at Brenthurst Wealth Fourways.