11 Important considerations when choosing an umbrella fund
WHAT TO LOOK OUT FOR
Governance: A well-run fund is critical to protect members.
Flexibility and choice: Each employer is different, and the umbrella fund needs the ability to meet your specific needs.
Investment strategy: Enabling members to earn returns well above inflation for most of their working life is crucial to achieving a reasonable replacement ratio.
Risk benefits: Can your current structure be replicated, or can a similar structure be put in place without prejudicing certain fund members?
Preservation options: Since preservation is one of the most important ways to ensure that an employee’s retirement savings are sufficient, employers have to carefully consider the options available to members.
Solid administration: The administration process should be as seamless and hassle-free as possible.
Options at retirement: Helping your employees retire well goes beyond offering them a retirement fund. Employers have to also provide support at the time of retirement.
Transformation in South Africa: It is important that a fund understands the vital role it plays in building a transformed South Africa.
Communication: It does not matter how good a fund is if members don’t know about it, or how to properly save for retirement.
The sponsor: Choosing the right sponsor is very important and is particularly relevant when something goes wrong.
Compare the cost: When it comes to costs, it’s critical that employers have a clear understanding of all the costs an umbrella fund would incur and how they are calculated to be able to do a realistic cost comparison, says Acton.
But this can be easier said than done. ‘When I say something is going to cost 10 percent of assets, how much is that? And how does that compare to another provider whose fee is 20 percent of salaries? You can’t compare those two numbers,’ she explains.
What you can do, however, is work out how much that amount would be for individual members of the group, and then calculate the fees you’re looking at.
‘In the end, you have to make sure you compare the absolute fees to be able to compare apples with apples.’
The fee structure is also vitally important for determining the cost implications for individual members: ‘If the fee consists of a percentage of assets, those who have more money saved will pay more than those who are new to the system; if it’s a percentage of salaries, those who earn more will pay more.’
Acton urges employers to look at all the items on this list when choosing an umbrella fund to get an overall picture of what it offers and allows: ‘Taking the time to ensure that you join the umbrella fund that’s right for you and your employees is crucial.’
As Old Mutual Corporate’s 2017 Retirement Monitor showed, the majority of South Africans don’t have formal retirement savings and a fund that’s suited to employees’ needs and which they can afford will help them to reach their savings goals.
In addition, a number of new retirement fund regulations that have come into effect over the past few years, have put pressure on retirement funds to manage costs and increase governance levels, and for smaller retirement funds, one of the easiest ways to do this is to move into umbrella funds.
While this creates the desired drive towards umbrella funds, Acton believes that it also makes choosing the right umbrella fund all the more complicated for employers and trustees.
To this end, Superfund, Old Mutual’s largest umbrella fund, offers different options for different types of employers. Alternatively, speak to your Old Mutual Corporate Consultant or adviser for more information.