COVID-19 has had serious consequences for retirement savings and risk benefits. What are some of your options as an employer in 2022 to mitigate possible unfavourable consequences or even to reverse the impact of the pandemic?
Why should employers look after the best interest of their employees regarding retirement savings?
Research shows that up to 80% of all employees only use their employer’s retirement fund to save for retirement. The necessity of a well-managed retirement fund or retirement benefits cannot be emphasised enough.
What is important to know regarding risk benefits?
All the major insurers have indicated that COVID-19 has had a huge impact on death claims. According to Old Mutual, COVID-19-related deaths had an impact of R6.6 billion on profit. From June 2021 to August 2021, Momentum processed R4.6 billion in death claims. Sanlam paid out an additional amount of R3.42 billion in unforeseen claims in ten months, ending 31 October 2021.
In addition to the above, employers in umbrella and private funds experienced shocking premium increases upon their review dates. This, in turn, reduces the allocation to members’ savings or retirement benefits. In a separate, non-approved scheme, this may lead to an increase of the employer’s obligation. Therefore, as an employer, it is important that you get an independent consultant to review your benefits to ensure that it is the best value for your employees.
What is your opinion on payment holidays?
During the pandemic, many employers and employees under approved rule changes reduced their contribution, and only paid cost and premiums. During this time, no contributions went toward the savings and retirement interests of members. Over a period of service of 30 years, the impact might be small, but in the short term it will diminish a member’s retirement interests. Employers should encourage their employees to make additional contributions and to fully utilise the tax concession of 27.5%. Efficient Benefit Consulting presents workshops to retirement fund members and will gladly assist employers and fund trustees with talking to their employees and members of their retirement funds.
Should employers worry about ‘pretend’ resignations?
During the pandemic, many employees ‘resigned’ from their employers in an effort to gain access to their retirement fund money. However, these employees remained in the employer’s service and it is critical to note that this practice is not accepted by the South African Revenue Service (SARS). ‘Pretend’ resignations can have serious consequences for the member, the retirement fund, and the employer.
What would you recommend regarding umbrella funds?
This year is an opportunity for every employer or fund trustee to insist on an independent analysis of cost, as well as each service provider’s role and performance within the fund. In 2022, the pressure will increase on private funds to move to umbrella funds. Ensure that you as an employer or fund trustee do not just accept your consultant’s recommendation to move to his/her associated umbrella fund product. Insist on an independent review, something that Efficient Benefit Consulting specialises in.
What is important to remember regarding access to retirement funds?
All indications are that legislative amendments in 2022 will give members access to a share of their fund investments. The premature use of retirement savings is always worrying. Employers should rather use this opportunity to review employees’ savings and credit needs.
What about dread disease cover for employees?
Medical researchers predict an increase in dread diseases after COVID-19. Although this is not good news in itself, an advantage is that dread disease cover can be very affordable if bought within the context of a group.
Lastly, what should employers know about investments?
It is essential to regularly analyse your investment portfolio. Consider the management, costs, performance, investment trends, and market conditions when reviewing your investments.