An umbrella fund can help both HR Managers and employees.
In December last year, the 2021 Deloitte Global Human Capital Trends survey predicted that HR departments, managers and directors could have a significant impact on their businesses and employees during the pandemic. In many companies, the prediction came true, as HR Practitioners across the business spectrum helped employees adjust to working from home, rolled out various wellness programmes and set up effective new lines of communication to keep staff updated at a very uncertain time both in their careers and in history. Apart from assisting through these growing responsibilities, HR Managers and Directors can also help employees at a time when they are facing even more financial challenges brought about by Covid-19.
A key decision-making position
Widespread household income losses due to Covid-19 lockdowns have put South Africa’s retirement planning under pressure. But, while workers deal with the immediate financial impact of the pandemic, Human Resource Practitioners who serve as retirement fund trustees (RFTs), together with their fellow board members, are in a significant position to review the long-term suitability of their current retirement provision arrangements to maximise savings by evaluating the merits of an umbrella retirement fund over a standalone one.
This is because moving from standalone to an umbrella fund can help funds, and ultimately households, be more efficient when saving for retirement during these tough economic times.
What employers don’t consider is that the cost of administrating a standalone fund is largely passed on to the people who can least afford it, namely the members.
Moving from a standalone to an umbrella retirement fund can therefore save money for members over a lifetime of investing.
With the costs of benefits designed to protect members and their families against sickness or death increasing due to the impact of COVID-19, there is even less money going to retirement every month, making cost considerations even more pertinent right now.
Well administered and properly governed, umbrella funds are more efficient because of their reduced complexity and economies of scale. With a standalone fund, on the other hand, you need an auditor, an actuary, an investment consultant and a host of communication and specialist service providers.
The umbrella fund creates an advantage of size, meaning that these costs are spread over a larger pool of contributors.
Remove pressure, renew focus
HR Practitioners, especially senior HR Executives, often play a vital role in a company’s retirement fund planning and administration, not only on decision-making level as RFTs but often also in the day-to-day administration and management of funds, communication with employees and, importantly, keeping abreast of any and all governance and legal changes to the retirement fund world.
These men and women generally don’t work as full-time trustees, and are not experts on retirement regulation, investing or governance, yet they are expected to accept full responsibility for the retirement savings of their colleagues.
In addition, the raft of continuous changes to the retirement fund legislation places a further burden on these workers.
And seeing senior-level staff splitting their attention between their fund responsibilities and core tasks is an added cost in itself. While these costs are harder to quantify, they are significant. They include the opportunity cost of time, skill and other resources needed to run a standalone retirement fund.
In addition to the lower costs for members, an umbrella fund removes these other less obvious costs companies sometimes don’t consider, relieving the administrative burden on management of needing to appoint a board of trustee-employees and RFTs to meet the onerous governance, risk and compliance requirements.
Each business needs five vital elements from a retirement fund – cost efficiency, good control, flexibility, good governance and employee representation – which is exactly what a well-managed umbrella fund provides, he adds.
A win-win situation
Umbrella funds clearly offer numerous advantages for business in terms of both cost and freeing up senior staff to focus on their core tasks. There are also many advantages for the ultimate focus of any pension fund – the business’s employees.
With any investment, it is vital that as much of the contribution goes to the savings pool as possible. At the very least, trustees, employers and employees should be conversing on the merits of moving to an umbrella fund, seeing that the outcome has significant implications for members.
In a very complex arena, it is essential to take a step back and compare the pros and cons of umbrella funds and conventional standalone funds. This will help management and other stakeholders make a more informed decision about their financial future.
Malusi Ndlovu is Director of Large Enterprise at Old Mutual Corporate, www.oldmutual.co.za/thegreatdebate.