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Retirement Planning
Tuesday, January 1, 2013
Getting protection

The drive for cost containment and fund governance, as well as the onerous risk and responsibility of trustees in an increasingly legislated environment, has seen many employers in the South African retirement industry opt for umbrella funds as a way to manage their employee retirement and risk obligations. By April last year, there were no less than 559 Commercial Umbrella Funds, of which 356 were active.


“While the umbrella funds were initially adopted mostly by small to medium sized employers, increasingly we are seeing very large companies electing this route,” says Hugh Hacking, Head of Retirement Fund Solutions at Old Mutual Corporate.
An umbrella fund pools the retirement investments of multiple employers. This reduces the average cost per member and provides other advantages such as professional governance. He says that regardless of the size of the fund, if you are considering a switch to an umbrella fund, it is crucial that you ensure the transition is as smooth as possible.
“Managing a smooth transition is a critical but often overlooked aspect of making the move to an umbrella fund. The most important consideration for employers facilitating the switch is not to make too many changes at the same time as this can create uncertainty and confusion among employees.” Especially in the current, turbulent economic times Hacking says companies can ill-afford any disruptions to operations and employee uncertainty. “Therefore, employers need to implement a tested and structured transition process to facilitate the move to an umbrella fund. In doing so, employers will also avoid the myriad of hidden costs and problems that tend to arise in an unstructured transition,” he says.
The first step is to ensure that everything is in order from a technical point of view. “This means checking the details of all employment contracts to ensure there will be no technical obstacles to the move to an umbrella fund. The umbrella fund’s service provider should be able to advise and assist the employer in this regard,” says Hacking.
Another key aspect is to ensure there is continuity from an investment and risk benefits perspective when switching to an umbrella fund. “It’s important to choose a service provider who can provide investment and risk options that are consistent with the previous fund, so that members are not required to alter their strategies unnecessarily. This also enables employers to slowly phase in, or even improve upon, any changes to the investments strategy and benefits of the fund.”
According to Hacking, constant engagement with staff is required throughout the process to assure employees of the security of their retirement savings in an umbrella fund. “By keeping employees engaged and informed through each stage of the transition process, employers will ensure a smooth and hassle-free transition to the umbrella fund,” he says.
“Many people are particularly sensitive to financial changes at the moment. Therefore, it’s crucial that employees are communicated with on a regular basis and that the benefits of the change to umbrella fund are made very clear to them,” he says. The umbrella fund’s service provider and/or its consultants should be able to assist the employer.
Hacking says one of employees’ greatest concerns with umbrella funds is likely to be that there could be a loss of control over their money by the employer due to a perceived barrier that exists between trustees and members. “In order to address this concern, employees need to be reassured that the umbrella fund enables them to access independent trustees with a range of expertise. Furthermore, they will be able to draw from valuable investment expertise and benefit from reduced costs and better fund compliance,” he says. Employers should also be encouraged to set up a member committee that specifically deals with the retirement fund and is able to play a crucial interface roll between the umbrella fund and the employees.
 

Copyright © Insurance Times and Investments® Vol:26.1 1st January, 2013
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