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Pension Funds
Monday, August 1, 2005
Umbrella benefits

Imminent changes to the Pension Funds Act will encourage employers to relook at the way retirement benefits are structured for their employees.

Sanele Nyoka, head of Old Mutual Evergreen Umbrella Pension Funds, says stricter governance rules will apply, and outsourcing retirement provision will become an option worth considering.
According to figures obtained from the Financial Services Board (FSB) the number of umbrella pension funds has grown rapidly — up 33% in less than two years from around 460 (2003) to 612 today.
An umbrella fund is one that multiple employers join. There is a single board of trustees and a single set of master rules. Every participating employer may have a set of special rules outlining that company’s benefit structure. Some umbrella funds allow an employer to set up a committee to represent members.
“This new generation of fund suits both small and large companies and has evolved greatly in terms of governance, accounting, member representation, flexibility, service, communication, and education,” he says.
Old Mutual’s Orion Fund is suitable for small to medium enterprises, while the Evergreen funds are suitable for those with several thousand employees. Nearly 10% of active SA retirement fund members outside of government pension funds are now members of umbrella funds. This represents a rapid move to outsourcing, due in part to the new breed of umbrella funds that absorb the costs and risks usually associated with retirement planning.
New generation umbrella funds offer the following features:
• Good governance: trustees are independent, results are audited and the management board has sub-committees with clear mandates;
• Accounting: independent sub-funds have separate, audited financial statements. There are no member surpluses and fund and administrator accounts are also separate;
• Member representation: to speed up communication and death claims, monitor fund performance and facilitate shareholder communication. Committees represent sub-fund members;
• Flexibility: fees are no longer standard, but are charged according to the options selected by members, to meet their varying needs and different levels of control;
• Service and communication: there’s direct online communication with umbrella fund members, ending the reliance on the employer’s infrastructure. Members receive quarterly and annual statements informing them of their pension fund value; and,
• Education: There is far more information and guidance available to educate members, ultimately leading to more financially aware individuals who make better informed decisions.

Mr Nyoka says some umbrella fund costs may initially appear higher than free standing ones, but companies tend to forget how much time and money goes into choosing and training trustees, travel, administration, consulting, fidelity insurance and member communication and servicing. A professionally run umbrella fund can actually cut total costs and risks down the line.
And as with all major financial investments, it pays to shop around. 

Copyright © Insurance Times and Investments® Vol:18.4 1st August, 2005
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