The average cost to your retirement fund of providing death and disability benefits has decreased slightly, but your cover may also have decreased, the Sanlam Benchmark survey shows.
Premiums to provide fund members with benefits if they die before retirement are, on average, 1.59 percent of their pensionable income, which is lower than the average of 1.63 percent for the past five years, according to the 2014 survey.
Danie van Zyl, the head of guaranteed benefits at Sanlam Employee Benefits, says the average level of cover decreased from 3.6 times annual salary in 2013 to 3.4 times annual salary in 2014.
The premiums for disability benefits have fallen to 1.01 percent of pensionable income, from a five-year average of 1.16 percent, while the level of cover has decreased from an average of 2.8 times annual salary to 2.4 times.
Van Zyl says the cost of death benefits may have decreased as a result of competition between life assurance companies, as well as HIV-positive fund members having greater access to anti-retrovirals.
Death benefits can be paid as a lump sum or as a pension to a surviving spouse or children.
Most funds (98 percent) provide a lump-sum death benefit.
The survey highlights that some funds include your accumulated retirement savings in a lump-sum death benefit, whereas others provide the death benefit in addition to your retirement savings.
Van Zyl says the reduction in the cost of disability benefits could be attributed to improvements in working conditions, better health and safety regulations, competition among life assurers, and improvements in medical and managed care, which have resulted in more claimants returning to work.
Most retirement funds pay disability benefits as an income.
The survey highlights the need for members to establish whether their cover is for temporary disability or permanent disability, or both.
You also need to find out whether there is a waiting period before your benefits will be paid.
The survey shows that the average waiting period is 4.8 months, although it has decreased by 14 percent since last year’s survey.
Only 10 of the 100 funds surveyed indicated that they offer critical illness or severe illness cover, which provides funds for medical expenses, recuperation or adaptations to your home on diagnosis of a severe illness.
The survey shows that, to cover their expenses, retirement funds deduct, on average, 3.58 percentage points of the average 16.1 percent of pensionable income that members and their employers contribute. This is a decrease from the five-year average of 3.73 percent.
These expenses are for administration (on average, one percentage point) and for premiums to provide cover against death and disability.
The survey shows that 35 percent of funds cap, or limit, the amount they spend on death benefits, and 39 percent cap the amount they spend on disability benefits.
The average cap for death benefits has increased from 2.16 percent in 2013 to 2.62 percent in 2014, while the cap for disability has increased from 1.9 percent to 2.25 percent.
Only 29 percent of funds pay a fixed fee per member per month for administration, while 55 percent pay administration costs based on their members’ salaries.
Van Zyl says a fixed fee can be expensive for members on low incomes, while when a fee based on a percentage of income is charged, the amount deducted from the contributions of higher-income earners subsidises the administration costs of lower-income earners.
The average fixed fee per member per month has decreased from R36.36 to R34.52, but with funds that offer their members a choice of investment portfolios, the fixed fee has increased from R38.80 to R40.