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Questions to ask your employer about your benefits

Personal Finance
What is the nature of the fund: is it a pension fund, provident fund or retirement annuity (RA) fund? Gareth Collier, a director of Cape Town-based financial planning practice Crue Invest, says legislation governing withdrawals, tax and preservation depends on the type of fund you are using. For example, you can withdraw from a pension or provident fund if you leave your employer before retirement, but the rules of an RA fund prohibit withdrawals before the age of 55.

What is my monthly contribution, and can I invest more every month if I choose to? Normally, your employer will contribute a percentage of your salary to a retirement fund, and you will also contribute a pre-determined percentage. Collier says you should find out what percentage you and your employer will be contributing, and if the total is not the maximum you can claim as a tax deduction, and the fund’s rules permit, you can contribute more each month to maximise your tax deduction. You can claim a deduction for contributions up to 27.5 percent of the higher of your remuneration or taxable income, with an annual limit of R350 000 on the contributions you can deduct.

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Do the fund’s rules make provision for a voluntary investment? This is important, because it will allow you to make additional lump-sum investments into your retirement fund to maximise your tax-deductible contributions in each tax year.

Is there a retirement premium-waiver benefit in place? If you have this benefit, it means that if you become disabled, the life assurer will continue contributing towards your retirement fund to ensure that your life, disability and any other risk cover continues, and that the employer’s contribution towards the retirement fund continues. One of the big risks you face if you become disabled and cannot work is that you will not have sufficient cash-flow to save for your retirement, and this is where a premium waiver can be a significant benefit, Collier says.

Where are my funds invested, what is the asset allocation, and what fees are being charged? Retirement funds run by life assurance companies are generally more expensive, less flexible and not transparent in terms of fees, Collier says. It is preferable if your retirement funds are being invested on a reputable unit trust platform, he says. There is no one-size-fits-all investment strategy, so you should be able to select a strategy that is appropriate to your needs and your investment time horizon. If you are a few years from retirement, you probably want to take less investment risk than if you are a 25-year-old starting your career, Collier says. It is essential that you understand your investment fees, he says. Find out what percentage of your invested assets are payable as fees. What are the advisers earning? What are the administration fees?

Do the fund’s rules allow you to transfer your benefits to your previous retirement fund if you are joining a new fund after resigning from a previous job? This is an important benefit, because it allows you to transfer your savings to your new employer’s retirement fund without tax implications, Collier says. If the new fund is cost-effective, your savings will continue to grow in a low-cost and tax-free fund. If you cannot transfer your savings to your new employer’s fund, you can transfer your savings to an RA fund or preservation fund.

Do I have the option of selecting the funds in which to invest? It is important that you have some choice when it comes to the underlying investments, because this allows you to tailor your investments to your age, investment horizon, appetite for risk and the level of savings required to provide the income you need in retirement, Collier says.

Who are the advisers to the fund? It is important to know that your advisers are independent, qualified and reputable, Collier says.

Are different categories of benefits available? Sometimes, employers provide different levels of benefits, depending the grading of your job, or they allow you to select the level of benefits. If you are on a higher job grade, you might be able to select a greater percentage of your contribution towards the retirement fund, or select a higher multiple in terms of life and disability cover.

LIFE COVER

Are life cover benefits approved or unapproved? Approved group cover is held in the name of a retirement fund and is subject to the fund’s rules, Collier says. The trustees of the fund will decide who is entitled to the proceeds of these benefits. The premiums are paid by the fund (usually from the employer’s contributions), and the employer can claim a tax deduction, he says. Unapproved group life policies are a group of single life policies owned by the employer, not the fund. The premiums on an unapproved group life policy are not tax-deductible, but the proceeds are tax-free for you, the member.

What level of life cover do I enjoy? Generally, employers will select a multiple of an employee’s income when determining the quantum of life cover, Collier says. For instance, your life cover could be set at twice your annual income. So, if you earn an income of R500 000 a year, your group life cover will pay out R1 million on your death. You need to determine whether the level of life cover is sufficient for your needs. Once your group cover is in place, you should ask your financial adviser to draw up a financial plan to determine whether you need any additional life or disability cover to supplement your group cover, Collier says.

What is the free cover limit attached to this benefit? The life assurance company that your employer or retirement fund is using will analyse the risk profile of the group as a whole and will determine a level of risk cover that the members of the group can enjoy without any medical underwriting. This benefit would be significant for anyone who has a medical condition or a pre-existing condition or illness, Collier says.

If I resign from the company, is there a continuation option that will allow me to keep this cover in place in my personal capacity? A continuation option is a significant benefit, Collier says. Without it, if you resign for whatever reason, your group cover will fall away. You will need to apply for cover in your personal capacity, which will be subject to individual underwriting, and this could result in exclusions on your policy, particularly if your health has deteriorated.

INCOME PROTECTION

What income will be protected if I am disabled? Income protection is a great benefit, but you need to know exactly what it covers. Gareth Collier says this benefit normally pays between 75 and 100 percent of the income you are earning when you become disabled. You need to ensure this income is sufficient to cover your living expenses, as well as help you to save for retirement, if you become disabled. If there is a shortfall, you could increase your lump-sum capital disability cover.

At what rate does the income protection benefit increase annually? At the very minimum, your income protection benefit should increase annually in line with inflation, Collier says.

Does it cover temporary and permanent disability? It is important to have a benefit that provides an income for you not only if you are permanently disabled, but also if you are temporarily disabled for a period that exceeds your sick leave. For example, if a surgeon breaks his arm and cannot operate for three months, it is essential that he has a benefit that covers him for this temporary setback, Collier says.

Is there a waiting period, and if so, how long? Most income protection policies allow for a three-month waiting period. This means that you cannot claim from your policy until three months have passed, which could leave you short of cash, Collier says. Some policies have shorter waiting periods that offer more protection, particularly in the event of temporary disability.

At what age does this benefit end? It is normally 65, but can depend on your employer. Age 65 is considered the normal retirement age, although some employers stipulate 60 or 62. If the fund’s retirement age is 62, your income protection benefit will cease from 62, and you will need to have made plans to support yourself financially from this age.

Do my other group assurance benefits continue if I am disabled? It is important that your other risk-cover benefits do not fall away if you are disabled. If you are disabled, it will be very difficult to obtain any risk cover, so it is important that the balance of your cover remains intact, Torr says.

LUMP-SUM DISABILITY COVER

What is the value of this cover? Similar to life cover, a lump-sum or capital disability benefit is normally a multiple of your annual salary. Gareth Collier says you should ensure that you have sufficient capital disability cover to settle your debt and make structural changes to your home and vehicle. You also need to cover your income, but that is best matched with income protection cover.

What are the policy exclusions? Collier says it is important to know what exclusions apply, particularly when it comes to occupational hazards, travelling out of South Africa and dangerous activities. If you participate, for instance, in scuba diving, motor cross or sky diving, you need to ensure that these activities are not excluded. Similarly, if your job requires travelling abroad, ask if the cover extends to the countries you visit, because some policies exclude certain countries.

SEVERE ILLNESS COVER

What level of cover do I have? Severe illness cover is usually a lump-sum benefit. It is paid out in accordance with the severity of the illness or the stage it has reached. Although severe illness cover is not an essential benefit, it does provide you with additional financial assistance, Gareth Collier says. Most of your medical expenses would be covered by your medical scheme, gap-cover policy and income protection benefits. But the additional payout from a severe illness benefit can be used to cover costs such as wigs (if you have treatment for cancer), special wheelchairs, trial medical treatments not yet covered by your medical scheme, and so on.

What diseases are covered? You must check the list of insured benefits, particularly if you have a family history of a particular disease, Collier says.

MEDICAL SCHEME AND GAP COVER

What options can I choose from? It is better for an employer to offer you a choice of two or more options, Gareth Collier says. A young, single employee will have different health-cover needs to an employee who is married with children, he says.

Is there an employer subsidy, and if so, how does it escalate annually? Understanding how your subsidy works is important, particularly when selecting an affordable option, Collier says. It is important to know to what extent your subsidy will increase each year. Find out whether your subsidy will continue when you retire.

Can I take out a group gap-cover benefit to help fund the shortfall? The difference between what is charged by a service provider (such as a surgeon) in hospital and what your medical scheme pays (the medical scheme rate) can be significant. Collier says he recommends that everyone has a gap-cover policy to cover this shortfall.

Is there a medical scheme contribution waiver benefit? With this benefit, if you are disabled, the life assurer will keep paying your medical scheme contributions on your behalf.

FUNERAL COVER

What is the funeral benefit for me, my spouse and children? The funeral benefit for the principal member and the spouse is normally the same, and the cover reduces with the age of the children, Gareth Collier says.

Does the policy cover my extended family? It is important that your funeral cover benefits remain in place after you’ve had a claim, Collier says. In other words, that all your dependants are covered, regardless of how many times you have had to claim.

How long does it take for a claim to pay out? Normally, funeral policies pay out within 24 to 48 hours to provide money for the funeral. Check that this is the case.

Does this cover include a repatriation benefit? This covers the cost incurred to return your or a family member’s body to South Africa if you die in another country.

EDUCATION BENEFITS

Does this cover include an education benefit if I am permanently disabled, or if I pass away? An education benefit is a nice-to-have, Gareth Collier says. This benefit normally ensures that your children’s tertiary education is paid for (directly to the institution) in the event that you are disabled or pass away. This offers extra security for your children’s future. In general, it is not limited to a certain number of children, but to a total rand amount limit, he says.

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