JOHANNESBURG - Well-structured Company Funds, with well-planned employee benefits, are helpful to both employers and employees.
An employee with a clear roadmap towards retirement security is likely to be more loyal. Such schemes also enhance an employer’s brand, assisting them to attract and retain skills.
For the employee, the benefit of an employee benefits scheme is in the cost. It can be much cheaper to belong to a group scheme, than setting up your own retirement savings, risk cover and finding your own medical scheme. However, Floris Slabbert, Director at Ecsponent Financial Services, a wholly owned subsidiary of Ecsponent Limited, cautions: “In order to be financially responsible and prudent, everyone should understand exactly what their company’s employee benefits entail.”
Understand your retirement fund
An employer will contribute a percentage of your salary to a retirement fund. You, as the employee, will also contribute a percentage. “If the fund’s rules allow it and your contribution is not at the maximum tax-deductible amount, you could consider contributing more to maximise your tax benefit,” says Slabbert.
A premium waiver is an essential product benefit because if you become disabled, the life assurer will continue to contribute your portion to your retirement fund on your behalf, depending on the fund rules.
Lump sum investments
“The rules around voluntary lump-sum investments are equally significant. Always find out if you can invest an additional lump-sums,” adds Slabbert.
Funds have varying fees, and even small percentage variations will make a big difference at the time of retirement.
What are the underlying investments?
Employees should have a degree of influence over their investments, or at the very least understand the investment strategy. Knowing who the board of advisors for the retirement fund are, and how the fund is managed and according to what strategy, will allow peace of mind that your money is being invested properly. Note that each fund should have a three-tier risk approach and each strategy might differ. Investors should have the choice between aggressive, moderate and conservative portfolios, depending on their investment cycle especially as they near retirement age. “Understand the differences between group standalone and umbrella retirement funds, as they have varying rules and provide varying levels of control over the investment strategy,” says Slabbert.
Know and understand all your benefits
Senior employees earning higher salaries, often bring a higher level of benefits. Thes higher benefits may enable you to select a greater percentage of your contributions to go towards the retirement fund or risk cover – depending on what your unique circumstance requires.
There are two types of life cover: approved and unapproved. Approved group cover is held in the name of the retirement fund and the trustees decide who is eligible for the proceeds. Premiums are paid by the fund, and in most instances, this is from the employer’s contribution, which means the employer can claim it back from tax. Unapproved life policies are owned by the employer and not the fund, they are not tax-deductible for the employer, but the proceeds are tax-free for the member.
“The level of the cover is usually a multiple of your annual salary,” says Slabbert. “You need to be comfortable that the cover is enough for your needs and the needs of your dependents in the case of your death. If it is not, you should consult a financial advisor around setting up additional cover to supplement your group cover.”
The assurance company determines the level of cover for the group as a whole. This means there is no need for personal medical underwriting. I.e. someone who is unable to obtain affordable life cover on their own, due to personal circumstance, will have the advantage of being included at the group’s rate. Another advantage is opting for a continuation of this benefit should you resign. Slabbert says that if you do not enjoy the continuation option, you would need to apply for your own cover. This comes with personal underwriting which can be significantly more expensive depending on your age and health.
Income protection covers you in the event of a disruptive life event or disability. It is calculated as a percentage of your salary and you need to be certain that it is enough to cover your needs, without exceeding the maximum limits set by legislation. It is important to understand that you need protection for both temporary and permanent disability and be sure that group risk cover does not fall away in the event of disability.
Lump-sum disability cover
Similar to life cover, a capital disability benefit is normally a multiple of your annual salary. Always understand what the policy exclusions are. For example, if you are a business person who travels to risky countries, your cover could be affected.
Severe illness cover
Usually pays out a lump sum depending on the severity of the illness. This is not an essential cover, but it does provide extra financial security and peace of mind. With lifestyle diseases affecting more and more people, and an increased incidence of life-threatening diseases like cancer, this type of cover is becoming more important
Medical scheme and gap cover
If you have a choice between cover options, consult with experts to find the best cover for you. If the employer offers a subsidy, take note of the annual escalation values. This could protect you from the effects of inflation. “Also, always find out if your subsidy will continue when you retire,” suggests Slabbert.
Gap cover funds the difference between what the specialists charge and what the medical schemes cover. The difference can be significant, and gap cover could be a consideration to hedge your financial risk.
“A medical scheme contribution waiver in case of disability is another benefit to take into account. This benefit means that the life assurer will continue contributing to the medical scheme on your behalf,” says Slabbert.
It is valuable to understand whether the benefit covers your entire family. “Take the time to figure out the logistics around the claims process. In that way, you or your loved ones will not have nasty surprises when dealing with bereavement,” says Slabbert.
If you are fortunate to have an educational benefit, it generally means that your children’s education costs will be secure. Mostly, this benefit extends up to a tertiary level in the event of your disability or death.
Although it takes time, it is best to take the time to review your benefits at least annually. “Therefore, we encourage everyone to understand every element of their employment package. Also, determine whether it is adequate to meet your unique needs,” says Slabbert. “If you do not enjoy a comprehensive employee benefits package or are not sure whether yours is sufficient for your needs, it is best to rely on the advice of a professional financial advisor.”