As an employee, you may be able to enjoy group risk cover against death and disability that is between 40 and 60 percent more cost-effective, because the life assurer assesses the risk profile of the members of the group as a whole, rather than your individual risk profile, and the commission paid to the financial adviser is regulated, Gareth Collier, a director of Crue Invest, says.
When it comes to retirement funds, the cost issue is far more complex, with a significant range of fees, but, if you belong to a well-run occupational fund, you may pay lower fees compared with a retirement annuity (RA) fund bought by you, as an individual.
A difference in fees of one or even 0.5 percent a year over 20 or 30 years of saving for your retirement can have a significant impact on your savings and the pension it will enable you to buy when you retire.
Gareth Collier, a director at Crue Invest, says group benefits usually include life cover, lump-sum disability or income protection cover and, possibly, funeral and/or severe illness cover (your risk benefits), a pension or provident fund and medical cover.
Collier says research has shown that well-structured and appropriately priced employee benefits are good for both employees and company profitability. Employees who are in control of their personal finances and debt are more loyal towards an employer that shows it is concerned about their financial well-being.
If your employer offers you group life and disability cover, you “are insured at the average age of all members in the group, premiums do not necessarily increase each year with age, as they do with individual policies, and commissions are paid monthly, or, at most, a year in advance, unlike with individual policies where commission can be paid up to 27 years in advance”, Collier says.
He says life assurance companies provide employees with a free-cover limit, which means that some or all of their life cover benefits are provided without the need for medical tests or underwriting. “This is a significant benefit, especially for members who would otherwise not be able to obtain cover,” he says.
Your group risk cover may come with a continuation or conversion option, which allows you to convert your group risk cover to personal cover with limited underwriting when you leave an employer. This guarantees that in future you will still be covered despite any health problems you may develop during your employment, as you would if you took out your own cover.
When it comes to saving for retirement, you can take out a low-cost RA if you are happy to invest in index-tracking funds, which cost a mere 0.4 percent of your savings a year, but you could also pay more than 3.5 percent on an older life assurance RA, and anything in-between on an RA offered on a platform with a choice of underlying active or passively managed funds.
Employer-sponsored funds, however, especially large ones could provide you with investments managed at fees of between one percent and 1.6 percent a year.
Recently, many employers have been moving employees to umbrella retirement funds, which are home to employees from different employers. Umbrella funds typically have higher costs than large employer-sponsored funds, because the administration is more complex than it is with a single employer.
But Sygnia recently launched a low-cost umbrella fund with costs of between 0.39 and 1.14 percent, depending on whether the investments are local or global, or actively or passively managed.
Sygnia’s chief executive, Magda Wierzycka, says employer-sponsored funds with more than R1 billion in savings are probably still able to negotiate the lowest costs.
If your employer has a restricted medical scheme, you should also count yourself lucky.
Restricted medical schemes typically accept you as a member without any waiting periods, and you may find the contributions to be cheaper than those of an open medical scheme. This is because open medical schemes have marketing costs and face high levels of what is known as anti-selection - that is, members who join only when they are sick and want to claim from the scheme. The scheme is then denied the cross-subsidisation of contributions when members are healthy and not claiming.
The Council for Medical Schemes’s annual report for 2015/16 shows that restricted schemes have lower average contributions than open schemes, have higher claims ratios (they spend more of your money on healthcare than on non-healthcare expenses) than open schemes and have lower administration costs.
Collier says that you, as an employee, should not be afraid to ask questions about your benefits. He suggested some questions: see "Questions to ask your employer about your benefits".