Employers who illustrate to their staff that they care about their futures by providing them with retirement savings solution, along with investor education, are likely to see increased employee engagement. Happy, engaged employees are less likely to start looking for greener pastures.
Gone are the days of life-long employment – today’s workforce tends to be highly mobile. Employers need to think carefully about the benefits that they offer, as these are often key in attracting and retaining staff. One such benefit could be a retirement annuity fund (RA).
RAs are like a personal retirement plan – they are designed to suit the individual, move around with him or her, and because they are not linked to the employer, become a life-long benefit, rather than a benefit that is merely a condition of employment. RAs send out the message that the employer cares about their employees’ futures and has put measures in place to get their retirement savings in place.
RAs can be managed on a group basis through a group retirement annuity system such as Allan Gray’s Group RA . In many ways group RAs are a better choice for employers and their employees than other retirement funding options, such as umbrella funds, which can have high set-up costs and time-consuming administrative requirements.
A group retirement annuity system allows employers, particularly those in small- to medium-sized businesses, the time to manage their businesses while avoiding tedious administration requirements, all the while not detracting from the importance of retirement saving for their employees. Group systems also ensure that employees get all the benefits of an individually managed RA. These include:
Individual accountability and choice
Employees join the RA in their individual capacities. This gives each employee control of his/her retirement savings. Employees may choose from a range of underlying unit trusts to meet their individual investment objectives. At the same time, their selection must comply with the prescribed legal investment limits for retirement funds. While we caution against switching too often, employees can switch between unit trusts as their needs change, giving them flexibility over time.
Each employee can use the services of their own independent financial adviser if they need help in making their investment decisions, or an employer could negotiate with a single independent adviser to provide unbiased advice to employees.
Contributions to an RA (within certain limits) are tax deductible, and the returns employees earn while invested in an RA are tax free. However, at retirement any cash lump sum taken will be taxed according to the retirement tax tables and the portion transferred to a pension-providing product will be taxed at the marginal tax rate when it is paid out as income.
Value for money
In many ‘modern’ RAs the fees depend on the unit trusts employees select. In Allan Gray unit trusts, investment management and administration fees are charged within the unit trusts and are deducted before the unit trust’s performance is published. In this case, all the costs of investing in the Allan Gray RA are taken from these fees and no additional fees come off the initial investment, or from the investment balance, as the employee goes along, other than fees for financial advice if a financial adviser is used. These fees must be negotiated with the adviser. There are no switching fees and no exit fees.The return employees see is what they get. In addition, there are no other costs associated with managing multiple RAs in the group system.
One of the big advantages of group RAs is that they allow flexibility of contributions, without any penalties:
- Employees (at the employers discretion) can stop and start contributions
- Employees (at the employers discretion) may increase/decrease their contributions
- Employees can switch underlying unit trusts within their accounts as their needs change
- Employees can either continue contributing if they leave their employer, or they can stop contributing
The investment is protected from potential creditors.
The majority of South Africans do not retire financially secure. One of the reasons for this is that individuals access their retirement savings before retirement age. With an RA there is forced preservation; savings cannot be taken as cash before the age of 55 years old. While this means no access to cash at a time when some cash may be useful, the discipline of having a pot of money which will be there at retirement, empowers people to secure a better future.
Transparency, communication and education
Approaches to communication vary depending on the RA provider. Allan Gray allows members to monitor and administer their investments online. This is essential in giving individuals ownership and a sense of responsibility for their investment. Allan Gray also offers member training and education.
For more information please watch this video.