Insights categories - Retirement

Questions to ponder when choosing an umbrella fund

With the ability to leverage economies of scale to provide a cost-effective offering, umbrella funds have the potential to significantly transform the country’s poor retirement savings culture and give employees a good chance of improving their retirement outcomes. Andrew Reid, senior business analyst, discusses the benefits of umbrella funds and the key questions to ask when selecting an umbrella fund for your employees.

The retirement fund landscape has evolved notably over the past decade. One of the key trends underpinning the evolution has been the rise of the umbrella fund industry. Umbrella funds have gained popularity in recent years because they offer employers a flexible and cost-effective retirement product that removes the administrative headache and expense of managing a standalone retirement fund.  

Umbrella funds exist within a well-regulated retirement savings industry and allow multiple employers to use a single pension or provident fund structure to help their employees save for retirement. However, umbrella funds vary, and selecting the right provider requires careful consideration and due diligence to find the best fit and value for money for your business.

Do your homework

Asking the right questions upfront will go a long way to ensuring that you get the most out of a move to an umbrella fund. Below are five questions that can help guide your decision-making.

  1. How is the umbrella fund governed?

    Umbrella funds are generally sponsored by large financial institutions, and they are managed by a board of trustees, whose role is to oversee the operations of a retirement fund in line with the applicable laws and fund rules. Their duties are governed by the Pension Funds Act ("the Act") and common law.

    In carrying out this role, over and above their fiduciary responsibilities, the board must ensure that members’ interests are protected at all times and that they act impartially towards all members and beneficiaries.

    Questions you should consider asking include:

    1. Who sponsors the fund?

    2. How is the board of trustees composed?

    3. What qualifications do the trustees hold?

    4. What previous work experience do the trustees possess?

    5. What does your governance and risk management plan entail?

  2. What is the umbrella fund’s default investment strategy?

    Regulation 37 of the Act requires umbrella funds to offer at least one trustee-approved default investment portfolio that is designed to meet the needs of members. Unless members specify otherwise, they will be invested in their employer’s chosen default investment portfolio.

    Members who feel comfortable making their own investment choices can opt out of their employer-selected default investment and access a range of Regulation 28-compliant investment options. Some providers will, however, charge a fee for this.

  3. How do trustees communicate with members and how regularly does it occur?

    Trustees are obliged to ensure that all relevant and appropriate information pertaining to members’ rights, obligations and benefits are supplied to them. Each member should, at a minimum, receive an annual benefit statement.

    Consider asking prospective umbrella fund providers for examples of the typical communications members will receive and find out how often they communicate with members.

  4. What additional services or benefits does the fund offer?

    Member education is a powerful means to equip retirement savers with the tools to play an active role in improving their retirement outcomes and can be a good metric to use to assess the options. Client support and administrative services are another good benchmark to gauge the quality of service you can expect to receive from a service provider.
  5. What are the fees and charges associated with the fund?

    Ask prospective providers for a detailed breakdown of all the fees associated with the investment to get a clear understanding of the total costs involved, which you can use to determine whether the costs are pursuant to the value received.

Careful consideration is key

Umbrella funds form part of the employee benefits ecosystem, and the choice made should be taken with the best interest of your employees in mind and evaluated holistically.

Value for money doesn’t always mean opting for “the cheapest” option. Rather, it’s about finding a simple option that gives you access to high-quality investment managers that have a proven long-term track record and a product that delivers service and administration excellence with a transparent fee structure that gives you and your employees clear sight of contributions, returns and charges.

The Allan Gray Umbrella Retirement Fund (“the Fund”) offers members access to experienced investment managers via two trustee-approved default investment strategies. Members can also opt out of the default and choose from a selection of Allan Gray portfolios and portfolios from leading investment managers. The Fund provides approved risk policies with five insurers, four of which have identical terms, but cover will be provided by the insurer with the lowest premium unless otherwise instructed. On request, members of the Fund can receive customised training and member education at no additional charge. Members can also monitor and manage their investments through a secure online account.

Ultimately, selecting the right umbrella fund for your employees is an important decision that requires measured consideration. Posing the questions discussed will enable you to gather the most pertinent information required to make an informed choice that best serves your employees' retirement needs and long-term financial goals.

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