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If you are looking into umbrella funds as an alternative to your current standalone retirement fund, keep these key considerations in mind to get the best fund for your staff.
Every employer must, at some point, review their retirement arrangements for their employees. On the face of it, the choice is simple: either a standalone retirement fund, which is managed by your business; or an umbrella fund made up of several employers, which is managed by a financial-services provider.
With National Treasury continuing its push towards consolidating the industry, many businesses are making the move from a standalone fund to an umbrella fund. While an umbrella fund may be the right choice for your business and your employees, there are a few considerations that employers and standalone fund trustees should bear in mind when deciding on whether to make the move.
Here are seven important aspects to bear in mind when doing your due diligence.
1. Maximise the advantages irrespective of the type of fund
There are pros and cons to umbrella funds relative to standalones, and you need to ensure you are enjoying as many of the benefits as possible. It’s important not to try to replicate your standalone fund set-up in an umbrella fund. Understand the unique advantages of an umbrella fund and maximise them.
2. Test the market
Many administrators of standalone retirement funds will try to convince their clients to move to their umbrella solution. While that may seem like the easy option, it’s not necessarily the right one. Even when staying with the same administrator, the move from a standalone to an umbrella is fairly comprehensive. Make sure that you’re really moving to the best umbrella fund that will serve your employees’ needs – so be sure to test the market. It can be a complicated process so it would make sense to get an independent expert to assist you.
3. Take the opportunity to restrategise
Moving from a standalone to an umbrella fund is an opportunity to start with a clean slate. Step back and have a look at your current set-up. There might be historical reasons why you have set it up in that particular way. Use this opportunity to question what you need to do to put your members first. In The Great Debate, a recent webinar on standalone and umbrella funds hosted by Old Mutual Corporate, there was a lot of conversation around issues like flexibility and member choice.
But the most important question remains: what will be the optimal retirement solution for your employees?
 4. The best use of employees’ time
A board made up of company trustees carries an often overlooked opportunity cost. It is harder to quantify, but significant. This includes the cost of time, skill and other resources needed to run a standalone fund, which could instead be used to perform business critical functions.
5. Consider your funding arrangements
There are more than 4,000 standalone funds in South Africa, so a typical large employer could have anywhere from three to eight different retirement funding arrangements. If – or when – you move to an umbrella, you’ll get the benefits of economies of scale, which means getting maximum bang for your buck, by consolidating as many of your funding arrangements as possible into one umbrella.
6. Know what to expect from the sponsor…
Employers going into an umbrella fund must realise that the sponsor – that is, the financial institution – becomes one of the fund’s stakeholders. You need to ask the following questions:
- What roles is the sponsor going to play and how much influence will they have?
- What processes will be followed in making decisions by the trustees? and
- What will the sponsor actually be doing?
7. Be sure that you can trust them
Finally, it’s important to remember that you have to look at both the solution and the sponsor when deciding on an umbrella fund. It’s important to check the sponsor’s credibility too. How do they conduct themselves in the market, and is the sponsor ultimately someone you can trust?
Sometimes companies fear getting ‘stuck’ in an umbrella fund. The truth is, you can change whenever you like, but if you work on finding the right sponsor to partner with, you won’t need to.
Go to oldmutual.co.za/thegreatdebate to watch our webinar on standalone vs umbrella funds, visit www.oldmutual.co.za/corporate for information on all the employee benefits we offer, or mail [email protected].
Malusi Ndlovu is Director: Large Enterprises at Old Mutual Corporate. Old Mutual Life Assurance Company (SA) Limited is a Licensed FSP and Life Insurer.
