Issue: June/August 2008
Old Mutual Corporate

Key role for umbrella funds in addressing retirement savings crisis

Seelan Gobalsamy,
Executive General Manager at
Old Mutual Corporate

The need to encourage South Africans to save adequately for their retirement continues to be a major focus to government and industry players. In his 2008 budget presentation, Finance Minister Trevor Manuel highlighted the current reform of the retirement system which aims to address this issue by encouraging more people to make provision for their retirement so that they are not dependent on the State.

According to Seelan Gobalsamy, Executive General Manager at Old Mutual Corporate, the importance of these initiatives is brought into perspective when one realises how few South Africans employed in the formal sector manage to retire with adequate savings, never mind those in the informal sector. “Planned reforms by government may compel formally-employed individuals to contribute to retirement, and that will definitely go a long way in addressing this problem,” Gobalsamy believes.

“...encouraging more people to make provision for their retirement so that they are not dependant on the State. ”

He adds: “There is such a large number of small retirement funds that our current retirement system is not as cost effective as it could be. Increasing requirements for governance in retirement funds will make small funds even more costly in the future. These factors point to an increasing role for large, well-managed and efficient multi-employer (umbrella) retirement funds to meet the needs of employers and their staff. Industry has to drive the consolidation of costly small funds into more efficient and larger, multi-employer funds.”

Some benefits of multi-employer (umbrella) funds:

  • Economies of scale. When a number of employers participate in a single retirement fund, services such as auditing, administration, asset management, consulting and insurance pooling are shared. This typically results in significant potential cost savings relative to where each employer had a separate, stand-alone fund. And these cost savings can translate directly into improved retirement benefits for the individual members.
  • Competitive death and disability rates. These are generally lower than stand-alone arrangements as the multi-employer fund is able to negotiate much more competitive premium rates from insurers.
  • Good governance. Role clarity for the sponsor (the company initiating the multi-employer fund), trustees are independent, financial results are audited and the management board has governance sub-committees with specific mandates.
  • Accounting. Independent sub-funds with separate, audited financial statements. • Member representation. Member committees to represent sub-fund members and to speed up communication and death claims, monitor fund performance and facilitate shareholder communication.
  • Flexibility. Member needs vary, and individuals want different levels of control. Fees are no longer standard, but are charged according to the options selected by members.
  • Communication. The law demands a minimum level of communication including basic member information, annual member benefit statements and new member certificates. Old Mutual constantly seeks to exceed these minima. It also provides members with enhanced communication, such as educational seminars, newsletters and more.

Gobalsamy says Old Mutual, which has been delivering multi-employer solutions to small and large businesses for more than 20 years, servicing more than 6 000 employers with a membership base of around 230 000, has the necessary experience to ensure that participating employers enjoy all these advantages.