Why moving to an umbrella fund makes sense for many businesses

01 June 2021 Momentum Corporate

Momentum Corporate dispels some umbrella fund myths

For some years now, the number of private standalone retirement funds has steadily declined, giving way to an ever-increasing selection of umbrella funds. While arguably the biggest contributor to this shift is the fact that umbrella funds are generally viewed as more cost-efficient than standalone funds, some businesses are hesitant to make the shift from their existing retirement scheme to an umbrella fund. This is largely due to misconceptions that umbrella funds are inflexible and cannot be adapted to a business’ unique requirements.

In response to this, Rochélle Cloete, ‎Senior Manager, Product Solutions at Momentum Corporate, points out that umbrella funds do, in fact, offer flexibility and that there are several advantages to these funds, which both members and companies benefit from.

1. Greater efficiencies and reduced costs

Cost is not the only factor to consider. However, umbrella funds are generally more affordable. As professionally managed, multi-employer retirement funds, they are typically larger than many of their standalone counterparts – giving companies the ability to benefit from economies of scale. This form of funding reduces costs for both employer and employee, ultimately making it possible to channel more money to members’ savings.

2. Improved flexibility

Contrary to popular belief, umbrella funds do offer flexibility. Certain umbrella funds allow the employer to make initial choices at a group level. There is also a measure of flexibility at a member level, allowing employees to shape their retirement and insurance benefits according to their specific needs and situations. Innovative digital solutions allow members to understand and exercise this flexibility very easily.

3. Hybrid models take flexibility to new heights

Progressive service providers are pioneering hybrid models that involve the employer keeping their standalone fund, while offering employees the choice of moving to an umbrella scheme. In addition to a flexible benefit design, an umbrella fund that offers and facilitates flexible implementation empowers members to make a personal choice and opt for the fund they believe will best meet their needs.

Cloete says, “The hybrid model is a fresh, innovative approach which takes flexibility to a whole new level. ”

4. Employers stay in control

One of the myths surrounding umbrella funds is that employers will lose control of the management of their employees’ retirement and insurance benefits. However, while umbrella funds are managed by a board of trustees, leading umbrella funds do indeed make provision for each participating employer to appoint an advisory body. This helps the umbrella fund address the needs and interests of the specific employer and their employees.

5. More immediate value

Umbrella fund members may also have value-added benefits throughout their working careers. Certain umbrella funds have invested significantly in advanced digital platforms where employers and employees have access to multiple communication channels and client engagement tools.

The digital platforms create awareness about the importance of preserving retirement savings and educate employees on the various annuity options, which help members make informed decisions that lead to optimal retirement outcomes.

“The move to umbrella funds has become well-established in recent years and the current economic climate is driving further conversion. However, the cost-reducing aspect is far from the only potential advantage of these funds. Employers who ask their employee benefits financial adviser to explore some of the leading umbrella funds currently available are likely to find one that offers the right level of flexibility and added value for their employees,” Cloete concludes.

Quick Polls


How confident are you that insurers treat policyholders fairly, according to the Treating Customers Fairly (TCF) principles?


Very confident, insurers prioritise fair treatment
Somewhat confident, but improvements are needed
Not confident, there are significant issues with fair treatment
fanews magazine
FAnews June 2024 Get the latest issue of FAnews

This month's headlines

Understanding prescription in claims for professional negligence
Climate change… the single biggest risk facing insurers
Insuring the unpredictable: 2024 global election risks
Financial advice crucial as clients’ Life policy premiums rise sharply
Guiding clients through the Two-Pot Retirement System
There is diversification, and true diversification – choose wisely
Decoding the shift in investment patterns
Subscribe now