Retirement funds: win-win solution for small employers

Companies, big and small, understand that in order to ensure that employees are dedicated and committed, and to attract and retain talent, they need to provide a certain amount of employee benefits.

However, few small businesses offer their employees death, disability and retirement benefits, and those that do, provide these benefits in a fragmented way, often leaving retirement funding to the individual.

Employer's view

The employer's main argument against implementing benefits is the perceived added nuisance factor. Most small businesses resist anything that they see as increasing their administration load. Any new activity regarded as unproductive, such as offering employee benefits, is avoided.

This is rather short-sighted because an unstructured approach offers lower benefits at greater risk. Life cover and disability benefits are more expensive and the administrative costs and commissions are higher with individual savings policies or retirement annuity policies. This means less cost effectiveness for the employer.

And employers cannot ignore morale issues. When a worker dies, becomes disabled or retires and has inadequate provision, this impacts on the remaining work force members. It tarnishes the employer's image as a good employer.

Proving EB is productive

Brokers approaching small businesses must be able to demonstrate that providing employee benefits is not unproductive.

The issues to highlight include that when people retire, they will at least have some sort of nest egg. Perhaps more importantly, if disability benefits are in place, it could pre-empt any claims from disabled staff, while if benefits are properly introduced to staff, they will improve morale, which in turn can improve productivity.

Possible solutions

Possible solutions for smaller employers, include:
* selling individual policies for death, disability and retirement funding (retirement annuities);
* introducing a group death and disability scheme paid for by the employer, with individual retirement annuities for members; or
* introducing an umbrella scheme to the employer.

Most umbrella schemes accept very small numbers of employees in each sub-scheme. But because there are many such sub-schemes in their structure, they can offer real value to employers and employees.

Ideal scenario

Umbrella schemes, in many cases, offer the ideal solution to small employers. The economies of scale in an umbrella scheme should keep administration costs per member down, while providing good value on death and disability benefits.

Due to their scale, these schemes usually offer excellent choices in terms of investment portfolios for even the smallest employer sub-scheme. Most umbrella funds also have communication policies to ensure that members are educated about their retirement benefits.

The key will be the effectiveness with which the umbrella scheme services the client. Most umbrella schemes allow the broker to do the servicing ('front' office), while the scheme administrator does the rest ('back' office).

Providing an umbrella fund solution will not only help in increasing productivity, but will also ensure that employees have some money saved when they reach retirement, therefore creating a win-win solution for even the smallest employer.