Old Mutual 2008 Retirement Fund Survey points to rise in popularity of Umbrella Funds

One of the key findings revealed in the 2008 Old Mutual Retirement Fund Survey is the considerable growth in Umbrella Funds in recent years as employers seek to shed trusteeship responsibility in an increasingly legislated industry, while also attempting to reduce costs.

The research shows an increase in the number of companies with larger workforces participating in Umbrella Funds. Previously, employers offering Umbrella Funds have typically been those with a workforce of less than 100 (usually less than 50). This survey saw participation by a number of employers with more than 500 employees.

Member numbers of survey respondents participating in Umbrella Funds vary between 31 and 2 600, with an average member size of 346.

According to Seelan Gobalsamy, Executive General Manager at Old Mutual Corporate if the proposed National Social Security Scheme (NSSS) becomes a reality, the growth in Umbrella Funds is likely to gain further momentum as employer-based fund memberships shrink, costs rise and private funds become unsustainable.

Gobalsamy says the growth in the popularity of Umbrella Funds amongst both small and large employers is as a result of them having successfully addressed some of the previous criticisms leveled at them and having become more flexible for employers and members.

“This is backed up by employers who have joined Umbrella Fund arrangements, saying they are very satisfied with these funds.”

Respondents in the survey indicate the appeal of Umbrella Funds lie primarily in the fact that they offer the ability to transfer the responsibilities of fund administration and trusteeship away from the employer. Respondents also indicated that Umbrella Funds embed the expertise of providers, offer better value, lower cost and better benefits than comparable stand-alone funds.

Respondents indicated the following factors as criteria as primary determinants in the selection of an Umbrella Fund: the reputation, track record, financial stability and size of the provider, the fees charged by the umbrella fund and the range of benefits offered.The survey shows that consultants and brokers play an important role in introducing the concept of Umbrella Funds to employers. However, not all employers involved their consultants in the process of joining an Umbrella Fund.

All 10 intermediaries interviewed recommend umbrella funds:

* Where it makes sense from a cost or benefits perspective
* Where companies don’t want the responsibility / hassle of running a private fund
* Where companies lack the expertise to manage an in-house fund
* For smaller companies

Intermediaries estimate that, on average, 27% of clients are in umbrella arrangements. 7 out of 10 expect this figure to increase over the next 2-3 years.