Where pension funds were once viewed as part and parcel of most employment agreements, this is no longer the case for many South Africans.
A survey of more than 5 000 employees last year established that only 36% of respondents were able to access a retirement fund. Of even more concern was that only 7% of retirees felt prepared for their retirement years.
Yet there is no question that pension funds remain a critical source of financial security. Furthermore, they carry several advantages.
For one, they encourage long-term savings by allowing individuals to contribute a portion of their income throughout their working lives. This disciplined method of saving helps them accumulate a nest egg for retirement.
Pension fund contributions also offer tax benefits. Those who save more for retirement tend to maximise the growth of their pension fund investments.
Danie Hattingh, Principal Officer of the Building Industry Bargaining Council’s (BIBC) Pension & Provident Fund, says many pension funds are sponsored by employers who contribute to the fund on behalf of their employees. The employer-sponsored pension plan is often a catalyst for attracting and retaining talent.
But, as Hattingh points out, a pension fund is so much more than saving for retirement. It is also a crucial vehicle for ensuring the minor children of employees who pass on are provided a solid financial platform able to meet their daily living requirements.
Beneficiary trusts, such as those offered by the BIBC as part of a service level agreement with the Sanlam Trust Beneficiary Fund, are accounts that receive money from a retirement fund or group life scheme after a member has died and grow that money for the deceased’s child.
These trusts were formalised and introduced in 2008 following amendments to the Pension Funds Act by the Financial Services Laws General Amendment Act, 22 of 2008.
The intention was to ensure a stronger regulatory framework incorporating sufficient governance, reporting and annual auditing requirements.
The trust pays monthly maintenance to ensure the day-to-day needs of the minor beneficiary are met. It also pays for the child’s educational needs.
Minor children stand a better chance of completing their education if their assets are managed in the beneficiary trust as this money is preserved and managed well to avoid the possibility of the money being squandered.
About 14% of the BIBC beneficiaries convert their proceeds to a Protector Umbrella Trust, which caters to adults or major individuals who prefer to leave the management of their financial affairs in the hands of experts. The beneficiary trust terminates at the age of 18 as legislated or as allowed by the transferring fund.
According to Hattingh, most beneficiaries withdraw funds as a lumpsum, though some opt to grow and preserve their benefits.
He cites the example of a medical doctor currently interning at a hospital. This individual chose to keep her funds in trust and only used the benefit for schooling purposes. To this day, her proceeds are managed by a team of professionals.
The BIBC trust’s service model is people-centred and is administered by a dedicated team led by a client account manager.
The team will contact the guardian to complete a needs analysis of how much he or she will need to care for the child on a monthly and annual basis. This is to ensure that we take care to adequately meet their needs and try to make the loss of the loved one easier.
The guardian will receive a welcome pack in the mail with details of the trust. The claim for school fees, uniforms, books and school trips, for example, will be paid directly to the provider.
Each child’s account is carefully monitored and managed to ensure that the money lasts for as long as possible.
The trust also services beneficiaries in their preferred language via a call centre, guardian roadshow and guardian booklets.
Hattingh says beneficiaries close to the termination date of their accounts (with a capital value of more than R100 000) will be contacted by a financial adviser who will offer financial guidance as well as tips on the importance of saving.
“Lastly, beneficiaries enjoy many other added benefits, including the Bokamoso Trust Bursary Fund and the SmolApp, a platform that ensures that beneficiaries receive academic support.”
