You are an entrepreneur and there is no turning back. You are growing your business or at least on your way to creating wealth and you may be thinking about retirement or even thinking of changing the current plan you have for you and your employees. Offering a retirement plan can help your business attract and retain employees. Basic retirement planning for smaller and growing businesses is much easier to establish and administer. As your business grows, you may want to reconsider your plan or add additional features. Your business may fall under one of two options, a stand-alone fund or an umbrella fund.

The National Treasury is pushing towards consolidating the retirement industry and many businesses are migrating to an umbrella fund. An umbrella fund usually refers to a type of mutual fund that individuals may invest in which is made up of a variety of sub-funds. From a business point of view, a group of small employers who do not have enough employees to create a large pension fund on their own creates this fund. On the other hand, stand-alone funds serve only one employer. As a HR personnel or financial director, you want to ensure that the fund you go for is the best option for you and your employees, whether it is a stand-alone or umbrella fund. In as much as businesses will do their due diligence, retirement fund trustees also have a duty and responsibility to act in the best interests of fund members.

As businesses and organisations, it is important to consider the following before deciding on a pension fund:

• Consider the legal structure. Whether it is an umbrella fund or a stand-alone fund
• Will there be risk benefits attached to the fund?
• What are the rules of the fund?
• Governance: Board of trustees or principal officer?
• How much are you required to contribute?
• What is the membership criteria and who is eligible to join?

Whichever fund option you go for, ensure that you enjoy the maximum benefits. Each fund option has its pros and cons. Be aware of the costs for each fund option. For example, a stand-alone fund requires an auditor, an investment consultant, an actuary, etc and this may increase the costs of administering this type of fund. A stand-alone fund is more appropriate for larger organisations that do not need a pool of assets to receive benefits of scale. One of the key advantages of a stand-alone fund is control over the Board of Trustees and the appointment of service providers. On the other hand, an umbrella fund is spread over a large pool of contributors which reduces the average cost per member. Employers and members can also benefit from higher returns and lower regulatory risk. The South African retirement industry is geared towards the direction of umbrella funds.

It is important to consider the best investment option for your members. As a business or organisation, you need to ensure that there is a high possibility of long-term growth in the investment options you choose. Retirement savings need to be well managed and invested appropriately. One of the reasons members don’t get a well-funded retirement is that they make poor decisions. Some funds have access to effective technologies to incentivise healthy financial behaviour through the administrator.

Lastly, the governance requirements of retirement funds seems to grow every year. Succession planning is critical as any adjustment or alteration can place the ongoing management of the fund at risk. In an umbrella fund, there is MANCO within the fund that makes important decisions about insurance structures, bespoke communication to drive member outcomes and accountability for the service providers.

Whether you go for a stand-alone or umbrella option, the main focus should still remain, and that is to ensure that fund members get the correct benefits upon retirement or when they exit the fund and also ensuring that the fund is appropriately managed.