Article provided by Fedgroup
Finally, the retirement savings industry is getting a much-needed shakeup.
For years, employers who have their employees’ best interests at heart have been frustrated by the inability to compare different products, which were designed to be deliberately confusing in terms of their price structure. Perhaps now providers will start to display the same level of product transparency that has characterised the Fedgroup offering all along.
Many employers know that providing employee benefits not only shows that the business cares about the workforce, but has a positive effect on productivity as well. Yet, in an unstable economic environment, employee benefits are often the first cut to be made. Now that legislation compels providers to disclose fees that often went undisclosed in the past, employers can see exactly what they are paying for and what they get in return, making it easier to make a decision in the best interests of both the business and the employees.
There are four types of fees that employers should be aware of when choosing the best retirement savings package for their employees:
1. Investment management fee – this is often the highest of all the costs and is the cost of managing the assets that are being saved towards retirement.
2. Advice and/or consultant fee – this is the fee employers pay when there is a financial advisor that advises them in terms of the solution they put in place. This is a legislated fee, which means that the maximum percentage that employers have to pay is determined by the law.
3. Administration fee – the fee that goes towards the administrator who does all the administration and compliance work for the fund.
4. Legislative and governance fees – including auditor fees, these fees are shown separately to indicate what the governance cost is of having this solution in place.
There are two questions employers should ask advisors when considering employee benefit solutions. Firstly, what their advice fees are for providing them with the best advice for the solution, as well as what the rands and cents value of that advice is – not just the percentage – because a portion of that fee is taken from employees’ pension/provident fund salary deductions. The second question is around the administration cost of the solution. It’s quoted as a percentage of contributions but it’s good to have the rands and cents amount, to allow employers to compare different offerings.
The new Retirement Savings Cost (RSC) Disclosure Standard will enable employers to compare the costs between different employer retirement savings solutions by assessing the solution that the company puts in place in terms of a number. The number does not calculate actual cost but is an equal basis calculation used for all providers to arrive at one number so that these numbers can be compared to one another to determine how expensive the solution is.
This standard will also make it very difficult for providers to hide fees through complicated structures, so fees that have always been there but were difficult to disclose, now need to be disclosed. It needs to be shown as one number for people to understand how much it is going to cost them.
For an employer like Fedgroup, where the focus is placed on simplicity and presenting technical concepts as straightforward as possible, instead of playing on complexity, the RSC Disclosure Standard hasn’t affected our solutions or fees.
While the industry fat cats will probably now have to stop taking fat cuts from employees’ retirement savings, Fedgroup will continue providing transparency in terms of fees, the benefits available to employees and the structures that are in place for them, providing for their income at retirement. And, as we all know, even small changes in the percentage points of fees can make a huge difference to the total amount a person is able to save towards a comfortable retirement. It is therefore not surprising that Fedgroup was once again voted as the best service provider in the country at the annual independent PMR.africa Awards.
Since they are the ones paying for their benefits, shouldn’t employees be looked after by a provider that ensures transparency and an affordable fee structure prevail?
Ensure your employees’ futures by getting in touch with Fedgroup today at 0860 065 065 or GBcontact@fedgroup.co.za.