Your Company Group Retirement Plan: July 11-12, 2009

Is it all that stands between you and a penniless old age?

Will you spend your twilight years eking out the meagre benefit of your group retirement plan?

It's possible, even likely.

Most of us grasp that taking responsibility for our retirement is of utmost importance. Yet we put it off indefinitely only to spend years regretting the oversight.

As yet no statutory knuckle-rapping

While the law requires you to file your tax return by a specific date (and the vast majority comply with this) as yet there is no statute forcing you to provide for your own retirement.

The requirement therefore falls on either you, or your financial planner, to ensure you are properly funded for retirement - a process regarded by many as worse than a root canal treatment from the dentist.

So it is relatively easy to defer this decision to next year, which may ultimately have disastrous consequences for your financial wellbeing in retirement.

Retirement - so very remote?

One major reason for delay that retirement seems so far away. We can deal with it at a later stage, right?

Wrong.

Consider this.
The 40 year old who plans to retire at 65 has only 300 pay cheques between today and the farewell cocktail party.

That boils down to only 300 further opportunities to put money away for retirement. When you consider the length of time that retirement funds may need to last, it is not many chances at all.

Retirement planning becomes urgent and important at a far younger age than you think.

Is the group retirement plan your only hope?

Many responsible employers implement group schemes for their staff. Besides tax efficient retirement savings through pension or provident funds, employees can also get life and disability cover at a significantly reduced cost, sometimes at a saving of 20% to 30%. A good scheme can be a retirement life saver.

You may well have deferred your individual retirement planning, but you are likely to have been a member of your company retirement scheme.

Thank goodness!

If your employer has insisted that you join their group retirement plan, be grateful. It has likely given you a head-start on a process that your peers have not even considered yet.

Assess your company group retirement plan

Typically group schemes use pension and provident funds to assist employees to save tax-efficiently.

Such funds must be registered with the Registrar of Pension Funds and overseen by a Management Board or a Board of Trustees.

There are also a number of administrative requirements that must be met including annual audits, specific investment requirements, allocation of benefits and payments of contributions.

Another requirement is that there must be an employer / employee relationship. Membership must be compulsory and a condition of employment for the class of persons for whom the fund was established. So memebership is not optional for an employee - if they fall into the class of employment stipulated by the fund, they are required to join. This may sound draconian but remember that it is helping you start saving for your retirement and is a responsible act by your employer.

What is an Umbrella Fund?

As a result of increasing complexity and administrative requirements, many employers make use of umbrella funds to offer group retirement plan benefits to their employees.

An umbrella fund is not a separate type of fund – it is simply a fund to which an employer can apply for membership as a participating employer. This enables the employer to offer group scheme benefits to the employees in a cost-effective manner, which may not have been the case if the employer had to institute a self-standing retirement fund.

Group risk benefits may save you cash

Group schemes can also offer risk benefits to their members at significantly reduced costs. This means that if you have risk cover in your personal capacity, there could be the option to forego this personal cover and utilize the cover offered by your group scheme. This could provide cash flow benefits to you - make sure you investigate and make the most of them.

The benefits can be selected on the group scheme vary greatly and assurers have been adding more options to their offerings.

Some typical benefits include

• Life cover expressed as a multiple of annual salary
• Lump sum disability cover expressed as a multiple of annual salary
• Disability income expressed as a percentage of salary
• Critical illness cover
• Funeral benefits

Is your company's group retirement plan enough?

It is your responsibility to provide your own retirement. Don't be an ostrich and assume your company pension will be enough.

Sure, your employer can assist you by setting up a group scheme with good retirement savings and risk cover.

But you should check that tthe numbers will all add up to a comfortable living for you golden years.

A professional financial planner can further assist you to determine whether the level of savings and risk cover incorporated within your group scheme is sufficient to meet your financial requirements.

If it is not, now is the time to re-visit your personal retirement planning.

Debbie Netto-Jonker CFP founded Netto Financial Services and was financial planner of the year in 2001.

Her business partner Ian Beere, CA(SA) CFP was the financial planner of the year in 2007.