An employer who cares about their employees’ financial futures is likely to experience much more engagement and an increase in productivity. Benefits such as retirement savings options and membership to a medical aid scheme will go a long way to ensuring employees are happy working for the company.
Today, we live in what has been dubbed the gig economy; employees are much more mobile and tend to scrutinize benefits that the company offers before deciding whether to apply. One of the benefits that employers could offer is a retirement annuity (RA).
A company can manage its staff’s retirement annuities through a group retirement annuity system. A group RA can be the ideal solution for SMEs because employees can join the RA in their individual capacity, providing the company with time to focus on business growth. Group RAs also ensure that employees receive all the benefits and individually managed RA offers. These include but are not limited to:
Individual accountability and choice
Each employee oversees their RA. For example, they can select from a range of underlying unit trusts to align with their financial requirements. It should be noted that the selection needs to comply with the prescribed legal investment limits for retirement funds.
An employee can also consult an independent financial adviser (IFA) for advice about investment decisions.
Tax advantages
Contributions to a certain extent are tax-deductible, and the returns earned are tax-free. Once an employee reaches 55 years of age, they have access to the funds: Up to one-third may be taken as a cash lump sum, if required, while at least two-thirds must be used to purchase a pension-providing product. Any cash lump sum taken will be taxed according to the retirement tax table at the time. The portion transferred to a pension-providing product, such as a living or life annuity, will not be taxed, but the investor will pay tax at their marginal tax rate on the income received from their living or life annuity.
Flexibility
One of the significant advantages of group RAs is that contributions can be changed without the employee incurring any penalties:
- Employees (at the employer’s discretion) can stop and start contributions as well as increase/decrease their contributions.
- Employees can switch underlying unit trusts within their accounts as their financial circumstances change.
- Employees have the option to either continue or discontinue contributing if they leave their employer.
Preservation
Many South Africans don’t seem to be financially secure when they retire. One of the primary reasons may be that individuals access their retirement savings before they retire. One of the most significant benefits of an RA is that it forces financial preservation. RA savings cannot be withdrawn as cash before the individual reaches 55 years of age. While this does limit access to money when it may be needed, it entrenches the skill of financial discipline, which will pay off when you retire.
If you need more information about group RAs, it’s best to speak to a reputable independent financial adviser.
