Johannesburg - Belonging to a mega retirement fund means you pay less in administration fees than a member of a smaller fund, which could result in as much as R800 000 more in benefits when you retire, according to a survey by Sanlam [JSE:SLM]
Danie van Zyl, co-author of the Sanlam Benchmark Survey and head of guaranteed investments at Sanlam Structured Solutions, presented the results of the survey at a symposium in Midrand.
He disclosed that an average of 13.3% of the salaries of members of bigger funds goes towards retirement, with 12.3% the corresponding figure for smaller funds.
The difference of one percentage point comes from deductions made from contributions where members of smaller funds (between 101 and 500 members) contribute 1.4% to death benefits, 1.2% to disability cover and 1.2% for administration fees.
Members of larger funds (more than 5 000 members) make a bigger contribution towards death benefits (1.6%) and a smaller one towards disability (1%), but pay only half of smaller fund members' administration fees (0.6%).
Van Zyl said if you look at someone earning a pensionable salary of R8 000 per month who contributes towards retirement, that one percentage point could translate to about R700 000 or R800 000 upon retirement.
The research shows that members of large umbrella funds are in a better position, with those in smaller stand-alone funds paying higher fees.
David Gluckman, co-author and head of research for Sanlam Employee Benefits, said that as part of an industry paying out R10bn of insurance benefits each year, South Africa's large umbrella funds now have over 1 million members and R100bn in assets.
He said there are five main players in the market, and that the economies of scale hold out better retirement prospects for their members.
Gluckman, however, feels this should be swelled to a few more mega funds than the current five, as the competition could result in better benefits for members.
The Benchmark Survey uses independent market research from 188 face-to-face interviews with key decision-makers at sponsoring umbrella funds.
In addition, complementary qualitative research was carried out with a broad cross-section of retirement fund members and retirees in both Cape Town and Johannesburg through six focus groups, supplemented by one-on-one interviews.