Fin24

Mega retirement fund members score more

2012-07-26 10:39

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.

 - Fin24

Comments
  • Julie - 2012-07-26 11:15

    With a minimum of 5000 members a pensioner can earn a goodly sum of money? How about doing an analysis on Transnet Pensioners, totalling around 80 000 members, and many only scoring as little as R500 per month. It has been reported that some old "spories" only get R1 per month after deductions - yes, I repeat R1... But Brian Molefe, Peter Moyo and co who are now (mal) administring Transnet get millions in performance bonuses each year and fatcat salaries, but say Transnet cannot afford to give the pensioners - whose pensions are pegged at the 'princely' sum of a 2% annual increase - a better deal...

      Wendy - 2012-07-26 13:19

      This article seems to be referring to provident funds, not pension funds, as it is referring to lump sum differences arising from differing charges.

  • palu.jon - 2012-07-26 14:12

    R8000 * 15% =R1200p/m contr to pension fund(R14400 p/a) * 35 yrs = R504 000.00 in total contributions. Not too sure how you can get an additional R700/R800 000 on just 1% extra growth on this!!! Does not add up at all!!! So much for the research done by life companies!!! i think that all they aim to achieve is to get people to hand over their money in HOPE!!! But REALITY is very different!!!

      Wendy - 2012-07-26 14:36

      Palu, you seem to be assuming that there is no growth in the fund.

  • nicolouis.minnie - 2012-07-26 14:48

    Paul, no one invests retirement money under their mattress so you cannot multiply R14.4k by 35 to get to the answer. At a 10% net growth it will get you to just over R4m at retirement (using your 35 year time horizon) so the R800k seems reasonable. They have ignored inflation though, which at 6% means that the R800k difference is only worth R104k – still a big difference though.

      palu.jon - 2012-07-26 16:26

      what is the result using 11%? i can guarantee you it ain't R700/R800 000 bigger!!! run the calc and see. i have just done so!!!

      wendy.webb.980 - 2012-07-26 16:44

      Palu, you're correct. It isn't R700/R800 000 bigger. It's a bit over a million bigger!

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