To assist with this question consider the following scenarios;
1. An employee dies over the weekend and his family are left without their sole bread winner. The deceased could not afford to take the time off work to sort out his or her own affairs.
2. An employee is in a car accident and never took the time off work to take up disability cover. You, as the employer, have to make a very uncomfortable hospital visit and give a farewell handshake and a company card from Hallmark.
3. After 20 years of loyal service, an employee retires or resigns and knocks on the employer’s door to say “thank you” and collect a cheque. It doesn’t take long to realise that he just gave 20 years of service and has nothing to show for it. Granted he could have invested a portion of his salary but he was too fixated on the task at hand.
So with the above in mind, please note the following options that are available to companies or groups whereby both the employer and employee would contribute.
1. Group Insurance cover – whether through a pension, provident or without an investment portion. Your company’s personnel can get decent rates by applying for cover as a group. Insurers will also offer what is called free cover which means that personnel can get cover up to certain limits without the need of a medical.
2. Investment. Without being too technical, I will highlight the most salient features
a. Pension –At retirement the member can only take one third as a cash lump sum and two thirds must be invested in a compulsory annuity, similar to a RA. Upon resignation, although not advised, the member can access funds. Individual members need not be assessed for their risk profile.
b. Provident – At retirement, member can access full amount as a lump sum but tax implications must be borne in mind. Upon resignation, although not advised, the member can access funds. Individual members need not be assessed for their risk profile.
c. Group retirement annuities – This is a relatively new addition to the group benefit offering and one which I am particularly fond of.
The structure has very similar tax benefits, but group RAs can be substantially cheaper and there is a real benefit in being locked in to age 55, which means that upon resignation the member cannot access their funds which is the point of saving for retirement. In order to execute a group RA each member will have to be interviewed for his/her risk profile and hence can get a customised solution. Please note that a group can apply for group RAs and group insurance cover with different companies.
Finally, realising that nobody really likes sacrificing a portion of their income, the opportune time to consider group benefits is while future increases are being considered. Such structures/ benefits provide a foundation (or the bare minimum) of financial planning but at least it offers the committed employee and responsible employer some peace of mind.
*Stuart Kantor (BBuSc Finance Hons and CFP) is an independent financial adviser and member of Kanan Wealth CC.