Umbrella funds help both HR managers and employees

Well-administered and properly governed umbrella funds are more efficient, says Old Mutual’s Malusi Ndlovu.

In December last year, the 2021 Deloitte Global Human Capital Trends survey predicted that HR could have a significant impact on their businesses and employees during the pandemic.

In many companies, the prediction came true, as HR practitioners helped employees adjust to working from home, rolled out various wellness programmes and set up effective new lines of communication to keep staff updated at a very uncertain time.

Apart from assisting through these growing responsibilities, HR managers and directors can also help employees, at a time when they are facing even more financial challenges brought about by Covid-19.

A key decision-making position
Widespread household income losses due to Covid-19 lockdowns have put South Africans' retirement planning under pressure. But while workers deal with the immediate financial impact of the pandemic, HR practitioners who serve as retirement fund trustees (RFTs), together with their fellow board members, are in a significant position to review the long-term suitability of their retirement provision arrangements to maximise savings by evaluating the merits of an umbrella retirement fund over a standalone one.

This is because moving from a standalone to an umbrella fund can help funds, and ultimately households, be more efficient, says Malusi Ndlovu, director of Large Enterprises at Old Mutual Corporate.

“What employers don’t consider is that the cost of administering a standalone fund is largely passed on to the people who can least afford it, namely the members.”

Moving from a standalone to an umbrella retirement fund like the Old Mutual SuperFund can therefore save money for members over a lifetime of investing.

The increasing costs associated with benefits designed to protect members and their families, especially now that Covid-19 puts them at greater risk of sickness and death, means that they have even less money available to put towards their retirement savings each month, he adds.

“Well-administered and properly governed umbrella funds are more efficient because of their reduced complexity and economies of scale,” adds Malusi.

“With a standalone fund, on the other hand, you need an auditor, an actuary, an investment consultant and a host of communication and specialist service providers.

“An umbrella fund has the advantage of size, meaning that these costs are spread over a larger pool of contributors,” he says.

Removing pressure, renewing focus
HR practitioners, especially senior HR executives, often play a vital role in a company’s retirement fund planning and administration, not only on decision-making level as RFTs but often also in the day-to-day administration and management of funds, communication with employees and – importantly – keeping abreast of any and all governance and legal changes with regard to retirement funds.

“These men and women generally don’t work as full-time trustees, and are not experts on retirement regulation, investing or governance, yet they are expected to accept full responsibility for the retirement savings of their colleagues.

“In addition, the raft of continuous changes to retirement fund legislation places a further burden on them,” he says.

What's more, having senior-level staff split their attention between their fund responsibilities and core tasks is an added cost in itself, explains Malusi. “While these costs are harder to quantify, they are significant. They include the opportunity cost of time, skill, and other resources needed to run a standalone retirement fund.”

In addition to lower costs for members, an umbrella fund removes these other less obvious costs companies sometimes don’t consider, relieving the administrative burden on management of having to appoint a board of company trustees and RFTs to meet the onerous governance, risk and compliance requirements.

Each business needs five vital elements from a retirement fund – cost efficiency, good control, flexibility, good governance and employee representation – which is exactly what a well-managed umbrella fund provides, he adds.

A win-win situation
Umbrella funds clearly offer advantages for business in terms of both cost and freeing up senior staff to focus on their core tasks, but Malusi also stresses the advantages they hold for the members.

With any investment, it is vital that as much of their contributions goes to the savings pool as possible, he continues. “At the very least, trustees, employers and employees should be investigating the merits of moving to an umbrella fund, seeing that the outcome will have significant implications for members.

“In a very complex arena, it is essential to take a step back and compare the pros and cons of umbrella funds such as the Old Mutual SuperFund with typical standalone funds. This will help management and other stakeholders to make a more informed decision about their financial future,” concludes Malusi.

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