Debunking myths about umbrella funds
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The need for more significant economies of scale to reduce costs and remove the fiduciary burden on employers running a stand-alone pension fund has never been more apparent.
Malusi Ndlovu, director of large enterprise at Old Mutual Corporate, says despite the clear advantages offered by umbrella funds, misconceptions about them persist.
“In a nutshell, the economies of scale generated by umbrella funds offer advantages for both employers and employees that stand-alone retirement funds simply cannot replicate, says Ndlovu.
“Well-governed umbrella funds foster greater accountability and more transparency. They can make a big impact on transformation — and to growing long-term savings.”
These four misperceptions prevail and need to be addressed.
Myth 1 Umbrella funds offer no choice in decision-making
Under the new generation of umbrella funds, such as the Old Mutual SuperFund, management committees are empowered to make their own decisions. “Most large umbrella funds put in place management committees per participating employer,” says Ndlovu. “Membership of the management committee typically consists of at least 50% elected members.
“Management committees serve an important role in ensuring compatibility between the funds offering and the needs of the group of members it's responsible for. This can include investment choice, member communication, choice of adviser, choice of service providers, service levels, for example. This job should not be underestimated.”
Myth 2: Umbrella funds limit the choice of service providers
Ndlovu says the new generation of umbrella funds give groups of members from an employer the authority to choose their own service providers.
Old Mutual’s SuperFund, for example, allows groups of members from one employer to select their own insurer; consultants; and investment provider, subject to certain conditions. It even allows the monitoring officer or principal officer of a stand-alone fund to come across and provide the role of monitoring for a particular group of employees from one employer.
“This makes this next generation of umbrella funds much more suitable for groups of employees where there are complex decision-making and multiple stakeholders that need to be accommodated.”
Myth 3: Umbrella funds will hamper transformation
Umbrella funds such as the Old Mutual SuperFund empower employers to use their management committee structures to choose service providers in line with their companies’ BEE policy.
“Depending on the package chosen by a participating employer, there is flexibility to choose service providers. Employers can use this as a tool for transformation in line with their transformation policy.”
Due to the scale offered by an umbrella fund, capital can also be used to make a real impact by investing in private assets such as infrastructure, schools and housing. “By using their capital to transform disadvantaged communities, investors can move the dial,” he says.
Myth 4: Umbrella funds have less accountability and transparency
Trustees are legally accountable and are overseen by professional bodies and organisations. “The duties of the trustees of retirement funds have been codified in sections 7C, and 7D of the Pension Funds Act, and are further regulated by the Financial Sector Conduct Authority,” says Ndlovu. In an umbrella fund such as Old Mutual SuperFund most trustees are independent and have careers as professional trustees or directors.
“Umbrella funds are transparent and provide detailed annual reports publicly to members and management committees. By offering annual interactive roadshows, there's no room for opaqueness.”
This article was paid for by Old Mutual.
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