By Elio E’Silva, Alexander Forbes – Head – Direct Corporate Solutions
When starting your first job, understanding employee benefits and compensation can be complicated. However, it’s worth understanding what group benefits are available, and how they can assist you.
When I started my career, the benefits available to me seemed extremely daunting, but this need not be the case. What did retirement fund contributions as well as group life, disability and funeral cover mean? As we are all at different points in our lives and careers, we may also perceive the value of such benefits in different ways.
Most South Africans rely on their contributions to an employer’s retirement fund as their only source of retirement savings. However, the average South African employee retires
on a pension income that’s around 30% of their last salary according to Alexander Forbes Member Watch statistics. This is mainly because they take their retirement savings in cash when changing jobs rather than keeping them invested over their full working lifetime.
So when should you start contributing? The sooner the better, as this allows you more time to contribute. How much should we contribute? I started at a percentage that would allow me to save while still meeting my financial commitments. As I advanced in my career, with increases and promotions, I increased my contributions to a higher percentage to increase my pension income one day when I retire. What if an employer only has one contribution category or the jump to the next category is too high? Here, I used additional voluntary contributions to increase my contributions while managing the percentage.
Group life cover
Group life cover through your employer’s retirement fund is an insurance policy that pays out should you die while working for your employer. This means that your family will receive your contributions towards your retirement fund and a sum of money from the insurer. The insured death benefit your family will receive is based on the cover chosen by your employer.
The law says the trustees who run the retirement fund must decide how your retirement savings will be shared out among your beneficiaries using your beneficiary nomination form as a guideline. A beneficiary could be your mother, your spouse, your children, or anyone else in your life who depend on you financially, even a charity. This is why it is important to complete a beneficiary nomination form and keep it updated.
Disability cover to replace your income
A dability income insurance policy covers you. The policy pays out if a monthly income if you can’t work when you become disabled (in the opinion of the insurer), through illness or injury, before your required retirement age. If I have an accident over the weekend will this policy still pay out? Yes, it doesn’t matter if you become disabled at work or after hours.
This is normally a set amount of money paid to help with funeral expenses if you die, or if your spouse or one of your children dies. In most cases it is provided through a separate employer-owned insurance policy.
The road to retirement is a journey of which we are all at different places. Understanding your benefits will allow you to make informed decisions when your reach a crossroad.