19 Sep The attraction of umbrella funds for employers
An Umbrella Fund is a retirement fund which accepts multiple employers compared to a stand-alone fund which is typically set up and managed by an employer for its employees. Umbrella Funds are generally managed by a professional Board of Trustees.
Because an Umbrella Fund consists of many different employers, the average cost per member can be reduced and this can translate into more funds being directed towards employee’s retirement savings.
Since Umbrella Funds are managed by a professional Board of Trustees, this can result in lower regulatory risks for the fund, employers and members. Umbrella Funds can also satisfy needs other than retirement such as life insurance, providing a single and inclusive package for employees.
Stand-alone funds still exist but regulatory changes and an increased emphasis on operational efficiencies through process innovation and technology advancement makes it challenging for stand-alone funds to match the economies of scale achieved by Umbrella Funds.
Umbrella Fund management companies have highly practiced communication capabilities which is essential for keeping members in tune with their funds’ performance, often in real time. Irrespective of the platform (e.g. app, website, whatsapp, data-driven call centres or a combination), effective communication requires significant investment and resources.
It would be wrong to assume that a stand-alone fund cannot be efficient. However, administering a stand-alone fund is one function of many in a company whereas administering an Umbrella Fund is a fund administration company’s singular function and core focus.
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Salt EB is South Africa’s leading independent employee benefit management company.