The Benefits of Group Retirement Schemes

When reading the title of this article, three reasons to investigate the benefits of group retirement schemes immediately come to mind:

1. The government cannot afford social benefits for all retired people; employees look to their employers to assist them with financial support in times of need
2. Many employees do not understand the need to provide for sickness, disability, death and retirement.
3. The cost of insurance and retirement plans is often better if it is arranged for collectively.

A structured retirement fund can play an important part in the retirement provisions of employees. Not only will the retirement fund result in some form of “forced savings” but the tax savings on contributions and tax concessions at retirement are also incentives provided by the government that should not be ignored.
Although some governments set up assistance or social schemes for the aged, unfortunately such schemes often do not provide adequate income to cater for all their expenses once retired. It is therefore generally accepted that proper provision can only be made if money is set aside during the employee’s working life and retained in a separate fund.

Some Important Reasons why Every Employer should set up a Retirement Fund

In the area of employer/employee relationships, a great deal of goodwill is generated if an employee knows that he/she and the dependents are being looked after and cared for. Without a retirement fund and other benefits that must be attached to it, the employee will have to make individual provisions, often at a cost that cannot be afforded. The involvement of the employer must therefore be seen as part of a social awareness and upliftment program for the employees and their dependents and not just as a way in which the employer can reduce the employees’ wages.

Furthermore, employers soon realize that the employees feel more secure and happier in their jobs – leading to a much more effective, loyal and dedicated workforce. Working towards a pre-defined retirement age allows an employee to plan for an enjoyable retirement which can be realized through the retirement fund. 

Also, a retirement fund allows for a more orderly staff policy. The employer can plan for succession and promotion, knowing that those reaching retirement age will be adequately provided for. Younger employees also realize that they do not need to wait until they “fill dead-man-shoes”. Promotional prospects are real as the retirement of older employees will create opportunities for development.

Moreover, a retirement fund can generate a more effective business operation. An employer is assisted to release an employee who, as a result of a permanent illness or disability, needs to stop working ahead of retirement age. Most retirement funds today include some form of permanent health or lump sum disability benefits. This is then used to assist the disabled employee to maintain a reasonable standard of living without having to rely on a monthly paycheck. The employer will therefore, with a clear conscience, be able to find a replacement for the disabled employee. In this way the employer will know that everything possible has been done to assist the disabled employee in maintaining an acceptable standard of living.

Likewise, a direct benefit to the employer is the fact that a good staff retirement fund will attract more applicants, often with a higher caliber. when recruiting. Furthermore, the cost of providing retirement benefits is spread over a long period – it becomes part of the employer’s salary bill and the employee’s monthly deductions. For the employer the fund represents a type of deferred pay and is accommodated for in the budgeting process. For the employee, the fund represents a type of systematic savings that have long term benefits and provides peace of mind, knowing that the retirement years are being catered for. Additional benefits such as death cover (often paid for by the employer and thus at no cost to the employee) are usually available with a retirement fund.

Lastly there are also important tax concessions that need to be considered by both the employer and the employee. The government does what it can to encourage the establishment of retirement funds as it cannot afford the burden of providing for the elderly as a whole. Provisions of retirement benefits to the elderly by the government is also a burden on society that the government is trying to avoid. Remember that the only real source of government revenue is taxation.

Especially during challenging times such as the current situation created by the COVID-19 pandemic, it is important to give employees the so much appreciated safety of having their retired life secured. A collective retirement scheme provides this security and other benefits to employees and employers alike.

Tsepo Mokake ǀ Account Executive – Employee Benefits ǀ Minet Lesotho