Most people spend a lifetime at work, hoping for a fruitful retirement one day. Domestic workers are no exception, and with an appropriate savings plan, they too can retire more comfortably.
Whereas a private retirement fund is practically compulsory for formal sector employees whose pension fund contributions are automatically deducted from their salaries, this is certainly not the case in the informal sector.
There are several retirement savings options for domestic workers and the key to secure retirement is starting as early as possible. If you employ a domestic worker, you can help by ensuring that some provision is being made for his or her retirement.
If your domestic worker does not yet have a retirement annuity, a provident fund or unit trusts, you can initiate one of these on your employee's behalf.
If your domestic worker has more than one employer, take into account his or her monthly income from all the employers when determining what he or she can afford to put towards a savings plan. This can be increased as his or her wages increase. It may also be possible to get your domestic worker's various employers to agree to contribute to his or her savings fund on a monthly basis.
If your domestic worker opts for a scheme that requires regular payments, it is important to ensure that he or she can keep up these payments even if he or she changes jobs.
The options for domestic workers are:
* Unit Trusts: These are a flexible form of investment as money invested can be withdrawn at any time.
Old Mutual and Sanlam recommend this option for domestic workers, saying that as an investment on the stock exchange, unit trusts have the potential to beat inflation.
An investment in Old Mutual unit trusts can be made for as little as R75 a month or R500 for a single investment.
The advantage of unit trusts is that contributions can be discontinued at any time, so if your domestic worker leaves your employment or is unable to continue investing, the amount invested is not lost. It is, however, important to remember that unit trusts are longer term investments you need to stay invested for at least three to five years to ride out stock market fluctuations and achieve high returns.
Unit trusts can be registered in the domestic workers' name, or in your name, on their behalf. .
In selecting a unit trust, consider a reputable company, what level or risk your domestic worker can afford to take and whether he or she wants income or capital growth from the unit trusts.
* A Provident Fund: FedLife offers a Workers' Provident Fund which was initially launched for domestic workers.
The minimum monthly premium is R30.
The fund has since been expanded to include agricultural workers, medical workers, self employed people and low-income small business employees.
The fund offers a retirement benefit, death benefit, funeral benefit, disability benefit and collateral for housing.
This fund also gives domestic workers access to benefits before they retire. They can withdraw cash, leave the accumulated benefits in the fund until retirement, transfer the fund to a new employer or preserve the benefits in a preservation fund.
When the domestic worker retires, he or she can either get a lump sum or a pension or a combination of both.
In order to qualify for death, disability and funeral cover, the domestic worker must be 60 or younger.
* A retirement annuity: This is an excellent option for domestic workers who want investments that cannot be touched until they are 55 years old. The younger the worker is when he or she takes out an annuity, the better.
Minimum contributions to annuity funds are generally about R75 a month.
* Pure endowment policies: For the domestic worker who prefers a savings plan which he or she cannot access for some years, a five-year endowment may be the answer.
* pf140298alFinally, as an employer you should discuss the importance of saving for retirement with your domestic worker. However, workers may prefer that you leave this responsibility up to them and pay a higher salary to enable them to save for their own retirement.
If their monthly income on retirement is less than R470 a month, they will be allocated a pro rata pension.
It is therefore important to calculate whether a domestic worker might not get more from the State than from a private savings scheme, particularly if he or she is older when her or she starts saving.
Men eligible for a State pension should be at least 65 years old and women should be at least 60 years old. They should be resident in and citizens of South Africa.
The minimum grant is currently R2 a month or R24 annually; whereas the maximum State pension is R470 a month or R5 640 a year. These amounts will probably be increased in the Budget next month.