If you belong to a small company which offers no retirement benefits or if you are a one man show, there is a retirement option for you available through the South African Chamber of Business.
The Sacob Provident Fund was launched at the beginning of May.
Personal Finance recently highlighted how increasing administration costs, commissions to brokers and group death and disability cover are reducing your pension benefits.
Kevin Wakeford, chief executive of SACOB says the establishment of the fund proves that organised business can provide economies of scale and reduce costs to member firms and their employees.
Michael Johnson, chairman of Guarantee Trust, retirement and health care consultants and developers of the Sacob fund, says about 35 000 small businesses, representing about one million individuals, belong to 80 chambers countrywide.
Many of these organisations have no retirement plans for their employees. Often it is uneconomical for small firms to manage retirement funds.
If you are not a member of Sacob, you can join the organisation and enjoy other benefits too, such as regular updates on commerce and industry, and the use of chamber libraries.
Membership fees, paid annually, are based on the number of permanent employees in a company. Each chamber has its own fee structure. The Cape Town chamber, for example, charges R684 a year for firms with up to 10 employees and the Johannesburg chamber charges R1 020.
HOW THE SACOB FUND WORKS
As a member, you would not make contributions to the fund. Your employer chooses whether to contribute 10, 15 or 20 percent of your total annual salary to the fund and you sacrifice half of the this amount in salary. But unlike a retirement annuity or pension contributions, you cannot claim provident fund contributions as tax deductions.
The fund is underwritten by Old Mutual and the money is put into Old Mutual's Guaranteed Fund. Johnson says this fund has consistently outperformed the industry median for smooth bonus products over the past 10 years to the end of June 1997.
The retirement benefits are allowed from the age of 55 years. Provident fund payouts are tax free for the first R120 000 or more, depending how the formula works out in your case.
BENEFITS OFFERED BY THE FUND:
* Retirement Benefit. What you receive when you retire will depend on your age, the contribution rate and the investment returns generated by the fund;
* Funeral cover. R5 000 each for the member and spouse, R2 500 for children between six and 13 years, and R750 for children under six years;
* Death Benefit. If you die while still working, your family will receive 1,5 times your annual salary;
* Lump Sum Disability Benefit. 1,5 times your annual salary if you are permanently disabled; and
* Temporary Disability Benefit. 75 percent of your monthly salary for 26 weeks, subject to a four week waiting period if you are temporarily disabled due to to illness or accident.
COSTS:
Johnson says based on the first 1 000 applicants for membership, the total combined costs of administration charged by Old Mutual, plus Guarantee Trust's brokerage and co-administration fee, will be limited to 10 percent of contributions paid. This percentage will decline as the fund membership grows.
A BREAKDOWN OF THE COSTS:
* Commission: Usually brokers receive a commission of 7,5 percent on the first R110 000. Thereafter you pay: five percent on the next R80 000; three percent on the next R220 000; two percent on R790 000; and one percent in excess of R1,2 million a year.
This is paid annually to the broker who first introduced your fund to an insurance firm.
The commission paid to Guarantee Trust for co-administration services will reduce as the number of members in the fund increases. At 600 members, for instance, the commission will be two percent of contribution to the fund, and at 1 400, it drops to 1,4 percent.
* The cost of group life and disability cover can reach 20 percent of contributions. In the case of the Sacob fund, it will be about 14 percent, with funeral cover.
* The industry average is about 6,5 percent (but can go to 12,5 percent). In the Sacob fund, about eight percent of the contribution goes to admin costs.