Employee Benefit Schemes
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We give you and employees a Golden Stick to lean on at the time of need.
As we offer the following:
- Pension and/or Provident Funds
- Death Benefits
One of the most important issues for an employee is that provision should be made for the spouse and children of a person who dies while he/she is in service. Usually, the benefits will be a lump-sum payment or a spouse’s and children’s pension.
Lump Sum
A lump sum is the most commonly used option and can be one of the following:
- A fixed amount (e.g. 100 000USD) regardless of the earnings of the employee; or
A multiple of salary (e.g. 3 x annual salary). This approach is considerably more popular than a fixed amount.
Spouses and Children’s Pension
In this case the scheme will pay a monthly income to the surviving spouse and children of the deceased employee.
In determining the spouse’s pension, one of two formulae is usually applied. The pension can be expressed as a percentage (normally 50%) of the member’s expected pension at normal retirement age or as a percentage (usually 40%) of the member’s salary at death. Children’s pensions are usually determined on the same basis as the spouse’s pension, but are expressed as a fixed percentage per child with a restriction on the number of children for whom a pension will be paid concurrently. The size of the children’s pension payable to all children simultaneously and jointly is usually not greater than the spouse’s pension. For example, if the spouse’s pension is 40% of salary, the children’s pension will be, say, 10% per child to a maximum of 4children.
Benefit Structures
The main purpose of a retirement fund is to provide a form of benefit to its members when they retire or to their dependants when they die or become disabled. Therefore, in any way retirement planning exercise, three basic needs are generally addressed. These needs are
- Income after retirement;
- Family income after the death of the breadwinner; and
- Disability income, both partial (temporary) and permanent.
These needs can be addressed in various forms and combinations, depending on the decisions taken when establishing a fund and in accordance with the rules of a fund. Various rider benefits such as funeral cover, housing financing, education financing, accident cover and maternity benefits can be included in the structuring of a fund.
Disability Benefits
When a person falls ill or is hurt in an accident and can no longer work, then that person has become disabled. If that person cannot work for a limited period (e.g., six months) he is temporarily disabled, otherwise he would be permanently disabled. There are different types of disability benefits.
Lump-Sum Benefit (total and permanent disability)
This is normally an accelerated payment of group life cover. A waiting period, usually six months, is required before payment is affected. As with group life cover, the lump sum can be a fixed amount or a multiple of salary.
Monthly Instalments (total and permanent disability)
This disability benefit is an accelerated payment of group life cover, payable in monthly instalments. 100% of salary at the time of disability is normally paid in the first year and 75% of that thereafter.
Group Income Insurance
This disability benefit commences after a waiting period of, say, 3 or 6 months and is paid out until the member recovers or attains retirement age, hereafter a pension will be paid out. Legislation now requires a Rehabilitation Benefit to be included which caters for the costs of rehabilitation. This has been introduced to encourage both employer and the employee to use disability as a last resort and to concentrate on rehabilitating the employee so that he or she can once again take up his or her place in both the workforce and society. This is an unapproved scheme and does not form part of the benefits of a retirement fund, yet from an employment equity point of view; this is the preferred route to take.
Family Cover
Also widely known as funeral cover, a member must normally contribute to the funeral costs of a spouse, child, parent, and of course, his or her own. To assist with these costs, an employer can establish a family cover scheme for his employees. The scheme operates as a normal compulsory group life scheme, with different schemes having different levels of cover.
Withdrawal Limit Benefit
Retirement funds also pay benefits at withdrawal from service.
The Commissioner of Inland Revenue requires that a member should receive at least his or her own contributions (with or without interest) at withdrawal.
Traditionally, the withdrawing member receives a cash benefit which is a refund of all the member’s contributions with interest at a very low rate. In recent times, pressure, especially from organised labour, has been put on funds to change this phenomenon to the benefit of members. Withdrawal benefits are improving, with more and more funds paying out both employer and employee contributions at a far favourable and market-related rate. Although there has not been a test case as yet, most commentators feel that funds should pay out own contributions plus fund interest less reasonable costs.
