Contribution rates (as a % of salary/wage)
There is no right contribution rate. 10X believes an appropriate savings strategy is a 15% contribution rate for a 40 year working life but you have options in this regard. Some companies provide one contribution rate and insurance benefit package for all employees. Others set up different employee categories and vary the contribution rate and/or insurance benefits by category. You can thus be flexible in designing employees’ benefits package.
Average Contribution Structure in South Africa
| % of Salary | |
|---|---|
| Employer Contribution | 9.9% |
| Less insurance premiums | (3.3%) |
| Less administration | (1.3%) |
| Plus employee contribution | 5.9% |
| Total to investment | 11.2% |
| *Source Sanlam Survery 2009 |
The above table shows the average contribution for South African retirement funds. The average contribution from the company on behalf of employees is 9.9% of salary. This covered the cost of insurance (3.3% for life and disability cover) and the cost of administering the fund (1.3%). The net company contribution to investment averaged 5.3%. On average, employees contributed a further 5.9%, resulting in an average retirement fund contribution of 11.2% of salary after insurance benefits and administration costs.
You can raise the contribution rate at the annual salary increase, by diverting a portion of the increase to the retirement fund contribution.
More about starting a retirement fund
- Legal structure: umbrella or stand-alone?
- Product: Pension or provident fund?
- Who should be eligible to join? Membership criteria
- How much should you contribute? Contribution rates
- Should you attach risk benefits to the fund?
- Who does what? Service providers
- Governance: Board of Trustees and Principal Officer
- Specifics: Fund rules
- Should you offer investment choice?
- Should you offer a preservation fund option?
