A retirement (pension or provident) fund is a legal entity, separate from the employer and service providers. All contributions and investments are held by the fund in the name of the fund.
A stand-alone fund serves just one employer; an umbrella fund combines many employers under one legal structure.
Umbrella FundsAn umbrella fund is appropriate for all employers who lack size to extract scale benefits from a stand-alone fund.
An umbrella fund reduces the average cost per member and can provide other advantages such as professional governance. Members and employers can benefit from higher returns and lower regulatory risk. The South African retirement industry is heading strongly in the direction of umbrella funds: the number of stand-alone retirement funds in South Africa has almost halved over the past few years.
Stand-alone FundsA stand-alone retirement fund is appropriate for very large employers that do not need to pool assets to obtain benefits of scale. The key advantage of a stand-alone fund is control over the Board of Trustees and the appointment of service providers.
A stand-alone fund with less than R200m of assets is unlikely to be cost effective, and an umbrella fund may be more appropriate.
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?
