Question:
Dear 10x I recently accepted full-time employment. My employer wants to force me to contribute to its Retirement Annuity. I accept and understand that I am compelled by legislation to contribute to an Retirement Annuity, but why am I forced to contribute to my employer's Retirement Annuity. My problem is that besides the Management Fees, my employer deducts a further R 68 per month for an "administration fee", which is apparently paid towards Momentum for "keeping a file on each employee that belongs to the Retirement Annuity. This management fees escalate the fees astronomically! On my contribution it can be as much as 13% if I chose to contribute the minimum and about 2% if I contribute the full allowable 27%. I think this is highly questionable!? This so called "admin fee" is more that the portfolio manager's fees! Why can my employer not contribute my contributions to an Retirement Annuity of my choice like 10x for example - then I am still abiding by legislation? Thank you
Answer:
Gert, A Retirement Annuity is a voluntary savings product for individuals. You cannot legally be forced to take out an Retirement Annuity. Your employer cannot force you to take out such a product unless they made this a term of your employment before you joined. They cannot impose this on you afterwards. This is different from joining an employer who offers a pension or provident fund. When you join such an employer, you are obliged by law to become a member of the fund (if you are eligible, in terms of the fund rules). Administration fees are common with retirement funds - they typically range between R35 pm (low cost provider such as 10X, although there are no admin fees for the 10X RA) up to R200 per month. They are normally deducted off the contribution rather than as a separate payroll deduction. As the admin fee is a fixed number (the admin work does not depend on the amount of the contribution) it will eat up more of your contribution if you contribute less. The portfolio's manager fee is based on your assets. It will grow as your assets grow. It may be that when your savings are small, that the management fee is less than the admin fee, but for most people who have saved for a long time, the admin fee is small compared to the management fee. There is no law that stops your employer allowing you to choose your own RA. However, employers normally choose a Group RA (using one provider) as this makes the payroll administration of contributions (deducting contributions and paying these over to the administrator) that much simpler. What does concern us in arrangements of this nature, where the employer chooses a high cost fund, is that the RA provider may pay a commission for every RA that is sold to an employee. The question is: who gets that commission? And is the commission disclosed to the members? And are there kickbacks to the employer (which is why the employer is so keen to get everyone to sign up)? You should ask these questions, and study the terms and conditions of your RA very careful.
