A GREAT deal is written on retirement every day and the main reason for this is to create an awareness of the importance and the challenges facing everyone at retirement.
Often forgotten are our domestic workers who have given us many years of service.
Retirement financing for domestic workers is imperative as they have no access to formal retirement funds, such as a company pension. Retirement annuities are also not an option for workers where tax saving does not enter the equation. Employers and staff are therefore faced with decisions on alternative products to fund for retirement, including savings accounts, unit trusts (including Satrix) and endowment policies.
Employers want something that will provide for employees' retirement and that will prevent them dipping into the funds beforehand. Workers want something that belongs to them and that they can identify with.
One dilemma is deciding in whose name the investment should be made. If the monthly payment is part of a worker's package, then it is their money and should be in their name. If the worker and employer jointly fund a policy (similar to a company pension) or if the employer pays the full investment, then the two need to come to an agreement. When employees leave to work elsewhere, they should be able to take the investment with them and transfer the stop order or debit order to their new employer. The product must be appropriate for retirement planning and the type of structure and investment depends on how close the worker is to retirement.
Someone with less than three years to retirement would have to consider a savings account. Even though these do not have exciting returns, the risk is negligible for those close to retirement. But if you hire a 25-year-old, then endowment policies or unit trusts are a better option.
As domestic workers near retirement, they could consider switching some of their cash out of unit trusts and endowments into a savings account.
The important thing when making an investment for domestic workers is to keep it simple - it must not be something requiring the retention of dozens of documents. Buying a product which encompasses several products may be suitable, although the inherent costs may weigh against them. The product chosen should reflect what the domestic worker wants from the investment.
Market research shows that apart from providing money at retirement, domestic workers want good funeral benefits for themselves and their immediate family. They also want medical cover, a cash lump sum at retirement and to be able to borrow or withdraw from the fund.
Several hybrid products are available, offering a range of policies in one and it is possible to design a product for domestic workers that includes death and disability benefits, funeral cover for themselves and their families and a savings plan.
The problem arises when workers with years of service have no benefit. In this instance, employers will have to try and add an amount to current contributions to make up for all the past years of service.
Although there is a state pension of R1080, this will not go very far and must be supplemented.
- The writer is financial financial adviser of Bryan Hirsch Colley and Associates. Email bryanh@bhca.co.za or phone 011-880-4888.
Plan for domestic workers' retirement
A GREAT deal is written on retirement every day and the main reason for this is to create an awareness of the importance and the challenges facing everyone at retirement.
Often forgotten are our domestic workers who have given us many years of service.
Retirement financing for domestic workers is imperative as they have no access to formal retirement funds, such as a company pension. Retirement annuities are also not an option for workers where tax saving does not enter the equation. Employers and staff are therefore faced with decisions on alternative products to fund for retirement, including savings accounts, unit trusts (including Satrix) and endowment policies.
Employers want something that will provide for employees' retirement and that will prevent them dipping into the funds beforehand. Workers want something that belongs to them and that they can identify with.
One dilemma is deciding in whose name the investment should be made. If the monthly payment is part of a worker's package, then it is their money and should be in their name. If the worker and employer jointly fund a policy (similar to a company pension) or if the employer pays the full investment, then the two need to come to an agreement. When employees leave to work elsewhere, they should be able to take the investment with them and transfer the stop order or debit order to their new employer. The product must be appropriate for retirement planning and the type of structure and investment depends on how close the worker is to retirement.
Someone with less than three years to retirement would have to consider a savings account. Even though these do not have exciting returns, the risk is negligible for those close to retirement. But if you hire a 25-year-old, then endowment policies or unit trusts are a better option.
As domestic workers near retirement, they could consider switching some of their cash out of unit trusts and endowments into a savings account.
The important thing when making an investment for domestic workers is to keep it simple - it must not be something requiring the retention of dozens of documents. Buying a product which encompasses several products may be suitable, although the inherent costs may weigh against them. The product chosen should reflect what the domestic worker wants from the investment.
Market research shows that apart from providing money at retirement, domestic workers want good funeral benefits for themselves and their immediate family. They also want medical cover, a cash lump sum at retirement and to be able to borrow or withdraw from the fund.
Several hybrid products are available, offering a range of policies in one and it is possible to design a product for domestic workers that includes death and disability benefits, funeral cover for themselves and their families and a savings plan.
The problem arises when workers with years of service have no benefit. In this instance, employers will have to try and add an amount to current contributions to make up for all the past years of service.
Although there is a state pension of R1080, this will not go very far and must be supplemented.
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