Leruo retirement series – Standalone funds vs. Umbrella funds

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By TKay Nthebe

Though I am passionate about retirement conversations and the pension fund industry, I’ll be the first one to admit that it is among the most complicated because of the financial jargon, many products, and options to choose from. My hope is that the Leruo retirement series is simplifying the complexity of pensions and empowering you with sound knowledge as a member of a pension or provident fund.

In this week’s article, I want to discuss the difference between Standalone pension funds and Umbrella funds.

What is a standalone fund?

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A Standalone pension/provident fund is established to provide retirement benefits for its members and is legally registered with the Regulator – Central Bank of Lesotho (CBL). A single employer establishes a Standalone fund that has its own set of rules that govern how the fund operates and appoints a board of trustees with a 50:50 employer/employee representation. The trustees are responsible for overseeing the governance and management of the Fund.

What is an Umbrella fund?

Unlike a Standalone fund, an umbrella fund allows multiple employers of different sizes i.e., small, medium enterprises (SME) and corporates, from unrelated industries to participate and have their individual retirement schemes. By joining an Umbrella fund like the Lesotho Employers Pension and Provident Fund from Alliance Insurance for example, employers can offer retirement and risk benefits that are cost effective and flexible.

An Umbrella fund also allows participating employers to adopt the rules of the Fund and/or develop their special rules and customise retirement benefits. An Umbrella fund has a board of trustees comprising of independent, employer and member trustees who are responsible for the governance and management of the fund – ensuring the interests of members are protected.

What are the differences?

  1. Costs: All the associated costs e.g., advisory fees, audit fees, actuarial fees, renumeration of board of trustees in a Standalone fund are borne by the employer, while associated costs in an Umbrella fund are shared among participating employers, thus reducing the costs.
  2. Investment strategy: In a Standalone fund the trustees are responsible for developing the investment strategy, whereas in an Umbrella fund the board of trustees determine the default investment strategy but allow participating employers to select their preferred strategy within a bouquet of available investment options.

Why is this information important for me as a member?

In the article titled ‘What are your responsibilities as a member of a retirement fund’ I encourage you to know the rules of your fund and take responsibility of your retirement planning because having adequate retirement savings lies with you and not the employer. Part of being responsible includes appreciating the differences between these funds and understanding which fund your employer has selected as the associated costs, investment strategy and other factors impacts your retirement savings. Please consult your human resource office regarding the type of fund the employer established. For more information, you can also visit the Employee Benefits Department at Alliance Insurance or www.alliance.co.ls