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Retirement Savings with your Employer II

Wednesday, November 24th 1999, 12:00AM

by Philip Macalister

What should I look for in an employer-sponsored superannuation scheme?

The optimum structure of an employer sponsored superannuation scheme is one that balances a choice of investments while offering members simplicity.

In choosing a fund or funds into which you will invest, you will want to be assured that the fund managers concerned have a good record in fund management and that there is reasonable choice in the fund options available. In an employer sponsored scheme, the employer will have chosen the provider, and it can be assumed that most of these criteria will already be met.

How to recognise good financial performance

  • Performance should be consistent over a 3 – 5 year period.
  • Net returns (after tax and fees) on average should equal or exceed the market average.
  • Has the fund manager received external awards or recognition?

How to recognise choice in funds options

  • Range of investment options exist for each level of risk (low, medium or high risk).
  • There is more than one fund manager – maybe three or four.
  • The fund managers represent differing investment styles (passive/active, aggressive/conservative).
  • Funds provided offer opportunity for you to change or diversify your investments over time.

How to recognise flexible scheme design

Plans should provide for flexible benefits, varying contribution rates, vesting scales, multiple categories of members, insurance options good reporting options and an annual review date selected by the company.

A choice of fund managers with a differing investment styles and investment options ensures the plan can cater for a cross section of employees, all of which will have their own individual investment needs.

Master trusts

Superannuation master trusts are proving to be the most popular way in New Zealand for companies to provide retirement savings programmes for their staff. The main benefits of a master trust are as follows:

  • With a corporate trustee, trustee responsibilities no longer fall on executives and officers of the employer, therefore removing any potential conflicts of interests faced by trustees and associated costs in time;
  • A number of employers may join the one trust, thus sharing the costs of compliance, trusteeship, legislative changes, documentation and any professional advice and services (e.g. audited accounts).
  • Specialist providers ensure companies are able to concentrate on their core business.
  • By supporting and educating employees to save for their retirement employers can be confident that employees can plan for a dignified retirement at an appropriate time in their lives.

What choices does the employer have with investments?

While an employer can, if they wish, decide how member and employer contributions are to be invested, many choose to offer a full range and leave the investment decision to their employees.

As an intermediate option, an employer can decide how its contributions are to be invested while allowing employees to make their investment choice from the funds available.

In all scenarios, the employer can select a default option, should any member prefer not to make an investment choice for himself or herself.

Portability

Portability is a key component of master trusts, giving members the ability to continue saving with the same provider, even if they leave their current employer.

When a person retires or leaves an employer participating in a Master Trust, portability ensures he or she has the options of:

  • Continuing to contribute via automatic payment;
  • Continuing to contribute on an irregular basis;
  • Ceasing contributions and leaving funds where they are to continue attracting investment earnings;
  • Withdrawing part or all of their accumulated funds;t
  • Continuing any life cover at the levels available previously.

Providers may offer portability through a similar product designed for individuals, into which a member can transfer when leaving their employer’s plan. Other providers allow the member to stay in the same plan without the need to move or complete further documentation.

If funds move to another available product, there is the risk of money losing value as it is uplifted from one plan and deposited into another. One of the key advantages of staying put is thatselect to investments within your employer’s fund stay where they are, while your personal details change to reflect your new status as an individual member.

There are multiple benefits for both employers and employees through providing savings plans in the workplace.

For employers it means:

  • A benefit package which can be designed to meet the needs of the business and individual employees
  • Increased loyalty from employees
  • Greater flexibility in times of change (restructuring etc.)
  • Leadership in providing financial security
  • The ability to discuss retirement issues with staff

In return, employees:

  • Acknowledge the actions of a ‘good employer’
  • Can access a professionally managed superannuation facility
  • Have the ability to save with employer assistance (payroll deduction, payment of fees, subsidy etc.)
  • Take action to plan for their financial futures
  • Have peace of mind
« "Critical analysis" of Labour's super policy is fundamentally flawed iAMP & Good Returns launch superannuation website »

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