In my previous article we looked at what to consider when setting up a pension fund from scratch. In this article we will touch on what to consider when the employer already has an existing pension/provident fund.
Even if the pension fund is operating perfectly fine, it is always good to review and evaluate the pension fund to ensure it is aligned with the employer’s long-term goals. That said, there are 3 factors that impact the ultimate retirement saving of any person; it’s the net retirement saving/contribution rate, the period of retirement saving/contribution and the investment portfolio.
As stated in my previous article, you need to have a net retirement saving/contribution rate higher than 8% to achieve a somewhat adequate salary replacement ratio for employees on retirement, albeit the 8% will struggle to achieve a 40% salary replacement ratio.
And this is the challenge most employers are faced with, with some employers’ net retirement savings or contributions rates are as low as 5% and in some extreme cases in even 3%. This almost certainly defeats the purpose of a pension fund, with salary replacement ratios of about 20%. So, how do we go about increasing the retirement contribution rate without impacting the employer’s budget significantly? Full article in our e-edition
