It’s important to be clued up about the benefits your employer offers and to occasionally revise it.
When was the last time you had a good look at your benefit statement at work? And if I were to ask you exactly what benefits your employer offers, would you be able to tell me?
When it comes to structuring our portfolios, we tend to neglect this component, but often it can be optimised even more.
Today, most employers offer comprehensive benefits. These can include medical aid, group risk benefits (life cover, severe illness cover, disability cover, and sometimes even spousal cover and global education cover for your children), and lastly your retirement fund.
Firstly, it’s important to be clued up about the benefits your employer offers – and then to revise your portfolio holistically, taking these benefits into account too. It’s possible that you are duplicating products in your personal capacity and essentially wasting money and taking on the risk that multiple claims will not be allowed as you could be over insured.
Let’s start with the risk benefits. If you have group risk benefits with your company, I will consider structuring your entire risk portfolio with the group. Most companies offer a “flex” option – meaning you are allowed to increase your life cover; severe illness cover and disability cover on the group benefits. You will have some default level of cover, based on a multiple of your annual income (two to five times your annual salary for example), which can then be increased to 10 or 12 times, if the rules allow for this. Group risk cover is priced at group level and are therefore much more affordable than any insurance premium you will pay in your personal capacity.
Therefore, it’s a no-brainer: more cover will be possible at a lower premium. These benefits can either be approved (paid out along with your retirement savings) or unapproved (provided as a self-standing benefit separately from your retirement fund), and there are some nuances to how contributions and benefits are paid, so be sure to check in with a financial adviser.
Here a continuation option – where you are allowed to take your risk benefits into your personal capacity – can offer a distinct advantage.
The retirement fund is probably the most underutilised benefit we have. Firstly, most of us are guilty of saving too little (here I mean the physical rand contributions as a percentage of your income). There is a good reason why only 6% of South-Africans can retire comfortably – we are simply not saving enough.
By increasing your overall percentage contribution to your retirement fund(s), you will have the following benefits:
First, your contributions towards an occupational fund (specifically referring to a pension or provident fund) are made before your net income is paid. Increasing your contributions towards the fund decreases your taxable income and thereby your tax liability. One of the great benefits of this vehicle is that your contributions are made from pre-taxed funds. This is an additional benefit compared to a retirement annuity in your personal capacity – as these contributions are made with after-tax income. I explain more about this later.
Second, you are saving more for retirement.
Third, you could have additional tax benefits at retirement. You are allowed to save up to 27.5% of your taxable income on an annual basis and claim these contributions back from SARS (up to a maximum of R350 000 per year). Should you be saving more than this, these excess contributions will still be available at retirement. At retirement stage when your portfolio is restructured, you are generally allowed to access up to 1/3 of your fund value – and the first R500 000 will be taxed at 0% provided no previous retirement fund benefits or severance benefits were received.
Finally, the retirement fund’s board of trustees will determine who your legal and factual dependents were at date of your death and distribute your benefits in terms of their need thereby ensuring your family is taken care of should anything happen to you.
Ensure you understand your benefits and are making the best of them in your portfolio, to secure your financial well-being.
Elke Brink is a wealth advisor at PSG Wealth.