by Rubina Gunowa
Setting up a private pension scheme can be an expensive and complicated process for employers with smaller teams. Through umbrella funds where multiple employers pool their employees’ retirement savings into a single fund, multiple challenges relating to funds management and pension planning are tackled.
First, an umbrella fund provides economies of scale. Many SMEs may not have the resources to set up a pension. By joining an umbrella fund, SMEs benefit from the fund’s established governance structure and investment strategy, without the expense and administrative burden of setting up their scheme. By pooling resources with others, employers benefit from lower investment fees and better investment returns as the pooled fund size allows for greater diversification and access to more better investment strategies.
Umbrella funds provide employees with greater retirement security. Reputable umbrella funds give employers and employees confidence that their retirement savings are being managed professionally and in compliance with the law alleviating concerns about investment risk. Many employees in Mauritius do not have access to a formal retirement savings scheme, and those who do often have inadequate savings. By pooling their resources in an umbrella fund, it is a cost-effective way for small and medium-sized enterprises (SMEs) to offer their employees retirement benefits which they would otherwise be left out of.
For an employer looking to attract and retain talent, this can be the leverage they need. These schemes enable employers to offer competitive retirement benefits packages which is an important factor, particularly in a competitive job market like ours. Having this on the remuneration package gives employees peace of mind and security that their financial future is being catered for and thus can be more productive at work.
There is also greater flexibility and choice for employees when they are in an umbrella fund. Employees who join an umbrella fund can choose from a range of investment options, allowing them to tailor their retirement savings to their individual needs and risk tolerance. Additionally, if an employee leaves one employer and joins another, they can transfer their retirement savings from one employer’s scheme to another without incurring any tax penalties. This portability of retirement savings is especially important in a dynamic labor market like ours, where employees may change jobs frequently.
Since January 2022, the portable retirement gratuity fund is contributory, and this has presented a unique opportunity for employers to think or rethink their remuneration structure for employee retention while at the same time balancing staff costs. Through this regulatory move, employees will secure a retirement income thus contributing towards the growth of the Mauritius pensions industry. We see the latest directive as a move that will improve Mauritian’s income replacement rate. This will ensure most employed people will have sufficient income at the point of retirement.
It is also good to note that the Covid 19 pandemic brought with it several reforms and employers have to constantly evolve their workplace and align increasing employment costs through staff demands to support growth. This has called for employers to offer a simple, flexible, and motivational remuneration structure. As such, setting up an employee retirement plan is a smart way to provide for one of your key assets – your people – as well as benefitting you and your business.
Pension administrators running umbrella schemes play an active role in promoting financial literacy, particularly in investing and retirement planning. This education helps individuals make informed decisions about their retirement savings and promotes a culture of savings and responsible financial management bringing positive long-term effects on individuals, families, and the country at large.
Rubina Gunowa is the Country Head, Enwealth (Mauritius) Limited. Email|rubina.gunowa@enwealth.co.mu
