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Residential estate staff are the backbone of any well-functioning residential community. From security personnel to gardeners and maintenance workers, their contributions help to create an environment that residents can call home.
By offering robust pension options to secure their staff’s financial future, estate managers not only show their appreciation for their staff’s dedication but can ensure that their financial future is secure. If you don’t already offer all your staff a fund of some kind to save for retirement, here are the options to consider.
Pension options
The current options available for estate managers to offer their employees are pension funds, provident funds or a group or individual annuity. Each option offers different solutions and different rules apply.
Dorothy Avvakoumides and Christoff Potgieter from Brenthurst Wealth explain that a pension fund is a retirement fund that receives monthly contributions from the employer and employee. They add: ‘At retirement age, the employee is allowed to access one-third of the fund value in cash, and the remaining two-thirds must be used to purchase an annuity income.’
Avvakoumides and Potgieter say that a provident fund is the same as a pension fund but, prior to March 2021, it changed in that when the employee resigned, or retired he/she could take the entire sum in cash, which is taxable, and the annuity option wasn’t required.
When it comes to a group retirement annuity, Avvakoumides and Potgieter explain that they are a defined benefit plan. They say: ‘An employer establishes a group annuity on behalf of its employees by signing a principal contract with the insurer. This contract details the agreement between the insurer and employer – such as plan type, contribution requirements and administrative and investment fees.
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‘The group annuity plan outlines the requirements for employee eligibility and participation. Group annuity contracts usually required contributions from both employers and employees while they were working at the company.’
Old Mutual adds that an individual retirement annuity allows more flexibility in that members can stop and start contributions as and when they need to. ‘Each member contracts in their own right. The employer may facilitate payment to the provider or not. This is effectively an “encouragement to save” without compulsion,’ says Samantha Jagdessi, Head of Advice and Best Practice from Old Mutual Corporate Consultants (OMCC).
Overall, a big benefit to offering a pension is that it offers staff protection and security. ‘The Pension Funds Act protects each vehicle from employees’ creditors. This is a material benefit for employees who struggle with financial discipline or fall on hard times resulting in significant debt,’ says Jagdessi.
Get residents involved
If the HOA or estate manager organises a pension for staff, it could demonstrate their commitment as a caring employer, believes Terence Tobin, a family-focused financial planner and founder of the Rich Ideas Group. It’s also possible to get the residents involved to add that extra ‘family feel’.
‘When I was living in an HOA environment, I instituted such a retirement plan for the two ground staff. Each resident’s levy was increased by R20 per month, so that the ground staff got R10 each per month from each resident for us to invest. This worked out to R440 per month per staff member. Now, a few years later, it is in the tens of thousands of rands and both have said they know that when they leave the HOA they have something to help them start the next chapter in their lives. This type of solution needs to be low cost, easy to understand and flexible for the HOAs to implement,’ says Tobin.
The pension offering could be made available to all employees of the estate, even temporary staff, and for non-residents. ‘This can be set up with a passport number or SA ID number and can start from as little as R100 per month per staff member,’ adds Tobin.
Is a pension offering compulsory?
Offering a pension option is not a legal obligation, but with the state offering just a meagre pension (R2,080 a month in 2023), it would be morally wrong not to – particularly as there are tax benefits for employees too. Janice Masencamp, Head of Retirement Fund Consulting at NMG Benefits, explains: ‘Funds offer an efficient way to save tax. As a member of an employer’s pension or provident fund or retirement annuity, you can get a tax deduction of up to 27.5% of your taxable income for your contributions to these funds, limited to R350,000 a year.’
It will also offer an incentive to save. According to a survey by Old Mutual Savings and Investment, while almost 47% of South Africans list a comfortable retirement as their primary savings goal, they cannot save adequately for retirement. This is because many remain financially stressed, with seven out of ten not having seen their income increase since 2020.
Jagdessi from OMCC adds: ‘An employer is not obligated to set up a retirement fund nor make a pension contribution. However, by offering retirement benefits to employees, an employer can retain employees and help them start saving at an early age. A retirement fund is a vital part of the employee value proposition. Employers may choose to pay for the costs of administering the funds. However, that amount is automatically considered non-taxable income in the member’s hands.’
It’s also possible to offer added benefits on top of the pension offering. ‘Insurance benefits like death, disability, and family funeral cover can be linked to the fund, and these typically provide more affordable cover than employees can take out individually,’ adds Masencamp.
But how much should you advise your employees to contribute towards their pension? OMCC says its house view is that total contributions from employer and employee should ideally be in the region of 18% of the total cost to the company. ‘This will provide a member who saves for 30 years a pension to sustain their lifestyle in retirement,’ says Jagdessi.
