As an employer, there is an increasing demand on you to provide benefits to your employees, and if designed correctly, an Employee Benefits Scheme can prove to be a competitive advantage in your search for superior staff, and retention of those that are already in your employ. At the same time, pressure is being exerted on employers to provide retirement and risk benefits to their employees by unions, and the South African Government is contemplating the creation of a National Retirement Savings Scheme which will force employers to provide these benefits to employees. Although the approach to this has not been clearly defined, and the implementation date is being pushed out each year, the current sentiment is that this will supplement rather than replace existing commercial schemes.
Pension / Provident Umbrella Funds are governed by the Pension Funds Act 24 of 1956, and as such need to be designed to satisfy the objectives of the employer and employees while complying with the provisions of the Act.
It is often stated that only 6% of South African employees have sufficient savings at retirement to maintain their standard of living, and it is thus imperative that we do all that we can to encourage and assist employees to improve this situation. The earlier that the individual begins saving for retirement, and the more they put away each month, the more likely they are to not be a part of this statistic.
From 1 March 2016 the total contributions to retirement funds (pension, provident and retirement annuity) are tax deductible but limited to 27.5% of the greater of remuneration or taxable income, capped at an annual limit of R 350 000. The taxable income used in these calculations excludes lump sums, and any excess not utilised in calculating the deductible amount may be carried forward to the following tax year. This means that for every R1 invested for future income, SARS will effectively subsidise an amount equal to the individual’s current marginal tax rate, which is between 18% and 41%.
In many instances this may be the only risk cover that the employee enjoys, either because they would not otherwise qualify or because they would not otherwise spend the money on risk cover. As an employer such cover assists to relieve you of assumed responsibility for the employee should such a life event occur.
How do you decide on an Employee Benefit Scheme?
If you are considering putting in place an Employee Benefits scheme, or evaluating your current scheme, there are many factors to consider. It is critical that you understand the decisions that you are taking, as they can impact on the effectiveness of the scheme, and once a scheme is implemented, it is often a complex process to change the structure.