Shaun Harris
Taking Stock
In the strange social structure that is South Africa, domestic workers, along with non-unionised farm workers, probably remain the most neglected part of the labour force.
The irony, particularly when it comes to the typical domestic maid or gardener, is that these workers often become long-time employees and integral, valued parts of a family.
Their neglect is often not deliberate. Parents/employers prepared to leave a child under the daily care of a domestic worker, as well as the general security and running of a household, soon develop great respect, often affection, for that person.
There was a time when domestics were undoubtedly exploited in terms of remuneration, but while no statistics for average pay levels seem to exist (and as yet no legislation for minimum wages), they have certainly improved.
Any employer who depends on a domestic worker to look after their most valued people and possessions is probably trying to pay that person as much as they can reasonably afford.
The neglect comes in largely through ignorance, both on the part of the employer and employee. In the bustle of daily life, little thought is given to what is going to happen to a domestic worker at retirement.
For people working inside the formal economy, retirement benefits are often part of the overall package.
It’s probably not hard to forget that many domestic workers, unless they have negotiated a contract with their employer that includes retirement benefits, will have nothing but an inadequate state pension to depend on in their retirement years.
Many employers wake up to the realities, but often at a stage when the retirement of their domestic worker is already looming. The result is a rushed plan to try and provide some form of retirement income, a plan that is usually expensive and inefficient.
A little bit of planning now, while there is still time to build up a decent retirement package, will not be too expensive, even for individual workers.
Typically, an affluent businessperson outside the corporate structure – self-employed people or owners of small companies – provide for their retirement through retirement annuities or perhaps even an endowment policy aimed at maturing on retirement date.
There are good products around, though investment performance has been questioned. The advantage is that they offer a safe, stable and often guaranteed benefit at retirement. The problem is that they are not particularly well-suited for domestic workers.
Monthly premiums tend to be relatively high, possibly more than the workers could afford if they are paying part of the policy.
The employer might pick up the full payments, but what happens if the domestic worker breaks service and moves to a new employer? Chances are premiums will lapse, destroying a large chunk of the built-up value.
In terms of ease, flexibility and the best absolute investment returns, unit trusts are an attractive option. Monthly debit orders into a stable, well-run fund (general equities are probably the best option) are affordable – as low as R50 a month. If the investment is started in the early stages of employment, compound growth over the years could provide a useful nest egg for retirement.
The danger is market-timing risk. Survey after survey has shown the strong and relatively safe performance of equity-based unit trusts over a long period (at least five years), but the market could always turn down at the wrong time.
A collapse in share prices six months before a domestic worker is due to retire would be disastrous – the worker may not have the time to wait for the market to come back, and will be forced to live on the devalued portfolio.
Unit trusts will undoubtedly give the best returns on investment, but don’t carry the other necessary benefits associated with formal, group benefit retirement products like life and disability cover.
Group benefits have always been the preserve of big business, and South Africa’s life insurance companies have worked hard at providing products and schemes for this lucrative market.
They have not been that creative in catering for individual employees, saying the business is unprofitable. Some life companies that entered the individual benefits market have since pulled out, or charge hefty administration fees to justify their running costs.
But a few life companies and banks have tailored products specifically for this market. Some of these are little more than inflexible fixed-period endowments, but at least two are worth looking at.
One is the Absa Workers’ Fund, aimed at providing group benefits for the employees of small businesses, but also suitable for individual domestic workers.
Monthly premiums start as low as R40 and go up to R250, but there is no maximum on monthly premiums. Apart from the very basic plan one, the other six plans include death and disability cover, and funeral benefits for members and spouses.
Fedsure Group Benefits also offers a workers’ fund that can be adapted for individual employees. Monthly premiums start at R30 and go up to R700, and there are also no limits.
Increased contributions greatly enhance retirement benefits. For instance, R30 a month over 30 years on the basic plan A will leave the worker with a lump sum of about R292 000 on retirement. But if the monthly premium is increased to R80 on the same plan, the retirement lump sum is a respectable, and liveable, R976 000.
Apart from death, disability and funeral benefits, an added facility allows a member to use a portion of the accumulated benefit as a housing loan after two years’ membership.
Marketing manager Lee Loubser says a growing number of domestic workers are using the fund, either as groups (which they form themselves) or as individuals through their employers.
Affordability and the added benefits make products like these suitable for domestic workers’ retirement benefits.
Ideally, the employee should contribute half (perhaps by sacrificing an annual wage increase) and the employer the rest.
An added retirement boost would be to run a small unit trust account in conjunction with the policy.
Total monthly contributions can be kept fairly low, but will make a huge difference at retirement.