There are over 1-million domestic workers, but very few have financial benefits that are common to formal jobs, such as pension funds and life cover. Yet domestic workers are usually an integral part of their employer’s life and there are many financial products which employers can use to take care of their domestic workers’ retirement and risk needs.
Investment and life companies have created products that overcome constraints like the high premiums required for retirement annuities as well as high job turnover. Most do not target domestic workers specifically but are geared generally towards lower-income earners.
Retirement savings
Old Mutual offers an endowment policy that has a minimum contribution of R50.
The institution predicts that if an employer saves R50 every month for a domestic worker who begins work at age 20 and plans to retire at age 60, they will have accumulated around R168 000 at the current average inflation rate of 3,4%.
If a domestic worker had this policy, she could take this amount as a lump sum when she retired and pay off her house or buy a pension, says Andrew le Roux, an Old Mutual Group Schemes Product Actuary. If she bought a pension with the lump sum, she could receive a monthly payout of between R620 and R2 040 in today’s terms.
“As the government pension is only R820 a month, this top-up to her government pension would be very useful to her in her old age,” he said.
Stanlib also offers a unit trust with a minimum monthly payment of R50. One of the advantages of a unit trust compared with a retirement product is that the money does not have to be tied up in the product, said Stanlib’s client service director Anthony Katakuzinos.
High minimum premiums combined with the fact that domestic workers generally earn too little to benefit from tax incentives, makes retirement annuities unsuitable. On the downside, Stanlib’s unit trust is more exposed because it is a full equity fund while pension fund rules say that a pension fund cannot invest more than 75% of its funds in equities.
Stanlib offers two ways to arrange unit trust ownership. The investments can be made in the employee’s name or in the employer’s name. If the unit trust is in the employee’s name, it may be difficult to access the investment if the employee dies or goes missing. But if it is in the employer’s name, the employer will be taxed relatively high rates on the investment.
Katakuzinos recommended that the investment be made in the employees’ names because they are the beneficiaries of the investment. The employer can, however, have signing rights. The proceeds can only be paid to the domestic worker, protecting their interests, but the employer has some level of control in ensuring the funds are used for retirement or a life crisis. Based on previous performance, if you invested R100 a month over 25 years or about R29 000, one would accumulate R500 000. “Rather do it sooner than later,” he advised, “The small contributions over time do build up into a significant amount.”
First National Bank (FNB) offers two unit trusts from R40 per month, called the Growth Fund and the Balanced Fund. The advantage here is that, by investing in a balanced fund, the domestic worker would have lower equity exposure as recommended for retirement savings. This fund is solely available to FNB transactional account holders, which has allowed the bank to streamline its internal payment process so that clients can make lower contributions to the fund and pay lower costs. For example, payments can be made via a scheduled payment from an FNB account, which costs 50% less than a debit order.
Risk Cover
Apart from pension savings, domestic workers also require risk cover in the event of death or disability, especially if they are unable to work.
Liberty Life is currently restructuring its savings plans for low-income earners, but still offers life cover, accident and funeral plans that target that income group.
These products are designed for people who earn a minimum income of R2 000 a month, to allow them to have disposable income after saving, said Faye Khambule, a market segment manager for Liberty Life.
The life cover plan has a minimum premium of R68 per month, entitling the policyholder to a pay-out of between R50 000 and R100 000 if they die or become permanently disabled.
The accident plan costs a minimum of R38 per month and entitles the policyholder to R25 000 to R100 000 per month within 48 hours if a client becomes disabled or dies after an accident.
There are three funeral plans, costing from R33 to R35 per month, which pay out R5 000 to R20 000 to the client or her family for a funeral. Under the comprehensive funeral plan, the policyholder can stop paying when they turn 65 years old but the benefits continue. The extended funeral plan also pays for the death of a family member.
The figures quoted above may increase depending on the age of the client, according to Khambule. For example, the life cover may cost more for younger clients, but the funeral cover would cost less.
In Febuary, financial institutions plan to introduce financial products for people earning R800 or less, she said, as part of the Financial Sector Charter process, and allows for seasonal employment and an option that allows clients who do not skip a monthly payment for five years to receive some of their money back.
The company discovered that some people want to buy the policy for their domestic workers and so they have made this possible for brokers to sell the policy to employers in the name of their employees, said Khambule.