Domestic workers now have an affordable and simple retirement savings plan that will make it easier for employers to provide for their workers’ retirement. The product launched by the Presidential Working Group on Women (PWGW) and Old Mutual forms part of a much larger initiative by PWGW to create a women’s retirement plan.
According to PWGW chair- person Gloria Serobe there are many women who fall out of the pension fund net and those that do contribute find themselves invested in male-oriented funds that do not take cognisance of women’s needs.
The statistics speak for themselves. For example, although women, represent 50% of pension fund members, they only make up 33% of the assets and only 7% of retirement fund trustees are women. In the private sector, in the five largest pension funds only four of the 172 trustees are women. Serobe says that, as a result, product design does not take into account the unique needs of women such as maternity leave or the fact that women take breaks in their working career to raise children. Women also live longer than men and therefore need a different investment strategy on retirement.
Women also tend to be more financially vulnerable with 87% of widows left destitute and reliant on their children or social welfare.
Serobe says the decision to start with domestic workers is based on the fact that the one million estimated domestic workers in South Africa have little or no access to retirement plans. Serobe adds that this plan will complement the proposed national savings scheme as domestic workers will not initially be covered by this scheme. It will bring a large percentage of the population into the savings pool of South Africa. Serobe says the next product roll-outs will include seasonal workers and self-employed women, including high net-worth women. Although initially the funds will be invested in the Old Mutual Smooth Bonus Fund, once critical mass is reached, a separate fund will be formed. Serobe says that although performance will be the driving factor, the fund’s trustees, mostly women, will become activist shareholders encouraging companies to provide better working conditions for women such as flexible working hours, and dealing with sexual harassment issues and HIV/Aids. They will also target infrastructural development that benefits poorer women, for example water and sanitation development.
Serobe says the response to the domestic workers’ plan has been extremely positive. Many employers want to provide a retirement plan for their staff, but these have not been easily available or affordable.
How it works
The investment is opened in the domestic workers name and can therefore be transferred to another employer. If an employer does not want to take out the policy for the worker she can take it out in her own right.
Fees
There is a monthly fee of R7 and Old Mutual charges 1,65% annual fees.
Considering that the monthly premiums are low, the reduction in yield is relatively low to competitors, however the flat R7 fee has a bigger impact on the smaller investments. For a R50 monthly retirement savings investment the reduction in yield after 25 years is 3,1%. For a R150 investment, that falls to 2,2%. In other words, if the fund makes a return of R50 000 then R1 100 would go to costs.
What it offers
- A retirement savings portion, which can only be accessed at retirement or after death or disability, that includes funeral cover for the member plus direct family.
- Family support services including emergency assistance, emergency HIV treatment, a help line for medical emergencies and legal support in the case of debt collection.
After six instalments, the member may skip up to six contributions. This provides for maternity leave or periods of unemployment. The member will still be covered for the funeral policy during this time.
There are four options
- R85pm: R50 towards savings and R7 000 funeral cover. After 20 years in a low inflation environment the retirement portion would be worth R31 100.
- R100pm: R50 towards retirement savings; R10 000 funeral cover.
- R150pm: R100 towards retirement savings; R10 000 funeral cover. After 20 years in a low inflation environment the retirement portion would be worth R62 300
- R200pm: R150 retirement savings, R10 000 funeral cover. After 20 years in a low inflation environment, the retirement portion would be worth R93 400.
Comparison
Absa provides a Home Employees Plan for R115 which includes UIF, retirement plan and risk cover. R60 goes to risk cover and R55 to retirement savings. Funeral benefits: maximum of R5 000, in hospital benefit: maximum R2 000; accidental death or disability R25 000. The negative aspect of this product is that the employer is the policy owner and it cannot be taken out by the domestic worker on their own behalf.
The drawback
The policy does not include risk cover. According to Old Mutual, this would have made the product too expensive, but it is something it would consider in further product development.
There is an HIV exclusion that is somewhat contentious. Because of the low funeral cover payout, it does not require an HIV test, but if an applicant declares on the form that she is HIV-positive, she will not receive cover.
This may lead applicants to lie or encourage them not to become aware of their HIV status. This is something the life industry needs to address.
By law only South African residents can apply, so this policy cannot be taken out by migrant workers who have work permits, but not residency in South Africa.