stand-alone funds vs umbrella fundsThe choice between stand-alone retirement funds vs umbrella funds is not a simple one, but it’s a decision every business must at least consider as it fulfils its promise to act in the best interests of its employees’ financial futures.

FLEXIBILITY

Flexibility is, of course, linked to control, and employers sometimes fear losing control over the important aspects of the retirement fund when moving to an umbrella fund, or having to pay excessive costs to get the flexibility they want or need. Ssee whether you are locked into the sponsor’s products.

COSTS

Ultimately, retirement funds exist to maximise employees’ retirement outcomes. That’s why the money spent (or saved) in a stand-alone compared with an umbrella fund is such an important factor.  These include asset management fees, trading costs, investment consulting fees, etc. With umbrella funds having greater assets, the reduced costs could be carried over to the members.

GOVERNANCE

The time required to manage the fund. Given that a stand-alone fund’s trustees tend to be company employees, moving to an umbrella fund will free them up to do their primary job.
Other costs include communication, particularly risk costs. Because the cost of death and disability benefits increase over time, it’s important to do a price comparison every year to make sure you are still getting the best deal.

MANAGEMENT

Stand-alone retirement funds vs umbrella funds have the same level of governance requirements, which means that both sets of trustees have the same legal liability. A stand-alone fund usually does not have professional trustees, since they tend to be company employees. Are they able to stay up to date with the latest legislative requirements? Are they qualified to make the right decisions about investments? You can outsource those responsibilities, but you can’t abdicate them.

All company boards must ensure that they are able to make a sound decision based on the advice of specialists advising them. If need be, obtain a second opinion.