Robyn Laubscher | Tips to understanding your employee benefit statement
Many employees think that their employee benefits are set in stone when they join their employer, and that they can’t really change much. They simply hope their contributions will be meaningful when they retire. However, being engaged and making active choices can be incredibly powerful when it comes to achieving your long-term financial goals.
We all want our families to be well looked after in the event of death, disability, critical illness or retirement. One way to help ensure you are protected if one of these life-changing events occurs is to make every rand count. This is especially true in the context of the current economy – things are tough, so it is a good idea to make the most of what you have available to you.
Understand your benefit statement
Have you studied your benefit statement to see if it reflects your family’s needs? Just like a picture is worth a thousand words, so is understanding your benefit statement! Whilst it seems that life is becoming even busier, and that there are literally not enough hours in the day, I implore you to make time to study your benefit statement, understand it, and make sure that it reflects your family’s plan. The power is in your hands.
What to look out for
Your benefit statement may reference both your retirement and risk benefits. Understanding what some of the key terms on your statement means, can help you pay closer attention to areas of special interest.
Aspects that apply to both your retirement and risk benefits:
- Fund rules
The fund rules confirm the contribution parameters, in other words the amounts you can contribute to the fund. It is important to keep in mind that, depending on your specific situation, it may not make sense to contribute the maximum amount. For example, it may make more sense to contribute a portion through a personal retirement vehicle for increased diversification and tax relief. The saying ‘never have all your eggs in one basket’ applies to group benefits too!
Make sure that you have updated your beneficiaries. Remember that if you pass away and have not nominated beneficiaries, the proceeds of retirement funds will be paid to your financial dependents, but group life benefits will be paid to your estate. For this reason, it is crucial to always list your beneficiaries and remember to amend them as necessary when there are changes in your life such as if your nominated beneficiaries pass away or if there are new beneficiaries you wish to nominate (for example if you get married or have children). No one wants their ex-spouse to benefit because they simply forgot to update a document! It is also very important to inform your beneficiaries that they have been noted as beneficiaries of your benefits.
Aspects that apply to your retirement funds:
- Underlying investment fund options
Understand what types of investment funds are available to you. In addition, understand when you can switch between funds and what that process entails
- Understand what cover you have in place and how it changes on an annual basis.
- Life cover, occupational disability, income protection and critical illness (also known as dread disease) Take time to understand what each cover amount is and how it changes annually. Employee benefits may change on an annual basis (e.g., life cover is normally a multiple of your pensionable salary and will often taper as you get older). Be aware of any changes and, if you earn a commission, ensure that it is updated in line with your latest annual income.
- Guaranteed insurability
Understand whether you can move your benefits over as personal cover without underwriting. If you are potentially leaving your current employer, this option should always be considered. This process needs to happen before you leave the employment of your employer – once you have left it is too late.
- Income protection
Take note of the waiting periods and the period for which the payments will last. Don’t assume that if you become disabled, you will continue to receive payments until retirement. Many income protection plans only pay for 24 months and then you are on your own. You may require personal cover to fill that gap. If you have income protection via your employer and have personal income protection, make sure that you are not over-insured! Insurance companies will take aggregation into consideration, so you won’t necessarily be paid the full amount if you are over-insured.
Consult a financial adviser
Just like you will go to a doctor for a professional opinion on your health, seek professional financial advice from a qualified financial adviser to assist you with structuring your financial affairs in a way that addresses your unique set of family goals.
*Robyn Laubscher is Advice and Product Specialist at PSG Wealth.