Question

I retired three years ago, with half my income coming from my company pension fund and the other half from interest from investments. I am paying tax at a rate of 41%. Is there anything that I can do to reduce this amount?

Answer

Saving for retirement is often neglected by employees who are focused on their short term financial needs.  As a result, many end up having to live on the government pension.

The same also holds with risk cover where no private arrangements have been made. If an employee dies or becomes disabled, his or her family will experience financial hardship when there are no more salaries coming in. 

Putting a retirement fund in place for your employees can make a massive difference in their lives.  The typical arrangement that is used for small businesses is an umbrella fund.  These are usually run by large retirement administrators and smaller companies like yours would form part of the bigger fund and the benefit from the cost structures the larger operation.   

The costs of providing for retirement and risk cover is usually lower in an umbrella fund than through an individual life arrangement.  I find that a group structure works really well for companies that have at least five employees. For smaller enterprises, an individual life arrangement maybe more appropriate

There are a couple of benefits that you can choose for your employees

• Retirement savings

You would typically contribute a percentage of each employee’s salary to the retirement fund. A popular contribution rate is 7 .5% of salary.

A benefit here is that the contributions are usually fully tax deductible up to 27.5% of the employee’s taxable income.

• Funeral cover

This is a popular benefit amongst employees.  The plan usually pays out a lump sum on the death of an employee or member of his or her immediate family. 

The premiums here are low and no underwriting is required. 

• Life cover

Here the scheme pays out a multiple of the employee’s salary should he or she die.  The typical cover level is 3 times the employee’s annual salary.   

A nice feature of group risk schemes is something called a free cover limit.  Depending on the size of the group, cover will be granted up to a certain limit with no medical underwriting being required.  This is a fantastic benefit for those of your employees who may have medical conditions that would prevent them from getting life insurance on an individual basis

• Disability and sickness cover

Lump sum disability cover is usually structured to pay out a multiple like 3 times your salary should you become disabled and unable to work.  You need to be careful with this type of benefit as the definition of what constitutes a disability varies from company to company.   It is always worthwhile speaking to a financial advisor who has experience with these types of employee benefits and can guide you to choose the product with the right definition terms.

• Income protector

This benefit will pay you a percentage of your salary (usually 75%) if you are unable to work because of illness for an extended period. 

• Critical illness cover

Should you be diagnosed with a critical illness, this benefit will pay out a lump sum of money.  This is an extremely useful benefit for staff as they often suffer real financial hardship if they get a critical illness, even if they have an excellent medical aid.

As you can see, there are many options open to you when it comes to setting up a retirement fund for your staff.  It can range from a small standalone scheme that helps your employees save for retirement to one which includes many of the risk benefits that are described above. 

A good employee benefit structure can result in your company making a meaningful difference in the lives of your employees and their families.