Retirement Planning for Domestic Workers12 Jan 2004
Domestic workers continue to be one of the lowest paid employment sectors in South Africa with urban domestic workers who are employed full time required to earn a minimum wage of only R930 a month according to the Domestic Workers Act.
This means that loyal domestic workers mostly retire without any pension of provident funds savings for their old age – making them financially dependent on the state pension, which is currently R740 per month.
East Rand Sales Manager at Old Mutual Personal Financial Advice, Charles de Fortier, says: “I believe the time has come for employees of domestic workers to realise that the massive backlog in retirement provision for this sector leaves them with a big responsibility to contribute at least 50% of any contribution made into a flexible investment vehicle.”
While government is presently investigating the implementation of a compulsory pension or provident fund for this sector, this is likely to take two years before implementation.
Financial services companies offer a range of investment products, which cater for different needs and risk profiles. While endowment policies are effective in ensuring committed savings over a contractual period, domestic workers are often not in a position to continue paying premiums should they resign, are dismissed or retrenched.
Unit trust funds allow for flexible contributions and are affordable. Old Mutual Unit Trusts, for example, accept monthly debit order contributions from as little as R150 a month or R5000 once-off. The advantages of using a unit trust fund as a savings vehicle include:
- Flexibility – Unit trust investments can be discontinued at any time, so if the domestic worker leaves her employment and is unable to take over the monthly investment from the employer, she will not lose the amount already invested.
- Easy access to money – Money can be withdrawn from the investment at any time. However, as unit trusts are medium to long-term investments, it is advisable to remain invested for five to 10 years to ride out stock market fluctuations.
- Ownership – Unit trusts can be registered in the domestic worker’s or the employer’s name. Once the domestic leaves, the units can be transferred in her name. If the employer opts for the latter to prevent the employee from accessing the investment prematurely, a contract should be drawn-up with the domestic worker to protect her right to the unit trust fund, irrespective of the circumstances of her departure from her job.
- Hedge against inflation – As an equity based investment vehicle, unit trusts are known for their potential to beat inflation over time. There are many unit trusts funds available, which have consistently outpaced inflation over the medium to long term – giving the domestic worker access to an investment with the potential to provide a worthwhile retirement.
Another cost-effective, and flexible, way of building up retirement funds is through the Nedbank Ten Investment Plan. This is a sinking fund policy, sold by Nedbank and underwritten by Old Mutual. Fees are low and the capital invested is guaranteed. It requires low monthly premiums (from R125 a month) or a lump sum of R5 000.
Says Myrtle Witbooi, spokesperson for the South African Domestic Services Allied Workers Union: “I believe that most domestic workers are prepared to contribute if their employers are willing to meet them halfway. In doing so, employers encourage domestic workers to deliver their best service, their workers knowing that they will be provided for when retiring after her many years of loyal service.”
Concludes De Fortier: “Old Mutual offers its clients leading edge investment vehicles for any situation. In particular the MAX investment product, which offers clients access to a large range of life and unit trust funds, is a flexible and uncomplicated platform that enables them to achieve any investment goal desired. Designed to protect clients in the long term, products like these are ideal for domestic workers.”
|Issued by: ||Citigate SA (Cape Town) |
|On behalf of: ||Old Mutual |
|Contacts: || Elzaan Rohde |
|Tel: || (021) 683 5211 |
| || Charles de Fortier (Old Mutual Personal Financial Advice) |
| || (011) 456 6000 |