Welcome to the inaugural SNG ARGEN Umbrella Fund Survey! The survey provides comparisons of the umbrella fund offerings that are available for selection by key stakeholders using independently sourced information.
The survey is aimed at existing stakeholders who wish to compare their fund against others and potential stakeholders who wish to transfer to an umbrella fund. The information provided within this survey will provide you the necessary insights to help you make the right decision in the best interest of members.
Contact us for interviews, questions and suggestions: [email protected]
Executive Summary
The survey covers active commercial umbrella funds open for new business and includes responses from 80% of the 10 largest funds based on assets and membership. Funds that are only available to certain employer groups or industries as well as sector and union Funds are excluded from this survey.
The survey results and accompanying articles offer insight into the different aspects of umbrella funds covering demographics, governance, administration, investments and costs.
Introduction to Umbrella Funds
There has been a significant move to umbrella funds over the past decade and it is useful to recap on the structure of these funds. Funds differ by offering various options to employers and could have specific strengths and weaknesses.
When comparing Funds, cost should not be the sole criteria reviewed, but rather, other criteria such as quality of governance and methods and quality of communication to members should also be considered.
Demographics
Throughout the retirement fund industry, one hears talk about the increasing coverage of umbrella funds, but what do the numbers suggest? As part of the survey, we investigated the demographics of umbrella funds, looking at membership, participating employers, total assets and contributions.
In this section of the survey, we see how the commercial umbrella fund market is dominated by five fund sponsors, indicating that the majority of participating employers opt to join one of these five funds. This naturally leads to the question: “Is bigger better?”. In order to attempt to answer this question, we considered a number of factors, such as: governance, quality of administration, investment versatility, risk benefits and costs and further assess how each of these factors relate to fund size.
Governance
The approach to governance may vary significantly from one fund to the next. One fund may insist on having all their bases fully covered with belts and braces, while the next may, in the interest of saving costs, be satisfied with meeting the minimum standards only.
In this highly regulated environment, the question is not so much if the fund meets the minimum governance requirements, but rather, whether the Trustees’ approach to governance aligns with that of the employer. We therefore compare the different approaches to governance and discuss the specific governance aspects that should be considered by employers to ensure their specific needs and expectations are met when choosing an umbrella fund.
Administration
Umbrella funds offer a “plug and play” solution to employers who wish to offer retirement benefits to their employees.
In this survey, we compare the difficult decision of choosing the correct fund akin to buying a new tech device. We highlight some of the important device features for consideration namely, admission criteria, administrative fees, contribution rates and benefit types. We also touch on the initial set-up and ongoing management of your “device”.
In the end, it’s about choosing the “device” that will give you the best value for money without the intimidation of technical terms and fancy marketing techniques.
Investments
Investment returns, along with the contributions made, have the greatest impact on the final retirement benefits that employees will receive. It is important that umbrella funds have sufficient investment options available for employees to select the investment portfolio(s) that best meet their investment risk and return requirements.
Each umbrella fund must also have a default investment strategy for those employees who do not wish to make investment decisions. It is crucial that the employer understands what the default investment strategy objectives are and if these meet the requirements of their employees.
Costs
Costs have a direct impact on a member’s expected retirement benefit and is probably the single most important factor influencing an employer’s decision when choosing an umbrella fund. This article covers important aspects to consider (i) when analysing and comparing fees, e.g. fee components, charging methods; (ii) the impact on individual members, etc., as well as (iii) an analysis of the RSC disclosure standard.
The comparison of funds’ RSC quotes presents interesting findings and highlights that fee comparisons should always be based on a like-for-like basis from umbrella fund providers, taking into account all relevant fee components.