Currently, South African investors are in limbo waiting for the finalisation and implementation of the National Mandatory Pension fund. Commentators are not sure that this will be introduced successfully considering the government’s failures with entities like Eskom and the e-toll project.
In South Africa, pension funds are a crucial component to assist and prepare employees for retirement. Contributing to a pension fund while working helps employees to save money to ensure the availability of sufficient funds for their retirement years.
The two types of pension/provident funds available to anyone employed within South Africa are standalone or freestanding funds and umbrella funds. Both have different qualities and features that might make it challenging for companies to choose which kind of fund is appropriate for their employees’ retirement planning requirements. These are the benefits and disadvantages of each:
- Standalone pension plans are established and maintained by a single employer company or large group structure of companies, also known as self-administered funds, aimed at exclusive benefits for their employees. Standalone funds are expensive and more complicated than standard umbrella funds. They are difficult for small to medium-sized businesses to use as they require a lot of administrative and legal compliance to create and manage. Standalone funds also carry a greater risk of responsibility because the trustees (the employer, group of employees) are entrusted to make sure that the fund is managed correctly and that the members’ interests are safeguarded. These trustees also must adhere to the FSCA (the Financial Sector Conduct Authority).
Even with these limitations, standalone funds have certain benefits. Due to the fact that the trustees can customise the fund to meet their own needs and objectives, they get a great degree of flexibility and control. This enables the company or group of employers to offer specific investment choices and benefits to their employees and standalone funds also enable a more individualised approach to retirement planning. Additionally, independent funds are seen as less expensive in the long term compared to umbrella funds since they are not subject to the same regulatory obligations. But with that said, too many cooks spoil the broth – analysis shows that allegedly some trustees share the Dunning-Kruger effect and may suffer from a conflict of interests within these big pension funds. The reason is, nobody questions their intentions and or competency. That brings forth the T’s and C’s in non-related administration costs and inflated fees seeing that several individuals are connected to these funds and each of them needs to have their payments deducted for their services. Not to mention that a certain amount of assets under management (AUM) is needed as well as specified amounts of monthly contributions towards the fund before it becomes cost-effective for the company and its employees.
- The establishment and management of umbrella funds, on the other hand, are the responsibility of a qualified fund administrator. Since the fund managers are in control of the administration and management of the fund, these funds typically offer lower fees and are less complicated than standalone funds. Additionally, umbrella funds have lower legal risk because the fund administrator ensures that these funds are managed and governed legally, to ensure that the members’ interests are safeguarded.
Despite these benefits, there are also disadvantages to umbrella funds. Since the fund administrator manages all fund management choices, they offer less freedom and control. This is due to the fact that the fund manager often offers a standard set of investment alternatives and other additional benefits that are equal for all members. Umbrella funds also give a more universal approach to retirement planning with Life Stages investments ensuring investment risk reduces closer to retirement. Do keep in mind that if there is a third-party administrator or facilitator connected to your funds there are fees binding that relationship to a monetary income for that said company.
In conclusion, employers must be cognisant of the advantages and disadvantages of standalone and umbrella funds when selecting a pension/provident fund for their employees. Standalone funds often cost more and require more work but give flexibility and control to the employers if they are willing to accept that they will be held liable and accountable for their actions and decisions. On the other hand, umbrella funds are less expensive and complicated but provide less flexibility and the liability and accountability vests with the fund administrators.
Before making any decisions on pension/provident funds, it is crucial to seek guidance from an independent financial advisory firm. The decision between a standalone fund and an umbrella fund must be decided with the correct and transparent data, accompanied by information to ensure that the employer makes the correct educated decision when choosing the right product for their employees. If you are unsure whether your current fund (standalone or umbrella) is meeting your needs it is recommended to request an audit from an experienced company to give you a clear understanding of your funds and what changes, if any could be introduced for the benefit of employees.
Megan joined the Brenthurst Wealth team in March 2026 as an Administrative and Fiduciary Services Assistant at our Val de Vie Office in the Western Cape. Prior to joining Brenthurst, Megan gained three years of experience in the retail sector, where she developed management and client service skills.
I obtained my National Diploma in Financial Information Systems from the Cape Peninsula University of Technology in 1999 and have worked in the wealth management industry since January 2000. Over the years, I have gained extensive experience in various roles, including Portfolio Manager Assistant, Planner Assistant, and Paraplanner.
Esmarelda Isaacs-Andreas joined the Brenthurst Wealth Stellenbosch office in October 2025, taking on the dual role of Receptionist and Fiduciary Administrator.
I obtained my National Diploma in Financial Information Systems from the Cape Peninsula University of Technology in 1999 and have worked in the wealth management industry since January 2000. Over the years, I have gained extensive experience in various roles, including Portfolio Manager Assistant, Planner Assistant, and Paraplanner.
Ashley joined Brenthurst Wealth in January 2025 as Office Administrative Assistant and Receptionist for the Stellenbosch Office.
René Heystek joined Brenthurst Wealth in November 2023, as receptionist and administrative assistant in the newly established George/Garden Route office.
Michelle Heystek has built a career in the financial services over the last two decades, after obtaining her B.Com degree in Financial Management in 2005. Once she joined Brenthurst in 2006, she continued her academic journey, obtaining her Certificate in Wealth Management from INSETA in 2007, followed by a Postgraduate Diploma in Financial Planning from the University of the Free State. In 2008, she earned the Certified Financial Planner (CFP®) designation.
Anelle joined Brenthurst Wealth as a Receptionist and Administrative Assistant to Brian Butchart in the Cape Town office in December 2023. She has a wealth of knowledge from working as a liaison between Financial Advisers and clients at TMA and Absa Investment Management Services (Aims) since 1998. She obtained her B. com degree from the University of Port Elizabeth in 1997.
ADMITTED ATTORNEY | FINANCIAL PLANNER & HEAD OF BRENTHURST FOURWAYS
Sanet was appointed in April 2020, joining our Cape Town team as an Executive Administration Assistant to Renee Eagar. She has been in the financial services industry since 1990. Her previous experience includes positions at Sanlam, BJM and ABSA. She spent her last 12 years working at Alexander Forbes Private Client Wealth as a Senior Wealth Management Assistant. She has received numerous accolades over the years which include but not limited to, Alexander Forbes Client Service Excellence – Silver award in 2014,2015 and 2017. Sanet has also obtained her Certificate in Wealth Management (NQF 5) in 2012 and achieved “Best Student of the Year” from Moonstone.
Maria Smit is a Certified Financial Planner® with over 10 years of experience in the financial planning industry.
