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In the past, many employers would contribute to a retirement fund, group life and disability insurance scheme and possibly a medical scheme on your behalf – often paying as much as half of the full contribution. Now, many employees are hired on a cost-to-company basis, and employees – at times to their detriment – choose lower benefits in favour of more take-home pay. But there are ways to look after your financial future, writes Laura du Preez.
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In countries and industries where unemployment is low and skills are scarce, employers entice employees with higher salaries and cushy perks.
The tech industry in the US has offered some of the most outlandish benefits to attract skilled workers after the great resignation following Covid-19. Tech companies offered anything from beer on tap, sushi bars and gourmet coffee machines to spas, games arcades and free laundry services.
While some of these are being whittled down, the menu of benefits US employees may enjoy is still extensive with mental health benefits, commuting benefits, unlimited paid time off, child care, prescription medicine services, dental benefits and, in some cases, fertility and transgender health being used to retain loyal employees.
It is rare to find such perks on offer in South Africa, where jobs are scarce. It is even becoming increasingly common to find South Africans earning a living without any employee benefits.
Young people are being hired as interns without any group benefits, while older people are retrenched and then hired as contractors on terms that include no perks.
Those who start their own businesses have to find their ways to protect themselves financially without employer support.
This can be a big disadvantage unless you know how to set up and fund your own benefits.
In the past, many employers would contribute to a retirement fund, group life and disability insurance scheme and possibly a medical scheme on your behalf – often paying as much as half of the full contribution.
Now, many employees are hired on a cost-to-company basis, and employees – at times to their detriment – choose lower benefits in favour of more take-home pay.
These perks are now taxable as fringe benefits, so there is no tax saving to an employer paying for them.
But there are still advantages to enjoying traditional employee benefits.
- Group life and disability insurance and the costs on an employer-sponsored retirement fund can be cheaper than those you pay as an individual. Medical schemes restricted to employer groups can spend less on marketing, offering lower contribution rates and/or more on healthcare benefits.
- You can take out insurance without any assessment of your health or other lifestyle risks. The risk of the employer group is what counts in a group scheme and only when you are on the younger, healthier side of the group are you likely to find cheaper cover in your own name.
- Being obliged to take some benefits. This reason probably has the biggest impact on our financial wellbeing. When you join an employer, you are expected to sacrifice some of your salary for benefits. They are deducted from your salary before it is paid to you forcing you to be disciplined about contributing.
A low starting salary is a challenge for interns. But your lifestyle costs are likely to be low, especially if you still live at home. Learning to live without some of your pay from the get-go will serve you in the long run.
Before you have dependants, focus on insuring your future earnings capacity with disability cover or income protection. You have the most future earnings to lose when you are young.
If you are mid-career and starting out as a contractor or in your own business, being unable to work can also be devastating as you are likely to have many financial commitments to your family and employees,
Medical scheme cover is the best healthcare cover you can get, but it is expensive. Cut costs wisely by choosing a scheme that offers mostly hospital cover or restricts your cover to a network of hospitals, pharmacies or doctors.
If you are prepared to use government hospitals, consider a primary healthcare plan to avoid sacrificing your health because you can’t afford to visit a doctor or you can’t take time off to attend a government clinic.
Whatever your age, but especially if you are close to retirement, missing out on retirement fund contributions is most likely to lead to regret when you are older. Retiring with savings enough to provide a good percentage of your final salary is typically only possible if you save consistently, without withdrawing, from a young age.
If you are not a member of a retirement fund, use a retirement annuity (RA) and let the tax deductions boost your savings.
A flexible RA allows you to stop or reduce your contributions if you find them unaffordable or you may later get an opportunity to join an employer-sponsored fund.
South Africans are often said to be very resilient. When there’s no electricity, we put up solar panels. When there is no water, we sink boreholes. When there are no jobs, we create small businesses. Being financially resilient may involve creating your own working-life benefits. With those in place, funding your own beer on tap, sushi and gourmet coffee could be a reward for a well-run financial life.
Laura du Preez is the editor of Smart About Money.
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