For the purpose of scheduling annuity payments, products are grouped so as to enable them to be included in one run by selecting the holding fund.
Set up an association between the Retirement Product and the Beneficiary Product to which death benefits must automatically be transferred.
The Pension Fund Act defines an umbrella product as “a pension fund organization established for the benefit of employees of various employers which are not subsidiaries of a single holding company”.
There are essentially two types of umbrella products being administered:
- Union / industry-related umbrella product
- Umbrella product for small employers
Union / industry-related umbrella product
This is an umbrella product established for employers within a specific industry, or employers whose employees belong to a specific union. These arrangements are normally established in terms of an industrial agreement. It enables members to change employment between employers within the industry and generally there is no variation in the benefit rules applicable across all groups of members. Broadly speaking, the administrative requirements for these types of umbrella arrangements are:
- Financial statements to be produced for the umbrella product
- One bank account for the umbrella product
- Bank reconciliation at umbrella product bank account level
- Reporting at umbrella product level
Umbrella Umbrella for small employers
An umbrella product established for employers, who do not necessarily have any financial relationship to each other. In many of these cases, the contribution and benefit rules vary considerably between employers participating in the umbrella product. There is also generally more of a demand for reporting to individual participating employers on the activities relating to their employees. Broadly speaking, the administrative requirements for these types of umbrella arrangements are:
- Financial statements to be produced for the umbrella product
- Communication at participating employer level
- One bank account for the umbrella product
- Bank reconciliation at umbrella product bank account level
- Contribution clearing bank accounts for each participating employer
- Separate benefit rules per participating employer
- Separate contribution rules per participating employer
- Different investment portfolios per participating employer
- Investment choice for some participating employers, and not for others
- Different investment switching dates
- One umbrella product reserve, but ability to report to participating employers their share of the reserve
- Reporting at product level and participating employer level
The system caters for both of these types of umbrella arrangements by allowing the set up of a main product level and separate products for each participating employer (sub-products), or with the participating employers within one product.
Where one product is used, membership groups are used to associate the employees of the different employers with different contribution, benefit and investment rules.
The bank account of the main product will be used by all the sub-products. All accounting transactions will be generated using this bank account. Where individual contribution clearing accounts are used for each participating employer, the deposits into these accounts will be recorded in each sub-product’s bank account. This will enable the reporting of transactions for each participating employer and at the same time enable the reconciliation of the main product bank account to the transactions in all of the sub- product accounts.
The accounting rule set can be captured for the sub- product in order to cater for the conversion of the individual participating employers and the launch of a new participating employer.
When a product is being set up for a new participating employer, the accounting rule set can be linked to the conversion rule set, if necessary, and then linked to the same rule set as the other products under the umbrella.
The trial balance can be selected per product, and can therefore either be selected for the main umbrella product or a sub- product.
The bank reconciliation for an umbrella product will be done for the main product bank account that will be used by all of the sub-products. Each sub- product may also have bank accounts that will only be used by that sub- product, e.g. a contribution clearing account, which will be reconciled separately.
The bank statement entries and the bank reconciliation can be done for either the main umbrella product or the sub- product.
Where there are a large number of participating products (sub-products) within an umbrella product it can be impractical to manage the closing of financial periods for each of the sub-products.
Where umbrella products operate with separate financial period closures, particularly when there are separate bank accounts, and there is a need to close the bank reconciliations separately, the system, allows the financial period dates captured for a main product to be automatically set so that when these are updated for the main product, the equivalent financial period dates will be updated in the sub-products.
Where the same investment medium is used by more than one of the participating employers, it is generally the practice for these to be maintained as one investment by the asset managers.
Investment transactions are generated per pay centre and per investment portfolio per day. Investment advices are produced per investment portfolio for the total of all of the pay centres per day.
Where EFT transactions are not generated automatically to transfer the money to the asset managers’ bank accounts, an accounting transaction is recorded in an “investments in transit account” per investment portfolio. The total of these transactions for a day corresponds with the total of the investment advice for that day per investment portfolio.
The description of the investment portfolio can be exactly the same for each sub- product. This description is displayed on the investment advices and therefore from the asset managers’ point of view, they will be able to identify these investments as pertaining to the same investment medium. In addition, the same investment account number could be set up on the sub-product’s investment portfolios as this is also displayed on the investment advice.
If necessary, the individual investment advices can be consolidated into one advice by the administrator. This then leaves the flexibility to advise the asset manager of the individual investments per participating employer, or one amount for all of the participating employers’ investments in the same investment medium per day.
This will also apply to the accounting transactions and investment advices or disinvestment advices for benefit payments, switching and distribution.
In consolidating the accounts at an umbrella product (main product) level, the investment accounts must be consolidated for all investment portfolios associated to the same investment medium.
The option to select consolidated investment advices will be provided in a later release.
In terms of current legislation, the redistribution of reserves will be to the members who contributed to the reserve and therefore such distributions will take place at a sub- product level. However, the apportionment of expenses, e.g. investment management fees, will be to all of the members of an umbrella product invested in the same investment medium. If investment records are maintained by the asset manager for each participating employer, this is currently catered for. Where this is not the case, distribution must be able to take place for all the members across all of the sub-products invested in the same investment medium.
Investment portfolios must be able to be set up for the main product. Only those investment portfolios that may be needed to qualify any investment accounts used at an umbrella product level only, must be set up for the main product. All investment portfolios to be used at a sub- product level must be set up for the sub- product. For details of distribution for an umbrella product, refer to
Processes
Distribution
Structure
For details of launching a product, refer to
Product Launch Requirements