April 4, 2024

Look after yourself when an employer does not

Increasingly South Africans are earning a living without any employee benefits.

Young people are being hired as interns while older people are being retrenched and hired as contractors. Neither role comes with any benefits.

And entrepreneurs who create their own employment, do so without support.

This can be a big disadvantage unless you know how to fund your retirement, make provision for loss of income due to illness or disability and join a medical scheme.

In the past employers contributed a predetermined amount towards these benefits to make them more affordable. Now most 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.

Fringe benefits tax has also removed any tax advantage to an employer paying you these benefits.

But there are still three advantages of group schemes that you cannot match as an individual:

Group life and disability insurance premiums, the costs on an employer-sponsored retirement fund and contributions to a medical scheme restricted to employer groups can be cheaper than those you pay as an individual.
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.
Being obliged to take some benefits. This probably has the biggest impact. When you join an employer, you are expected to take some benefits. These are paid for through salary deductions that discipline you to contribute to your benefits.

When it is up to you to decide whether to fund these benefits, it is easy to find other uses for money.

A low starting salary is a challenge for interns. But your lifestyle costs are likely to be low and learning to live without that money from the get-go will serve you in the long run.

Before you have dependants, focus on insuring your future earning 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. Consider a scheme that offers mostly hospital cover and self-fund your day-to-day healthcare. Or restrict 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 government clinics.

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. 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 if you later get an opportunity to join an employer-sponsored fund.

Laura du Preez
Editor Smart About Money

How to set up your own benefits

In good health

Start with at least this basic cover

You should never have to compromise on essential health care because you can’t afford a private doctor, or can’t afford the time off work to go to a clinic. Medical scheme cover will ensure you get the best treatment if anything serious happens. If it is unaffordable, a primary healthcare plan can give you access to private doctors and medicines without waiting at government clinics.

Good to know

Convert benefits into cover
in your own name

Leaving an employer, whether you are retrenched, dismissed or resigning, is a big deal. Your mind will be occupied with what the future holds. Make a list of the benefits you will lose with your salaried job. Ask your employer if your group scheme offers a conversion benefit that allows you to convert your group life cover into a policy in your own name.

This can make this cover more affordable as you start over again. Read more: What does it mean if there is a conversion benefit?

Wise up

Save for your future without any headaches

Retirement annuities let you own your retirement plan and offer tax benefits. But some come with contractual terms that can be problematic. It is important to know the difference between those that have these terms and those that offer more flexibility that is better suited to an uncertain working life. Read more: What is the difference between a contractual and a flexible retirement annuity?

Know how

Create your own employment and the benefits

When you start your own business, you should also be providing for your financial protection and for the day when you no longer want to work. No matter how small your business is, you can create benefits similar to those offered by large employers. Read more: How can I fill the employee benefits gap as a freelancer, contractor or small business owner?

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