The spread of AIDS is likely to halve retirement fund benefits in the next
five years and you should take this into account in your financial planning.
According to projections by the Metropolitan Group`s AIDS Research Unit, by
the year 2002 the number of deaths from AIDS in South Africa will exceed
the number of deaths from all other causes added together.
This has enormous implications for retirement funds, Metropolitan`s Deane
Moore told the Institute of Retirement Funds conference in Cape Town this
week.
For many employers, the cost of an average set of employee benefits is
likely to double by the year 2005 and treble by the year 2010. For
instance, Moore says, the cost to the employer of an average lump sum death
or disability benefit is likely to jump from 1,9 percent of an employee`s
salary in 1999 to 3,8 percent in 2005 and 5,7 percent in 2010.
For defined contribution retirement funds, where the employer does not take
responsibility for increases in costs, this additional cost will be passed
on to members. This means that your life, disability and medical benefits
are likely to be halved by the year 2005 and cut to one third of their
current level by the year 2010, says Moore.
The implications of this for you include:
- You can`t rely on getting the death or disability benefit you read about
in the financial statement your fund sends you each year and you should
consider buying additional insurance if you want that level of cover;
- Bear in mind that individual insurance rates increase with age, so the
longer you put off the decision to top up insurance cover, the more it will
cost you;
- If you are middled-aged, you will be particularly hard hit - you will
have spent your youth subsidising the risk benefit costs of older members
and you are likely to spend your future subsiding the risk benefits costs
of younger members because AIDS will have the highest impact on people aged
between 20 and 45;
- As the cost of insurance benefits from retirement funds increases, a
point will be reached at which it is less costly for you, if you are
HIV-negative, to go for an HIV test and get individual cover, than to pay
the premium in the general pool of the retirement fund, where some members
are HIV-positive; and
- You should be urging your trustees to inform you not only about the
fund`s financial health today but about projections for the future.
The impact of AIDS on your fund will depend on the structure of the risk
benefits (schemes which offer high benefits at a young age are likely to
face the fastest cost acceleration); the age, gender profile and income of
the members (higher income-earners may have had access to more education
about AIDS); their geographical distribution; the industry in which you
work; and the effectiveness of your employer`s AIDS programme.