Leruo retirement series: How are my retirement funds invested in umbrella funds?

By TKay Nthebe

Retirement benefits are among a member’s biggest assets and should be protected at all costs. As a member of a pension fund, you have a responsibility to educate yourself about how retirement contributions are invested if you are to retire financially secure. In this week’s article, I will discuss how umbrella funds invest retirement contributions so that members can retire with adequate savings.

Pension funds are required by the Pension Fund Act of 2019 to have an investment policy statement (IPS) and to invest retirement contributions in a responsible manner, maximise returns and ensure members’ interests are protected.

What is an investment policy statement?

An investment policy statement (IPS) is a written document that outlines the investment goals, provides the investment strategy and guidance on how a member’s funds should be invested to achieve the goals. The IPS also provides guidance on which asset classes to consider, the risk tolerance, and expected returns when investing. Section 9 (2) of the Pension Fund Regulations of 2020 states that the board of trustees of umbrella funds has a responsibility to develop the IPS and provide guidance to members on their right to choose investment options and full details of the different investment options.

How do Umbrella funds invest retirement contributions?

The board of trustees have a fiduciary responsibility to ensure that they maximise returns and that retirement contributions are invested with due care and diligence. With the Lesotho Employers Umbrella Pension and Provident Fund for example, the board of trustees provide a range of investment portfolios e.g., the default portfolio or segregated to choose from. The umbrella fund allows participating employers to select an investment strategy and mandate on how member contributions should be invested so they can achieve their retirement goals. It is important, however, that participating employers get professional advice before selecting a portfolio.

Where the participating employer does not provide an investment mandate, the contributions will be invested in the default investment portfolio set and approved by the board of trustees. A default portfolio takes a risk-based and life staging approach when investing assets.

What are my responsibilities as a member?

As I’ve previously stated in several articles, the responsibility to retire financially secure lies with you and not the employer. Members are allowed more control to choose where they want their contributions to be invested. This being the case, members must take ownership and empower themselves with knowledge about retirements starting with the following.

• Learn the rules and investment policy statement of your Fund – how and where are retirements contributions invested?
• Educate yourself on how investments work, which risks are applicable and their impact on the performance of your retirement savings.
• Do not be afraid to ask questions regarding performance, fees, and associated costs. The Pension Fund Act and Regulations require that the board of trustees disclose all investment fees, performance, and other costs.

Should you need more information regarding approved investment portfolios contact the Employee Benefits team at Alliance Insurance Company or visit www.alliance.co.ls