Retirement Funds Not Geared To Administering Children’s Benefits

by | Dec 21, 2015 | Media Room | 0 comments

Olefile Moea

September 2015

By Olefile Moea, Executive Director, Fairheads Benefit Services

At Fairheads we are concerned that many large retirement funds have not yet appointed a beneficiary fund and choose to retain and administer minors’ benefits in the retirement fund itself. In certain circumstances, where the assets of children need to be retained for a short period of time, it would be acceptable to retain these assets in the retirement fund, but this should be the exception rather than the rule.

This article explains why retirement funds are simply not designed to cater for the specialised, high-intensity administration of children’s benefits which require very specific asset allocation, communication and other processes.

At its most obvious, children’s assets should not be administered in a retirement fund as the fundamental objectives are so different. In a sense, a retirement fund is the inverse of a beneficiary fund.

Retirement fund systems are geared towards the contribution phase of retirement, that is, the fund receives money IN from members (through payroll deductions). In contrast, beneficiary funds are geared to paying OUT funds (through income payments to the guardian and ad hoc requests for capital amounts for school fees and the like). The administration, investment, communication and service approaches are therefore very different.

Let us explore this in more depth.


Retirement funds update their processes predominantly on a monthly basis, but beneficiary funds in contrast are tailored for daily activity and high volume requests. Beneficiary funds therefore need the infrastructure and resources to deal with higher volumes of transactions. To give an idea of the high level of activity, at Fairheads we aim for a member/staff ratio of 400. Bear in mind too that engagement of the beneficiary fund trustees is higher than those in a retirement fund as they need to be available to assess capital assistance claims which may not always fit neatly into a check-box.

Regarding benefit statements, those for a retirement fund will look completely different from those of a beneficiary fund. The latter need to reflect monthly income paid out over the period, as well as capital advances made. They also need to be updated constantly as beneficiaries and guardians want to keep track of their balance, more like a bank account than a long-term investment.


Whereas most communication between retirement fund members and the employer is conducted through the HR department, website and postal service, beneficiary funds need to follow a very different, high-intensity two-way communication route given the high number of transactions and language/literacy needs of members and guardians.

At Fairheads we have therefore developed a state of the art contact centre and we make use of walk-in centres, roadshows and field agents In more remote areas. For years now we have made exensive use of SMS to notify guardians of payments made and to remind them to update their information. We are also refining distribution through an association with TEBA Limited including collecting information from beneficiaries and guardians; and the use of voice biometrics for identification and transaction purposes. How many retirement funds would be able to implement such specialised systems to cater for the children whose assets are administered in the fund?

Asset allocation

Asset allocation in a retirement fund is geared towards preservation and growth. Funds are invested to achieve maximum returns without the need for any material need for liquidity to meet short-term member claims. The approach is to maximise the retirement benefit payable once the member leaves the fund at retirement. An appropriate lifestage investment philosophy is used to match the investment mix to the investment horizon. There is little or no need to provide liquidity because, other than early exits, there won’t be any short-term claims on the capital.

In contrast, a beneficiary fund is a vehicle which attempts to stretch the benefit as far as possible while meeting the short-term needs of the child. Asset allocation for children is therefore geared towards income generation as well as capital preservation with a relatively higher level of liquidity so that capital can be paid out for school fees and the like. The essential purpose of the fund is to look after the minor dependent by making regular income payments to the guardian to meet the well-being needs and pay for educational related expenses such as school fees.

An investment mix which provides for this level of liquidity, but also yields the best possible returns must therefore be selected, and actively monitored by the beneficiary fund trustees.

If the child has been sustained and educated to maturity, the objective will largely have been met. (This does not mean that a growth strategy is not followed, however, and most accounts are not necessarily depleted by termination at age 18).


There is no Financial Services Board requirement for specialised administration for children’s assets within retirement funds and trustees are unlikely to invest specially in the specialised systems. Our question to trustees therefore is: do you have a strategy in the retirement fund to look after children’s assets? Is there an investment plan, a documented administration process, a documented governance approach and a plan to keep track of children’s assets?

If not, for all the reasons outlined in this article, trustees have a fiduciary duty to explore the option of a beneficiary fund for housing minor dependants’ assets.

Published in Fairheads Times, Issue 32, September 2015