Tilman Friedrich is a qualified chartered accountant and a Namibian Certified Financial Planner ® practitioner, specialising in the pensions field. Tilman is co-founder, shareholder and managing director of RFS, retired chairperson, now trustee, of the Benchmark Retirement Fund.

• Funds should provide adequately for retirement
• Why have a pension fund?
• Government is a key stakeholder in retirement provision
• The employer is a key stakeholder in retirement provision
• The employee is a key stakeholder in retirement provision
• Government wants the private sector to make provision for retirement
• ‘To provide adequately’ – is it in the eyes of the beholder?
• How much do I need to put aside to retire with dignity?

What about death and disablement?

In the previous newsletter we suggested that the main purpose of a retirement fund is to allow you to retire with dignity. We also pointed out that, depending on the net investment returns you will be able to achieve over the course of your membership, you need to set aside between 10% and 14% of your total remuneration in order to achieve an internationally accepted norm of a pension equal to 2% of your total remuneration, per year of retirement fund membership, i.e. 60% after 30 years or 80% after 40 years of membership.

Your, and your dependants’ needs should be provided for adequately

This rate of saving does not yet provide for any needs you and your family may have in the event of your death or disablement. Again it would be most meaningful to determine the needs of you and you dependants in terms of a regular monthly income, by reference to your regular monthly cost of living. Needs obviously vary widely depending on your life stage and the number of people dependant on you. Typically when you are young and have no dependents, you probably have little or no need for death cover. As you grow older, get married and your family expands your need for death cover increases, to eventually start decreasing again as your children leave the nest and your life expectancy decreases, until you reach retirement.

How much does your family need in the event of your death?

If you want to provide for your and your dependants’ needs in the event of your death, including the need to make provision for future inflation, you need to have capital at death of between 8 and 16 times your total annual remuneration, depending on your life stage and status of dependants. This amount would typically comprise partially of the retirement capital you have accumulated to that point and life cover making up the difference. For a retirement fund with a normal age spread, average capital required for death benefits would thus be around 12 times aggregate annual member remuneration of which, typically, between once and twice aggregate annual member remuneration would be derived from members’ accumulated capital. The difference of around 10 times annual member remuneration thus should be provided by insurance. At that level of insurance cover, you can expect the premium to be between 2% and 4% of aggregate annual member remuneration. Typically insurance companies provide in the event of death, either a lump sum or an income benefit to your spouse and/or children, or a combination of both benefits. Clearly an income benefit is preferable as it better matches the monthly cost of living across the different life stages of your dependants.

How much do you and your family need in the event of your disablement?

Now, what is the position in the event of your disablement? Here your needs are probably higher than they would be in the event of death, because you are still alive and you probably require costly care. Typically insurance companies provide in the event of disablement, either a lump sum or an income benefit, or a combination of both benefits, with a limit of replacing 100% of your remuneration. Once again the income benefit is preferable as it better matches the monthly cost of living across the different life stages of you and your dependants. The cost of a benefit that meets your needs, is typically between 1% and 2% of aggregate annual member remuneration.

Conclusion

To conclude this topic, you should now ‘have a good feel’ for what your retirement fund should aim to achieve and what you can expect the total cost of this package to be. Does it make sense to offer a retirement fund arrangement that does not, at least, adequately provide for retirement? Remember, if your competitor offers a better arrangement, you might find it difficult to attract and retain the right caliber of staff. And just one last thing, we have not addressed the costs of managing your fund, another cost factor to keep in mind.

Kai Friedrich Director: Fund Administration, is a qualified chartered accountant and a Namibian Certified Financial Planner ® practitioner, specialising in the pensions field. He holds the Post Graduate Diploma and the Advanced Post Graduate Diploma in financial planning from the University of the Free State.

Company news

RFS welcomes 3 new staff members

We are pleased to announce the permanent appointment of Chanelle van Wyk, Joleen Dias Farmer and Theofilus David.

Chanelle van Wyk joined us from PWC business advisory department. She obtained a B Comm degree in financial management from USB then went on to obtain an Advanced Diploma in Taxation and the Higher Diploma in Value Added Tax from Unisa and  has crowned her impressive list of qualifications with the Higher Diploma in Financial Planning from UFS making her a Certified Financial Planner® practitioner. Chanelle is heading up our endeavours to expand and improve our services to our retail clients.

Joleen Dias Farmer joined us from a brief stint as credit controller at Afrox having been in the pensions industry over the preceding 7 years. Pension fund administration being her passion she is now looking after our largest pensioner payroll, a demanding challenge that she is handling with distinction.

Theofilus David joined us from NMG as driver. In this capacity he diligently takes care of the prompt delivery and collection of documentation between our offices, our clients, banks and other service providers.

We extend a hearty welcome to Chanelle, Joleen and Theofilus and look forward to strengthening our client service capacity and delivery for many years to come!

News from the market

Momentum Asset Management will be unbundled from MMI

Momentum’s daily Red Eye newsletter announced that “…A new black asset management company will be created from the unbundling of Momentum Asset Management from insurer MMI…” Momentum Asset Management will be established as a separate independent asset management business in which MMI will only hold a ‘significant minority stake’.

Local management commented on this development as follows:

“In the near future, the following is true:

No immediate impact on MAM Namibia

• Given that NewCo will outsource operations to MMI in the immediate future, there is therefore no operational impact on clients (and on operational functions between MAM Namibia and MAM SA / NewCo)

On fixed income

• Fixed income capability largely remains intact, with key members of the team having committed to move to NewCo
• No change in the portfolio management team
• No change in investment philosophy and process

On balanced funds

• No change in portfolio management team
• Patrick Mathidi is still in discussions with individuals that may be moving to NewCo, these should be concluded soon
• No change in investment philosophy and process

The only impact on clients is likely going to be around contracts, where entity names are likely to change.”

Windhoek ranked least expensive city for expats

We found an interesting report in Oshili 24 that Windhoek is the least expensive city for expatriates, ranked 206 out of 207 countries surveyed by global consulting firm Mercer in its annual cost of living survey.

The Angolan capital, Luanda ranked as the costliest city globally for the third year running. “With almost all its goods imported (especially expat-friendly brands), prices on Angolan shelves tend to be high, with prices of N$123 ($10) for a can of coke fairly common, melons going for a cool N$1230 ($100), and apartments in the region of N$197 000 ($16,000) per month not entirely unheard of," the global research group said.

Read the full article here…

News from Namfisa

Cabinet sanctions the Financial Services Adjudicator

The draft Financial Services Adjudicator Bill was circulated for comment a while ago. Quoting Minister Calle Schlettwein, the Namibian reported “…Under the provisions of the bill, the adjudicator will be empowered to enquire into, investigate, consider and determine complaints against financial service providers in a just, procedurally fair, economical and expeditious manner…”

In a previous newsletter we commented that the Bill in general creates a nebulous hierarchy of authority as between the adjudicator, the Minister of Finance, Namfisa and Bank of Namibia.

We expressed our concern that the Financial Services Adjudicator Bill makes the adjudicator subordinate to and creates dependence of the adjudicator on Namfisa and Bank of Namibia in many ways. More specifically the adjudicator has to report to these two regulators, obtain budget approval and obtain funding from these two regulators. In our opinion the adjudicator should be able to function independently of the regulators of the financial services industry.

We are also of the opinion that the adjudicator should not directly benefit from penalties imposed by him as envisaged by the Bill, as this creates a conflict of interest.

Read the full article in the Namibian, here…

Namfisa issues circular on approved bills, bonds and loans

Annexure 1, section 4 and 5 of regulation 28 provides for Namfisa approving certain bills, bonds, loans, securities, institutions and countries. In this circular Namfisa has not identified any specific bills, bonds, loans, securities, institutions and countries but has rather opted to specify the investment grade of countries and instruments for a pension fund to be allowed to invest in such securities. The circular emphasises that the onus to comply is with registered pension funds and that a pension fund investing in such instruments must conduct an appropriate level of due diligence to understand the inherent risks and whether these warrant investing.

In practice investment managers are currently often invested in securities that do not meet the defined investment grade. The circular does not make provision for a due date by when any breaches have to be corrected, if at all. In the absence of any due date though, it may be safely assumed that the new requirements will only apply to fresh investments in such securities. Asset managers also believe that the directive is misguided by being focused on the principle of investment grade and that other non-investment grade instrument are often more appropriate.

It will be interesting to see whether Namfisa will heed the appeals of the industry.

Circular PI/PF/10/2015 was issued in this regard. Download it here…

Namfisa issues circular on compliance with unlisted investment requirements

“In accordance with this circular the Minister of Finance exempts all registered funds from regulation 28(4) by extending the deadline for compliance with the said provision to 30 September 2015. The exemption is effective from 1 July 2015.”

This effectively means that in terms of quarterly SIH reporting, compliance can only be measured as of 1 October 2015. Note that a signed investment commitment with an SPV will suffice at this stage and no physical investment needs to be done for a period of 2 years or more, if so approved by Namfisa.

Download the circular here…

Namfisa issues directive on rule amendments

Namfisa issued PI/PF/05/2015 on rules amendments. This follows a draft issued earlier for comment. The directive is for all intents and purposes a carbon copy of its predecessor draft. It is quite discouraging and disappointing that evidently no account was taken by Namfisa of any comments submitted by industry participants and that Namfisa also did not consider it appropriate to provide any feedback on the comments let alone providing reasons for why comments provided were ignored. Is it far-fetched to conclude that requests for industry comments are purely a ‘window dressing’ exercise?

Download the directive here…

Meeting between RFIN and Namfisa

The Retirement Funds Institute held a meeting with Namfisa officials on various matters of interest on 22 June 2015.

Download our internal notes, by Justine Shipanga, here…

Quarterly return – Q2 2015 due 30 July 2015

Namfisa issued a communication to industry stakeholders directing that for the quarter ended 30 June 2015, pension funds must submit a return in the ‘old’ SIH format by 31 July 2015, not without warning that late submission will be subject to a penalty of N$ 500 per day. The submission of quarterly returns on ERS has been suspended in order to afford Namfisa the opportunity to address the concerns with that report raised by industry participants.

Namfisa regulatory reform newsletter July 2015

Update yourself on the latest status of regulatory reform pursued by Namfisa. Download the Namfisa Regulatory Reform newsletter here...

Media snippets
(for stakeholders of the retirement funds industry)

Managing your money after retirement

“Retirees face a number of risks in retirement, such as outliving their retirement income (longevity risk), the rising costs of goods and services, credit risk and asset/liability mismatching. These risks can be challenging and further emphasise the need for effective financial management in retirement. Given that a pension pay-out is usually the primary source of income, a reasonably conservative investment strategy should be followed and high risk investments avoided.  “Retirees should investigate the merits of securing an annuity with a growth element to cover their basic expenses,” says Gouws. “The balance of the pension fund can be invested in a living annuity using a balanced portfolio as the underlying investment.”

Read the short article by Johan Gouws in Insurance Gateway, here...

Can  18 year olds handle death benefit lump sums?

A submission has recently been made to SA Financial Services Board to amend pension fund legislation such that death benefit lump sums administered by beneficiary funds, umbrella trusts or retirement funds on behalf of minor dependants not be automatically paid out to such minors when they turn 18. Giselle Gould, Business Development Director of Fairheads Benefit Services, says: “It is not uncommon for service providers to pay out R100 000 or more on termination of accounts. Yet the reality of social and educational circumstances means that the average 18-year old in South Africa is not financially mature enough to invest or use large sums of money responsibly.”

Section 268 (3)(b) of the FIM Bill similarly requires that any balance owing to a dependant or nominee be paid out to him in full upon reaching majority, which will be age 18 once the Child Care & Protection Act becomes effective. Read the highlights of this Act, from our previous newsletter, here...

And read the full article by Lucy Rayburn in itinews of 30 April 2015, here...

What is your investment goal?

Investors have become used to double digit returns over the past 20 years plus. These hay days are likely to be over. Simply aiming to achieve highest possible returns is likely to produce disappointing results and experts are cautioning investors to rather define the outcome they require and to invest in such a way that this outcome has a fair chance of being achieved.

“In order to structure an investment strategy, the investor needs to understand what he or she is trying to achieve. Each investment goal – whether it is adequate retirement savings, a child’s education or a new car – is then distilled into a liability and an appropriate investment strategy is constructed to try to ensure that the liability can be met within the required timeframe.”

Read the article, by Ingé Lamprecht in Moneyweb of 21 July 2015, here…

Media snippets
(for investors and business)

Statement by HE Dr Hage Geingob on 100 days in office

Download the statement by His Excellency Dr Hage Geingob, on the occasion of his 100 days in office, here...

10 Habits of ultra-likeable people

Becoming a more likeable leader is completely under your control, and it’s a matter of emotional intelligence (EQ). Unlike innate, fixed characteristics, such as your intelligence (IQ), EQ is a flexible skill that you can improve with effort.

What follows are 10 key behaviours that emotionally intelligent leaders engage in that make them so likeable.

1. They form personal connections – they communicate on a very personal and emotional level;
2. They’re are approachable – they believe everyone is worth their time and attention;
3. They’re humble – they don’t think they are better than you;
4. They’re positive – they always maintain a positive outlook and this shows how they describe things;
5. They’re even-kneeled – they don’t toot their own horns nor do they get rattled when they blow it;
6. They’re generous – they are confident enough to never worry that your success might make them look bad;
7. They demonstrate integrity – they inspire trust and admiration through their actions, not just their words;
8. They read people like a book – they note facial expression, body language and tone;
9. They appreciate potential – they don’t only see the best in their people, but they make sure that everyone else sees it too;
10. They have substance – they understand that their knowledge and expertise are critical to the success of everyone who follows them.

Read the article by Dr Travis Bradberry, from Linkedin of 6 July 2015, here…

How to invest offshore

It is a common principle that one should not put all your eggs into one basket. For local residents one of your investment baskets will obviously be your Namibian investment basket made up of the property basket and perhaps a few others. But do you have an offshore investment basket yet? If not, investing offshore is of course not like sending a cheque across. You will have to comply with certain requirements.

Read the full article by Patrick Cairns in Moneyweb of 17 July 2015 here…

Ensuring a fair inheritance

In an earlier newsletter we  dealt with collation and inheritances. In short this principle means that the executor must ensure that your children receive a fair share of your estate. Typically parents may have assisted one child to start or acquire a business or a house while another child has not had the same financial  support. Collation means that all such donations first must be added back to your estate before distributing to all children equally. This may however not be what you intended to achieve.

Read the full article by Patrick Cairns in Moneyweb of 17 July 2015, here…

These 10 economies will be the world’s worst performers

Ukraine will finish 2015 as the biggest loser in global growth, according to forecasts of economists surveyed by Bloomberg. The conflict-battered eastern European nation will see its gross domestic product contract 4% in the fourth quarter from the same time in 2014, the worst of 47 economies polled by Bloomberg in April through June. The ill fortune will be shared by neighbouring Russia, where GDP will shrink 3.5% by year-end amid international sanctions and depressed oil revenue.

Read the full article here…

And finally...

"Appreciation is a wonderful thing: it makes what is excellent in others belong to us as well "
~ Voltaire