In this newsletter:
Benchtest 01.2017, paying less can become expensive, member communication, safeguarding your nest egg and more...

Important notes and reminders

Inland Revenue announces tax incentive programme

Here is your opportunity to rid yourself of penalties and 80% of interest raised against your account by Inland Revenue.

Read the circular issued by Deloitte here…

Comments on one chart of account under FIM Bill due

NAMFISA has called a meeting of all interested parties to discuss a single chart of accounts for the financial services industry for Monday 27 February. Whilst RFS had assigned Kai Friedrich to represent RFS in this regard, our voice will not receive the necessary weight to prevent extensive new requirements from being imposed at what we would expect to be a significant cost to pension fund members in the near future.

We urge all principal officers to acquaint themselves with this topic and to support our efforts in this regard by attending the meeting on 27 February.

Some of our main concerns in this regard were presented in last month’s newsletter.

Quarterly SIH and annual ERS returns completed

All annual ERS returns due by 31 January 2017 and all quarterly SIH returns due by 15 February 2017 were submitted in time thanks to exemplary cooperation between the principal officers, investment managers, investment consultant and our staff. Thank you all!


Dear reader

In this newsletter we highlight the risk that paying little can actually become quite expensive. We emphasise the importance of member communication in an environment where members are required to exercise certain choices without being properly equipped to do so. In the vein of what you pay versus what you get, we provide a glimpse of what you get when you employ RFS that you are likely to look far and wide to find elsewhere. In our investment commentary we try to provide a bit of perspective on the current status of investment markets to the concerned pension fund member.

The topical articles from various media should not be overlooked – they are carefully selected for the value they add to the management of pension funds and the financial well-being of individuals...

...and make a point of reading what our clients say about us in the ‘Compliments’ section. It should give you a good appreciation of who and what we are!

As always, your comment is welcome, so open a new mail and drop us a note!


Tilman Friedrich

Tilman Friedrich's Industry Forum

Benchtest Monthly 01.2017

In January the average prudential balanced portfolio returned 1.32% (December: 0.40%). Top performer is EMH Prescient (2.19%); while Momentum (0.55%) takes the bottom spot. For the 3 month period Prudential, takes top spot, outperforming the ‘average’ by roughly 1.4%. On the other end of the scale Momentum underperformed the ‘average’ by 1.4%.

What is your investment strategy?

If you followed investment markets more generally and latest investment returns of pension fund portfolios more specifically, you will be forgiven for your concern about the seemingly poor short-term investment returns of your Benchmark Default portfolio or any other portfolio you may have chosen to invest in, for that matter. However before you go off on a tangent because of these disappointing short-term results, you must ask yourself whether you have defined your investment strategy? What is your investment horizon? If you want positive returns for the next 6 to 12 months, do not invest in prudential balanced portfolios but rather in cash!

Read part 6 of the Benchtest 01.2017 newsletter to find out what our investment views are. Download it here...

Paying less can become expensive!

Those of our readers, who follow South African financial media, and more specifically, articles dealing with the pension funds industry, will no doubt realise how much noise is nowadays made about costs and the eroding effect costs have on the benefit members will eventually receive. The FSB is on a major drive to reduce costs, effectively forcing funds into umbrella funds.

One of the problems in this industry is that a significant proportion of costs cannot really be quantified and will not be part of the equation of cost versus benefit.

If you choose an asset manager offering the lowest management fees, can you be sure you will secure a better outcome? Of course not, but how do you factor in future out - or under performance?

|If you choose any other service provider, such as your consultant, your actuary, your insurer or your administrator on the basis of lowest costs, can you be sure of a better outcome? Again, definitely not. How do you factor in future losses, direct and consequential, such as industrial action by your employees, arising from inferior service delivery?

If you choose to move to an umbrella fund because of it relieving you from your obligation to serve as a trustee or principal officer or to designate staff at your cost to these positions, can you be sure of a better outcome? Once again I venture to say, definitely not. How do you factor in the cost of future industrial action by dissatisfied staff for the wrong doings of a third party over which you have very little or no influence?

We believe that the question of fees needs to be seen more philosophically. Yes costs erode the outcome, always. How about if you did it yourself, assuming you really want to save all costs? Would you be in a better position? This is the key question in our view.

We are all in an occupation to serve or to produce for other people, who in turn are in the same position, to the best of our ability. We all want to live, eat and drink and if we don’t produce our own food and drink we have to buy it from someone who does. That person spends his time on doing that and does not have to attend to his investment because I do this for him again.

The first principle is, whatever you do not do yourself, you will have to pay someone to do it for you. Specialisation and a functional free market mechanism is really what one should be concerned about. Once these two factors are in place, the outcome should be optimal.

Given that you cannot be a master of all trades and therefore have to rely on the free market mechanism and specialisation, the second important principle is that of ownership. A free market economy with individual ownership of production factors has proven to be superior to an economy with collective ownership of production factors. In our many years in this industry, it has been shown all over again that this principle holds true for pension funds as well.  Where a fund is managed through collective ownership, it is usually dysfunctional, at the expense of its members. Where a fund is driven by the conviction of ownership of the employer, it is usually functioning exemplary, for the benefit of its members. In the same vein, an umbrella fund will never be able to emulate the advantages of true ownership.

Pension fund governance - a toolbox for trustees

The following documents can be further adapted with the assistance of RFS.

  • Download the privacy policy here...
  • Download a draft rule dealing with the appointment of the board of trustees here...
  • Download the code of ethics policy here...
  • Download the generic communication policy here...
  • Download the generic risk management policy here...
  • Download the generic service provider self-assessment here...
  • Download the generic conflict-of-interest policy here...
  • Download the generic trustee performance appraisal form here…
  • Download the generic investment policy here...
  • Download the generic trustee code of conduct here...
  • Download the unclaimed benefits policy here...
  • Download the list of fund service providers duly registered by NAMFISA here...
Tilman FriedrichTilman 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.
Compliment from a fund member, received February 2017

“B… ek weet nie hoe moet ek jou bedank nie, dit was rerig waar n uitstekende diens van u, mag die HERE jou krag en energie bydra want dit is die tipe mense want ons land nodig het, nogmaals baie dankie.”

Read more comments from our clients, here...

Member Communication – The need for a study if trustees measure up?
by Marthinuz Fabianus - Deputy Managing Director

Over recent years, pension funds have evolved in terms of the level of sophistication in the management as well as the benefits offered to members. With the advent of technological advancement, the person managing the fund (i.e the trustee) as well as the ordinary pension fund member is inundated with a plethora of choices. Pension funds now offer individual members within a group set up, the choice to decide on an investment strategy best suitable to their needs. Members are offered the choice to decide on the level of benefits needed in the event of death so as to meet the needs of the member’s dependants in the event of the untimely passing of the member. Members are also required to decide whether they have a need to make additional savings in order to adequately cater for their retirement needs etc.

However, all these options and choices offered by pension funds to members do not adequately take into account the level of financial acumen and the literacy levels of all members of pension funds.  According to a study by the National Literacy Programme in the Ministry of Basic Education, it was revealed that 35% of the Namibian population above the age of 15 (and 38% of the Namibian population above the age of 16) were illiterate in 1991. Though accepted that improvements may have since taken place in this regard, I made the case in an earlier article that such a scenario poses serious constraints on members’ active participation in modern day pension fund arrangements.

There is a need for thorough study to establish whether members of pension funds that offer flexible arrangements are adequately aware of the different options offered by their funds. A second objective of such study should be to establish where members are indeed aware of the existence of such options, do they understand such options correctly to enable them to make correct use of the choices available to them.

The need to empower members of a pension fund to take full advantage of the benefits offered by their fund cannot be overemphasized. The role of a pension fund trustee is rather onerous and judicious. Pension fund trustees would ultimately fail in their duty should they not ensure that their members fully understand the benefits and choices offered by their pension fund. This goal is only achieved with proper dissemination of information and result driven communication initiatives targeted at all members, irrespective of their different levels of employment within the employer. Corporate governance guidelines and NAMFISA place a huge responsibility on the shoulders of all involved in the management of pension funds. The duty to report back to those you are accountable to in an accurate, timely and objective manner etc. is paramount.

Both the Sanlam and Old Mutual SA pension funds surveys of 2009 and 2008 respectively, found that more than 80% of fund members do not fully understand the benefits offered by their respective funds. However, there has not been a study to specifically determine the understanding of the flexible options offered by funds and the concomitant correct utilisation of the flexible options by members of those funds.

Determining what members know and understand about the workings of their pension funds, but specifically their knowledge and understanding of all options offered by their funds, have implications for the performance measurement of those entrusted with the management of pension fund business, not least being the trustees. Such a study also has implications for the industry as its outcome may speak to the need to set benchmarks for acceptable levels and forms of member engagement. Communication to members should not just be a tick box exercise, but rather it must address the genuine need for knowledge empowerment and must be purposeful in achieving tangible results amongst members across all levels.  Put differently, the measurement of whether trustees have carried out their trustee duties and responsibilities successfully, must have as one of its key points of reference the measurement of members’ understanding of the benefits and choices offered by the fund.

Marthinuz Fabianus is Deputy Managing Director of Retirement Fund Solutions. He graduated from Namibian University of Science & Technology with a Diploma in Commerce and Bachelors in Business Management. He completed a senior management development programme from University of Stellenbosch and various short courses including a macro-economic policy course which he completed at the International Training Centre of the ILO in Turin, Italy. Marthinuz has 23 years' industry experience.

Kai Friedrich's Administration Forum

Your retirement nest egg deserves the highest standards of governance!

For the peace of mind of trustees our safety net offers you:

  • Fidelity cover of N$ 5 million, excess of N$ 250,000 1 July 2016 to 30 June 2017, Western National Insurance Company;
  • Professional indemnity cover of N$ 50 million, excess of N$ 250,000 1 July 2016 to 30 June 2017, Western National Insurance Company;
  • Directors' personal liability cover of N$ 5 million per director, 1 November 2016 to 30 June 2017, Santam;
  • Full-time internal audit, compliance and risk management function supported by 2 independent chartered accountants on a part-time basis;
  • Off-site disaster recovery data centre;
  • Continuous data and system replication;
  • On-site back-up generator;
  • Secure IT production centre;
  • High availability virtual server environment;
  • 61 full-time staff focussed on fund administration only;
  • Average of 16 years relevant experience per employee;
  • Average of 7 years’ service with RFS;
  • Staff with undergraduate diploma or certificate as highest qualification – 20;
  • Staff with degree as highest qualification –  14;
  • Staff honours degree as highest qualification – 7;
  • Staff with post graduate diplomas as highest qualification – 8;
  • Chartered accountants – 3;
  • CFP® practitioners – 3;
  • A track record and reputation second to none... and more!

How much is good governance worth to you as a trustee – can you afford to pay less for compromising on any of these credentials?

Kai FriedrichKai 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.

News from NAMFISA

Namfisa Statistical Bulletin Q2 2016 - Pension funds in perspective

Namfisa recently published its latest quarterly statistical report for the second quarter of 2016.

N$ million: Total assets
N$ million:
Net Prem / Contrib
Q2 2016
Principal members
Long-term insurance
1,674 n/a
Short-term insurance
Medical aid funds
Pension funds *
Not Published
Not Published

* Note – while this information is provided by the pensions industry at least on an annual basis, it is not provided in the quarterly statistical bulleting published by NAMFISA. The latest published bulletin is for Q2 of 2016.

Download the full report here...

Media snippets

(for stakeholders of the retirement funds industry)

Mother fails in bid to claim all her son’s death benefit for herself

In this case, the mother of a deceased member laid a complaint with the SA adjudicator on the trustees’ decision to allocate a portion of the death capital to a daughter of the deceased who was born 2 days before the deceased passed away. The complainant contended that the deceased was not married and had no children. The suggestion of the fund to have the complainant undergo a paternity test [DNA test?] to determine whether or not the girl was the daughter of the deceased was turned down by the complainant.  On that basis the trustees accepted that the girl was his child and allocated a portion of the lump sum to her.

In her determination, the adjudicator made a few important points:

  •  The primary purpose of a death benefit is to protect those that were financially dependent on the deceased.
  • Section 37C imposes 3 duties on the board of trustees when disposing of a death benefit –
    • Identify and trace all dependants and nominated beneficiaries.
    • Effect an equitable distribution of the death benefit.
    • Determine an appropriate mode of payment.
  • The law recognises 3 categories of dependants –
    • Legal dependants;
    • Factual dependants;
    • Future dependants.
  • A member is legally liable for the maintenance of spouse and children.
  • A factual dependant has to prove that he was financially dependent on the deceased at the time of the member’s death.

Concluding this case the adjudicator ruled that in the circumstances, this Tribunal is convinced that the board of the trustees correctly identified the deceased’s dependants. The deceased would have been legally compelled to provide financial support to the child had he survived. However, a minor child would need a longer period of financial assistance as compared to the complainant who was working at the time of the deceased’s demise and had gone on retirement. Therefore, this Tribunal is satisfied that the board of trustees applied its mind to relevant considerations when it took into account the age of the child in deciding to allocate a bigger share of the death benefit to her.”

Read the article in FA News of 6 January 2017, here…

How much are your paying for your RA

“Last year the Association for Savings and Investment South Africa (Asisa) introduced the Effective Annual Cost (EAC) standard. This was a significant move to help investors make direct comparisons of the costs of different financial products. The idea was to make sure that there was a standardised measure used across the industry so that comparisons were genuinely done on an “apples with apples” basis. All costs would have to be disclosed in certain brackets and expressed as a percentage of assets invested. Historically, different products had not only shown costs in different ways, but many had layered costs in ways that were very difficult for investors to understand. Setting a standard to ensure that investors were truly aware of what they would be paying and could compare this across different providers was therefore a big step. However, the truth is that it hasn’t delivered the neat solution that many might have been hoping for. I have discovered this over the last few weeks as I have tried to gauge the true costs of different retirement annuity (RA) products.”

Read the article by Patrick Cairns in Moneyweb of 15 February 2017, here…

Taking a balanced off-shore view

“South African investors have become very aware of the potential benefits of balanced unit trusts. Over the last decade, the local multi-asset categories have become by far the most popular place for people to invest their money.
This is because of the diversification that they offer. This means that they should produce more stable and less risky returns than investments in just one asset class. More recently, South Africans have also started to take a balanced view when looking for offshore exposure. Over the last five years, the assets under management in locally registered global multi-asset funds have more than tripled.”

Read the article by Patrick Cairns in Monweyweb of 14 February 2017, here...

How much is enough to hold offshore in 2017?

“Representing less than 1% of the global economy and expecting less than 2% growth in GDP per annum over the next two years, the South African economy appears unlikely to offer local investors the chance of decent returns. The economy remains hindered by socio-political and economic factors. To mitigate the risk of over-concentrating assets domestically and increase their potential for greater and diversified returns, high-net-worth investors are increasingly taking advantage of their R 11 million allowance to invest outside of South Africa.”

Read the short article by Warren Thomson in The Investor 14 February 2017, here...

Media snippets

(for investors and business)

Forex collusion: ‘No penalties sought against Absa’

“The South African Competition Commission said in a statement that it found that from at least 2007, “the respondents had a general agreement to collude on prices for bids, offers and bid-offer spreads for the spot trades in relation to currency trading involving US dollar/rand currency pair. Further, the commission found that the respondents manipulated the price of bids and offers through agreements to refrain from trading and creating fictitious bids and offers at particular times. Traders of the respondents primarily used trading platforms such as the Reuters currency trading platform to carry out their collusive activities. They also used Bloomberg instant messaging system (chat room), telephone conversation and had meetings to coordinate their bilateral and multilateral collusive trading activities. They assisted each other to reach the desired prices by coordinating trading times. They reached agreements to refrain from trading, taking turns in transacting and by either pulling or holding trading activities on the Reuters currency trading platform.  They also created fictitious bids and offers, distorting demand and supply in order to achieve their profit motives.

Our question - does this explain the inexplicable weaknesses and strengths of the SA Rand that one has seen over the last few years?

Read the article by Antoinette Slabbert, in Moneyweb of 16 February 2017, here...

15 best countries for business in Africa

According to this article, Namibia is 4th best country for doing business in Africa, one ahead of Botswana and one behind Morocco. This is good news for us. Let’s try to improve on it!

Get the full list from IT News Africa of 20 January 2017, here...

Presentations need not be so theoretical

“Imagine you are trying desperately to pay attention to a technical presentation being delivered, and all you really want to do is to (theoretically) rather stick a fork in your eye than be bored to (technical) tears! In this article, let’s look at how you can turn a seemingly dull subject into an exciting showcase.”

Here are her 4 key points -

  1. Consider the content of your speech and write down the top 3-5 points;
  2. Anchor each point with an activity to further entrench and embed the learning into the minds of your audience. You can do this through a simple on-stage demonstration illustrating how something is done;
  3. Take your 3–5 points of wisdom and package them in a structure that is memorable to your audience;
  4. Personalise your message with a story of your life experience on the subject matter.

Read the short article by Dineshrie Pillay in Accountancy SA, here...

Analysis and interpretation of tax law

“Legislation is generally interpreted based on the grammatical and ordinary meaning of the words of the law. This literal approach to interpretation was described in the judgment of Commissioner for Inland Revenue v Simpson. In a taxing Act one has to look merely at what is clearly said. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing to be implied. One can only look fairly at the language used. The approach was however qualified to some extent in the case of R Koster & Son (Pty) Ltd & another v CIR (Koster case) where it was held that:

[I]n construing a provision of an Act of Parliament the plain meaning of its language must be adopted unless it leads to some absurdity, inconsistency, hardship or anomaly which from a consideration of the enactment as a whole a court of law is satisfied the Legislature could not have intended.

It was similarly held in the case of Venter v Rex that:

… the court may depart from the ordinary effect of the words to the extent necessary to remove the absurdity and to give effect to the true intention of the legislature.”

Read the article by Pieter van der Zwan in Accountancy SA, here...

And finally...

“Foreign aid might be defined as a transfer of money from poor people in rich countries to rich people in poor countries.”
~ Douglas Casey, classmate of Bill Clinton at Georgetown University

How much will you need when you retire and are you investing enough?
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