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In this newsletter:
Benchtest 02.2017, consequences of PN 5 of 2003, does your fund provide adequately and more...

Career opportunity

Retirement Fund Solutions has an opportunity for a qualified, skilled and experienced individual to join our team as a Product Manager for the Benchmark Retirement Fund, reporting to the Director Operations: Umbrella Funds.

Download the advertisement for the vacancy, here...


Important notes and reminders

SME Bank Exposure

Following an enquiry by NAMFISA as to the exposure of pension funds to SME Bank, the following asset managers confirmed to date that they have no exposure on any of their pension fund portfolios. Should your manager/s not be reflected please make direct enquiry with the manager.

  • Eos Capital
  • Capricorn Asset Management
  • Allan Gray
  • Investec
  • Investment Solutions
  • EMH Prescient
  • MMI
  • Namibia Asset Management
  • Old Mutual
  • Prudential
  • Sanlam Investment Management
  • Stanlib

Trustee training 4 and 5 April on fiduciary duties and fund governance

A two-day trustee training course by Peter van Ryneveld on fiduciary duties and fund governance will be hosted by Elite Consulting Namibia on 4 and 5 April 2017 in Windhoek at the Safari Hotel & Conference Centre. The cost of the training will be N$ 4,600 (excl. VAT) per delegate for attending both days.

Should you be interested to attend this training, please contact Elite Consulting at tel 301267. Find the course outline here...


Comments on ‘one chart of accounts’ under FIM Bill due 28.04.2017

NAMFISA granted extension to submit comments on the ‘One Chart of Accounts’ proposals until 28 April. As the required information is maintained and has to be provided by different service providers to the fund, principal officers will be in an unenviable position having to co-ordinate and consolidate for reporting purposes the information as provided by the various service providers. We therefor urge all principal officers to acquaint themselves with this topic and to establish from their service providers what the cost implications of these proposals will be for their fund as well as how long it would take the service providers to set up their systems to report in the required format.

In this context, it is to be noted that the terminology used by NAMFISA is misleading. This project is not about establishing a common chart of accounts for all regulated entities. Any accountant will know that a chart of accounts is a listing of the accounts reflected in an entity’s general ledger. This project is rather aimed at establishing standardised reporting of information required by NAMFISA.

Some of our main concerns in this regard were presented in Benchtest 12.2016 newsletter.


Minister of Finance invites public to comment on proposed session of insurance business to Namibre by 3 April

In a news release of 14 February 2017, Minister of Finance announced the withdrawal of recent notices and proposed amendments to regulations relating to the session of insurance business, issued under the Namibia National Reinsurance Corporation Act. This was done in response to litigation initiated by a number of insurance companies on the basis that full consultation had not taken place before these notices were issued.

To counter the insurers’ objections, the Minister is inviting written representations from A wider audience than just industry stakeholders on or before 3 April 2017.


Newsletter

Dear reader

In this newsletter we highlight the practical consequences of IT practice note 5 of 2003 for trustees of pension funds, we explain what benefits a member should typically expect to receive from a pension fund and Entrépo ceasing group underwriting. In our commentary on investment markets we offer an interesting insight into a number of indices and what these indices may herald on market movements for the next 12 months or so.

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!

Regards

Tilman Friedrich


Tilman Friedrich's Industry Forum

Benchtest Monthly 02.2017


In February the average prudential balanced portfolio returned -0.64% (January: 1.32%). Top performer is Metropolitan (-0.16%); while Momentum (-1.06%) takes the bottom spot. For the 3 month period Old Mutual Pinnacle Profile, takes top spot, outperforming the ‘average’ by roughly 1.0%. On the other end of the scale Momentum underperformed the ‘average’ by 1.4%.

Where are markets heading?

It is always interesting to study the movement of indices over time and in particular it is interesting to study relationships between different indices in an effort to get a feeling for where markets are likely to head. In this commentary we will be looking at a few interesting relationships.



Firstly, graph 1 has been indicating to us for a long time that the Rand was undervalued and the recent movement corroborates this assertion. The graph indicates that the Rand is currently fairly valued at 11.23, it being at 12.45 at the time of writing this article. The Rand now only requires a further appreciation of 10% to get to fair value by our measure. This graph also shows that the Rand tends to significantly overshoot only in one direction, probably as the result of overly negative sentiment towards the currency from time to time with 3 severe bouts of undervaluation.

Read part 6 of the Benchtest 02.2017 newsletter to find out what our investment views are. Download it here...


The practical consequences of tax practice note 5 of 2013

Retirement Fund Solutions (RFS) is an employer with regard to benefits payable by an approved fund administered by RFS, per schedule 2 of the Income Tax Act (ITA). In this capacity we will deal with the income tax requirements of benefit amounts payable upon the death of members or pensioners/annuitants of pension funds as follows:

  • Where a pension fund in terms of its rules provides annuities to widows and children and also lump sum benefit upon death of a member RFS will ascertain that 51% of the lump sum benefit allocated by the trustees to each beneficiary in accordance with section 37C is applied to provide annuities to the designated dependants. One-third of the annuity capital (or the full annuity capital if it is less than N$ 50,000) may be commuted for cash. Neither the commutation of annuity capital nor the remaining balance of 49% of the lump sum death benefit constitutes “gross income” as defined in Section 1 of ITA and no tax directive needs to be obtained.
  • Where a pension fund in terms of its rules only provides lump sum benefit amounts upon death of a member, RFS will ascertain that 51% of the lump sum benefit allocated by the trustees to each beneficiary in accordance with section 37C is applied to provide annuities to the designated dependants. One-third of the annuity capital (or the full annuity capital if it is less than N$ 50,000) may be commuted for cash. Neither the commutation of annuity capital nor the remaining balance of 49% of the lump sum death benefit constitutes “gross income” as defined in Section 1 of ITA and no tax directive needs to be obtained.
  • Where a pension fund in terms of its rules provides that upon the death of a pensioner any remaining capital in the pensioner’s account is to be as lump sum, this must be paid in the form of a taxable annuity for a period not less than 5 years.

Trustees are advised to ascertain that the resolutions for the disposition of lump sum benefits upon death of a member of their pension fund per Section 37 C of the Pension Funds Act are consistent with above ITA interpretations.

Read more on the application of Practice Note 5 of 2003 on benefits payable upon death, here...


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 an HR officer of a client

“Dear Bianca,
Thank you so much for all your assistance. This is amazing client service!!!! You are all making me miss Namibia a bit more. Thanks again.”


Read more comments from our clients, here...

Does my employer pension fund provide adequately for me?
by Marthinuz Fabianus - Deputy Managing Director

Background

The above question is but one that a member of a pension fund may ask. However, the question begs a lot more answers than can be provided in a short article like this one. Conceivably, what can a pension fund member possibly expect or not expect from a pension fund? Most of the existing employer pension fund arrangements in Namibia provide benefits to members on the occurrence of major life events; being upon reaching retirement, in the event of death, when the pension fund member is declared medically unfit to continue working and lastly when the member resigns from their employment or is retrenched.

You may also occasionally find an employer’s pension fund that provides a benefit in the event a member suffers from a pre-defined so called dread disease.  Lastly, some pension funds allow their members to borrow from their pension fund savings in respect of housing benefits or use member pension fund savings to provide security to financing institutions in respect of housing loans provided to members of the fund. This article will however only focus on the model benefits payable by a pension fund upon reaching retirement age, in the event of death or if a member is declared medically unfit to work due to injury or sickness (i.e.  medical disability).


Retirement Benefit

A member may retire and access their retirement benefit typically from age 55, although neither the Pension Funds Act nor the Income Tax Act sets a minimum retirement age. Anecdotal evidence suggests that a member who contributes 14% of salary for an uninterrupted period of 30 years, assuming the contributions made and earned interest of 4% above inflation, can expect his total retirement savings to provide a monthly pension of around 63% of salary. Should any of the above variable factors be more or less, than the pension that can be expected at retirement will also increase, respectively decrease. A universally accepted pension as % of salary before retirement is 60%, after 30 years of membership, i.e. 2% per year of membership. The taxability of the benefits at retirement and the pension options at retirement are different subject matters all together and I will not deal with these here.

Benefits upon Death of Member

Pension funds typically takes out insurance cover on the life of each of their member to supplement any savings that have accumulated in the pension fund on behalf of a member. Should a member die before retirement, the total lump sum available should at least be sufficient to provide an income to the spouse for the remainder of her life of 40% of the member’s salary before the member’s death.  A pension to children (average 3) of around 6.5% per child until each child reaches majority age should ideally also be provided for. This suggested pension to spouse and children at current inflation of around 7% over the relevant period for spouse and children will require capital of around 8-10 times annual salary of the deceased member. Again, dependents’ pension equal to about 60% of salary is in line with universally accepted norms (more especially ILO conventions on social security).

Benefits upon disability

Most pension funds take out insurance cover for each of their members against disability as a result of injury or sickness. The insured benefit is usually a salary replacement benefit payable monthly, the typical benefit being 75% of salary. This benefit is paid by insurer directly to a qualifying member or indirectly through the pension fund.  The member usually retains his membership of the fund and continues to contribute to the fund whilst contributions paid previously by the employer are paid on its behalf by the insurance company. The member will also retain the insurance cover for death whilst receiving a disability income benefit. The death cover may even include an annual adjustment to counter the effects of inflation.

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.

News from the market

Entrépo Life terminates underwriting of all group business

Entrépo Life (Pty) Ltd recently announced that it will no longer underwrite any group business and instead focus exclusively on individual business. Group schemes currently underwritten will have to be placed with another insurer at the next renewal date.

Media snippets
(for stakeholders of the retirement funds industry)

PFA hits fund with punitive damages payment

In this case a member resigned from an umbrella provident fund in November 2013. The member’s employer refused to sign the termination form as required by the umbrella fund as it resolved to charge the member. A case against the member was opened by the employer in a civil action in 2014 but due to its complexity had still not been finalised by the time the article was written but was placed on the court roll for 13 to 17 February. The member complained that he was prejudiced by the benefit not having been paid to him.

The administrator of the umbrella provident fund submitted that the complainant must be paid what is due to him for the following reasons:

  • there was no judgment against the fund or the complainant to withhold any benefit in terms of section 37D;
  • enough time was allowed for the third respondent to provide the judgment for damages and the member was now being prejudiced by withholding his payment; and
  • the court matters were civil proceedings between the employee and his employer.

The case of the member related to breach of his employment contract. In her ruling the Adjudicator ruled that “In the present case, the deduction relating to a breach of contract is not permissible in terms of the categories of section 37D of the Act. Furthermore, the fact that the third respondent has instituted civil action against the complainant does not justify the withholding of the complainant’s withdrawal benefit. This Tribunal notes with concern the passive role adopted by the administrator of the umbrella fund by failing to request reasons or documentary proof for the withholding of the benefit. If the fund made this simple request at the onset, it would be in a better position to assess the claim based on the merits, thus preventing the complainant from incurring prejudice. In the present case, the deduction relating to a breach of contract is not permissible in terms of the categories of section 37D of the Act. Furthermore, the fact that the third respondent has instituted civil action against the complainant does not justify the withholding of the complainant’s withdrawal benefit.”

Apart from ordering the fund to pay the complainant the withdrawal benefit plus interest, it was also ordered to pay the complainant punitive damages in the amount of five percent of his benefit for its failure to satisfy itself as to whether or not the contemplated deduction was allowable, thus resulting in the complainant not being paid his benefit timeously.

Read the article in Insurancegateway of 15 February 2017, here…


Is equity essential for a retirement investment portfolios?

“The advancement of medical science means that most people are likely to spend virtually the same amount in retirement as they did working and building up their retirement nest egg. This longevity places a huge amount of pressure on the retirement capital that is available when an individual stops working and significantly increases the importance of starting to save for retirement as early as possible…It’s also important to differentiate between saving and investing. While South Africans are notoriously bad at saving, there are some households that have savings accounts. However, this saved capital should not really be factored into long-term investment goals – especially retirement . This is because while a savings account is excellent for minor financial emergencies, the money is not usually being invested optimally as interest from fixed deposits or other pure savings facilities are simply too low over time to grow money enough to meet the needs of retirement…Having established that our money needs to work harder than ever to keep up with the rising cost of living and our longer lifespans, rather than asking whether equities are essential, we should be asking ourselves why equities are essential…The answer is relatively simple. Equities have the proven potential to provide higher returns than most other investments over a period of time but due to the higher risks involved in getting these higher returns, equity investments should be chosen for longer-term goals, which are ideally more than five years away. As such, investment funds with a strong equity bias are one of the best ways to invest for the long term and, as such, should be considered an essential part of any well-planned and diversified investment portfolio.”

Read the insights from Jo-Anne Bailey of Franklin Templeton Investments in Risk Africa News of 8 February 2017, here...


Can I cash out my pension to invest?

Reader’s question: “I am considering resigning from my job. l have worked for 22 years and under a pension fund scheme. l am 46 years’ old and expect to get slightly over R500 000. Is it possible to invest in a vehicle that will pay out at an income of at least R15 000 per month?”

The answer to this question addresses a few important considerations such as tax and risk versus return, inflation risk versus capital risk that any fund member considering to cash out his or her pension benefit for investment should be aware of.

Read the article by Mduduzi Luthuli in Moneyweb 13 March 2017, here...


Media snippets
(for investors and business)

Why is the Rand strong but foreigners are dumping SA assets?

The Rand strengthened by 3% in February despite net foreign investment outflows from bonds and equities of N$ 53 bn. Over the past 12 months the Rand strengthened by 17% despite net outflows of foreign capital from equity and fixed interest securities of R 64 bn. How can this apparent contradiction be rationalised?

The main reasons offered for this are the following:

  • The current commodity rally from it trough in January 2016 (follow this link);
  • Emerging markets currency rally as the result of carry trade and the commodity rally;
  • SAB acquisition; and
  • Repatriation of moneys loaned offshore.

Read this interesting article by Dawie van Vuuren in Sharenet of 22 February 2017, here…

The problem with saying “my door is always open”

“If you are in an influential position, you have probably said words to the effect of “My door is always open.” You likely meant this declaration very genuinely. You might well feel that you are a pretty approachable sort of person and that others feel comfortable coming to you with their issues and their ideas. This may be true. But it probably isn’t. Leaders often have an inflated idea of how easy it is for others to speak honestly to them..”

“So how do you, as a leader, acknowledge power differences and genuinely encourage others to speak up to you? Our research suggests that you need to ask questions in five areas:

First, are you honestly interested in other people’s opinions? Being genuinely curious about other perspectives requires a humility that can be in short supply as you head up the organizational hierarchy. Before you conclude that you are sure you don’t have a problem in this area, it is useful to check by asking yourself, “How do I know that I have a reputation for being open to changing my mind?”

Second, have you considered how risky it feels for others to speak up to you? It may well be that on the previous 10 occasions you received challenge with interest and admirable attentiveness, but on the eleventh you’d had a bad day and just couldn’t stop yourself from interrupting and grumpily disagreeing with the person. The eleventh occasion is the story everyone will tell around the office. And that story is the one that will live on for years.

Third, how aware are you of the political game being played? Politics is an inherent part of organizational life; personal agendas play out all the time in what we choose to say to one another. Enabling others to speak up means understanding why this person might be saying what they are saying (or why they are staying silent).

Fourth, what labels do people apply to you, and what labels do you apply to others that define the rules of what can be said? When we meet with others, we label them, consciously or unconsciously. But inevitably they are all markers of status, and status governs the unwritten rules around who can speak and who gets heard.

Finally, what specifically do you need to do and say to enable others to speak? This might include anything: reducing status difference by choosing to dress more casually, introducing a “red card” at executive committee meetings to ensure someone has the ability to challenge you.

Read the full article by Megan Reitz and John Higgins in Harvard Business Review of 7 March 2017, here...


And finally...


“The question isn't at what age I want to retire, it's at what income.”
~ George Foreman

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Benchmark Retirement Fund

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