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In this newsletter:
Benchtest 03.2017, NAMFISA levies to increase 2,400%, trustees and corporate governance and more...

Important notes and reminders

VET levy claims procedure

If you do not want the VET levy to be only a tax burden to you, claim your staff training costs back from NTA. PWC’s ‘Tax First Special Edition’ offers some guidelines how to go about claiming your training costs. The deadline for submitting your claim for costs incurred over the past 12 months is 1 May 2017. Read the newsletter here...

Are your service providers registered?

Certain service providers to pension funds are required to be registered by NAMFISA to provide services to pension funds. These are –

  • Short-term insurance brokers
  • Short-term insurers
  • Short-term re-insurers
  • Long-term brokers
  • Long-term insurers
  • Investment managers
  • Medical aid funds
  • Pension funds

The information is available on the NAMFISA website although it would appear that the information is not fully up-to-date. For your convenience find the lists here...

Newsletter

Dear reader

In this newsletter we comment on a proposal for NAMFISA levies to increase by up to 2,400%, we question how concerned trustees are about corporate governance, we relate how important it is for trustees to stay close to members through regular communication and we give an update on the Once Chart of Accounts project of NAMFISA and indicate that costs are likely to increase by at least 50%.

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 03.2017


In March the average prudential balanced portfolio returned 1.95% (February: -0.64%). Top performer is Investec (2.30%); while EMH Prescient (1.25%) takes the bottom spot. For the 3 month period Namibia Asset Management, takes top spot, outperforming the ‘average’ by roughly 1.2%. On the other end of the scale Momentum underperformed the ‘average’ by 0.9%

Is SA facing a financial tsunami?

There can be little argument that South African financial markets are experiencing turbulent times. Looking further abroad, there is no less argument for agreeing that global financial markets are experiencing turbulent times and there is no end in sight. As I previously opined, president Trump is not America, he is just a pawn in a well-established chess game that has been going for a very long time and that will not be diverted in its focus and intent by a president, of which there have been many. In the same way president Zuma is not South Africa. He too is just a pawn and I believe this is substantiated by the panicky spiking of the Rand after the dismissal of former finance minister and its speedy recovery once the hype of this move was out of the system. Certainly the media is playing a key role in inciting panic and making investors act against their own best interests. I do not believe it is rational to take any investment decision based on what any individual has said or done, how ever influential he may be, unless your intention is to speculate by pre-empting public response to such statement or act.

Read part 6 of the Benchtest 03.2017 newsletter to find out what our investment views are. Download it here...


Pension funds may have to pay up to 2,400% higher NAMFISA levies

NAMFISA has circulated proposed changes to the current levy structure. These changes will have a major impact on funds and trustees and principal officers are advised to acquaint themselves with this matter and to formulate their position. Unfortunately the due date for comment of 21 April has already expired.

Download the NAMFISA circular here...

Read our client circular that reflects our thoughts on this, here...

The direct levy on pension funds is proposed to change from N$ 250 per fund plus N$ 12 per member and pensioner, per year, to 0.0027% of total assets per year.

Besides citing very noble objectives in setting the new levy structure, NAMFISA has given no indication what the impact of the proposed changes would be on its total income.  Applying the current levy structure to our client base, the direct levy on pension funds increases from approximately N$ 400,000 to approximately N$ 4 million – an astronomical increase by any measure. As the previous basis was purely fund membership while the new basis is purely fund assets the impact of the proposed levy varies from fund to fund. In our client base the lowest increase will be 80% and the highest 2,400%, the average increase being 1,000%!

We estimate the impact of the increase in the direct fund levy for the industry to increase 10 fold from approximately N$ 4 million to approximately N$ 40 million

Of course pension fund members will further be taxed by NAMFISA  through the following levies: -

  • Levy on insurance companies changes from 0.1% of total liabilities to 0.3% of gross premiums income. Based on the NAMFISA statistical bulletin for quarter 2 of 2016, the levy on long-term insurance companies will drop from approximately N$ 40 million to approximately N$ 5 million.
  • Levy on unit trust schemes (where a fund invests in these) increases by 1,600% from 0.0033% plus N$ 5,000 per year to 0.053% of total assets managed. Assuming that funds investing through unit trusts will not be levied both the levy on unit trust management companies and the levy on asset manager who mostly do manage the assets of unit trust management companies we assess the impact only under the following bullet point.
  • Levy on asset managers increases by 1,250% from 0.0012% plus N$ 5,000 to 0.015% of the total value of investments. We estimate the impact of this to increase the levy from approximately N$ 2 million to approximately N$ 21 million.
  • Levy on unlisted investment managers is to be introduced at 0.053% of total assets managed. We estimate this new levy to raise an additional income of N$ 2 million.
  • Levy on stock brokers increases by 800% from 0.0033% to 0.026% of total value of total value of securities traded. Unfortunately we do not have any statistics to estimate the monetary impact of this increase on pension funds.
  • Levy on short-term insurers decreases from 1% to 0.569% of gross premium income. We estimate  the impact of this decrease to be a reduction of income from approximately N$ 9 million to N$ 5 million.

Conclusion

We estimate that the proposed new levy structure will net NAMFISA an additional income of approximately N$ 20 million per year. The most significant change is that the burden on pension fund members will be raised by approximately N$ 57 million, while the burden on long- and short-term insurance companies will be reduced by N$ 39 million.

Assuming that half of the long-term insurance premiums are contributed by pension funds, pension funds will carry levies of around N$ 65 million which means that the pension fund member/ pensioner will contribute approximately N$200 per annum.

Calculating the future and the present value of a member contribution of N$ 200 per year over a 40 year working life time, plus another 20 years in retirement, at a real return of 5% per annum implies that each fund member must pay NAMFISA N$ 4,500 up front to compensate it for its regulatory role, or must pay N$ 36,000 in today’s terms at the end of his or her 40 year fund membership!

Pension funds are undoubtedly the biggest contributor to the coffers of NAMFISA by far!


Corporate governance and managing trustee expenses

South Africa prides itself of being at the forefront of good corporate governance on the basis of the 16 plus one principles formulated in the King IV report.

A trustee on a pension fund’s board of trustees is in no different position to a director on a company’s board of directors. Trustees in SA have been held liable in their personal capacity for wrong doings on their fund and Namibian courts will undoubtedly look for SA precedents when adjudicating on any wrong doing by a board of trustees in Namibia.

The key concepts of directorship and trusteeship  are

  • Duty of good faith
  • Duty of care
  • Duty of skill

Trustees are required to manage the affairs of their fund in the best interests of their members. As a trustee there are many areas one needs to consider and measure your fund to understand whether you are doing good, bad or indifferent. Commonly for example, trustees measure the performance of the investments of the fund. The investments being the biggest asset of the fund, the performance can fortunately be measured against readily available benchmarks and trustees will at all times know how they are doing and when they may expect to face head winds from their members if they are not doing that well. So that area is covered pretty well provided trustees have applied care, skill and good faith in appointing the asset managers they did appoint.

But what about fund expenses, managed by the trustees in their absolute discretion? There are no readily available benchmarks. So one board of trustees may decide that the fund should carry the cost of each of their trustees doing an MBA or similar qualification to better qualify them in managing the affairs of the fund. Another board may decide it should be good enough to have each trustee attending a relevant training course once every second year. One board may decide trustees need international exposure to be better equipped to act in the best interests of the fund’s members taking into account international developments while another fund is only prepared to support local seminars and courses.

So how does your board of trustees decide whether your policies measure up well against the duties of care, skill and good faith? This is particularly critical as far as expenses are concerned that are incurred for the direct or indirect personal benefit of trustees – an area where trustees are likely to face serious censure if they have not managed to separate personal interests from fund interests.

As far as the example of training goes, one important consideration is whether trustees are serving the fund on a full-time basis or only on a part-time basis. If one looks at this question from a company’s point of view, any company would go to much further extents in training staff to run the business of the company because the benefits of such training would accrue to the company on a ‘24/7 basis’, i.e. the dedicated employee is expected to plough back into the company everything he learnt.

Directors or trustees typically only serve the company or fund on a part time basis and are expected to have a sufficiently solid foundation to understand and to apply their obligation of duty of faith, duty of good care and duty of skill to overseeing the management of the business of the entrusted entity. So one needs to distinguish clearly between these two situations. Company’s often have benchmarks for staff training and maybe the VET levy is a good starting point as this is what government effectively has resolved employers should spend on training their staff. The same principles can be applied to a pension fund where the payroll comprises of the salaries paid to full time staff plus the trustee remuneration.

To assist trustees we have established a data base of funds administered by RFS. The average in each case is probably a good benchmark. Anything closer to the minimum or to the maximum should be probed properly to determine whether it can be justified or whether it may expose the trustees to a risk.

Here are the figures your fund may wish to benchmark to.

Expense Measured % of total data base Average % of p/roll of those paying Min % of p/roll of those paying Max % of p/roll of those paying
Paid sitting fees 32% 0.12% 0.01% 0.34%
Paid training costs 68% 0.04% 0.00% 0.31%

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 principal officer

“M
Thank you for your excellent summary.  It saves me a lot of effort…
A few quick responses...
  • Thank you very much for clearing the Namfisa levies. RFS is as efficient as ever.”
Read more comments from our clients, here...

Be in touch with members of your fund!
by Marthinuz Fabianus - Deputy Managing Director

It has been so many years since I have been on the road to talk to groups of members of pension funds. This may explain why I thoroughly enjoyed and appreciated recent road trips I embarked on during March to engage and present to members. The exercise evoked good memories of my early encounters with members across different industries, from all levels of employees and from across the length and breadth of the country more than 20 years ago in some cases.

My first session was with over 300 factory workers of a fishing company. Even though this is obviously a very large group and you will expect not to have an effective and meaningful conversation, the opposite was true. The group was very attentive, enthusiastic and engaging. It was in hindsight pleasing to observe that the group consisted of many who were part of the same group that I consulted to more than 10 years ago and were at that stage very hostile as they were filled with distrust, ignorance, with anger and disappointment amongst many negative feelings. This was because their previous pension fund at the time was poorly managed and the members were kept in the dark about the affairs of the pension fund. Having provided them with a lot of education, assurances and commitments for the transition (which were obviously lived up to), assured me of a respectable return encounter. This time around, members were interested in finding out if the benefits offered by the fund could be improved further. They made suggestions to be allowed to make additional or voluntary contributions and suggested an increase of the group funeral benefits. They also requested that their pension fund savings be used as security for housing loans from financial institutions. This is the kind of constructive conversations trustees and pension fund service providers alike should and can have when members are happy with the management of their pension fund.

My second session was with a much smaller group of white collar mining employees. In this session, the members where facing an imminent retrenchment from their employment and thus had a bleak outlook. To make matters worse, the average prudential portfolio returns were depressed over the past year as a result of overall an down turn and volatility in financial markets that prevailed and continue unabated for the past 2 years.  This scenario affirms the point that pension fund investments are long term in nature and should not have to be called upon in the short term, lest it be perceived incorrectly as disappointing.  Instead, members of pension funds should be educated to plan financially for certain eventualities, e.g. sudden loss of income.

My third engagement with groups of members during the course of March this year was with another relatively big group of educationalists from the vocational sector. This group also had various questions they needed answers on but focused on the stringent guidelines laid down by the Pension Funds Act regarding the disposition of benefits on the death of a pension fund member, as well as the income tax deductibility of pension fund contributions.

Unless trustees in particular make a point to engage and have face-to-face contact with members, I would venture to suggest they will not really be able to stay on top of the pension fund needs of their members and risk providing  benefits that are out of pace with member needs.

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

Status of the One Chart of Accounts project launched by NAMFISA

Reporting in accordance with the latest proposals by NAMFISA in terms of its One Chart of Accounts project will become a new obligation for all pension funds. At the risk of being accused by some quarters of spoon feeding our clients and being suspected by other quarters of manipulating our clients to serve our interests, RFS has actively involved itself in this project. We understand the realities of our pensions industry which unfortunately does not seem to be the case with a number of other role players.

NAMFISA requested feedback on the time frame for gearing up to report in the new format and on the costs it would entail to gear up to report. We have realised that the main burden for providing information would rest on asset managers and have consequently drawn their attention to the new proposals. Asset managers have now taken this up with NAMFISA and are in direct communication with NAMFISA.

From our side, we will assist our clients to consolidate the information that other services providers, such as asset managers, are to provide and will set up our processes to extract the information we maintain on our systems. Much of our preparatory work has been done in this regard and we do not foresee that it will require a long preparation period, provided the format of the report will remain as is.

We have put together a cost estimate for gearing up and for regular reporting in future and have informed NAMFISA as requested. If reporting in the new format will replace the current SIH reporting, costs will be some 50% higher than those of the current form of reporting due to significantly increased information requirements. Unfortunately the report does not lend itself to automation as the information has to be provided from different information custodians to then be consolidated into a composite report.

 
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.

News from RFS

The RFS / SKW youth soccer tournament 2017

RFS once again sponsored the RFS / SKW youth soccer tournament that took place at SKW Soccer fields from 21 to 24 April.


Above: Kai Friedrich hands the RFS sponsorship to Mr Vincent Molzahn, Chairman of the SKW soccer division.


Above: Kai Friedrich hands the trophy to the captain of Kaizen Football Academy youth team, winners in the under-17 category.


Above: the winning under-17 team of the Kaizen Football Academy.


News from NAMFISA

Industry meeting of 13 March 2017

You should take the trouble to read the notes of the latest pension funds industry meeting held on 13 March 2017 for insight into the goings on at NAMFISA.

Our staff attended this meeting and prepared notes  for the convenience of clients and readers that you can download here...


Media snippets
(for stakeholders of the retirement funds industry)

Review of pension fund trustee decision

This case (Maphoyisa v Municipal Gratuity Fund and Sanlam Life Insurance Limited or Maphoyisa case) is about the prescription of a claim of a minor beneficiary after reaching age of a majority. In SA age of majority was changed from 21 to 18. The same is due to happen in Namibia. The Child Care & Protection Act was promulgated in Gazette 5744 of 29 March 2015 and sets the age of majority at age 18. At this stage the Act has not commenced yet.

A complaint was lodged by a person who claimed to have been dependent on the deceased and should have been considered for an allocation of a portion of the death benefit. The Fund did not deal with the merits of the complaint. Instead the Fund relied on the Prescription Act 1969 (which also applies in Namibia) which stipulates that if the creditor is a minor the period of prescription will not be completed before a year has lapsed after the day he ceases to be a minor. The Fund argued that the complainant was out of time to lodge a complaint as his claim prescribed on 10 November 2016 (1 year after he turned 18) and the complainant only lodged the complaint on 22 November 2016.

The PFA then referred to a Supreme Court of Appeal finding which essentially provided that legislation cannot have retrospective effect, unless the new legislation expressly states it applies retrospectively (where it impairs a vested right acquired under existing legislation).

In light of this, the PFA reached the conclusion that since the Children’s Act did not state it applied retrospectively and the new majority age would impair the rights of the complainant, the majority age of 21 must apply to the complainant. As such the complainant’s claim had not prescribed as he was only 18 years old when the complaint was lodged. His claim would only prescribe on 10 November 2019, one year after he turns 21.

The trustees’ decision that was taken 12 years before the complaint was lodged, was set aside and the trustees were ordered to re-apply their discretion.

Presumably by now the moneys would have been distributed so if the trustees then arrive at a different allocation, any underpayments must be made good while the fund would sit with the challenge whether or not to recover any overpayments.

Read the full article by Gennel Chettiar of Norton Rose Fullbright in Insurances Gateway of 21 March 2017, here...


What to do when the market drops

“Often when the market dips, even slightly, people’s first reaction is to act hastily, this can only be to the detriment of your investments. While the ultimate goal of investing is to realise growth on investments, there’s an element of risk that is innate to investing, especially in stock markets. It is therefore important for investors to understand the market risk to ensure an appropriate response in the event of a temporary drop in the market.”

In order to see your investment grow, follow this advice:
  • Don’t sell on a whim
  • Diversify further
  • Stay put, block out the noise
  • Continue investing
Read the advice from Aneesa Razack, CEO of FNB Share Investing, in Cover Magazine, here...

Investment choices: cash or balanced fund

“The answer is: it depends , but probably a balanced fund.”

Here is the answer to why it depends, derived from a study carried out by the author over a period including the market crash in 2008/9.

“...in the worst case scenario an investor into a balanced fund could have experienced a drawdown of 20% over a period of nearly 1.5 years, still been negative after nearly 2.5 years, and only overtaken the worst case experience right at the end of the 5 year period! More realistically, the average fund investor would have generated a return some 4% pa better than the average cash investor, despite investing through the 2008/9 crash! It is also evident that an investor with a shorter investment horizon (i.e. 1 year or 3 years) should probably be investing into a lower risk option – potentially even cash!”

Read the article by Mike Browne of Seed Investments in Sharenet of 20 April 2017, here...


A blueprint for financial survival

The preceding two articles essentially cover the same topic namely how South Africans should go about managing their investments under current circumstances, but proposes much more radical answers. Magnus Heystek, a well-known commentator and investment strategist at Brenthurst Wealth takes a very dim view on SA’s economic prospects and based on these makes some radical suggestions as to what you should do.

Read the interesting article in Moneyweb of 24 April 2017 here....


Media snippets
(for investors and business)

Namibians are the 3rd wealthiest people in Africa

An interesting finding, and if you are interested to read more about it, read the short note in IJG Daily 240117, here...

Bonuses at Amazon for not calling sick

Employers undoubtedly sometimes wonder about the legitimacy of doctors’ certificates for sick leave of their staff. From personal experience doctors normally prescribe some medicines and that’s it. Others enquire whether you want to be booked off.

Amazon in Germany has introduced a controversial bonus scheme paying between 6% and 10% of the employee’s salary for using few paid sick days. It has also designed the scheme to apply peer pressure on employees not to call sick. Of course one must be aware that this coin too has two sides that one should consider. In cases of infectious diseases one probably would not want the employee to call for duty.

Read the interesting short article in Quartz Media, here...


And finally...

“Retired is being twice tired, I've thought. First tired of working. Then tired of not.”
~ Richard Armour

 

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