In this newsletter:
Benchtest 07.2017,  housing loan interest rate declines, Benchmark breaches N$ 2 billion and more...

Important notes and reminders

Bank of Namibia drops repo rate

Bank of Namibia announced on Wednesday 16 August that the repo rate has been reduced by 0.25% from 7% to 6.75%. Funds offering direct housing loans will consequently have to reduce the housing loan interest rate by 0.25% from 11% to 10.75%.

Benchmark Retirement Fund passes N$ 2 billion in assets

WINDHOEK- Local pension umbrella fund, Benchmark Retirement Fund has announced its 2016 results where Principal Officer Kai Friedrich said investments held by the Fund’s members grew by N$164 million during 2016, and assets  under management of its 8,778 members, hit N$2,155 billion.

Read the article in Oshili 24 of Wednesday 8 August, here...

RFS marks its 18th anniversary

18  years ago Tilman Friedrich and Mark Gustafsson walked out of Alexander Forbes after it bought out ailing Ginsburg, Malan and Carsons who operated in Namibia as United Pension Administrators (UPA). UPA started off in the mid 1980s as a small long-term brokerage to mutate over time to the largest Namibian fund administrator and consultant (excluding the GIPF of course), outpacing all its foreign competitors. UPA under the able hands of Charlotte Drayer in fact introduced private fund administration to Namibia when it took on the administration of the Ohlthaver & List Pension Fund and the Ohlthaver & List Provident Funds after its very bad experience with a South African broker and the SA insurer who was the underwriter of the fund at the time.

When Alexander Forbes took over UPA, the writing was on the wall for UPA’s Namibian management team. Its choice was between knuckling down and accepting that Alexander Forbes would have been virtually a monopoly in the private funds market or setting up a truly Namibian organisation that would offer a welcome alternative to the market.

The past 18 years have proven that the decision to establish RFS was the right decision at the right time. Today RFS is lagging its biggest competitor in the private funds administration market by a slim margin only. This would of course not have been possible without dedicated and loyal staff and without loyal clients!

To all our staff and to all our clients, we express our most sincere appreciation for your loyalty and support over the past 18 years! We look forward to continue our special relationship for many years to come!


Dear reader

In this newsletter we look at the regulatory state of affairs and how this impacts the retirement funds industry, we look at what trustees stand to do when the rules are not clear as to what benefit applies in a particular situation and in our Benchmark Monthly Performance Review of 31 July 2017 we pose the question whether a pension fund member can afford to be in the money market.

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

Monthly Review of Portfolio Performance
to 31 July 2017

In July the average prudential balanced portfolio returned 3.55% (June: 1.21%). Top performer is Nam Asset Management (4.92%); while Stanlib (2.51%) takes the bottom spot. For the 3 month period, EMH takes top spot, outperforming the ‘average’ by roughly 0.92%. On the other end of the scale Stanlib underperformed the ‘average’ by 1.10%.

Can you afford to be invested in the money market?

In last month’s Benchtest I tried to explain how difficult it is to get the timing right for switching to either more conservative, or to more aggressive portfolios and back. Take the last two months as a point in case. In June the average prudential balanced portfolio returned minus 1.2% for the month while the JSE Allshare index returned minus 3.6%. Had you taken this as your prompt to switch to the money market portfolio, you would have sacrificed July’s return of 3.5% of the average prudential balanced portfolio and 7% of the JSE Allshare index. Cash would have given you 0.7% for July.

Switching investments because of last month’s poor or good returns is clearly not the answer. One needs to have a goal and a strategy how to get there. Much like is implicit in a business’ vision, mission and philosophy. In terms of retirement investment, pension funds actually are structured around the implicit vision that a person should be able to replace his or her income at a rate of 2% of remuneration for each year of fund membership – referred to as income replacement ratio. Empirical evidence suggests that an income replacement ratio of 2% should support a reasonable life style in retirement at a reasonable cost. This replacement ratio is critically dependent on two factors, firstly the net contribution rate towards retirement by employee and employer and the investment returns earned over the working life. The following table illustrates the interdependency of these two factors.

Read part 6 of the Monthly Review of Portfolio Performance to 31 July 2017 to find out what our investment views are. Download it here...

If government was serious about promoting economic development

If government was serious about promoting economic development in Namibia it should make every effort to reduce bureaucracy and streamline regulation throughout the government agency web. Unfortunately we are currently moving into the opposite direction where more and more regulators are created and where each regulator seems to be intent on establishing its authority through the tightening of bureaucracy. For the purpose of this column we consider retirement funds to be part of the business infrastructure of the country. The following points in case reflect a regulatory development that undermines the desire to improve the ease of doing business in Namibia.

Pension fund death benefits
Take the case of death benefits payable by a pension fund. In terms of the Income Tax Act the greater portion (51%) of the benefit is to be paid in the form of an annuity. Inland Revenue has now taken a stand on this and does not allow a pension fund to pay a death benefit purely in the form of an annuity. To give effect to the requirement of the Income Tax Act pension funds whose rules offered only a lump sum benefit in the event of death, have submitted rule amendments in terms of which the greater portion of the death benefit will be paid in the form of an annuity. NAMFISA however, has decided that death benefits are to be paid in accordance with section 37 C of the Pension Funds Act and it insists that payment in the form of an annuity, as required by the Income Tax Act, is inconsistent with the Pension Funds Act and rejects rule amendments that intended to give effect to the Income Tax Act.

Spouse’s and children’s’ pensions
The rules of some pension funds (including those of the GIPF by the way) provide that in the event of the death of a pension fund member, the spouse and/or dependent children of the deceased member will be paid a pension. NAMFISA however, has decided that death benefits are to be paid in accordance with section 37 C of the Pension Funds Act and it insists that payment in the form of an annuity, is inconsistent with the Pension Funds Act and rejects rules and amendments that provide for spouse’s and children’s pensions. Furthermore, such rules would define who is regarded a spouse and who is regarded a child on the basis of how the fund is able to reinsure the benefit with an insurer. The insurer in turn would define spouse and child very narrowly in order to be able to determine and to quantify its liability clearly. NAMFISA however, has decided that a definition of spouse and of child must mirror the definition in the Pension Funds Act. The consequence of NAMFISA’s position in this regard now is that a fund cannot offer a defined spouse’s and/ or child’s pension anymore. So those funds that offer such benefit will have to do away with these benefits. Problem however is that this would be a change in the employee’s conditions of employment and would imply a reduction of benefit of the pension fund member. Ironically, NAMFISA refuses to register rule amendments that change any benefit without proof that the members have been consulted but how do you consult an employee on removing a critically important benefit for his dependants?

Amending members’ benefits
Whenever a fund submits a rule amendment that implies an amendment of members’ future benefits, NAMFISA requires proof that members were consulted. The fact that employers are required to observe the Labour Act in the event of changing employees’ conditions of employment seems to be irrelevant to NAMFISA. It now lays down its own requirements for amending benefits offered by a retirement fund and thereby interferes in the processes that need to be followed by employers in terms of the Labour Act. Approval of rule amendments are consequently now delayed and any agreement reached by employer and employees in accordance with the requirements of the Labour Act cannot be given effect as far as their retirement fund benefits are concerned.

Administrative fairness
Established practices have been observed by retirement funds and NAMFISA for many years. Rule amendments for example were submitted in a certain manner and were for many years accepted in this manner by NAMFISA. Suddenly NAMFISA has changed its mind about what it believes is required. Where one would have thought that in the interests of avoiding bureaucracy NAMFISA would have informed retirement funds of its new requirements and would have given enough time to amend procedures in view of the new requirements, it has now returned all amendments that were in the process of approval. So now the whole time consuming process has to be started all over again.
Will we see NAMFISA adopting a more consultative approach to regulating the retirement funds industry considering its intention to move from rules based supervision towards risk based supervision?
Undoubtedly RFS is not the only our company reeling under regulatory bureaucracy that takes top management focus totally off one’s business. Between Inland Revenue, NAMFISA, the Competition Commission of late, the Labour Commissioner, VET and others it becomes more and more difficult to build a business and to create jobs that can secure income tax revenue for our state coffers.

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 former member of the Benchmark Retirement Fund

“Dear B
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.
All the best.
Kind regards

Read more comments from our clients, here...

Kai Friedrich's Administration Forum

What should trustees do if the rules provide for different benefits?

To say that a pension must be managed strictly in accordance with its rules is stating the obvious. It is probably sometimes not obvious to trustees though, that they cannot make decisions that are not provided for by the rules, either explicitly in terms of specific provisions, or implicitly in terms of general provisions. If neither exists in the rules, trustees would act ultra vires and may be held accountable for any loss the fund or its members may suffer as the result of such action, even in their personal capacity.

But what do trustees stand to do where the rules provide for alternative benefits without giving guidance under what conditions to employ the one as opposed to the other alternative? An example we have recently had to deal with is where the rules in the event of death of the member or pensioner, provide for a member’s or a pensioner’s remaining capital to be paid as a lump sum in terms of Section 37C of the Pension Funds Act, alternatively in the form of a pension to a dependant or dependants of the member or pensioner. No indication is given on any particular priority or preference.

In such instance the rules provide discretion and it is the trustees that need to apply this discretion being the party charged with managing the affairs of the fund. This means that they have to apply their mind before they take a decision they believe to be in the best interest of the beneficiary/ies. To be able to apply their mind with due care, they need to get as much information as possible on dependants and nominated beneficiaries as  they would do in the event of being required to decide on the distribution of a lump sum death benefit.

Consulting the dependants and beneficiaries becomes an essential element of the information the trustees need to obtain. When they come to the point of deciding whether to pay the capital in a lump sum or as an income to a beneficiary/ies, Section 37C must first be ignored and must be ‘replaced’ with their discretion that will lead to a rational and defensible decision. However, if the decision is taken that payment as a lump sum is in the best interests of the beneficiary/ies, the requirements of Section 37C now have to be observed.

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

New appointment

We are pleased to announce that Carmen Diehl was recently appointed to our permanent staff complement as Manager: Internal Audit, Compliance and Risk Management. Carmen matriculated at DHPS in 2000. She obtained a B. Accounting (Honours) degree in 2004 at the University of Stellenbosch.  She started her articles with KPMG in 2005 and moved to EY in October 2006. She completed her articles with EY in 2008 and qualified as a Chartered Accountant (CA). She joined Bravura Namibia Trading in 2008 as Financial Manager. From 2009 until 2012 she was employed by the O&L group as group financial manager: corporate finance, where after she joined Ohorongo Cement. We extend our sincere welcome to Carmen and look forward to her contribution for the benefit of the company and our clients for many years to come!

News from NAMFISA

Update from meeting with NAMFISA held on 28 July 2017
By Marthinuz Fabianus

Proposed amendments to Regulation 29 under the PFA

The meeting was attended by mostly representatives of unlisted investment managers. There were only 3 or 4 pension fund representatives. Purpose of meeting was to find common ground on matters requiring further deliberation per Table B of latest NAMFISA notice letter of 14 July 2017.
  • Increase the minimum from 1.75% to 5% and to increase the maximum to 10%:
    It was agreed after intense deliberations that the minimum will be retained at 1.75%, but the maximum will be increased to 7.5%

  • Make provision for passive movements of market values to be corrected within 12 months:
    It was agreed that breaches will be allowed to be corrected within 6 months for both unlisted investments as well as other pension fund assets

  • Include an en commandite partnership as an allowed structure for an SPV:
    The proposal was allowed after intense deliberations

  •  Increase the drawdown period from 24 month to 5 years:
    The proposal was allowed after deliberations
In conclusion it appears that NAMFISA was accommodating in its approach to discussing the proposed changes, allowing for arbitrary suggestions like in the case of the increase in the maximum exposure to unlisted investments. NAMFISA undertook to update the table with the agreed changes and submit these to the Minister of Finance for approval.

Media snippets
(for stakeholders of the retirement funds industry)

PFA orders fund to pay compensatory damages

In this case (M Mhlanga vs Mineworkers Provident Fund) the younger brother of a deceased member of the fund complained to the Pension Fund Adjudicator (PFA) on 10 May 2016 that the fund had not paid out any death benefits to him as he had to take care for the maintenance of the children of the deceased who passed away on 11 August 2014. He had informed the fund of the demise of his brother in October 2014.

The fund initially claimed that the deceased was not entitled to a death benefit but only to a resignation benefit and that the resignation benefit was paid. On 27 July 2016, the fund realised that the payment made was in respect of a housing loan and that there was indeed a death benefit still payable. It requested the complainant to provide certain specific documents to the fund for the purpose of considering the allocation of the death benefit and that it will attend to the allocation of the benefit upon receipt of these documents.

The Pension Funds Act requires of the fund to identify the dependants of the deceased, allocate and pay a death benefit within 12 months, i.e. by 11 August 2015. The PFA found that as the result of the fund’s dilatory conduct, the deceased’s dependants suffered prejudice in that they have potentially been denied access to benefits which may have become available to them had the investigation been completed on time.

As the result of the fund’s failure to carry out its duties in terms of section 37 C of the PF Act the PFA ordered the fund to collect the required documents from the complainant, within 2 weeks from the date of the determination, to investigate and proceed with the allocation and distribution of the death benefit together with 10% compensatory damages within 8 weeks of the determination and to submit a prescribed report on the allocation of the death benefit to the PFA and the complainant within 2 weeks of payment of the benefit.

Read the PFA determination, here...

Retirement is not what it used to be

The increased use of living annuities has brought about huge challenges.

This article is a must read for anybody contemplating his or her options at retirement and considering to invest in a living annuity in particular. Investing in a living annuity presents risks to the annuitant arising from the investment portfolio/s chosen by the annuitant that he or she must be aware of and must know how to manage.

“The greatest risk that investors in living annuities face is the possibility that their money will run out. If they don’t even know that they face this threat, they are unlikely to be managing their investments properly. A living annuity needs to pay an income, and it needs to grow that income above inflation. To do that, you either have to keep growing the capital faster than you are paying it out, or you have to start giving capital back. That is a very difficult thing to manage over 30 years. On the other hand, investors who do recognise this problem may be so fearful of losing capital that they invest too conservatively. This means that they end up drawing income faster than they are growing their assets, ultimately leading to the same outcome.”

Read the full article by Patrick Cairns in Moneyweb of 10 August 2017, here...

6 Things you must get right at retirement

“For most people, reaching retirement will be the biggest financial event of their lives. It is a big jump from receiving a regular salary and the benefits that come along with that, to living off what you have saved. The risks of getting this wrong are severe. Making a mistake at this point could jeopardise all the years of hard work that have led up to it. There are essentially six important decisions that need to be made at retirement, and they are all inter-related.
  1. How much of my capital do I withdraw as a lump sum?
  2. Which products do I need?
  3. What should my asset allocation be?
  4. What kind of annuity should I choose?
  5. How much can I withdraw from my capital?
  6. How do I align my investments with how much I need to withdraw?”
Read the full article by Patrick Cairns in Moneyweb of 10 July 2017, here...

Media snippets
(for investors and business)

10 qualities of superior leaders

Thousands of articles and books have been published describing what it takes to be a superior organizational leader. Some researchers and authors claim a superior leader possesses certain traits or abilities; others say it's all personality. Still others maintain it's the behaviors - not necessarily the intentions or thoughts -that are crucial.

Whatever your viewpoint, it boils down to this: successful leaders share the following characteristics or views:

Mission: A superior leader has a well thought out (often written) mission describing the purpose of the organization.
  1. Vision: Where do you want your organization to go?
  2. Goal: How is the organization going to achieve its mission and vision and how will you measure your progress? Like a vision, goals need to be operational; that is specific and measurable.
  3. Competency: You must be seen by your advisors, stakeholders, employees, and the public as being an expert in your field or an expert in leadership.
  4. A strong team: A wise leader assembles effective teams of experienced, credentialed, and capable individuals who can supplement any voids in the leader's skill set.
  5. Communication skills: It does little good to have a strong mission, vision, and goals--and even a solid budget--if the executive cannot easily and effectively convey his ideas to the stakeholders inside and outside of the organization.
  6. Interpersonal skills: Successful entrepreneurs are comfortable relating to other people; they easily create rapport and are at least more extroverted than they are introverted.
  7. A "can do, get it done" attitude: Nothing builds a picture of success more than achievement, and achievement is the number one factor that motivates just about everyone across all cultures.
  8. Inspiration: Quite often, employees need someone to look up to for direction, guidance, and motivation.
  9. Ambition: Resting on your laurels is bad for employee morale and entrepreneurial credibility.
Download the full article from Emily Jacob's newsletter here...

Cutting through the Bitcoin and Blockchain hype

By now most people would be aware of these new concepts in the world of finance, but do we understand what it entails?

Read part 1 of a series of 3 articles by Raymond de Villiers in Tomorrowtoday of 17 August 2017, here...

And finally...

“Nothing strengthens authority so much as silence.”
~ Leonardo da Vinci
How much will you need when you retire and are you investing enough?
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