|In this newsletter:
Benchtest 10.2017, new reporting, new levies, a new law for administrators and more ...
Important notes and reminders
The input that will be required to be captured and submitted to NAMFISA on a quarterly basis by industry service providers and institutions, covers some 15,761 lines of data. According to NAMFISA this “…will revolutionise the manner in which [it] collects data and the statistics and information [it] can gather about the industry as a whole...”
Unfortunately the Government Notice is ambiguous and it is left to a pension fund to interpret the requirements of this Notice.
Firstly the Notice does not define ‘total assets’ which is the basis for calculating the levy. Secondly the Notice withdraws all previous Notices in terms of which levies were paid hitherto but does not provide for transitional arrangements.
What does ‘total assets’ mean?
The levy on pension funds is to be calculated at 0.008% of the pension fund’s total assets as reflected in the accounting records of the fund and is effective from 1 November 2017. ‘Total assets’ is not defined and is open to different interpretations.
One can argue that total assets should be the aggregate of total non-current assets plus net current assets. Any operating entity holds current assets to cover current liabilities, in other words it holds cash to pay its obligations. To argue that the cash balance that has been provided for to pay for the fund’s obligations should be added to the fund’s non-current assets but that the obligation that will be paid with the cash balance cannot be offset against the cash balance is flawed at best. We all know that typically current liabilities are accounted for at month end to be paid soon after month end. Trustees need to take a view in this regard and instruct their administrators accordingly
No transitional arrangement provided for
The new levies are effective from 1 November 2017. The gazette setting out the new levies replaces its predecessors on 1 November 2017.
As from 1 November 2017, “Every pension fund…, excluding retirement annuity funds…must pay an annual levy equal to 0.008% of the pension fund’s total assets in the following manner (a) a first provisional levy payment calculated at 0.008% of the pension fund’s total assets as reflected in its accounting records at the end of the first six months of its financial year on or before the 25th day of the month following the end of the first six months after the commencement of the [pension fund’s] financial year…(b) a second provisional levy payment calculated at 0.008% of the pension fund’s total assets, after deduction of the first provisional levy payment, on or before the 25th day of the month following the end of the [pension fund’s] financial year …and (c) a final levy payment or refund claim calculated at 0.008% of the pension fund’s total assets at the end of its financial year less the collective provisional levies already paid during that financial years within 12 months after the end of the [pension fund’s] financial year.
Up until 31 October 2017 Government Notice 78 of 1 April 2003 directed that “Every pension fund,…must pay the following levies [in respect of the levy year, meaning the period from 1 April of each year to 31 March of the next year] a basic levy of N$ 250 [and] an additional levy for each member.. and for each person who receives a regular periodic payment [as at the end of the year preceding the levy year]…[of] N$ 12. These levies “…must be paid in two equal instalments, the first one due on 30 September …to be paid not later than 31 October  and the second instalment due on 31 March  not later than 31 April .”
It is to be noted that the previous levy dispensation was linked to a ‘levy year, being the year from 1 April of any year to 31 March of the following year and not to the fund’s financial year, while the new dispensation is linked to the fund’s financial year.
It is to be noted further that the second levy payment does not specify a date to be used for calculating ‘total assets’ and this is thus left to the discretion of the pension fund. However, any growth in assets of more than 11% from the end of the first six months of the fund’s financial year to the end of fund’s financial year would attract a penalty calculated on 20% of the difference between what 90% would have amounted to and what was paid in aggregate by way of the first and second levy payments from the 25th of the month following the fund’s financial year until date of payment of the final levy payment. In a declining market, or in case of declining membership, a pension fund should not top-up the first levy payment while in a growing market, or in case of growing fund membership, it should top-up the first levy payment to at least 90% of the levy due for the full financial year. It goes without saying that contributions also need to be taken into account
One can argue that the last levy payable under the ‘previous dispensation’ was the first instalment due on 30 September 2017, for the levy year that commenced on 1 April 2016 and ended on 31 March 2017, the ‘levy year’, based on the pension fund’s membership at the end of 31 March 2017, the end of the year preceding the current levy year. Since legislation generally cannot be backdated unless it specifically states so, I would further argue that the levies due under the new dispensation that came into effect on 1 November 2017 can only start applying to the fund’s first financial year that commences on or after 1 November 2017. By way of an example, if a fund’s financial year ended on 31 August 2017, it only needs to start paying under the new dispensation for the financial year starting 1 September 2018. The first instalment then would be due on 25 March 2019, the second instalment on 25 September 2019 and the final levy on or before 31 August 2020.
NAMFISA intends to apply the new levy structure pro-rata from 1 November. Based on client correspondence for a fund with a June 2017 year end, the first levy payment in respect of 2018 will be due for the 2 months from 1 November to 31 December 2017 and is to be paid by 25 January 2018. The second levy payment will be due for 8 months from 1 November 2017 to 30 June 2018 and is payable on 25 July 2018. The same principles will be applied to funds with other year ends. Since this matter is not been properly defined in Government Notice 265 the manner in which NAMFISA intends to apply the government notice is not necessarily the correct way.
Namfisa levies – some anomalies to be aware of
In the previous newsletter we provided a summary of the new levy structure that became effective 1 November 2017. We also pointed out that the same assets will be subjected to various levies. NAMFISA explained that it is required to regulate each financial services industry separately warranting the imposition of a levy on each. This creates un-level playing fields disadvantaging smaller funds that have to channel their assets through a pooling vehicle.
For example where a fund invests its assets through a unit trust, NAMFISA has to regulate and levies the pension fund where the assets originate, it regulates and levies the unit trust companies that pool the assets for investment and it regulates and levies the investment managers/unlisted investment managers who invest the assets.
Similarly where a fund invests through an insurance policy, it regulates and levies the pension fund where the assets originate, it regulates and levies the insurance company that pools the assets in a policy and it regulates and levies the investment manager who manages the investments in the policy.
Where a fund invests in a LISP (e.g. SP²), NAMFISA regulates and levies the fund where the assets originate, it levies the LISP that administers the investment platform, it regulates and levies the unit trusts that pool the investments and it regulates and levies the investment manager that manages the investments of the unit trust. Interestingly, LISPS typically invest in local and foreign unit trusts. Since the foreign unit trusts and their investment managers are not regulated by NAMFISA, NAMFISA will and cannot levy the foreign unit trusts and foreign investment managers. So investing in local unit trusts will attract higher aggregate levies than investing in foreign unit trusts.
Finally where a fund invests in a segregated portfolio that is managed by an investment manager, NAMFISA once again regulates and levies the fund but in addition only the investment manager is regulated and levied.
A Namibian model for improving reporting efficiencies by regulated financial institutions
Up to now NAMFISA has always been arguing that it is only regulating pension funds and that these are required to comply and to report.
With the advent of the FIM Act and the introduction of a new chapter 8 that now brings fund administrators into the ambit of the Act, NAMFISA is certainly in a position to improve the efficiency of reporting and its cost that will be borne by the fund member.
As things currently stand, reporting is the obligation of pension funds. Since all operational functions of all pension funds but the GIPF are executed by independent service providers, funds currently have to approach each of its service providers to provide the relevant parts of the total report for which the service providers are responsible. The different parts provided by the service providers then have to be consolidated into a single report. This means that each one of around 20 asset managers, 5 administrators and 4 insurance companies have to provide the required information to around 90 funds. Between these parties about 120 administration platforms have to be customised for NAMFISA reporting. While 30 service provider IT platforms have to be customised for the information that the service provider has to submit, each fund has to arrange with one of its service providers to customise its IT platform to compile the consolidated report. It also means that NAMFISA will receive 90 reports.
If the reporting requirements were re-engineered by NAMFISA to place the reporting obligation on the service provider for the information it holds on behalf of its pension fund clients, there is firstly no need for consolidating information at fund level. Secondly, NAMFISA would receive industry focused reports from 20 service providers instead of 90 funds.
Many funds in Namibia are very small and the reporting requirements will be very onerous and very costly. Our suggestion would provide for the costs being determined on an industry basis rather than a fund basis. If the reporting and compliance obligation were to be moved from the fund to the service provider, being a trustee of a fund will be substantially less onerous. For every one of the existing 90 boards of trustees to assume responsibility for work done by a service provider can only be achieved indirectly and is evidently not practical as their expertise is usually not pension fund management. Holding the service provider directly responsible and accountable to the regulator is more appropriate, more meaningful and should also be more cost-effective.
With this model risk based supervision can be applied much more efficiently ‘at source’ so to speak across the industry.
Of course this model will require a fresh look at the FIM Bill and all standards and regulations that have been drafted thus far.
Pension fund governance - a toolbox for trustees
The following documents can be further adapted with the assistance of RFS.
The Benchmark Retirement Fund
News from RFS
Sharika Skoppelitus started her career in retirement funds management at UPA in 1996, ‘fresh’ from Unam with a B Econ degree, as a fund administrator. However before she got too deeply involved in fund administration, her communication and people skills afforded her the edge to move into employee benefits consulting under the wings of Tilman Friedrich, general manager of UPA at the time, ending up as lead consultant on a number of the large clients of UPA.
With the departure of Tilman following Alexander Forbes’ buy-out of UPA in 1999, Sharika was no longer comfortable in her new environment and took the first opportunity to find a new home when she joined her former UPA colleagues Marc Nel and Trevor Colmer in newly founded employee benefits consultancy, Elite consulting in 2006. In 2007 Sharika joined RFS as client manager and is today responsible for many of our largest retirement fund clients using her people and communication skills to the benefit of her clients. Over the years she progressed to head of client services, became a member of our executive committee and a director of the company in 2016.
News from NAMFISA
Abdication of powers, duties and responsibilities of trustees - Circular PI/PF/CIR/01/2017
NAMFISA issued above circular on 27 October 2017 “…by virtue of …[its] functions and powers in terms of the Namibia Financial Institutions Supervisory Authority Act…and is applicable to all pension funds. This circular serves to advise funds that no Board of Trustees is permitted to abdicate any of its powers duties or responsibilities… in the process of outsourcing certain function so service providers…The Board of all Funds are further advised that they will be held fully responsible for action taken by a service provider or other person on behalf of the Fund.”
Interpretation of regulation 29(14)(b)
– Circular Reg29/CIS/02/2017
NAMFISA issued above circular on 16 N9vember 2017. In this circular NAMFISA expresses its interpretation of regulation 29(14)(b) that “The draw down period in respect of a pension fund investor cannot exceed 24 months. Any amounts which are not transferred from a pension fund investor to the SPV within the aforementioned period is no longer subject to such [contracted] transfer. In order to extend the draw down period, in respect of a pension fund investor, the fund and the SPV must firstly agree and thereafter, the extension must be approved by the Registrar.”
More regulations and standards issued under FIM Bill
The following new draft regulations were issued for public commentary by 18 December 2017:
Head of FNB Home Loans retires
Long serving Danny Titus, head of FNB Home Loans retired on 31 October 2017. Stakeholders were advised to contact National Sales Manager Home Loans, Magda Talbot, at 061-299 8623 or Anthea Ross, Team Leader Home Loans Business Development at 061-299 7150
Drafting of AFS
Historically, auditors used to prepare the annual financial statements of entities for whom they also carried out the statutory audit.
For reasons of professional independence, auditing firms are now prevented from preparing annual financial statements of entities for which they carry out the statutory audit.
Pension funds are thus required to arrange for the preparation of their annual financial statements by someone other than their own auditor.
Preparation of annual financial statements has become quite a specialist function nowadays as the result of stringent International Financial Reporting Standards also referred to as IFRS.
We were recently made aware of a person who offers these specialist services of preparing annual financial statements.
The price of fuel – do you know what you pay for?
The latest fuel levy was set in Government Gazette 6461 of 1 November 2017 and reflects an interesting composition of the price of fuel as per below table. The total for Namibia is based on an estimated annual consumption of 1 billion litres of fuel in Namibia.
(for stakeholders of the retirement funds industry)
Death benefits and S 37C, when do you have to pay
In a technical guide on the distribution of death benefits, the author, Liz del la Harpe makes a few important points that are overlooked too easily, regarding the time frames for the payment of death benefits in case of each of the 5 different scenarios envisaged in section 37C:
A debt becomes due when the duty to pay arises. Where a debtor’s liability is dependent upon the performance of certain conditions, the debtor will not be in mora until a duty to pay arises, e.g. all dependants of a deceased needed to be and then have been determined.
Mora can arise where the debtor’s need is urgent and the creditor’s delay is unreasonable. The common belief that a fund’s duty to pay is contingent upon the expiry of the 12 month period referred to in Section 37c is not correct. The duty to pay is not dependent on this but rather whether the trustees are satisfied that they have investigated and considered with due diligence and are in a position to make a decision.
Other questions addressed are :
Hack your way to retirement
You can play with that [retirement] calculator as much as you like, there are only two levers that can impact your retirement:
The scary aspect of a retirement calculator is that it almost definitely shows that you’re never going to be able to retire… on your current expense base.
I asked some of the top financial planners and personal finance speakers in the industry for a few hacks to get your expense base down and this is what they suggested:
Most retirees risk running out of money
“Many people in living annuities have not considered the long-term implications of how much they are drawing from their savings. They are therefore taking unsustainable incomes and eating into their capital, with the inevitable consequence that they risk running out of money.
This situation is also made worse by the likelihood that South African investors are moving into what is likely to be a sustained period of low returns…”
Read the full article by Patrick Cairns in Moneyweb of 14 November 2017, here...
Patience is a virtue
“For retirees in living annuities, the three years to mid-2017 was a very tough period.
A conservative balanced-type strategy delivered roughly 6% per annum over the period and a meagre 4% over one year. Inflation likely ate away at portfolios even before drawdowns were taken into account. Why subject yourself to the volatility associated with share exposure, if you can do better investing in a money market or income-type fund, many asked?
Even outside the retirement universe, some investors became frustrated and nervous.
Elize Botha, managing director of Old Mutual Unit Trusts, says following the axing of former finance minister Pravin Gordhan in March, the firm saw a lot of activity across its unit trust book and significant outflows.
But patience is a virtue. Fast-forward four months and by end October, investors who remained invested in the same conservative balanced fund-type strategy would have seen returns recover to roughly 11% over one year and 8% per annum over three years.
Trying to time the market is a mug’s game. A well-known JP Morgan study shows that the top ten trading days in the US market over a 20-year period were responsible for roughly half the overall return, but six of the ten best days occurred within two weeks of the ten worst days.”
Read the full article by Ingé Lamprecht Moneyweb of 13 November 2017, here...
Grandparents risk health of grandchildren
“Figures from the Avon Longitudinal Study of Parents and Children (ALSPAC) found that 44 per cent of children are now regularly cared for by grandparents, with children spending an average of 10 hours a week with them.
But the new review found that grandparents were often having an negative impact on their grandchildren’s health, especially in areas of weight and diet, through ‘treating’, ‘overfeeding’ and not encouraging physical activity…
Researchers also found that many older people were still smoking in the presence of their grandchildren, increasing their risk of lung cancer and heart problems, and raising the risk that youngsters will also take up the habit.
Professor Linda Bauld, Cancer Research UK’s prevention expert, said: “Children should never be exposed to second-hand smoke. But it’s also important for children to maintain a healthy weight into adulthood, and in today’s busy world it's often the wider family who have a role to play in keeping youngsters healthy…”
Read the full article by Sarah Knapton science editor, The Telegraph of 14 November 2017, here...
(for investors and business)
Best dividend payers on the JSE
AECI, KAP, MondiLTDP, Remgro, Adapit, HCI, Bluetel, Remgro, Firstrand, Nedcor, PSG”
Read the full article by Dwain van Vuuren in Sharenet of 14 November 2017, here...
“The week before last, out of the blue I was bombarded with simultaneous questions about bitcoin by friends and 'Breaking the Code of History' readers, some on behalf of their children. They all announced that they were proudly mining coins and what did I think? Naturally, I looked at the price history shown below; the price was 7500 at the time. I responded that it was a bubble and most likely the bitcoin price had made a blow off high following which the price would decline significantly back to the 3500 level. Not a prognosis that was particularly welcome!...”
Read the commentary by David Murrin here…
Expert has dire warning about not getting enough sleep
“People dramatically underestimate how much sleep is linked to all the diseases killing us. We know a lack of sleep is linked to numerous forms of cancer—bowel, prostate, breast cancer.
They may not understand how little sleep reduction it takes. For example, if I put a somewhat healthy individual who has no history of diabetes on one week of five to six hours of sleep, by the end of that week their blood sugar is disrupted so profoundly that they would be classified by their doctor as pre-diabetic.
You don’t need to be going for one week on six hours—all it takes is one hour across one single night…
There are also five things people can do to improve their sleep, not unique to any one condition—anyone can do them. They are principles I adhere to as well.
Something to smile about
This is from a book called 'Disorder in the American Courts', consisting of things people actually said in court, word for word, taken down and now published by court reporters who had the torment of staying calm while these exchanges were actually taking place.
ATTORNEY: Were you present when your picture was taken?
WITNESS: Are you serious?