|In this newsletter:
Benchtest 01.2018, employer participation in different funds, new FIM regulations analysed and more...
Important notes and reminders
We will be placing focus on these below and in the next few newsletters.RF.R.5.3 Terms & conditions on which a board may distribute some or all of an actuarial surplus pursuant to section 260(8) (Note: reference should probably read ‘section 268(8)’)
It would appear that this regulation is primarily addressing surplus distributions by a defined benefit fund. In a defined contribution fund, a surplus typically represents unallocated investment returns that should not be subject to this regulation when allocated to members and pensioners in the form of an additional interest allocation. Therefore if it is an additional interest allocation care should be taken to determine the additional allocation by means of an interest accumulation calculation.
2. RF.R.5.7 The rate of interest payable on the value of a benefit or a right to a benefit not transferred before the expiration of the applicable period pursuant to section 262(9)(c) (Note: This reference should refer to section 270(9)(c).)
The following documents can be further adapted with the assistance of RFS.
Gunter Pfeifer's Benchmark Notes
Does a combination of manager address all these risks?
The Benchmark Retirement Fund
Flagship of umbrella funds in Namibia
By Paul-Gordon, /Guidao-Oab, Benchmark Product Manager
The problem with pension backed housing loans
In last month’s newsletter we informed participants in the Benchmark Retirement Fund that the trustees resolved to discontinue bank funded pension backed housing loans, also referred to as indirect loans. This decision was taken because of the risk the fund faces where a member has tax debts.
The Benchmark Retirement Fund does not offer a housing loan arrangement as a business proposition but is willing to assist employers who want to offer a housing loan arrangement to its employees. As an alternative to indirect loans, the trustees resolved to rather facilitate a loan arrangement at the request of a participating employer by way of direct loans where the fund does not face the risk of being unable to recover a loan balance as the result of the borrower’s tax debts. In this instance the borrower effectively ‘calls up’ a portion of his/her retirement benefit and cedes that portion of the benefit to the fund. In the event of a default by the borrower, the fund can simply repay the loan with a portion of the member’s retirement benefit.
Unfortunately, however, some of the requirements of the Pension Funds Act with regard to housing loans cannot be enforced, policed or managed by the fund and the fund cannot grant loans that place such obligations on the fund unless this responsibility is borne by the employer and backed by an indemnity by the employer to the fund. For example, the Benchmark Retirement Fund does not have the resources or expertise to inspect and evaluate any work done under a loan. Where a loan is requested to purchase a property in a proclaimed municipal area, it is not very onerous to ensure that the requirements of the Pension Funds Act have been met. There is a very formal process to transfer the property into the name of the borrower and this can easily be properly substantiated by way of deed of transfer or title deed. Paying the transferring attorney is also a secure process and does not expose the fund to the risk of misappropriation of loan funds.
In conclusion, the Benchmark Retirement Fund is willing to facilitate a housing loan arrangement in respect of the purchase of property in proclaimed municipal areas. Any building loans or loans in unproclaimed areas will only be considered if the employer is prepared to enter into an agreement with the fund that obliges the employer to ensure that the requirements of the Pension Funds Act are met.
RFS in action
Corporate governance a key pre-requisite for peace of mind!
To strengthen the internal controls, RFS recently introduced a full-time audit, compliance and risk management function. Mrs Carmen Diehl, our manager: internal audit, compliance and risk management is a chartered accountant. Her work is peer reviewed by Mr Schalk Walters, a chartered accountant and independent corporate governance expert. In the following newsletters we will be briefly looking at the three areas of corporate governance, namely risk management, compliance management and internal audit.
The board of RFS is ultimately responsible for overseeing the establishment of effective systems of internal control in order to provide reasonable assurance that the company’s financial and non-financial objectives are achieved. Executing this responsibility includes the establishment of an internal audit function. Internal control is understood to mean the processes aimed at achieving reasonable assurance about the realisation of the following objectives:
News from RFS
Mens sana in corpore sano!
So the old Latin saying goes – a healthy mind requires a healthy body! For probably as many years as RFS has been around, we have been participating in the Volleyball-for-All tournament that takes place on the first Saturday of every February at DTS sport grounds. Thank you to Bianca Busch who has arranged our participation for the past so many years! Here are the players and some action photos of this year’s occasion.
Above, the RFS team at the event.
Above, the RFS team in action.
Paul-Gordon /Guidao-Oab joined RFS as Manager: Audit and Compliance in May 2016 and then moved into the position of Benchmark Product Manager. Paul holds a B Compt degree from Unisa and has completed his articles with SGA..
To provide our clients with exceptional service, experience and qualifications are essential attribute of our staff. To support the initiatives by staff to advance their qualifications, RFS sets aside annually an amount equivalent to 0.5% of payroll over and above the obligatory VET levy.
We congratulate Nicolo Benade for having obtained a National Diploma in Accounting and Finance through part-time studies, a noteworthy achievement for a father with two young children.
Here is a summary of the qualifications and experience of our staff:
Long service awards complement our philosophy
RFS philosophy is that its business is primarily about people and only secondarily about technology. We know that as a small Namibia based organisation we cannot compete with large multinationals technology wise because of the economies of scale that global IT systems offer. To differentiate us we need to focus on personal service and on the persons delivering that service to get customer acceptance and service satisfaction. With this philosophy we have been successful in the market and to support this philosophy we place emphasis on staff retention and long service.
The following staff members recently celebrated a work anniversary at RFS. We express our sincere gratitude to these staff for their loyalty and support over so many years:
15 year service awards in our 18 year history
10 year service awards
5 year service awards
News from Namfisa
Minutes of the industry meeting of 30 October 2017
It is quite disappointing to note that by our rough count only about a quarter of the 87 registered, active funds attended the meeting and the largest fund by far had no representative attending! The regulator must be asking itself why the attendance by registered funds is so low.
We can only suggest that there is a significant disconnect between what the regulator expects of the industry and what the industry can carry. In most instances trustees are employed full time and are assigned to their pension fund by the employer at its cost. These trustees are typically in senior management positions and often simply do not have the capacity to attend industry meetings that are likely to raise their stress and anxiety levels about ever increasing demands.
Here are a few salient points from the minutes:
Download the minutes here...
Determination in T Jacoby vs Metal Industries Pension Fund and Metal Industries Benefit Fund Administrators
In this case the deceased nominated two adults as his beneficiaries. Deceased who passed away on 17 February 2015, was married but his wife passed away on 30 September 2013. The complainant who was one of the nominated beneficiaries was in a relationship with deceased from February 2014 until his death. Complainant claimed to have been a dependant of the deceased and complained about the decision of the fund to pay the total benefit to the estate of the deceased. The administrator of the fund had requested evidence from complainant that she had been dependent on the deceased but such evidence was not submitted. It was also established that deceased was an orphan, had no children and no surviving siblings. The deceased was the only member on the medical aid.
As usual in such complaints the adjudicator had to establish whether the trustees failed to carry out their duties in terms of section 37C of the Pension Funds Act. These duties are to identify the beneficiaries and to apply their discretion on the proportions and the manner of distribution of the benefit. The trustees are required to give recognition to relevant factors and ignore irrelevant factors. The trustees may not unduly fetter their discretion by following a rigid policy that does not take into account the personal circumstances of each beneficiary. In considering the definition of ‘dependant’ and ‘spouse’ in the Act, the adjudicator concluded that the complainant objectively does not meet the definition of spouse and would thus have to be considered under the definition of ‘dependant’ as a factual dependant.
The adjudicator stated that in order to constitute maintenance, the deceased need to have made regular payments to the beneficiary. Such payments cannot be once-off and should have been made till the end of the deceased’s life. Applying these measures, the adjudicator concluded that the deceased was not a factual dependant. Arguing further on the basis of section 37(1)(b), that deals with a situation where there are no dependants but nominated beneficiaries, the adjudicator concluded that the benefit must be distributed in accordance with the beneficiary nomination form, to the extent that the benefit is not required to be paid into the estate to make good a shortfall in the estate between the aggregate amount of debts and the aggregate amount of assets. She also pointed out that a payment to nominated beneficiaries can only be finalised after 12 months and after the solvency of the estate has been confirmed.
The adjudicator determined that the trustees had incorrectly applied section 37C(1)(b) of the Act by having resolved to pay the full benefit to deceased’s estate. She directed the trustees to establish the solvency of the estate and to pay any residue after any shortfall in the estate to the nominees in the proportions as per the nomination form.
(for stakeholders of the retirement funds industry)
Are you giving up returns by investing in a balanced fund?
“Local investors by far prefer using multi-asset funds, whereas the rest of the world makes far greater use of equity portfolios.
This move into multi-asset, or balanced, funds in South Africa has been pronounced over the last ten years. At the end of 2007, only 25% of money in locally-registered collective investment schemes was in these kinds of portfolios, but they have attracted by far the majority of inflows since then.
Conventional thinking would suggest that this means that South African investors are giving up some of their returns. Equity funds should deliver the best performance of any category over the long term, and therefore investors using multi-asset funds are going to end up worse off.
There are however two reasons why this argument is not as clear cut as it may seem…”
Read the full article by Patrick Cairns in Moneyweb of 19 February 2018, here...
My fear is not when SA runs to the IMF... it’s about hands in the pension pot
In our Benchtest 10.2017 we raised the question whether it still makes sense to invest in a pension fund in the light of the continually rising costs imposed upon and arising from pension fund investments as the result of regulation. In our Benchtest 12.2017 we also suggested one should consider managing your investments yourself to circumvent the ever increasing cost burden on pension fund moneys.
The following article expresses very similar sentiments from an SA perspective.
“The fear I have is not that the forecast comes true, but if it doesn’t. I can hear the eyebrows lift and see the “you’re crazy” stares pierce the screens...There is a worse fate that awaits South Africans than government running to the IMF to bail out Eskom; Transnet or even worse, government itself…The fear I have is that they use our pension fund savings. South Africa has the fifth-largest pension fund savings in the world as a percentage of GDP…You have to have 25% in interest-bearing investments, and all this is called Regulation 28. The law is on the books, and the regulation can change without parliament even voting on it. If government needs to issue more bonds at lower yields, it simply changes Reg 28. It can probably expand it to enforce say 50% of pension assets into bonds or banks and only 50% equity. Offshore investments could be stopped too if the SA government needed the money. No laws need to be changed, and one can just implement Reg 28 to living annuities and other forms of long-term retirement investments. It’s so simple and fast.”
Read the full article by Mike Schüssler in Moneyweb of 7 February 2017, here...
Three retirement myths busted
“Risk and investment planning are often regarded as two separate conversations, but in many respects the objective of both these conversations is exactly the same – protecting your income.
“We view risk planning as protecting you from the risks that prevent you from being able to earn an income, allowing you to create the wealth that you need. Investment planning is around helping you grow that wealth so that one day you can replace the income when you no longer need to or want to work… Both of them have exactly the same objective…”
The problem is that both risk and investment planning are driven by conventional wisdom, which in many cases is no longer true.
Myth 1: You will earn a continuous, steadily increasing stream of income until retirement – The reality is obviously far from that. Seven out of ten people are going to have at least one injury or illness in their working lives that will prevent them from earning an income. What is even more scary is that once it has happened to you once, it is probably going to happen again…
Myth 2: You know exactly how much you’ll need to retire - This is often driven by two rules of thumb – that investors need 75% of their final salary as an income in retirement (a 75% replacement ratio) and that 20 times that amount is a sufficient lump sum to invest at retirement. But the 75% replacement ratio likely won’t be enough where retirees still have debt and/or dependents. Healthcare costs and medical inflation can also have a significant impact on the amount of money they’ll need…
Myth 3: You will retire at 65 and live until 90 - life expectancy has increased significantly. Work gives people a sense of purpose. People are 30% more likely to die in their first year of retirement than in their last year of working. In England and Wales, the older-than-90 population increased by 33% between 2002 and 2012…”
Read the full article by Ingé Lamprecht in Moneyweb of 20 February 2017, here...
(for investors and business)
Behavioural finance: traps to avoid
“Economic theory assumes that investors behave in a rational manner, but unfortunately this is far from the case in real life. Behavioural finance attempts to understand and explain how human emotions influence investors in their decision making. Below we have a look at the most common behavioural biases.
Regret theory - Investors can become emotionally attached to the price at which they bought a share, and then avoid selling at a lower price.
Mental accounting - Mental accounting occurs when investors are willing to take more risk with money that they inherited (as an example) than money they earned through work.
Prospect/loss-aversion theory - For example, investors experience more angst about potential losses than the joy they would feel from an equal potential profit.
Recency bias - Investors tend to chase performance, and usually buy shares just as they are peaking
Over- or under-reacting - Investors become overly optimistic when markets go up and overly pessimistic when they go down.
Overconfidence - People tend to overestimate their own abilities (how many men think they are above-average drivers?), thinking they have superior knowledge.
Confirmation bias - Investors normally gravitate more towards information and sources that confirm or validate their personal beliefs.
Herd mentality - This occurs when the individual doesn’t want to be left out and follows the masses, instead of focusing on what would be in his/her best interest.
Read the full article by Stephan Maritz in Moneyweb of 12 February 2018, here...
Warren Buffet – the prime example of the failure of American capitalism
‘Warren Buffett should not be celebrated as an avatar of American capitalism; he should be decried as a prime example of its failure, a false prophet leading the nation toward more monopoly and inequality.’
“That hot take comes from David Dayen, ripped from a deep dive published on Thursday in the Nation headlined “The dirty secret behind Warren Buffett’s billions.” Not quite the fawning media coverage of the Berkshire Hathaway boss you’ve probably come to expect.”
Read the full article by Shawn Langlois in Marketwatch of 17 February 2018 here...
Healthiest office snacks as chosen by nutritionists
“When your stomach starts grumbling during a midmorning meeting or when you're stuck at your desk without a break in sight, what is the most satisfying and healthy snack to grab? To answer this question, I asked 10 nutritionists what their favorite go-to nosh is during a busy workday. Below, their responses...”
Blackboard wisdom at a filling station
A filling station has become quite a landmark in Gauteng, South Africa, with its daily #PetrolPumpWisdom, which are uplifting quotes written on a chalkboard. Some motorists say they deliberately travel this road just to read the quote which brightens their day. Here's one: