In this newsletter:
Benchtest 01.2018, employer participation in different funds, new FIM regulations analysed and more...

Important notes and reminders

Increase in local asset allocation from 1 January 2018

NAMFISA issued a circular in June 2017, referring to a proposed staggered increase in the domestic asset requirement from 35% to 40% from 1 January 2018. The next increase will be to 42.5% effective 1 April 2018. This requires an amendment of Regulation 28 to become effective. To date no amendment to Regulation 28 has been promulgated yet. As a result the increase effective 1 January 2018 is not a legal obligation yet and it remains to be seen whether Regulation will be amended in time for the next proposed increment.

Unclaimed benefits

The government gazette is an indispensable source of information that no company should do without particularly in this day and age where governance and compliance are the buzzwords in commerce and industry!

Diligent readers of the government gazette may have seen advertisements of a handful of our pension fund clients advertising a few unclaimed benefits in gazette 6524 of 1 February 2018. The fact that most of our retirement fund clients do not have any unclaimed benefits while only a few have a few unclaimed benefits is a reflection of the diligence of the trustees of the funds administered by RFS. We commend our client trustees on their diligence!

Prospective claimants now have 3 months to get in touch with the fund they intend to claim any of the benefits advertised. Thereafter any remaining unclaimed benefits will be paid to the master.

Annual ERS and quarterly SIH returns and levy returns for period ended December 2017

All RFS retirement fund clients once again excelled in submitting all returns that were due in the first 2 months of 2018 in time. This once again is a reflection of the diligence of the trustees of the funds administered by RFS. We commend our client trustees on their diligence and express our gratitude for the wonderful support and cooperation!


Dear reader

In this newsletter we contemplate whether staff of an employer can belong to different funds; we provide an analysis of 3 draft regulations under the FIM Bill; we provide guidance to Benchmark Retirement Fund employers (and members) how to select an investment portfolio/s; we explain the new housing arrangement under Benchmark Retirement Fund; we put some light on RFS governance processes and in our Benchmark Monthly Performance Review of 31 January 2018, we caution that the ‘sweet’ spot’ may soon be over for the Rand.

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 1 January 2018

In January 2018 the average prudential balanced portfolio returned (0.57%) (December 2017: -1.49%). Top performer is Metropolitan (1.22%); while EMH (-0.05%) takes the bottom spot. For the 3 month period, Metropolitan again takes top spot, outperforming the ‘average’ by roughly 1.9%. On the other end of the scale Investec underperformed the ‘average’ by 1.6%.

Will the ‘sweet spot’ soon be over?

What do you do if you are not patient enough to wait for your theory to realise? Well when all the SA news media were focusing their political attention on the upcoming elections of the new president of the ANC and it became ever more evident that Cyril Ramaphosa was the clear front runner the imminent strengthening of the Rand was a ‘no-brainer’ for any observer. Investment experts would have you believe that efficient financial markets would have duly discounted this development in the price setting of the Rand, and to some extent this is what indeed happened. The Rand did strengthen from over 14 to the US Dollar to around 13.60 just before the election. But since the election it went on a rampage strengthening to around 11.60 by the time of writing this column. So much for the theory of markets properly discounting certain foreseeable events and hurtful for the impatient speculator.

In the mean-time global equity markets have taken a bit of a beating but for foreign investors the strengthening of the Rand against the US Dollar by close to 20% over the past 3 months has delivered some awesome returns of 20% for the US Dollar investor and around 13% for the European investor. No wonder foreigners are starting to pile back into SA equity but are seemingly wary of fixed interest investments in the face of a rising interest rate tide. Over the past 3 months foreign investors invested R 51 billion in the SA equity market while at the same time some R 19 billion was withdrawn from the fixed interest market. Despite this significant inflow into our equity market over the past 3 months our equity market has not managed to rise but rather the contrary occurred. Well with a market cap of around R 16 trillion, 51 billion will not really move the SA equity market.

Will this sweet spot for foreigners and of a strong Rand soon be over or will we see more of this?

Read part 6 of the Monthly Review of Portfolio Performance to 31 January 2018 to find out what our investment views are. Download it here...

Can staff of an employer participate in different funds?

The scenario here is that an employer has acquired another company.  It was agreed with the acquired company that all new employees will particpate in the buyer’s pension fund while all existing staff as at date of acquisition will remain members of the ‘seller’s’ pension fund. The question arising is whether such an arrrangment is permissible.

To answer this question, there are 4 matters that need to be considered, namely the the Pension Funds Act, the Income Tax Act, the rules of the fund and the reassurance arrangement.

  1. The Pension Funds Act – The Pension Funds Act does not provide any guidance on such a scenario other than requiring that a fund has a set of rules and complies with its rules. One would thus have to refer to the rules to determine whether the arrangement is consistent with the rules and by implication also with the Pension Funds Act.
  2. The rules of the fund – Most pension fund rules would require that the employer and the fund must approve the participation of an employer. The acquired company should thus submit an application to the fund to participate in the fund. Most rules would have a definition of ‘eligible employee’. The implication of the definition is that once an employee falls into the defintion, the employee is obliged to participate and as long at he/ she does not fall into the definition the employee cannot participate. This definition may allow for different categories of employees; normally these are ‘as defined by the employer’, or may allow the fund to waive the participation requirement for a particular group of employees. In this scenario one category can be those members of the acquired company on date of acquisition and the second category could be all employees joining the acquired company after date of acquisition. This would meet the definition of eligible employee, and would thus be in compliance with the rules.
  3. The Income Tax Act – This Act requires compulsory membership of all class or classes of persons specified in the person’s conditions of employment and would then support any such provision in the rules of the fund as referred to in 2. The requirement is that the two employee categories of the acquired company have been clearly defined by the employer and that membership of the two funds is strictly observed on the basis of the two categories.
  4. The reassurance arrangement – The reassurance arrangement is typically based on what the rules provide and would typically only prohibit voluntary participation to avoid anti-selection, which the insurer’s risk ratings pre-suppose for any compulsory group scheme. If it were only a question of different classes participating in different funds, it is still compulsory participation per defined class of membership.


The crux of the matter is the definition of ‘eligible employee’ and one needs to check whether this provides for the employer defining different membership categories or the rules providing for the trustees waiving the eligibility requirements for a particular group of employees. If so the above arrangment is permissble. To cover the fund, it is important that the admission of the acquired company on those terms is confirmed by way of a resolution. From the acquiring employer’s side it is advisable that the participation of the acquired company on the basis of the above arrangement is also confirmed by way of a resolution and that the relevant employees’ conditions of employment clearly define in which fund the employee participates.

New regulations and standards will put more strain on funds

In the second half of last year NAMFISA issued a number of new regulations and standards for comment. Although some comments were submitted these mostly did not address the substance of these but rather their form. Having considered these comments NAMFISA made some changes that we would consider superficial and not addressing the real concerns. Trustees are urged to pro-actively consider the possible implications of these regulations and standards and how to deal with these.  Funds are encouraged to liaise with RFS where these may impact the administration of the fund.

The following regulations and standards were issued and covered in the process :


  • RF.R.5.3  Terms & conditions on which a board may distribute some or all of an actuarial surplus
  • 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)
  • RF.R.5.8   The protection of unpaid contributions of an employer and the rate of interest payable on contributions not transmitted or received pursuant to section 262 (9)(a) and (b).


  • RF.S.5.11  Alternative forms for the  payment of pensions for the purposes of defined contributions funds
  • RF.S.5.12  The conditions pursuant to which a fund may be exempted from Chapter 5 or from any provisions of Chapter 5
  • RF.S.5.13  Requirements for a communication strategy
  • RF.S.5.14  Requirements for the annual report of the fund to its members
  • RF.S.5.15  Requirements for the annual report of a fund to NAMFISA
  • RF.S.5.17  Categories of persons having an interest in the compliance of a retirement fund with the provisions of section 262  and the requirements for reports that must be submitted to such persons
  • RF.S.5.18 Matters to be included in investment policy statement
  • RF.S.5.19  Matters to be communicated to members and contributing employers and minimum standards for such communication
  • RF.S.5.20 Matters to be included in a code of conduct
  • RF.S.5.22 Transfer of any business from a fund to another fund or from any other person to a fund
  • RF.S.5.23 Fees that may be charged for copies of certain docs

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)’)
  • An actuarial surplus as per RF.S.5.1 may only be distributed as per ‘execution plan’.
  • Rules must specifically authorise the board.
  • Fund must be in full compliance of the Act.
  • Fund may not be party to any legal action that may affect the distribution.
  • All parties entitled to participate in the opinion of the board (includes employer, sponsor, member, former member, dependant and nominee) must have been notified.
  • The board has approved the plan.
  • The relevant valuation report should not be older than 6 months at date of distribution.
  • NAMFISA must approve the plan.
  • Where the plan is based on a rule amendment subsequent to inception date, participants must have been informed and given an opportunity to vote on the amendment (2/3rds to vote and 2.3rds to be in favour.)
  • A formal application has to be submitted that affords NAMFISA the ability to assess to what extent the preceding requirements have been addressed and complied with.
Our comment:

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).)
  • Interest at the ‘prescribed rate’ must be credited to a transfer value for every day following the ‘prescribed period’ up to date of transfer.
  • ‘Prescribed rate’ is the greater of (a) the average of 30 to 60 day government securities, (b) the average of 30 to 60 day deposit certificate rate as applied by the 4 largest banks and (c) the rate of interest applicable to unpaid transfer values as per rules of the fund.
  • ‘Prescribed period’ is the period starting 60 days from receipt of the prescribed form from the member, instructing the fund to transfer the benefit, until date of payment.
  • The daily interest rate is to be calculated on the basis of 365.25 days per year.
Our comment:
  1. The prescribed interest rate appears to be designed to punish funds that do not pay over transfer benefits within 60 days of the member’s request. To determine the interest rates according to the above parameters will be a serious challenge and could not have been made more complex, barring the formula for calculating interest on late payment of contributions per RF.R.5.8 (see below). It will be costly to program these parameters into an admin platform and it will be costly and complex to manage and to police by NAMFISA.  The question begs to be asked what the purpose of such a complex formula is and whether the regulator has considered how this may delay the payment of a transfer benefit.
  2. An employee who moves to an employer whose fund has a waiting period before becoming eligible to join will not be able to transfer their benefit to the new employer’s fund immediately until the waiting period has expired. This waiting period will then automatically lead to the transferor fund being punished with ‘late payment interest’ for a reason totally out of its control.
  3. An employee who instructs his previous fund to transfer his benefit to another fund may have a tax issue and the transferor fund is thus unable to implement the instruction until the tax issue has been resolved, which can conceivably be much after the  fund received the instruction to transfer the benefit. The member’s failure to resolve his tax issue will then automatically lead to the transferor fund being punished with ‘late payment interest’ for a reason totally out of its control but well within the transferring member’s control.
  4. The question begs to be asked what the purpose of such a complex formula is and whether the regulator has considered how this may delay the payment of a transfer benefit.
  5. Where will funds get any shortfall between the actual investment return earned on the exited member’s underlying investments and the interest to be allocated to the member in terms of this regulation except by reducing the retirement savings build-up of the remaining members?
3. RF.R.5.8 The protection of unpaid contributions of an employer and the rate of interest payable on contributions not transmitted or received pursuant to section 262(9)(a) and (b) (Note: This reference should refer to section 270(9)(a) and (b))
  • ‘Prescribed period’ is the period starting on the eight day after the end of the month in respect of which contributions should have been deposited until the day on which the required contribution and prescribed interest has been deposited.
  • The employer who is required to make contributions and its directors and officers are held jointly and severally liable for the contributions and interest.
  • ‘Prescribed rate’ is the greater of (a) the average of 5 year government securities, (b) the average of 5 year deposit certificate rates as applied by the 4 largest banks and (c) the greater of (i) the return earned by the fund over the last 3 financial years, or (ii) the rate of return earned by the fund over the last financial year and (d) the greater of inflation plus 4% (i) over the 12 months preceding the prescribed period or (ii) over the 12 months of the immediately preceding calendar year.
  • The daily interest rate is to be calculated on the basis of 365.25 days per year.
Our comment:
  1.  The prescribed interest rate appears to be a punishment of funds that do not pay over transfer benefits within 60 days of the member’s request. To determine the interest rates according to the above parameters will be a serious challenge and could not have been made more complex, barring the formula for calculating interest on late payment of contributions per RF.R.5.8.
  2. It will be costly to program these parameters into an admin platform and it will be costly and complex to manage.
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 the master brain behind Com_Pen

“Good morning __ ,
Yes, you and I have travelled a long, long road together and I must say it was always a pleasure dealing with your positive and very professional attitude.
I would also like to thank you for all of the innovative ideas and suggestions you shared with us over the years which not only kept us on our toes but contributed to the success of Com_Pen.”

Read more comments from our clients, here...

Gunter Pfeifer's Benchmark Notes

Selecting asset managers to diversify risk


Trustees mostly understand that it is a risk to engage a single manager to manage their fund’s assets within a single investment mandate. But do they understand what risk or risks they face and which one will be reduced through the appointment of more than one manager and what is the correct number of managers to use?

What risks should we be concerned about?

First consider what risks one is facing. These are:

  • Systemic risk
  • Prudential risk
  • Advice risk
  • Market risk
  • Volatility risk
  • Currency risk
  • Scam risk
  • Lost opportunity risk
  • Liquidity risk
  • Investment risk

Does a combination of manager address all these risks?

Combining more than one manager will reduce the prudential risk that something can go horribly wrong with one organisation.  It will reduce the volatility of performance because the volatility of each manager will differ from that of other managers. It will also reduce the scam risk, the liquidity risk and the investment risk of capital loss and underperformance. It will not impact on the advice risk, market risk or lost opportunity risk. Advice risk and lost opportunity risk will need to be managed at fund level, while market risk needs to be addressed by spreading investments across different markets e.g. local and offshore market.

What is an optimal number of managers one should combine?

Evidently a combination of more than one manager within a single investment mandate of a fund does reduce most risks funds face when placing their investments. However will it suffice to engage only two managers or should one engage more than two manager? This is a tricky question and really depends on the skills of the trustees and their objectives.

How bold are the trustees in taking active decisions?

If the trustees are totally averse to actively engage in investment decisions and are comfortable with average returns, the answer is, ‘the more the merrier’ as each additional manager further dilutes the risks, approaching the answer very simplistically. There are of course much more sophisticated methods such as the efficient frontier model that will indicate that little further value is added after a certain number of managers have been combined and from where on one would actually produce negative outcomes.

The Namibian environment sets narrow confines

Being realistic about this within the confines of the Namibian environment, most funds are too small to employ one segregated investment mandates, let alone engaging more than one manager on a segregated mandate but have to invest via unit trusts. Since unit trusts are regulated by dedicated legislation and are subject to statutory supervision, the prudential and scam risks are already reduced to a significant extent and probably require very little additional attention of the trustees.

Due care and skill requires active engagement

Due care and skill would probably require of a board of trustees to engage actively in investment decisions and to achieve results better than the average for their members. This means that they will have to think carefully about how to combine managers and how many managers to combine. Given the wisdom of engaging at least two managers, a successful combination of two managers has the best chance of out-performing but of course also has the best chance of under-performing. The greater the trustees’ confidence in the ability of the selected manager to outperform, the fewer managers need to be combined and visa-versa.

What are your performance objectives for combining managers?

The question then is what objectives do trustees have in combining different managers? The objective can be one of the following:

  • Superior performance
    Choosing managers who are likely to outperform the average manager in the long-term. Such a combination may lead to all managers under-, and out-performing the average at the same time. The trustees need to be clear on this and be comfortable with the consequence thereof, particularly in times when all managers under-perform the average. This is obviously the ideal combination given the conviction that all managers should out-perform in the long-term. Unfortunately in Namibia, only very few managers have a long-term history of out-performing the average. The other managers have all had extended periods of either out-, or under-performance, or have no long-term performance history. Performance history therefore does not render any significant level of conviction for any of the managers outperforming the average in the long-term.

  • Above average performance
    Choosing ‘core’ manager/s who is/are likely to out-perform the average in the long-term and an/other non-core manager/s who is/are likely to produce returns mirroring those of the average as closely as possible. The expectation of the non-core manager/s is to cushion any significant under-performance of the ‘core’ manager/s. Performance history should show which manager’s/s’ performance has most closely mirrored the average over the long-term.

  • Hedged performance
    Choosing managers with an opposing investment philosophy and style (i.e. value vs growth). If all managers on each side of the spectrum were to perform equally well and equally poorly during periods advantaging and disadvantaging their investment philosophy and style, the combined performance of these managers should mirror that of the average. Again the realities of the Namibian environment are that there are very few if any managers that can clearly be placed on either side of the spectrum making it questionable whether the hedged performance strategy can be employed successfully.
Gunter PfeiferGunter Pfeifer is a chartered accountant, former Principal Officer and now a trustee of the Benchmark Retirement Fund. He holds a Bachelor of Commerce (Cum Laude). He completed his articles with Deloitte & Touche. He completed the De Beers Program For Management Development at Gordon Institute for Business Science, and the Advanced Development Program at the London Business School. He was formerly Financial Manager of De Beers Marine.
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 ne
wsletter 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.

Paul-Gordon /Guidao-Oab joined RFS as Manager: Audit and Compliance in May 2016 and has then moved into the position of Benchmark Product Manager. Paul holds a B Compt degree from Unisa and has completed his articles with SGA

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.

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:
  • the accomplishment of established objectives and goals for operations and programmes;
  • the economical and efficient use of resources;
  • the reliability and integrity of financial and non-financial information;
  • compliance with relevant policies, procedures, laws and regulations;
  • safe guarding of assets.
The scope of work of the internal audit activity is to determine whether the organization’s network of risk management, control, and governance processes, as designed and implemented by management, is adequate and functioning in a manner to ensure:
  • Risks are appropriately identified and managed;
  • Interaction with the various governance groups occurs as needed;
  • Significant financial, managerial, and operational information is accurate, reliable, and timely;
  • Employees’ actions are in compliance with policies, standards, procedures, and applicable laws and regulations;
  • Programs, plans and objectives are achieved;
  • Quality and continuous improvement are fostered in Retirement Fund Solution’scontrol process;
  • Significant legislative or regulatory issues impacting the organization are identified and properly addressed.

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
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..

Study achievements

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:

Qualifications (1 February 2018 Number of staff
Number of full-time staff 67
Average years relevant experience 16
Average years of service 7
Under graduate diploma/ certificate holders 22
Degree holders as highest qualification 13
Honours degree holders 6
Post graduate diploma holders 6
Chartered accountants 4
Number of staff who are CFP® practitioners 3

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
  • Amei Diener
  • Caroline Scott
  • Lilly Boys
A total of 10 staff of our complement of 67 passed this milestone.

10 year service awards
  • Louis Theron
A total of 19 staff of our complement of 67 passed this milestone.

5 year service awards
  • Austin Thirion
  • Rudigar van Wyk
  • Kai Friedrich
A total of 40 staff of our complement of 67 passed this milestone.

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:
  • No comments were raised on the One Chart f Accounts project.
  • Concern was expressed on the short time afforded to implement the new levies. Per NAMFISA this falls outside its mandate.
  • NAMFISA will only register a complaint if the fund has been unable to satisfy the complainant.
  • FIM Bill has finally been signed off by legal drafters. Bill was forwarded to Ministry of Finance for submission to Attorney General for certification.
  • NAMFISA draws attention to 4 malpractices in the industry:
    • Abdication of powers, duties and responsibilities of trustees. Trustees are expected to make sure that functions outsourced to service providers are carried out properly. Trustees are expected not to leave it to service providers to explain non-compliance issues and non-payment of contributions to NAMFISA but to rather do this themselves.
    • False statements made under oath in an affidavit. Rule amendments that may negatively affect members’ benefits are expected to be communicated to members and the statement under oath is to certify this. False statements have been submitted which constitutes a criminal offence. NAMFISA was requested to report back on the outcome of the false statement under oath. NAMFISA was requested not to issue directives for isolated incidents similar to this.
    • Unauthorised investment in employer currently being investigated by NAMFISA. Funds to apply for exemption if it is necessary to invest in the employer. Approval of such applications is not within NAMFISA’s mandate and fund will not be penalised for delays experienced in the processing of applications.
    • Non-disclosure of risk benefits in fund rules.
    • Industry working group will be set up by NAMFISA to discuss issues faced by the industry.
  • The following stats as at end June 2017 were mentioned:
    • Total industry assets at end of September decreased to N$ 143.79 billion from N$ 143.84 billion at the end of the previous quarter.
    • Overall industry domestic asset allocation was 46%.
    • Overall industry equity allocation was 63.5%.
    • Overall industry investment in unlisted investments was 2.1% of assets, drawn down percentage was only 0.2%.
    • Total investment in insurance policies was N$ 18.0 billion.
  • Principal officers are required to sign off the SIH returns as it is the fund’s responsibility and not the service provider’s.
  • Observations arising from offsite inspections by NAMFISA:
    • Board not constituted in terms of rules.
    • Familiarity risk of long-serving service providers, such as auditors, to their independence of fund. NAMFISA was requested to assist trustees to identify long serving service providers who can potentially pose a familiarity risk.
    • Investments not in line with investment strategy.
    • Insufficient effort made by funds to trace beneficiaries of unclaimed benefits.
    • NAMFISA not informed within 30 days of appointment of principal officer and auditor.
    • Unclaimed benefits not dealt with in terms of NAMFISA circular and Administration of Estates Act.
    • Rules do not deal with handling of unclaimed benefits.
    • Non-compliance with regulation 28(4), i.e. investment in unlisted investments.
    • Non-payment of contributions (section 13A) – funds required to take necessary action to rectify the non-payment and to inform NAMFISA.
    • Inconsistent disclosures in SIH reports.
    • Not all expenses are appropriately disclosed in the financial statements.
    • Reserve allocations not in line with actuary’s recommendations.
    • No formal trustee performance assessment in place. NAMFISA was requested to advise who should assess the board.
    • Investment in employer not appropriately disclosed.
    • NAMFISA failed to respond to a legal opinion provided that differs fundamentally from NAMFISA directive on unclaimed benefits.
  • NAMFISA will try to communicate additional requirements for any applications ahead of time before enforcing compliance.
  • Funds with state funded employers are required to report any non-payment of contributions by these entities by the 15th of each month.
Interestingly, in the bullet on the familiarity risk, reference is specifically made to the auditors by NAMFISA, who is a service provider required to deliver an independent opinion by law. In this regard it seems NAMFISA has accepted to assist trustees to identifying service providers who can potentially pose a familiarity risk through long service tenure. This will certainly be welcomed by trustees who are currently faced with a very nebulous concept of familiarity risk.

Download the minutes here...

Legal snippets

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.

Media snippets
(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...

Media snippets
(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...”
  • almonds,
  • yogurt parfait,
  • a can of tuna with crackers,
  • blueberries and babybel cheese,
  • apple and roasted chickpeas,
  • mug of soup,
  • full-fat plain green yogurt with chia seeds and cacao powder,
  • veggies with hummus,
  • Italian taralli crackers and string cheese,
Read the full article on CNN here...

And finally...

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:

How much will you need when you retire and are you investing enough?
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