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In this newsletter:
Benchtest 02.2018, How the regulator can save costs for the consumer, prospects for the US equity market and its impact, RF.R.5.11 examined, check the validity of your beneficiary nomination form and more...

Important notes and reminders

NAMFISA circular on investment in Creo Investment Fund and Creo Assets (Pty) Ltd

NAMFISA sent out a circular to the pension fund industry on 18 March 2018 requesting confirmation of any investment in these entities. No reason was provided for this enquiry.

We can confirm that according to information received from the asset managers managing investments on behalf of funds we administer, none held any investment in either of these institutions.


Tax arrears recovery incentive programme extended

The Ministry of Finance published a Press Release informing taxpayers that the Tax Arrear Recovery Incentive Program‘s due date initially set at 11 March 2018 has been extended to Tuesday, 3 April 2018.

Read the news release here...


Newsletter


Dear reader

In this newsletter we suggest how the regulator can reduce costs for the consumer, we place under the magnifying glass Retirement Funds Standard 5.11, dealing with forms of pensions that may be provided under the FIM Act, we explain why your members’ beneficiary nomination forms may not be valid and in our Benchmark Monthly Performance Review of 28 February 2018, we explain why any investor should be concerned about the prospects of the US equity 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!

Regards

Tilman Friedrich


Tilman Friedrich's Industry Forum

Monthly Review of Portfolio Performance
to 28 February 2018


In February 2018 the average prudential balanced portfolio returned minus 0.79% (January 2018: 0.57%). Top performer is Metropolitan (0.39%); while EMH (-2.58%) takes the bottom spot. For the 3 month period, Metropolitan again takes top spot, outperforming the ‘average’ by roughly 2.74%. On the other end of the scale EMH underperformed the ‘average’ by 3.14%.

Why should we be concerned about the prospects of the US equity market?

Many experts are - and have been for quite some time - deeply concerned about the severely inflated levels of the US equity market. In the March newsletter (Benchtest 03.2017) we present an article titled ‘Mother of all yield shocks is about to crush stocks’ wherein David Stockman, the so-called “Father of Reaganomics,” hasn’t been shy — or close to right — about his frantically bearish calls in recent years. This justified concern is supported by graph 1 below. The red line depicts the growth of the S&P 500 over the past 31 years, and this in US CPI adjusted terms, thus removing the impact of inflation. Clearly the S&P 500 lingers at dizzy heights of around 2,700. The green line depicts the price: earnings ratio of the S&P 500. This puts the movements in the S&P 500 index into some context. What is evident from this graph is that the growth of the index has been largely supported by growth in earnings up until 2009. While earnings have picked up since the end of the financial crisis in 2009 the divergence between the two lines is now massive meaning that investors in the S&P 500 are today prepared to pay more than twice the multiple of earnings for the index than they have in general been over the past 30 plus years. On that basis the index should rather be in the region of 1,500!

Graph 1


Read part 6 of the Monthly Review of Portfolio Performance to 28 February 2018 to find out what our investment views are. Download it here...


How the regulator can reduce costs for the consumer

One of the assertions the regulator made at the recent pension fund industry meeting is that an increase in the number of competitors will reduce costs. As the result of this assertion the regulator is propagating the rotation of service providers by funds. But will it reduce costs and is it appropriate to suggest that costs should be the key criteria in any event?

We would agree that a monopoly leads to inefficiencies and to wasted costs for the consumer. We do not believe that the number of competitors is an indicator of the efficiency of the market though. If the number of competitors leads to the multiplication of fixed overheads and the consequent recovery of these fixed overheads from a smaller pool of consumers, the consumer will on average be worse off. The crux of the matter is how many competitors the market can sustain. If the market can only sustain 2 competitors, a third competitor will lead to the uneconomical application of resources at the cost of the consumer. We believe that the retirement fund administration market outside the GIPF will hardly sustain 2 administrators who focus exclusively on fund administration. Since there are currently 5 institutions active in this market all of them have to diversify their offering in order to survive. Unfortunately this leads to a dilution of expertise as the pool of business becomes too small to sustain true expertise in the area of fund administration.

We believe that the regulator needs to establish benchmarks for measuring what cost levels generally should be and should assess what the market can sustain in terms of number of service providers in the different areas. It is important the regulator is aware of the possible implications for retirement funds, their members and other stakeholders, including the regulator itself, of unviable service providers ‘landing’ appointments but eventually being unable to execute on their appointment. The strategy of trying to lower fees by increasing competition through using unqualified risks of familiarity to pressurise trustees to rotate its service providers for the sake of avoiding questioning by the regulator, can have serious unintended consequences for the consumer and for the regulator.

I suggest that the regulator should rather make every effort to lowering entry hurdles to the industry in Namibia and to eliminating monopolies or avoiding the creation of monopolies. Without going into any detail it will be no secret to anyone that Namibian business is constrained excessively by numerous laws, rules and regulations that add layers above layers of costs on any service or product produced in Namibia. This includes industry legislation and regulation, immigration laws and regulations, labour legislation and income tax legislation to mention just a few.

Another area the regulator should carefully consider is the prevailing monopoly in retirement provision for government employees. The GIPF is not only a monopoly as is evident by the fact that its operational costs are significantly higher than those of the remainder of a diverse and complex defined contribution industry with no economies of scale, despite the fact that it has economies of scale and is a simple defined benefit structure. In addition it poses a serious systemic risk to the Namibian economy,

Finally we are currently thinking about creating another monopoly in the form of the National Pension Fund that will replicate the GIPF experience and is bound to lead to inefficiencies and becoming a systemic risk to Namibia.

These few areas should be fertile ground for the regulator to purposefully engage itself in if it is serious about competition and costs.


New regulations and standards: comment on RF.S.5.11


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:

Regulations:

  • 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).

The above regulations were covered in Benchtest 02.2018 newsletter issued in February.

Standards:

  • 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

In Benchtest 01.2018 we addressed RF.R.5.3, RF.R.5.7 and RF.R.5.8 and will place focus on the remaining standards in the next few newsletters.

RF.S.5.11  Alternative forms for the  payment of pensions for the purposes of defined contributions funds

  • This standard applies where a member’s individual account (fund credit) is converted to retirement income (annuity/pension) -
    • upon retirement from a defined contribution fund;
    • upon retirement of someone who withdrew early from another defined contribution fund and who then transferred to another financial institution or retirement fund;
    • upon retirement in a fund of a member who preserved his/her benefit in that fund upon early withdrawal;
  • This standard also applies after a lump sum, not exceeding such amount as specified in any applicable legislation, regulation or subordinate legislation, was paid out in terms of the rules of the fund. This appears to refer to remaining capital after partial withdrawals and appears to be referring to maximums set in the Income Tax Act, the FIM Bill and any of its subordinate legislation.
  • It also appears to provide for where an annuitant passed away and where the rules provide for the payment of a certain portion in the form of a lump sum while the balance is applied to continue paying an annuity to another person.
  • The following annuities may be provided by a registered insurer:
    • Life annuity for life of the member;
    • Life annuity with guarantee period;
    • Life annuity with spouse’s pension for a minimum of 5 years.
    • Any of the above annuities increasing with a specified rate or based on a cost of living index’
  • The following annuities may be provided by a registered insurer or a registered fund:
    • A 20 year fixed term annuity, regardless of survivorship, with or without guaranteed increases at a specified rate;
    • A living annuity (referred to as ‘programmed withdrawal scheme’).
    • If retirement capital is less than what the Income Tax Act allows to be fully commuted, the insurer or fund offering the annuity must offer an option between –
    • a cash lump sum; and
    • fixed yearly instalments with interest at current bank demand deposit rate over not more 3 years.
  • The insurer or fund offering annuities must
    • allow the members to give at least 60 days’ notice of their intention to retire;
    • allow the members to give at least 60 days’ notice of their intention to elect a form or retirement income or any request for information on retirement income options.
  • Insurer or funds offering annuities must provide members with following information prior to retirement –
    • One or more form of retirement income that may be elected;
      • In simple terms the characteristics of each form i.t.o.
      • Determination of amount and duration of income, whether fixed or variable income, circumstances for varying and benefits at death;
      • Longevity, investment, expense and insolvency risk member may be exposed to and needs to manage.
      • Notice that member must appoint a beneficiary and that a married member who elects a single life annuity must provide a statement that the spouse was informed that no further benefit will be payable upon death of the member and must provide proof of notification of the spouse.
    • Maximum annual withdrawal rate of living annuity may not exceed 20% of the value of the retirement income account.

Our comment:

  1. This standard uses terminology that is foreign to our industry meaning that the industry now has to adapt all its standard terminology in all documents etc. and has to acquaint itself with the new terminology used, making it unnecessarily time consuming. For a better understanding ‘retirement fund account’ appears to refer to preservation capital after early withdrawal while ‘individual account’ appears to refer to a contributing member’s fund credit.
  2. Clause 2 (b) appears to allow preservation of retirement capital in financial institutions other than an insurer or a retirement fund, i.e. unit trusts, benefit fund, securities depository, stock exchange, friendly society, medical aid fund etc. This is firstly not possible in terms of the Income Tax Act and it is secondly probably not the intention.
  3. This standard refers to insurer indiscriminately and thus would allow a member to use any product the insurer offers such as a unit trust or other non-insurance product. This is probably not the intention.
  4. In terms of the Income Tax Act, retirement annuity funds may only offer life annuities. This is in conflict of the options provided in terms of this standard.
  5. It would seem that this standard would not allow within a single contract so called ‘back-to-back’ annuities where a portion of an annuity is used to purchase life cover to be paid as a lump sum when the annuitant passes away.
  6. The 20 year fixed term annuity is a defined benefit and requires reserves to be maintained the moment it offers guaranteed increases and then cannot be offered by a defined contribution retirement fund. It should thus not be referred to in this standard.
  7. Members who now receive the obligatory information about all the risks they are exposed to when choosing an annuity are likely to take the wrong decisions to mitigate risks they will in many instances not understand without qualified financial advice.
  8. The regulator has introduced a new product that is foreign to the industry at present (20 year fixed term annuity). This product is an obligatory option the member must be given by a defined contribution fund offering annuities, besides the standard living annuity. It implies that if the member passes away on the first day after retirement the annuity will continue to be payable to the deceased member’s estate for 20 years (regardless of survivorship)!
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 pension fund consultant

“A, would just like to thank you for these notes as they are extremely helpful when I compare them with mine afterwards!
It has happened that I have been busy with either a discussion, presentation or responding to comments made by the Trustees and have missed something which is then duly captured in your notes!
Great to be part of the “team” with you, whose only interest is that of the client!
Much appreciated!”


Read more comments from our clients, here...
 
The Benchmark Retirement Fund
Flagship of umbrella funds in Namibia

By Paul-Gordon, /Guidao-Oab, Benchmark Product Manager


Your employees’ beneficiary nomination forms may be invalid

Employers participating in the Benchmark Retirement Fund will be aware that employees should complete a beneficiary nomination form to assist the trustees of the fund to allocate the lump sum benefit that is payable upon the death of a member. This form should be reviewed at least annually as the member’s status with regard to dependants and nominees may change from time to time and such changes should be taken into account when reviewing the beneficiary nomination form.

Where an employer previously participated in an umbrella fund and subsequently transferred its retirement funding arrangement to another umbrella fund or where a stand-alone fund moved into an umbrella fund, the employees may have submitted beneficiary nomination forms to the original fund but may not have submitted new beneficiary nomination forms to the subsequent fund.

Employers should take note that the forms submitted to the original fund cannot be considered by the trustees of the subsequent fund as they do not constitute a valid beneficiary nomination form for the subsequent fund.

Section 37C (1) (b) states - “If the fund does not become aware of or cannot trace any dependant of the member within twelve months of the death of the member, and the member has designated in writing to the fund a nominee who is not a dependant of the member to receive the benefit or such portion of the benefit as is specified by the member in writing to the fund, the benefit or such portion of the benefit shall be paid to such nominee…” The Key words here are ‘in writing’ and ‘to the fund’. A beneficiary nomination form typically reflects the name of the fund in respect of which it is completed by the member and this will be in writing. Such form of the original fund clearly does not meet the requirements of section 37C (1) (b) with regard to the subsequent fund.

Employers who moved from another retirement arrangement to the Benchmark Retirement Fund are urgently requested to arrange for all their employees to complete a new Benchmark beneficiary nomination form and to submit this to RFS as soon as possible.

 
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

News from RFS

Victoria Nashongwa
Victoria Nashongwa joined us at the beginning of 2002. She is responsible for a team of administrators providing fund administration services to our private fund clients. She has previously been in the employ of other fund administrators since March 1997, and can thus call on extensive, relevant experience. As Insurance Institute of South Africa licentiate, she holds the Intermediate Certificate.

RFS reappointed to administer Namdeb Provident Fund

RFS is extremely proud and pleased to announce that the Namdeb Provident Fund appointed RFS to administer the fund for another term of 3 years following a previous extension of 3 years!

In all humbleness, the message is self-evident and we look forward to serve this fund beyond its expectations over the next term of our appointment.

We would like to express our sincere gratitude to the board of trustees of the fund for their trust and confidence in our capabilities as fund administrators to their fund!


The RFS / SKW youth soccer tournament 2018

RFS once again sponsored the RFS / SKW youth soccer tournament that took place at SKW Soccer fields from 9 to 11 March. The tournament was played in the age groups u/7 to u/17.


Above, The winning U9 team - SKW!


Above, Kai Friedrich, director responsible for sponsoring the annual SKW Youth Soccer Tournament, with a proud winner of the U9 group shows off GREAT support from RFS.

 
Age group Gold medal Silver medal Bronze medal
U7 Ramblers DTS SKW
U9 SKW U9 DTS SKW U8
U11 Falcons Swallows SKW
U13 Ramblers Otjiwarongo SKW
U15 SFC SKW Ramblers
U17 Swallows SKW SFC

RFS social committee reaches out to Môreson Centre

RFS social committee visited the Môreson Centre at its Independence Day celebrations with truly Namibia inspired cupcakes and face painting.


Rudigar van Wyk (left) and Riduwone Farmer (right) handed over the colourful Namibia flag made of cupcakes.


During the visit, members of the social team had time to meet some of the learners and teachers.

The depth of expertise of the RFS team

Here is a summary of the qualifications and experience of our staff brought to bear on each client we administer on a daily basis:
 
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

Note, in our 18 year history of our 67 staff:
  • A total of 10 staff passed the 15 year service milestone.
  • A total of 19 staff passed the 10 year service milestone.
  • A total of 40 staff passed the 5 year milestone.
News from Namfisa

Notes of the industry meeting of 19 March 2018

NAMFISA hosted another pension funds industry meeting at Safari Hotel and Conference Centre, inviting only trustees and principal officers. Once again attendance was disappointing

As surmised previously, there is evidently 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 on an unpaid basis 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.

Here are a few salient points from the notes:
  • The One Chart of Accounts project: NAMFISA is still in the process of setting up its ERS system for these reporting requirements and this is expected to be done by end of March.
  • Further testing is to be carried out during April.Complains: NAMFISA is now distinguishing between complaints and queries.
  • FIM Bill: Was signed off by Minister of Finance and was submitted to the Attorney General for certification. Public consultations are still to be held. Comments on regulations and standards will still be considered.
  • Malpractices in the industry: NAMFISA still investigating instances of a false declaration made under oath.
  • Observations arising from offsite inspections by NAMFISA:
    • Board not constituted in terms of rules.
    • Investment allocations not done i.t.o. investment policy.
    • Stagnation of unclaimed benefits and failure to pay to Master after 5 years.
    • Non-compliance with section 19(4) re investment in employer.
    • Non-payment of contributions (section 13A) – funds required to take necessary action to rectify the non-payment and to inform NAMFISA.
    • Rules do not deal with handling of unclaimed benefits.
    • Inconsistent disclosures in SIH reports.
    • Fund liquidity at risk as the result of non-payment of contributions.
  • Familiarity risk: NAMFISA propagates more competition in the industry. Trustees should rather consider why not to retain a long-serving service provider than vise-versa. To mitigate risk,
    • funds should go out on tender and service providers to be evaluated independently;
    • SLA’s should be in place; reputation of service provider should not be a consideration.
  • Income Tax matters: Inland Revenue (IR) may grant special dispensation where an annuity would be payable to an estate over up to 5 years in terms of PN 1/1996. Supporting documentation to be submitted to IR.
  • Participants’ comments:
    • Increased levies do not result in value addition by NAMFISA. NAMFISA should offer training.
    • NAMFISA is in the process of establishing a training schedule for principal officers and trustees.
    • Industry does not derive value from information provided via SIH returns and unnecessary information should be removed from these returns.
    • NAMFISA believes it is justified to build its own building.
    • NAMFISA believes levies will not be increased in the next 5 years.
    • NAMFISA accepts that costs for the consumer will increase through increasing regulatory requirements.
Download the notes here...
Download the NAMFISA presentation here...


Legal snippets

Determination in L Kirsten vs Allan Gray

This matter deals with the Adjudicator determination in the case L Kirsten (complainant) vs Allan Gray Retirement Annuity Fund (first respondent) and Allan Gray Investments (second respondent)

The salient facts and points of this matter were as follows:
  • CL Wilson passed away on 10 October 2015.
  • Deceased nominated his friend L Kirsten as sole beneficiary.
  • The death benefit amounted to R 77,634.
  • Deceased had no children and was not married.
  • Allan Gray awarded the death benefit to Ms Amelia Merchant.
  • Ms Merchant –
    • started to date deceased around March 2014;
    • and deceased both had two properties;
    • moved in with deceased on 1 September 2014;
    • claimed to have been in a permanent relationship with deceased for about 18 months at the time of deceased’s demise;
    • claimed to have shared a common household and expenses and that she received support from the deceased of R 10,000 per month;
    • and deceased entered into a joint lease agreement to lease a residential property for a period of 12 months from 1 September 2014 to 31 August 2015.
    • stated that she needs the proceeds of the death benefit to rent her own house and to pay for food and studies;
  • Complainant Ms Kirsten –
    • Informed Allan Gray that she and deceased were best friends but not in a relationship;
    • Confirmed that she was not dependant on deceased;
    • Claimed the relationship between deceased and Ms Merchant was unstable and that Ms Merchant moved out of the house she shared with deceased to live with her mother a few times;
  • Complainant Ms Kirsten requested the adjudicator to review the decision of the board of trustees on the following basis
    • Ms Merchant is comfortable benefiting from deceased’s death benefit;
    • Ms Merchant is not in financial strain owning 2 properties, having a good paying job and driving an expensive car;
    • Ms Merchant lived in her own house and paid her own expenses before she moved in with deceased;
    • It is unlikely that Ms Merchant contributed an amount of R 10,000 towards household expenses;
  • Allan Gray established that –
    • Deceased died intestate and it was not clear whether estate was solvent or not but according to information received by Allan Gray the assets were about R 1.9 million and liabilities were about R 2.3 million;
    • Deceased’s gross annual income was R 750,000 including rental income from his two properties of R 240,000;
    • Ms Merchants gross annual income was R 720,000 including rental income from her two properties of R 240,000;
    • Ms Merchant was life partner of deceased having been in a permanent relationship spanning 24 months;
    • Ms Merchant was the only dependant of deceased;
    • Father confirmed not to have been dependent;
    • Sister confirmed not to have been dependent;
    • Half-sister confirmed not to have been dependent;
    • Friend and nominee confirmed not to have been dependent;
    • The pooling of resources by Ms Merchant and deceased increased their financial well-being and standard of living;
    • The Pension Funds Act does not prescribe a calculation methodology that must be followed;
    • The present value of the approximate net financial dependency of the life partner in respect of her lost support was calculated as R 7,995,761 on the basis of–
      • Using a calculator that calculates the financial need of a dependant,
      • Determining the household income of deceased and Ms Merchant as the sum of gross annual salaries excluding rental income of both, i.e. R 1.47 million,
      • using a real discount rate of 3%,
      • using mortality table SA85/90,
      • using assumed retirement age of deceased as 63 and assuming income would have dropped by one-third post retirement,
      • assuming the household comprising of deceased, partner and 2 children, therefor splitting household income in 4 parts, one of which was allocated to deceased and 3 to life partner,
      • deducting the death benefit lump sum received by Ms Merchant as the result of demise of deceased of R 9,000,
  • Allan Gray submitted that –
    • Complainant’s financial need was zero;
    • Board of trustees is required to exercise its discretion, taking into account factors such as –
      • Age of beneficiaries,
      • Relationship with deceased,
      • The extent of dependency,
      • The wishes of the deceased,
      • The amount available for distribution,
      • The financial affairs of the beneficiaries, including their potential future earnings capacity.
    • The benefit is insufficient to meet Ms Merchant’s needs;
    • Complainant was afforded an opportunity to object to trustees’ decision and although she did trustees were satisfied that the decision was equitable;
    • Trustees are not bound by the nomination form;
    • The trustees –
      • applied their mind,
      • took all relevant factors into account,
      • acted reasonably and fairly,
      • did not fetter their discretion.
  • The adjudicator found that the trustees had discharged their duties in terms of the Ac and did not fetter their decision, following largely the findings of Allan Gray, and will not interfere with the decision.
  • The adjudicator explained that –
    • The trustees did not fetter their discretion
    • The primary purpose of section 37C is to protect those who were financially dependent (per precedent Section 37C is intended to serve a social function and was enacted to protect dependency, even over the clear wishes of the deceased);
    • The Act imposes three pertinent duties on the trustees –
      • To identify and trace all the dependants and nominated beneficiaries,
      • To effect an equitable distribution,
      • To determine an appropriate mode of payment.
    • The law recognised three categories of dependants;
    • The person alleging to be a factual dependant will have to prove dependency on deceased;
    • The primary issue for the Adjudicator’s determination is whether –
      • The trustees discharged their duties in terms of the Act, i.e. considered all the relevant factors and ignored all the irrelevant factors,
      • The trustees did not fetter their discretion.
    • Ms Merchant qualifies as a dependant by virtue of being the deceased’s life partner;
    • For a beneficiary to claim to be a nominee –
      • The nomination must be in writing,
      • Beneficiary must not be a dependant.
    • It is not the role of the Tribunal to decide what the fairest or most generous distribution is, but the test in law is to determine whether or not the board acted rationally and arrived at a proper and lawful decision
Media snippets
(for stakeholders of the retirement funds industry)

How to retire comfortably

We all know that the majority of employees cash out on their pension fund benefit when they resign from their employer for alternative employment. In the final analysis this will lead to these employees having to rely on an insufficient income post retirement. If your financial planning aims to provide an income post retirement of 75% of your pre-retirement income, you should ensure that you have accumulated around two times your annual salary at age 30 and around five times your annual salary at age 40. If you have accumulated these amounts, you are on track, if you have not you have a problem that you need to address!

Here is some good advice of what you should do to ensure that you will retire comfortably.
  1. Preserve your benefits when changing jobs
    “Cashing out benefits is arguably the single biggest factor keeping investors from retiring comfortably, as non-preservation effectively “resets” their position. Members shorten their investment horizon and lose the initial benefits of compounding in the process.

     
  2. Save more
    Against a background where many individuals find it difficult to make ends meet, saving more can be a tough ask. For those people who haven’t saved for retirement at all, it can be worthwhile to start saving just a small percentage of their salary each month. While it can be difficult to stomach a sudden reduction in your take-home pay due to a higher pension fund contribution, one way of softening the blow is to increase the contribution percentage when salary increases are rewarded.

     
  3. Work/save longer
    Although it could practically be difficult to work beyond 65 where a company forces workers to retire, many retirees are using their skillset to start new ventures or work just a few hours a week, which can make a big difference to retirement income…

     
  4. Revisit your asset allocation
    While investors have no control over the market’s performance, it is important to ensure that you take enough risk in line with your retirement goal and investment horizon, even if you consider yourself a ‘conservative’ investor… But even ‘older’ members need to ensure they take sufficient risk in line with their retirement goals or may need to accept that they will have to lower their standard of living in retirement.

     
  5. Ensure you get value for the fees you pay
    Paying an additional 1% in fees, can reduce the retirement benefit by up to 20% over a 40-year savings period. While choosing the cheapest retirement fund option (if you have a choice) may not necessarily guarantee the best outcome, it is important to ensure you truly receive value for the fees you pay.”
Read the full article by Ingé Lamprecht in Moneyweb of 17 November 2017, here...

Regulation fuels drastic reduction in stand-alone retirement funds

The following article is based on the South African legal and regulatory environments. However, Namibia is following suit and we will undoubtedly have the same experiences here.

“There has been a significant reduction in the number of stand-alone retirement funds over the last six years as regulation increasingly sees these funds being swallowed by larger umbrella funds.

An analysis of data from the Financial Services Board (FSB) shows that the number of active stand-alone funds (including industry umbrella funds) have dropped from 1 439 in March 2012 to 982 by February 2018. The number of commercial umbrella funds has been fairly static at about 200 over the period.

To a large extent, this has been the result of increased regulation – including the additional costs associated with Regulation 28 reporting and the introduction of default regulations. Defaults are automatic choices made on behalf of retirement fund members who do not exercise their choices in a given situation. The latter is an effort by government to improve the retirement fund outcomes for members by ensuring that they get good value for their savings and maintain their standard of living in retirement…”

Read the full article by Ingé Lamprecht in Moneyweb of 7 March 2018, here...


10 facts about fund managers you should know

“Glacier by Sanlam has released an analysis of the South African asset management industry that has uncovered some fascinating statistics about investment teams and how they operate. The survey covered 146 funds across the South African multi-asset low-equity, medium-equity, high-equity, flexible, and general-equity categories.

The findings should certainly give asset managers themselves as well as investors and financial advisors something to think about:
  1. Almost half of all fund managers obtained their undergraduate degrees from UCT
  2. Almost half of all fund managers are CFA charter holders, yet on average they underperform fund managers who are not. However, on average across all categories, fund managers with a CFA qualification underperformed (10.24%) managers without (11.59%) a CFA qualification over the past five years
  3. Only 18% of investment professionals are female
  4. Average employment equity (race) representation is 31%
  5. The average size of an investment team is 11 people
  6. Big teams can outperform…This did not reveal what the optimal team size might be, but rather that it’s actually possible for any sized team to perform well.
  7. Confusion around who makes decisions affects returns…Glacier found that there are only small differences in performance whether those decisions are made collectively or only by a single individual. However, when it’s a combination of both, performance suffers.’
  8. Managers without a model underperform…While only 3% of the sample said that they don’t make use of any model when investing and instead rely entirely on their gut instincts, the performance of this segment is significantly worse than for managers who have proper processes in place.
  9. The majority of managers invest in their own funds
  10. Most fund managers own shares in their company.”
Read the full article by Patrick Cairns in Moneyweb of 15 March 2018, here...

Media snippets
(for investors and business)

How to avoid running your child’s life

“We’re often asked is “what should my child study”? Parents obviously have a particular set of concerns about the future related to their children, but there is a danger that overachieving (or anxious) parents can put too much stress on their children.

The evidence of this is seen everywhere in the world’s schooling systems, as more young people than ever before are taking antidepressants and going to therapy. I came across a superb article in Fast Company magazine a while back that every parent should read: How overachieving parents can avoid pressuring their kids.

It suggests four things for parents to consider:
  1. Recognise that achievement might not look like what you expect. Our definitions of success include looking at the grades, marks and awards handed out by a traditional schooling system. We should look at a much wider range of activities, lifestyle choices and attitudes as well.
  2. Don’t expect your children to replicate or compensate for your ambitions.
  3. Be aware of other sources of stress, and actively work to help reframe these for your child.
  4. Identify, measure, reward and celebrate the process, and not just the outcomes. Our children need to be praised for the effort, diligence, passion and love of that they do, and not just on being “top of tree” or achieving a specific grade in a test.

It’s fine to have ambitions for our children, and to teach them to have ambition for themselves too. But let’s not forget that childhood should also be about play, having fun, developing nurturing relationships and exploring the world.

Our future – and the future of our children – depends on them being a lot more resilient, flexible, open to on-going learning, more adaptable to change and more creative than we were ever required to be. The way to develop these character traits is not the way our core skills were developed. Parents need to change their view of what their focus should be, and be open to new approaches to raising their children.”


‘Mother of all yield shocks is about to crush stocks’

“David Stockman, the so-called “Father of Reaganomics,” hasn’t been shy — or close to right — about his frantically bearish calls in recent years. Just last summer, he warned of a “horrendous storm” that could take the S&P 500 index all the way down to 1,600. From there, he took it up a notch in September, saying stocks are headed for a retreat of up to 70%. Well, it’s still up at 2,700. But the market’s volatile behavior of late has emboldened some bears to refresh and even ramp up their doomsday scenarios. Stockman is one of them. “There is not a snowball’s chance in the hot place that the mother of all yield shocks can be avoided,” Stockman wrote on his blog this week. He explains that we’re in a uniquely dangerous position, one that really couldn’t have even happened under previous administrations…”

Read the full article by Shawn Langlois in MarketWatch of 21 March 2018 here...


How tax reforms will net the US big returns

“Under the previous system, U.S. corporations had incentives to hold their spare cash offshore in tax havens. A high corporate tax rate, coupled with an absence of time limits as to when companies had to repatriate their foreign earnings for taxation purposes, resulted in firms accruing ever larger piles of cash in friendly offshore jurisdictions that were willing to offer favorable terms in exchange for hosting the American giants. The realities of the modern economy greatly impacted this trend. Technology firms whose value largely lies in intangible assets such as intellectual property (iPhone software, for example) found they could choose where they booked their profits because the product was not physical, making its location harder to pinpoint. Accordingly, they often opted to park their profits in tax-efficient locations. The upshot has been the emergence of giant "cashbergs" in offshore havens. One study found that 63 percent of U.S. offshore earnings were reported in six jurisdictions – the Netherlands, Bermuda, Luxembourg, Ireland, Singapore and Switzerland…”

Read the full article by Marc Fleming-Williams in ‘Stratfor Worldview’ of 20 March 2018 here...


Cryptocurrency will give you true freedom

This was the message of Steve Bannon, Donald Trump’s former chief strategist, to a European audience recently.

Bannon believes that Cryptos and the blockchain will “empower [the populist] movement, empower companies, [and] empower governments to get away from the central banks that debase your currency and makes slave wages,” he said. “We take control of the central banks away. That will give us the power again…” He accused governments, central banks, and tech companies of infringing on the rights of ordinary citizens and exploiting them for their own purposes.

Read the full article by Shawn Langlois in MarketWatch of 8 March 2018 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:



 
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