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In this newsletter:
Benchtest 05.2018, change of guard at RFS, Telecom vs CRAN, RF.S.5.18 and RF.S.5.19 analysed and more...

Important notes and reminders

Quarter 2 of 2018 SIH returns

The SIH return at 30 June 2018 is due to be submitted by 15 August (note that the 45 days period remains in place).

NAMFISA levies

Funds with year ends of May 2018 need to have submitted their 2nd levy returns and payments by 25 June 2018; June 2018 year ends by 25 July 2018.

Funds with year ends of November 2017 need to have submitted their 1st levy returns and payments by 25 June; December 2017 year ends by 25 July 2018.


Newsletter


Dear reader

In this newsletter we announce a change of guard at RFS; we reflect on the Telecom case against CRAN levies and its relevance for NAMFISA levies; we analyse FIM Bill standards RF.S.5.18 and RF.S.5.19, and in the Monthly Performance Review of 31 May 2018, we try to answer the question whether investment markets will improve anytime soon.

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 31 May 2018


In May 2018 the average prudential balanced portfolio returned -1.61% (April 2018: 3.4%). Top performer is Stanlib (-0.56%); while Namibia Asset Management (-2.52%) takes the bottom spot. For the 3 month period, EMH Prescient takes top spot, outperforming the ‘average’ by roughly 1.09%. On the other end of the scale Momentum underperformed the ‘average’ by 0.75%.

Will we see investment markets improving anytime soon?

Year-to-date investment returns look rather depressing! Over this 5 month period, the best low equity portfolio produced only 3.2%, the best prudential balance portfolio produced 1.5% while the average prudential balance portfolio produced minus 0.2%. This state of affairs does not come as a surprise. In July 2014, we already expressed our opinion that “…we will see negative short-term interest rates, low to negative returns on longer dated stocks and muted growth in equities that are dependent on a growing economy and low interest rates. We would therefore not expect returns on equities to exceed 4% in real terms over the next 3 years…”

Well we were too optimistic about our expectation of muted returns for the next 3 years. In fact the JSE Allshare index, CPI adjusted produced minus 2.4% per annum over this nearly 4 year period. Adding back dividends of 3.2% the total return of the JSE Allshare index, CPI adjusted produced 0.8% per annum over this period – muted indeed as suggested. In contrast the average prudential balanced portfolio returned 7.7% nominal and 2.5% real per annum, outperforming the Allshare index, CPI adjusted by 1.7% per annum. The bond portfolio we are monitoring returned 7.6% per annum in nominal terms, just below the 7.7% produced by the average prudential balanced portfolio. Cash returned 7.7% in nominal terms or 2.1% in real terms. Clearly, in hindsight there was little to choose as between the different asset classes over the past 4 years.

For interest sake, the Benchmark default portfolio produced a return of 8.8% in nominal terms, or 3.6% per annum in real terms, outperforming the average portfolio by more than 1% per annum over this period.

Will we see the investment market improve anytime soon?

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


A new era is dawning for RFS

Dear reader, letting go is sometimes a very hard thing to do. However letting go is necessary to moving on.

  • We need to let go our egos so that we can empathise with others.
  • We need to let go our biases, the cataracts that blur us seeing other realities.
  • We need to let go our past success so that we can build future success.
  • We need to let go our strategies, in order to be flexible, adaptive and open.
  • We need to let go what we know, in order to learn what it is we need to know.
  • We need to let go our grievances and grudges, so we can be free.
  • We need to let go our sense of normal, so we can discover other ‘normals’.
  • We need to let go our insecurities so that we can love and be loved.

(From the article in TomorrowToday noted below.)

In this vein, the time has come for me to let go, to step down as managing director of Retirement Fund Solutions in order to make way for a younger generation to lead this great company to greater heights, as I have intimated for quite some time. Deputy managing director Marthinuz Fabianus will thus be taking over the baton as from 1 July 2018.

Marthinuz and I have come a very long way, in fact only surpassed by two people that are still working for RFS today, namely Charlotte Drayer and Frieda Venter, who have accompanied me on my career for longer than he did. He joined UPA in 1994, fresh from school as a filing and delivery clerk. I saw Marthinuz growing up and maturing over the past 24 years. He always had ambitions, but he was always realistic and humble enough to appreciate that one cannot fly before one can walk. Seemingly menial tasks he approached with conviction and dedication and with the eyes firmly focused on a career path that required of him to progress step by step.

Marthinuz always was content with the progress he made at his own pace and never succumbed to the temptation of short-term gain through job-hopping as so many of our compatriots do. He studied and built his knowledge and expertise in the pensions field step by step, year by year over the past 24 years and without doubt he is today widely recognised as a pensions expert. He has proven his skills in people management when he was assigned responsibility for our fund administration team and he built an excellent reputation over the years he has been serving many of our largest clients as client manager. He has shown that he is able to build bridges between cultures and to manage diversity. The fact that he has been with RFS over 24 years testifies that his personal any the company’s philosophy are very much aligned.

As from Monday 2 July Marthinuz is entrusted with the well-being and the destiny of RFS and its staff. I sincerely wish him all strength, empathy, perseverance, faith and wisdom to lead this wonderful company from strength to strength, for the benefit of its staff and in the interests of its clients and the Namibian economy! May he be blessed with health and good luck at all times!

My position will change to that of technical adviser to our managing director specifically and to the company in general on a full-time basis for as long as I can still add value to our organisation and our stakeholders. While Marthinuz has already taken over quite a few responsibilities from me, I will hand over the remaining management responsibilities over the next couple of months with the objective that no disturbance or disruption will be caused to staff, clients and our service levels. I will also continue to act as chairman of the board of directors of RFS.

To all our clients and our staff I would like to express my sincere appreciation for your trust and confidence over all the years you have supported RFS and I had the privilege to serve you. I trust you will bestow upon Marthinuz the same trust, confidence and support. I will of course still be around every day as before and I am sure our clients and most of our staff will not actually notice any difference.


NAMFISA levies - will they stand up to the test?

Many stakeholders of the pensions industry will have read the media reports on the Telecom case against CRAN with regard to the levies raised by CRAN. No doubt  some would have concluded that NAMFISA levies should be tested against the judgement in the CRAN case. The following is an extract from a report in the Villager of 14 June 2018:

“…The court further upheld that although a levy of 1.5% on annual turnover was not per se unconstitutional, as it was within the international norm as shown in evidence and in cases considered, the absence of clear (or any) guideline or limit for its exercise failed to remove the risk of an unconstitutional exercise of discretionary power by CRAN, and rendered the section and regulation made thereunder unconstitutional.

For the period preceding the taking effect of the order of invalidity, CRAN can only exact payment from Telecom such amounts as are due after the regulation came into force…” (Read the full report in the Villager in this link.)”

As we understand the, regulator levies need to be tied to the regulatory effort and cannot be imposed on everyone ‘across the board’ as if it were a tax. Assuming NAMFISA will have the authority to raise levies that cover its full operational costs as the court seem to have ruled in respect of CRAN levies, the aggregate of levies raised by NAMFISA would probably remain unchanged, even after a successful challenge of the basis for determining levies, but the allocation to different regulated industries and different regulated institutions may change. Given that in the pensions sector GIPF comprises such an overwhelmingly large part of the total sector, GIPF currently pays the largest portion of the total levies by far and most likely disproportionately to the regulatory effort.

If any fund or RFIN on behalf of its members were to assume responsibility for challenging NAMFISA on the levies, based on the arguments put forward by Telecom in its case against CRAN, the outcome may very well be that all funds other than GIPF will pay an even higher levy while the GIPF levy may reduce dramatically. The concern is warranted that it is not in the interests of funds other than GIPF to pose such a challenge while it may very well be in GIPF’s interests.  Any pension fund intending to pursue a challenge in this regard needs to be aware that it may actually ‘backfire’ and prove not to have been in its interests.

It may still be worth testing whether the NAMFISA levies are within international norms, as seems to have been a perspective the court considered in the Telecom case against CRAN. At the end of the day, the NAMFISA levies are borne by the consumer of financial services and the consumer has a right to be sure to receive ‘value for money’. This is of course very difficult to determine when the levy is imposed by a regulator that does not have to operate within a competitive environment. If such a levy falls totally outside international norms it will impact the competitiveness of the Namibian financial services industry though.


New regulations and standards: comment on RF.S.5.18 and 5.19


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 the Benchtest 2018-02 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 the Benchtest 2018-03 newsletter we addressed RF.S.5.11.
In the Benchtest 2018-04 newsletter we addressed RF.S.5.12 and RF.S.5.13.
In the Benchtest 2018-05 newsletter we addressed RF.S.5.14 and RF.S.5.15.

RF.S.5.18
Matters to be included in investment policy statement


The board of every fund must maintain a Statement of Investment Policy (SIP) (para 2).

  • with assistance of investment advisor (can be any financial intermediary);
  • without assistance of investment adviser.
Every defined contribution fund that does not permit investment choice (para 3), SIP must include –
  • description of rate of return objective;
  • description of total risk tolerance as low, moderate, or high and analysis of risk structure (per para 4);
    • typical allocation to fixed interest and variable income investments;
    • justify classification as low risk (should be >60% fixed interest), medium risk or high risk (should be < 43% fixed interest);
    • or –
    • Investment Adviser prepared analysis –
      • must justify fund tolerance of aggregate investment risk;
      • asset allocation benchmarks;
      • investment allocation caps;
      • level of diversification.
  • Analysis of reasonableness of investment return objective of risk profiles.
  • Inclusive and specific description of asset classes that may be invested in –
    • diversification between and within asset classes;
    • diversification of each, rated as low, medium or high diversification.
  • Asset allocation benchmarks range percentages.
  • Asset class exposure cap percentages.
  • Description of all prohibited investments.
  • Single investment cap percentages;
  • Single entity cap percentages;
  • Maximum percentage currency risk exposure.
SIP – defined contribution fun that does not employ an Investment Adviser (para 5), SIP must comply with para 6 below and reflect following restrictions –
  • All investments must be N$ denominated.
  • Term to maturity of any investment must be <= 5 years.
  • Only following investments are allowed:
    • Namibia government debt;
    • Deposits with banking or financial institution;
    • Shares listed on registered stock exchange;
    • Annuity contracts (guaranteed as to capital and return) issued by registered insurer;
    • Unit trust;
    • Segregated portfolio of a life insurer;
SIP – defined contribution fund offering member choice and invests in funds managed by registered financial institution or financial intermediary (para 6), SIP to stipulate –
  • Active members to annually get clear description of each available fund as to –
    • specific investment policy;
    • risk exposure;
    • rate of return objective;
    • expense charges;
    • periodic management fees;
    • charges upon transfer or withdrawal.
  • Allocation option to be available to active members, described so as to –
    • Prevent imprudent risk exposure;
    • Prevent inadequate diversification;
    • Prevent excess allocation among higher risk asset classes.
  • Investment counselling workshops for active members will be provided –
    • At least every 3 years;
    • Investment training will be provided, emphasis on
      • risk: return relationship;
      • monitoring and adjusting asset allocation over time.
    • Benefit statements for active members will be provided at least quarterly–
      • showing account activity;
      • showing investment balance;
      • showing net rate of return;
      • delivered physically or electronic (as opted by member).
SIP - defined contribution fund offering member choice investing in funds not managed by registered financial institution or financial intermediary (para 7), SIP to stipulate –
  • Description of policy –
    • use of derivatives;
    • securities lending;
    • unlisted shares/ debt;
    • private placements.
  • Fund will not acquire voting shares more than certain prescribed limit.
  • Description of process –
    • for regularly reviewing and assessing investments;
    • to monitor and control key investment risks w.r.t –
      • market risk;
      • interest rate risk;
      • credit risk;
      • liquidity risk;
  • Description of process –
    • for appointing investment advisors;
    • for appointing investment managers;
    • for appraisal of investment advisers and investment managers –
      • how  appraisal will be conducted;
      • by whom appraisal will be conducted.
SIP – fund that is not a defined contribution fund (para 8) –
  • rate of return objective must have regard to valuator’s return assumptions per latest valuation report;
  • must reflect the relationship between rate of return objective and valuator’s return assumption;
  • justify a divergence of more than 2% between rate of return objective and valuator’s return assumption.
For all funds SIP must –
  • include a summary per schedule 1 to this standard (exposition of asset allocation structure);
  • made available to active members, retired members and deferred members;
  • have regard to and comply with all legislative requirements.

Our comments:

  1. An extremely prescriptive, compliance based standard that will constitute law, for interpretation by the courts in case of conflict or a dispute. It will lead to funds taking a ‘tick-box’ approach. NAMFISA should perhaps rather consider to prescribe an investment policy statement for each situation in intends to cover which should make compliance easier and cheaper for smaller funds.
  2. The structure and numbering of clauses makes it very difficult to understand the statement,
  3. The statement makes reference to Investment Adviser. This term is not defined anywhere.  In paragraph 6 it expands on this term and one may deduce what it means in that particular paragraph.
  4. The statement in para 4 boldly sets benchmarks for what the maximum fixed interest exposure for the low, medium and high risk portfolios should be. Low risk means a fixed interest exposure of more than 60%, high risk means a fixed interest exposure of less that 43%. It also does not distinguish between fixed interest investments that are subject to market volatility and those that are not, intimating that they are all low risk investments. We believe this is presumptive, does not reflect common understanding of risk and may even mislead the pension fund member.
  5. Para 5 by implication dictates that as soon as a fund invests in a typical prudential managed portfolio (as most funds do), an investment adviser has to be engaged, as in all other cases the conservative investment structure set out in this para has to be complied with.
  6. It is not clear for what circumstances para 5 provides. It appears to make provision for funds in liquidation or funds due to be transferred to or amalgamated with another fund by prescribing conservative investments. While annuity contracts invested in must provide guarantees as to capital and rate of return, at the same time it allows for investing in equity, unit trust funds and any segregated portfolio offered by an insurance company. It does not allow for investing in a segregated fund managed by any other financial institution.
  7. The use of higher and lower case for certain terms is not consistent – refer to Investment Advisor.
  8. The implication of para 6 read together with para 7 is that para 6 deals with funds employing an investment adviser while all other funds are subject to para 7. It is not stated as such explicitly though in para 7 and may cause confusion.
  9. Para 6 interestingly makes provision of what defined contribution funds employing an investment adviser need to communicate with active members. There being no reference to retired members or deferred members who consequently do not need to receive the same type of communication.
  10. Para 6(b) insinuates that in all cases 100% cash exposure is imprudent as being inadequate diversification. The statement should be this specific. Since this does not take into account the particular circumstances of the member it is inappropriate, can mislead members and may expose NAMFISA to censure. We assume that under the FIM Act regulation 28 as we know it today will disappear and will be replaced by the SIP of each fund else any replacement would surely set the limits of prudence.
  11. As for many other statements, this statement in many respects negates the benefits of group arrangements vis-à-vis retail products by enforcing the rights of the individual. This implies increasing costs for each retirement fund member. It is very doubtful that many of these member rights focused requirements will either add value to the member or will be understood or will be exercised by the member. It appears to ignore realities of life.
  12. Para 7 (b) speaks of how the trustees will control market risk, interest rate risk, credit risk and liquidity risk. Trustees will not be able to control these risks but can merely monitor and mitigate.
  13. The current reality is that smaller funds and smaller portfolios are invested in unit trusts. The statement ignores this reality. It should recognise this reality and make provision for the different investment vehicles as they encompass elements that are not compatible with the statement. This comment is made assuming NAMFISA’s intention is not to force all funds currently invested in unit trusts into an umbrella fund.
  14. The standard contains a schedule prescribing the presentation of a fund’s asset allocation structure, the range and the limit. If this is intended to replace the regulation 28 reporting, the detail is less onerous than what regulation 28 requires. The schedule uses terminology not common in the world of finance, e.g. ‘preferred equity shares’ and ‘common equity shares’. It refers to ‘commercial paper and short term notes’. ‘Commercial paper’ is not necessarily of short-term nature and should not be reflected in the same category.
  15. It is gravely concerning to us that this law seems to still be deficient in many ways, after having been in process for such an extensive time, after having gone through all processes of technical scrutiny and now being about to be imposed as new law.
  16. References to clauses in the Bill need to be updated to refer to the relevant sections in the latest version of the Bill.

RF.S.5.19
Matters to be communicated to members and contributing employers and minimum standards for such communication

Communications with active members, retired members and deferred members must be clear, complete and accurate and provided at least annually.

  • Every fund must provide an annual report that includes –
    • An explanation of
      • objectives of the fund;
      • risks involved in operations affecting members and employers;
      • conditions that tend to maximise likelihood of success;
    • Contribution rates -
      • required by members and employer and their terms and conditions;
      • that can be made on a voluntary basis;
      • policy of employer regarding using emerging surplus.
    • All costs associated with fund administration and how they are determined.
    • Manner in which benefits are determined, including member specific values using reasonable assumptions –
      • retirement;
      • disability;
      • early withdrawal.
    • Voluntary and/ or compulsory retirement age/s;
    • Optional forms of benefits available
      • to members upon retirement;
      • to members upon early withdrawal
      • to beneficiaries in the event of death pre or post retirement.
    • In case of defined contribution fund –
      • investment options and their risk reward characteristics;
      • investment program adopted by employer for his own contributions;
    • For the event of termination of the fund –
      • terms and conditions to apply;
      • allocation and distribution of surplus;
      • in the case of a fund that is not a defined contribution fund, the potential effects of any unfunded solvency deficits on accrued benefits.
    • The annual report must provide notices of –
      • annual meeting of active, deferred and retired members;
      • meetings regarding management of investment portfolios as per standard RF.S.5.18;
      • potential mergers or sale or discontinuance of any part of the fund;
      • suspension of employer contributions;
      • forthcoming rule amendments.
  • The annual report must comply with RF.S.5.14.
  • A defined benefit retirement fund must provide annual benefit statements that include (clause 6) -
    • Member identification, personal and address details, date of membership and of membership termination and identity of beneficiaries;
    • Member, AVC and employer contribution details for the year and accumulated without and with investment returns;
    • Net rate of return of current and prior year per investment portfolio;
    • Retired living annuitant portfolio values, current draw-down rate, maximum capital available for withdrawal in following year as well as individual account projections over time assuming different draw-down rates and investment returns;
    • Investment portfolio chosen by the active or deferred member for allocation of contributions;
    • Details as per schedule 1 to the standard of the active or deferred member’s individual account;
    • Details of retired member’s benefit as per schedule 2 to the standard.
    • Brief summary of investment policy and investment options for the allocation of contributions;
    • Report the net annual rates of return for each available portfolio and a breakdown of the investment expenses as a percentage for current and 4 prior years.
  • A retirement fund other than a defined benefit fund must provide annual benefit statements that include (clause 7) -
    • Member identification, personal and address details, date of membership and of membership termination and identity of beneficiaries;
    • Active, deferred or retired member’s accrued benefits, including death and disability benefits, contribution data as per schedule 2 to the standard.
    • Results of most recent valuation as to financial soundness and solvency;
    • Issues or developments that may reasonably be expected to produce a material change to financial soundness or solvency.
    • In respect of a retired member –
      • Benefit paid during current year;
      • Benefit to be paid during following years;
      • Benefit increase during current year due to cost of living adjustment or surplus allocation;
      • Solvency ratio of the fund.
    • In respect of an active or deferred member -
      • Contributions and additional voluntary contributions for the current year;
      • Accumulated contributions at end of current year;
      • Accrued benefits at end of the current year;
      • Retirement benefit expected to be accrued in following year;
  • Solvency ratio of the fund.
    • Communications with active participating employers must be clear, complete and accurate and provide contribution employers with the following (clause 9):
    • All information as per communication strategy (RF.S.5.13), per compliance report to persons with a material interest (RF.S.5.17) and per RF.S.5.16 (not issued yet).
    • Notice of all meetings of the board, active, retired or deferred members.
    • Notice of all legal actions taken against the fund or the board and the status thereof.
    • Summary of complaints by active, deferred and retired members.
    • Copies of all reports required under the Act including asset managers’ quarterly and annual reports.
    • Active, retired and deferred members two months or more in arrears on employer guaranteed mortgages with a demand for calling up the guarantee.
    • Notice of breach of code of conduct by member of the board including action taken by the board.
    • Notice of material concerns raised by any service provider and how it was disposed with.
    • Request for information concerning any media report on corporate financial or other status of participating employer that may impact the retirement fund directly or contingently.

Our comments:

  1. An extremely prescriptive, compliance based standard that will constitute law, for interpretation by the courts in case of conflict or a dispute. It will lead to funds taking a ‘tick-box’ approach. NAMFISA should perhaps rather consider to prescribe an investment policy statement for each situation in intends to cover which should make compliance easier and cheaper for smaller funds.
  2. The statement used phrases and terms that are not defined and make it difficult to apply the statement, such as ‘liabilities (para 1(d)); ‘conditions that would tend to maximise the likelihood of its success’ (3(a)); ‘costs associated with the administration of the fund’ (para 3(c)); ‘investment program adopted by the contributing employer’ (para3(g)); ‘annual rates of return’ and ‘the investment expense’ (para 6(d)); ‘may be reasonably expected to produce a material change’ (para 7(d)); ‘may reasonably be interpreted as involving the retirement fund directly or contingently’ (para 9(ix)).
  3. With reference to comments in 2 -
    a. (para 3(g)) - in practice an employer never has an ‘investment program in respect of its contributions’ but this is tied solely to the options offered to the members of the fund
    b. (para 9(ix)) – who is to apply the measure described as ‘may reasonably be interpreted as involving the retirement fund directly or contingently’ – the fund or the employer? The fund has no authority over the employer and cannot prescribe to the employer what, if anything, needs to be communicated to the fund. It cannot be enforced and should not be reflected in this subsidiary law.
  4. This standard to some extent overlaps the requirements of RF.S.5.14, dealing with annual reporting to members. This may lead to conflicts that will be difficult to resolve and can expose trustees to a risk, as both represent subsidiary law.
  5. Para 3 (b) insinuates that the employer has a policy in regard to utilizing any emerging surplus, that is of any consequence for the fund. Whatever the employer policy may be is of no consequence to the fund unless it is reflected in the rules. This requirement should be removed.
  6. Para 3(g) requires that member specific values for each type of benefit must be included in the annual report to active, retired and deferred members. An annual report to a wider audience cannot contain any member specific values. This requires removal or reformulation.
  7. Para 3(h) requires the fund to set out how it will deal with unique situations that may never happen and where the response to the situation will be very much dependent on the specifics of the situation. It requires speculative commentary that may be totally inappropriate. The rules of the fund should normally set out how such situations will be addressed without prescribing the approach to be taken as this will be a management function.
  8. Para 6(g) requires the annual report to contain a brief summary of the investment policy. An investment policy is typically a very complex, technical and detailed document. To summarise such a document is bound to produce misleading messages, to confusion and conflicts. Such a document should not be required to be summarised.
  9. The extent of information required to be contained in the benefit statement is very extensive and requires qualitative statements (para 7(c) and (d)) and information that is not available on electronic member records. A benefits statement is an automated electronic extract of quantitative information in a member’s record. No information that is not member specific should be required to be reported. All not member specific and qualitative information should be transferred to the annual report also dealt with in this standard.
  10. Para 7(f)(i) requires the reporting of member contributions and member AVC contributions for the year. Para 7(f)(ii) only requires accumulated member contributions to be reflected but not accumulated AVC contributions.
  11. Para 8(a) requires the annual report to members to give notice of annual meetings of active, retired and deferred members. The Act has neither such requirement nor any standard that we are aware of.
  12. Para 8(b) requires the annual report to members to give notice of meetings of active, retired and deferred members to provide information regarding the management of investment portfolios as per RF.S.5.18. This statement has no requirement to hold such meeting but merely makes reference to investment counselling workshops. This must be rephrased. In practice it will be very difficult to schedule such workshops for a year in advance.
  13. Para 9 lays down extensive and detailed annual reporting to the participating employer. The employer is a party to the fund as every active, retired and deferred member. We believe strongly that a fund should produce an annual report with information that is relevant to all parties to the fund and this report should be freely available to all parties to the fund. To require separate reports for different parties to the fund makes the management of the fund unnecessarily complex and costly without creating any additional value. It is questionable that employers would even want to be overwhelmed with such extensive reporting including quarterly investment reports where the employer has no responsibility for and authority over the management of the fund.
  14. Para 9(b)(vi) is grammatically incorrect by making reference to a borrower holding a mortgage. The lender is the holder of the mortgage while the borrower grants a mortgage.
  15. It is concerning to us that this law seems to still be deficient in many ways, after having been in process for such an extensive time, after having gone through all processes of technical scrutiny and now being about to be imposed as new law.
  16. References to clauses in the Bill need to be updated to refer to the relevant sections in the latest version of the Bill.
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 an principal officer of a fund

“After our Board meeting this morning [the chairman] came to my office and had this to say about you, I quote “the service delivered by RFS is exceptional, even when Mr. Friedrich & Mr. Fabianus are not present at the meetings. R is on top of her game,  she is aware of what is happening in the fund and when questions are posted she is able to answers”  RFS is truly an exemplary institution that provides an excellent service to the Fund. We are pleased to be associated with such remarkable organisation, keep up the good work.”

Read more comments from our clients, here...
 
Letters from readers

For the benefit of readers who may have similar sentiments towards their employer’s pension fund arrangement, we quote from a letter received:

“...it’s all fair and well to save money for the future, but we all have day-to-day and monthly expenses that take precedence and having a compulsory pension that is sky high is really not helping me save for my personal future at all...”

Here is our response to the reader:

“I read your comment with interest and thought that I should respond to provide some perspective that will hopefully foster more appreciaton for your pension arrangement.

For young people, retirement is far off and they are typically more concerned about today than the day of retirement. Retirement however is a fact of life and most of us will eventually get there. If you do not start saving today you are unlikely to make a decent living after retirement. It is a matter of balancing your needs and priorities between the immediate and the future. Once you get to retirement and if you have not saved up towards retirement around 15% of your remuneration for all the time you worked, you will have a battle to survive when you have no means of earning an income anymore. At that stage it will be too late to change your situation.

You also should realise and appreciate that the pension fund offers death and disability benefits. While you are young and single, the death benefit may mean nothing to you. This will change when you have dependants who can be supported should your support fall away. The disability benefit is a very important benefit, more so for young people than for old people. It will help you when you cannot help yourself anymore. I have unfortunately seen it too often that young people recklessly neglect to think beyond their day-to-day spending. When misfortune strikes they have not provided for this and are now dependent on their family and their community.

If you want to be in control of your life you need to live within your means. This means that you need to have provided for retirement, death and disablement, and what is left is what you have available to live on.

I trust this helps you to have a slighlty better appreciation for the pension arrangement that your employer has arranged for its employees, thinking more long-term in the interests of employees than employees typically tend to do.”


News from the market

Background screening services offered

Elite Employment and Infusion Risk Consulting is offering regulatory compliant background screening services of candidates. This will become particularly relevant in future when the FIM Act will require compliance of trustees with fit and proper requirements. Download the brochure setting out the services in greater detail, here...

Changing the shape of group disability insurance

The purpose of any pension fund arrangement should be to meet the needs of its members. Who is still concerned about the needs and who understands the needs of employees when it comes to insured benefits in general and disability benefits more specifically? To Most trustees it is purely a matter of costs. However what is the purpose of incurring costs to offer benefits to fund members that do not address their needs? True, disability happens rarely so why should a trustee be concerned about such a rare incident. The point is, when it does happen, the effected person is usually in trouble finding that the benefit offered by his/her fund do not really address his/ her needs.

In this article, Regard Butler addresses some of the important elements of group disability cover and explains why it should not be merely a matter of costs. Preventative and rehabilitative programmes are essential elements to improve the well-being of employees.

Download the article by Regard Butler of Momentum Corporate Solutions, here...


Media snippets
(for stakeholders of the retirement funds industry)

When personal liability of trustees kicks in

In this case, the trustees of two funds realised sometime after their appointment as trustees that the membership records of their funds were unreliable. They resolved to have the records rebuilt and to recover the cost of the rebuild from members’ interest in the fund. Participating employers complained to the adjudicator about this fee. The adjudicator ruled against these four trustees to be personally liable for costs they incurred in an effort to rebuild the membership records of funds they served as trustees. The amount at stake is R 17 million for which each one is jointly and severally liable, arguing that the four trustees had managed the funds improperly causing the financial loss to the funds.

The four trustees took the adjudicator’s decision on review to the South Gauteng High Court and the matter was to be heard at the end of May. The trustees argued that the maladministration occurred at a time prior to their appointment as trustees. They only became aware later that the funds’ financials were not audited and only after the delinquent administrator was replaced by another administrator.

No doubt the outcome will be awaited with keen interest by trustees not only in SA but in Namibia as well.

Download a more detailed review of this case by Allan Greenblo in Today’s Trustee of 25 May 2018, here...


Does a lump sum at retirement age make sense?

“The thought of receiving a large lump sum at retirement is appealing to many people, and dreaming of spending it can make all the hard work over a lifetime seem worthwhile. Provident fund members, unlike pension fund members, are not compelled to convert the lump sum into a monthly income, but whether this option is in their best interest remains open to debate. Andrew Davison, Head of Advice at Old Mutual Corporate Consultants, believes that more often than not, it isn’t. “The primary need in retirement is universal – it’s to have an inflation-adjusted income for the remainder of your life - and your spouse’s, if you have one. This is the reason why we save for retirement in the first place”. He questions why the focus of most retirement funds, and hence of their members, is on the amount they will be able to withdraw as a lump sum upon reaching their retirement…”

Read the full article by Andrew Davison, Old Mutual, in FA News of 24 May 2018, here...


How to navigate a low return environment

“...Cheap, easy money that was pumped into the system after the global financial crisis has pushed markets and valuations higher locally and globally. This is expected to temper future returns, compounded by the US Federal Reserve gearing up for further interest rate hikes and the quantitative tightening cycle, he adds.

As a result, pension funds and fund managers will find it difficult to meet higher ‘CPI plus’ targets.

How should investors respond? Should they respond at all?

Dhayalam says the first line of defence should be to stick to the basics of staying invested and remaining diversified – trying to ‘time the market’ in an effort to improve returns adds another layer of risk, which often may not work out well.

It is vital not to become emotional and panic but rather, at a minimum, investors should reassess their asset allocation or building blocks to determine if their required objectives can still be met. There are various investment levers available, and investors should use them in conjunction with a sensible overlay of risk management, he adds…”

Read the full article by SASFin Wealth, in Moneyweb of 26 June 2018, here...


Can you cash in on your RA when you emigrate?

Question:

“If a member over the age of 55 with a Retirement Annuity decides to emigrate are they able to commute the full value as a cash lump sum? If so would the withdrawal lump sum or retirement lump sum tax tables apply? I have heard a number of conflicting views and was hoping to find a definitive answer.”

Answer 1:

“Yes that is my understanding. As long as he has not elected to retire he may withdraw from the RA on providing the exchange control documents issued by SARB on formal emigration, to the RA provider. The full amount can be taken and the withdrawal tax table applies. The proceeds are paid into a non-resident blocked account and remitted abroad from there.”

Answer 2:

“Member reached the age of 55 but not the contractual retirement age

If a member is age 56, for example, and elects 60 as the retirement age on the RA contract then the member will have the option to either retire from the fund (1/3 rd and 2/3 rd options ( if over R 247 000) ,  or commute the full fund value on formal emigration. The benefit will be taxed according to the table above if the client elects to commute the full fund value on emigration.


Member already reached the contractual retirement age

In the latest Tax Directive Guide on Emigration 2013, Treasury clarified that members who have reached the contractual retirement age will not be able to commute the full fund value on formal emigration. These members only have the retirement option available to them. This effectively means that if a member elects 60 as the retirement age on the RA contract and the member is now 62 years old, then the member will not have the option to fully commute their RA fund value on formal emigration.

Where members are invested in open ended RA's products, it would mean such members do not need to elect a retirement age and will therefore not be restricted by the changes above.”


This was a discourse in the ‘FPI Member Community’ digest from a South African perspective. In Namibia, unlike in SA, the definition of ‘retirement annuity fund’ does not provide for a cash termination benefit under any circumstances (this includes emigration). The Namibian Income Tax Act only provides for a cash commutation upon retirement and a refund of contributions in the event of death. Namibians are of course subject to the same exchange controls as South Africans are for taking money out of the country upon emigration.


Media snippets
(for investors and business)


A huge storm may be looming for investors

“Take a look at this chart:



Credit balances at the NYSE are at historic levels, and investors are clearly “gorging like pigs at the trough,” Lamensdorf said. Sound familiar? You can see in the chart that investors had a substantial negative credit balance just as the dot-com bubble was topping out. After the crash, they had a positive balance, and “they missed out on a huge buying opportunity” ahead of the recovery. We saw it again a few years later. The negative balance of the housing boom turned into the biggest positive balance in decades during the mortgage crisis…”

Read the full article by Shawn Langlois in MarketWatch of 30 May 2018, here...


Choosing the right cyber insurance provider

“…Deciding to get a policy is simple. However, finding the right policy, from the right provider, can prove far more challenging.

Many traditional insurance policies might, to a very limited extent, provide some coverage should a breach or another security incident occur, but no business in its right mind would rely on that. It’s important when choosing a cyber insurance provider to remember that it’s not as simple as choosing regular insurance. There is very little standardisation in the cyber insurance industry, and the offerings from the different providers are bound to vary massively in terms of what is covered, and what is not.

Comparing the various offerings and selecting coverage that meets your specific business needs is tricky, and you don’t want to be left with any crucial gaps in your coverage. Therefore, before picking a cyber insurance policy, an organisation must have a very clear and thorough understanding of the cyber risks specific to itself…

There are two major types of cyber risk coverage that organisations generally consider, and those are first-party coverage and third-party liability coverage. The former will cover direct costs associated with responding to an attack, such as the leaking of personal customer data, and the theft, destruction or loss of any information resulting from a breach. It will also cover removing malware, cleaning the system, and data recovery.”

Read the full article in Cover of 23 May 2018, here...


Five things that can prolong your life by a decade

Harvard scientists say the following 5 things can prolong your life by a decade:
  1. Eat a healthy diet.
  2. Exercise for 30 minutes or more a day.
  3. Maintain weight (BMI of between 18. and 24.9)
  4. Don’t drink too much alcohol (30 ml of wine per day female, 30 ml male)
  5. Don’t smoke.
Read the full article by Alessandra Mail to in Personal Finance of 9 June 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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