|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
(From the article in TomorrowToday noted below.)
The following regulations and standards were issued and covered in the process:
The above regulations were covered in the Benchtest 2018-02 newsletter issued in February.
In the Benchtest 2018-03 newsletter we addressed RF.S.5.11.
Communications with active members, retired members and deferred members must be clear, complete and accurate and provided at least annually.
The following documents can be further adapted with the assistance of RFS.
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...
(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?
“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.”
“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.”
“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.
(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:
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: