The full review of these regulations can be found here...

Important changes and some of our comments are set out below:

Regulation 26(1)  is to be amended to the extent of raising the penalty for failure “…to make or to transmit or deposit a scheme, report, account, statement, other document or information within the time prescribed by … the Act or the Regulations or within any extended period allowed by the Registrar in terms of section 24 [sect 24 deals with enquiries by the Registrar] and 33(1) [sect 33 deals with the extension of certain peri0ds by the Registrar]…” from N$ 10 per day to N$ 500 per day.

Our comment:

The Registrar’s current position is not to grant extension for the submission of annual financial statements. This regulation, however, makes provision for extension being granted. Any unreasonable refusal to grant extension can be challenged as administrative injustice.

Besides the above penalties set by regulation, section 37 provides for a number of further statutory penalties upon conviction for contravention or failure to comply with various sections of the Act.

Regulation 26(2) is to be introduced, which provides for a penalty of N$ 1,000 per day for contravention or failure of a person to comply with any provision of regulation 28.

Our comment:

This is a new penal provision. Interestingly, it may not necessarily be imposed upon a contravening fund but also on any other person although it is only the fund required to comply with the Act. Perhaps Namfisa can clarify what the intention of this particular wording is.

Regulation 27 is to be amended by setting the interest rate on direct pension fund loans at BON’s repo rate plus 4%, currently 10% p.a.

Our comment:

Hitherto the interest rate was set at 16% since 1 August 1989. Employers whose fund offers direct loans need to ensure that salary deductions for employees’ housing loan repayments are adjusted in future whenever the repo rate is adjusted by BON. The same applies to administrators whose clients offer such loans.

Regulation 28 is to be amended by the following key changes:

• A definition of ‘domestic asset’ is introduced.
  
  Our comment:
  
  This definition appears to include corporate bonds of foreign companies as ‘domestic asset’. The annexure to the regulation restricts the investment in such bonds to 50% and requires approval of the country in which the entity is situated. It does not include loans to member, investments in the business of a participating employer, or any asset not listed in the Annexure (e.g. gold coins/bars, works of art) unless such assets are designated a ‘domestic asset’ by the Minister by notice in the Gazette. It appears that these issues may have to be reconsidered by Namfisa.
   
• A definition of ‘foreign asset’ is introduced, covering all assets that are not ‘domestic assets’.
  
  Our comment:
  
  The Annexure to the regulation only lists a limited number of assets in which a fund may invest. True Namibian assets may fall into the category of ‘foreign asset’ purely because of this, unless the asset is designated ‘domestic asset’ by the Minister by notice in the Gazette. Some of these are listed in our comment on the definition of ‘domestic asset’ above.
   
• A definition of ‘market value’ is introduced, setting out how different asset classes are to be valued.
  
  Our comment:
  
  For any assets held outside the common monetary area, can the principle of ‘willing buyer, willing seller’ upon an ‘arms-length’ sale in Namibia be applied, or does this definition in fact preclude any such investment?
   
• Maximum investment in property (sub max 25%), shares (sub max 75%), other claims against natural persons/companies (sub max 25%) and other assets (sub max 2.5%) is 95%.
  
  Our comment:
  
  This maximum implies that a minimum of 5% less the investment in unlisted investments (min 1.75% and max 3.5%) must be invested in banks, building societies, Post Office Savings Bank, Government bonds, bonds of SOE’s, local authorities, regional councils, Registrar approved Namibian corporate bonds or Registrar approved foreign bonds.
  
  It is also noteworthy that the previous sub maximum in shares is lifted once again from 65% to 75%.
   
• The previous reference to unlisted investments and the limits and conditions for investing in such investments, is removed from this regulation.
  
  However, the requirement to invest a minimum of 1.75% and a maximum of 3.5% of total fund assets in unlisted investments, remains in place. This is to be attained within a period of 12 months of publication of the relevant notice.
  
  Our comment:
  
  On many previous occasions we have raised the concern about the implication of enforcing any minimum investment in specific asset classes for funds offering member choice. Such minimum militates against a member choice to reduce his or her investment risk and volatility, often just prior to retirement and at a time where the member cannot afford any volatility. The procedure for exemption may be too onerous to be an option. It is to be hoped that the Minister will consider blanket exemption to such funds so that it becomes unnecessary for such funds to apply for exemption.  
   
• The staggered time scale for reducing the maximum investment in shares in dual listed foreign incorporated companies is now linked to the date of publication of the relevant government notice.

• Funds must within 90 days of each calendar quarter report on their investment holdings in such format as the Registrar may determine.
  
  Our comment:
  
  Currently funds only report on their investment holdings annually. Asset managers are required to report quarterly, and their reports would cover the assets of not only pension funds but also of insurance companies but would exclude any direct investment by a fund such as direct housing loans, credit balances with financial institutions, direct property investments etc. These direct holding are minimal in the context of the industry as a whole. For funds to now report quarterly will provide a marginally more accurate picture, not without substantial additional costs though. Cognisance now also has to be given to the penalty of N$ 1,000 per day of failing to comply with any of the provisions of regulation 28.
   
• The concepts of ‘linked policies’ and ‘not linked policies’ is discarded. All policies are now considered not to be an asset of the fund. Policies issued to ‘privately administered funds’  are not subject to the requirement that the insurer must report on these in terms of regulation 15 of the Long-term Insurance Act while policies issued to so-called ‘insured funds’ are subject to that requirement.
  
  Our comment:
  
  Presumably insurance companies will be required to report on their assets in terms of regulation 15 of the Long-term Insurance Act. It seems though that the assets underlying policies issued to ‘privately administered funds’ can be aggregated by the insurer for the purpose of regulation 15 (the equivalent of regulation 28). This means that individual ‘privately administered funds’ may not need to comply. This creates uneven playing fields for ‘privately administered funds’ between assets administered by insurance companies and those held either directly or managed on their behalf by unit trusts. Furthermore any discrepancy between the provision of regulation 28 and regulation 15 of the Long-term Insurance Act must be avoided at all costs, failing which opportunities for ‘arbitrage’ would be created.
   
• Exemption from the provisions of the regulation may be granted by the Registrar, after having obtained approval from the Minister.
  
  Our comment:
  
  This new requirement of obtaining Ministerial approval is likely to introduce significant inflexibility and red-tape into our industry. Does the Registrar want to be shielded by the Minister from applications for exemption or does the Minister have any preconceived ideas about when exemptions may be granted to which the Registrar is not privy?
  
  The annexure to the regulation prescribing certain limits contains a few surprises.
  • Previously a fund could invest 100% of its assets in credit balances with local financial institutions. This has been reduced to 95%, a minimum of 1.75% to be invested in unlisted investments.
    
    Our comment:
    
    Funds offering members investment choice primarily for the purpose of members’ reducing any risk of volatility and negative investment returns, to the extent of being fully invested in cash, will now be faced with the problem that the lowest risk portfolio still has to hold a minimum of 1.75% in unlisted investments and another 3.25% in any of the other asset classes.
    
    On many previous occasions we have raised the concern about the implication of enforcing any minimum investment in specific asset classes for funds offering member choice. Such minimum militates against a member choice to reduce his or her investment risk and volatility, often just prior to retirement and at a time where the member cannot afford any volatility. The procedure for exemption may be too onerous to be an option. It is to be hoped that the Minister will consider blanket exemption to such funds so that it becomes unnecessary for such funds to apply for exemption.  
     
  • The annexure contains no limit for an investment in direct housing loans to members or in moneys in hand, but with the minimum investment required in unlisted investments, this would imply an effective maximum of 98.25% in such assets.
    
    Our comment:
    
    The annexure does not recognise fairly commonly held alternative assets such as EFT’s, derivatives or structured products unless such assets are designated by the Minister by notice in the Gazette.

Regulation 28 Conclusion

The draft revised regulation represents a substantial improvement from its predecessor and has removed most of the previous ambiguities and serious drafting errors. It does give rise to a few serious concerns as elaborated in ‘our comments’ above. We trust that Namfisa and the Ministry will consider and heed our concerns and will still be prepared to discuss and negotiate the content of this regulation before its finalisation.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.