NAMFISA has circulated proposed changes to the current levy structure. These changes will have a major impact on funds, and trustees and principal officers are advised to acquaint themselves with this matter and to formulate their position. Unfortunately the due date for comment of 21 April has already expired.

Download the NAMFISA circular here...

Read our client circular that reflects our thoughts on this, here...

The direct levy on pension funds is proposed to change from N$ 250 per fund plus N$ 12 per member and pensioner, per year, to 0.0027% of total assets per year.

Besides citing very noble objectives in setting the new levy structure, NAMFISA has given no indication what the impact of the proposed changes would be on its total income.  Applying the current levy structure to our client base, the direct levy on pension funds increases from approximately N$ 400,000 to approximately N$ 4 million – an astronomical increase by any measure. As the previous basis was purely fund membership while the new basis is purely fund assets the impact of the proposed levy varies from fund to fund. In our client base the lowest increase will be 80% and the highest 2,400%, the average increase being 1,000%!

We estimate the impact of the increase in the direct fund levy for the industry to increase 10 fold from approximately N$ 4 million to approximately N$ 40 million

Of course pension fund members will further be taxed by NAMFISA  through the following levies: -

• Levy on insurance companies changes from 0.1% of total liabilities to 0.3% of gross premiums income. Based on the NAMFISA statistical bulletin for quarter 2 of 2016, the levy on long-term insurance companies will drop from approximately N$ 40 million to approximately N$ 5 million.
• Levy on unit trust schemes (where a fund invests in these) increases by 1,600% from 0.0033% plus N$ 5,000 per year to 0.053% of total assets managed. Assuming that funds investing through unit trusts will not be levied both the levy on unit trust management companies and the levy on asset manager who mostly do manage the assets of unit trust management companies we assess the impact only under the following bullet point.
• Levy on asset managers increases by 1,250% from 0.0012% plus N$ 5,000 to 0.015% of the total value of investments. We estimate the impact of this to increase the levy from approximately N$ 2 million to approximately N$ 21 million.
• Levy on unlisted investment managers is to be introduced at 0.053% of total assets managed. We estimate this new levy to raise an additional income of N$ 2 million.
• Levy on stock brokers increases by 800% from 0.0033% to 0.026% of total value of total value of securities traded. Unfortunately we do not have any statistics to estimate the monetary impact of this increase on pension funds.
• Levy on short-term insurers decreases from 1% to 0.569% of gross premium income. We estimate  the impact of this decrease to be a reduction of income from approximately N$ 9 million to N$ 5 million.

Conclusion

Assuming that half of the long-term insurance premiums are contributed by pension funds, pension funds will carry levies of around N$ 65 million which means that the pension fund member/ pensioner will contribute approximately N$ 200 per annum. Calculating the future and the present value of a member contribution of N$ 200 per year over a 40 year working life time, plus another 20 years in retirement, at a real return of 5% per annum implies that each fund member must pay NAMFISA N$ 4,500 up front to compensate it for its regulatory role, or must pay N$ 36,000 in today’s terms at the end of his or her 40 year fund membership!

Pension funds are undoubtedly the biggest contributor to the coffers of NAMFISA by far!

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.