2025-04
 |
||||
| Issued April 2025 | ||||
  This email address is being protected from spambots. You need JavaScript enabled to view it.   |
||||
| In this newsletter... | ||||
| Benchtest 03.2025 – FIMA restarted; RBS for Namibia; heads-up on overregulation, and more... | ||||
| Jump to... | ||||
 |
||||
| IMPORTANT NOTES AND REMINDERS | ||||
NAMFISA levies
The repo rate remained unchanged at 6.75% during April. The interest rate of 10.75% on funds’ direct loans and repayments will remain unchanged for May 2025. Budget proposals
|
Registered service providers Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2024, here... Retirement calculator Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here... If you need help with your financial planning, get in touch with
RFS provides comprehensive support for trustees. Find a list of download documents to assist with governance and management of private funds, registered as of June 2024, here... |
|||
 |
||||
| IN THIS NEWSLETTER... | ||||
|
In this newsletter, we address the following topics:
|
||||
|
In 'Tilman Friedrich's industry forum' we present...
|
In 'Legal snippets', read about...
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 March 2025 |
||||
| In March 2025, the average prudential balanced portfolio returned 0.1% (February 2025: -0.2%). The top performer is the Allan Gray Balanced Fund, with 1.8%, while the NAM Coronation Balanced Plus Fund, with minus 1.4%, takes the bottom spot. Allan Gray Balanced Fund took the top spot for the three months, outperforming the ‘average’ by roughly 2.6%. The Stanlib Managed Fund underperformed the ‘average’ by 2.1% on the other end of the scale. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 31 March 2025 reviews portfolio performances and provides insightful analyses. Download it here... |
||||
| ‘Hurricane Trump’ and the bigger picture | ||||
| The US is much more than President Trump and will sail the seas long after his demise. So the bigger picture remains its global supremacy and singularity even after Hurricane Trump’. If it was left to Europe, the world would still live in peace for another three years. But will the East afford it the time, and must the investor now adopt a short-term strategy? Market volatility is normal and should not derail a well-planned long-term investment strategy. Investors can navigate the ups and downs by staying the course, focusing on long-term growth, and taking advantage of market dips. Investors must know their needs and adapt their investment strategy to short-term needs. Investing during times of uncertainty requires a balanced approach that combines defensive strategies with opportunistic investments. While the potential for global conflict and economic downturns poses significant risks, it also presents opportunities for those who can navigate the complexities of the market. By focusing on value, diversifying geographically, and being flexible in your asset allocation, you can position yourself to protect and grow your discretionary assets in future years. These strategies should be tailored to your financial situation, risk tolerance, long-term goals and investment horizon. Read paragraph 6 of the Monthly Review of Portfolio Performance to 31 March 2025 for our views on investment markets and global political developments. It also reviews portfolio performances and provides insightful analyses. Download it here... |
||||
| The FIM Act – a new start Contributed by Carmen Diehl, C.A.(Namibia), Senior Manager: Risk Management and Compliance |
||||
|
This is a summary of main provisions of draft standards and regulations under the FIM Act and implication for retirement funds.
The FIMA (Act 2 of 2021) was promulgated in Government Gazette no. 7645 on 1 October 2021. The Minister of Finance has not yet set a date for it to become effective. It has hibernated ever since, but following last year’s elections, we will see action on it again in 2025, once the new Minister of Finance has found her feet. NAMFISA, however, has not been idle, spending a lot of time revising and issuing FIMA standards and regulations. In the next few issues of this newsletter, we will present the latest status on the standards and regulations and provide a brief overview. This summarises the main provisions of draft standards and regulations under the FIM Act and implications for retirement funds. Standards Chapter 5: Retirement Funds
|
||||
| A Model for Risk-based Supervision for Namibia | ||||
| NAMFISA recently engaged stakeholders regarding the introduction of a Risk-Based Supervisory model. The model envisages nine steps and emphasises the trustees’ responsibility for mitigating the risks. However, given Namibia’s unique environment, is this model appropriate? This question will be explored further on. 1. The nine steps of NAMFISA’s proposed risk-based supervision (RBS) NAMFISA will follow a structured process to assess the risks faced by pension funds:
NAMFISA’s transition from compliance-based supervision to Risk-Based Supervision (RBS) is a commendable step towards proactive and efficient regulatory oversight; however, given the unique structure of the Namibian pensions industry, where only the Government Institutions Pension Fund (GIPF) operates with full internal administration, while other funds outsource key functions to third-party service providers, such as administrators, consultants, and asset managers. Recognising the unique operational environment of the industry, NAMFISA should adapt the RBS approach to ensure effective and efficient supervision. 3. Key Observations Industry Structure and Systemic Risks
NAMFISA’s nine-step RBS model assesses risk at the individual fund level. While these nine steps align with global best practices, the focus on third-party-managed small and medium-sized funds creates regulatory blind spots in operational risk and cybersecurity, diverting resources unnecessarily to small and medium-sized funds whose boards effectively do not manage their operational risks. 4. Recommendations for an Enhanced RBS Model
NAMFISA’s transition to Risk-Based Supervision is a positive move towards safeguarding the Namibian pensions industry. However, NAMFISA must adjust its focus towards third-party service providers, given their critical role in fund operations, to ensure its effectiveness. By implementing service provider risk scoring, cybersecurity audits, and optimising regulatory resources, NAMFISA can better protect pension fund members and provide financial system stability. |
||||
| BON Governor warns against over-regulation | ||||
| The Brief reported in its 4 April issue that ‘the Bank of Namibia (BoN) Governor Johannes !Gawaxab has cautioned against excessive regulation, warning that stringent policies could hinder economic growth and drive businesses into the informal sector. He stressed the need for a regulatory framework that fosters business efficiency and investment while ensuring consumer protection. “Namibia is a developing country, yet our regulations often mirror those of more advanced economies. We must acknowledge that our unique socio-economic challenges require a regulatory approach that is both flexible and progressive,” !Gawaxab said. The Governor highlighted the risks of excessive regulation, citing its potential to stifle innovation, discourage investment, and push businesses into the informal economy. He also emphasised the importance of fostering a regulatory environment that enables businesses to operate efficiently while maintaining necessary safeguards for consumer protection.” The topic of overregulation is close to our hearts, and we have on numerous occasions lamented our regulators slavishly following the advice of experts from developed countries. Regarding the impact of the FIMA on the pensions industry, we have repeatedly expressed our concern about the high governance and compliance costs associated with this new law, which fund members and pensioners will ultimately bear. This law contains around 600 compliance requirements for retirement funds and their administrators. Considering the wide discretion the law affords the regulator in interpreting governance and compliance requirements and regulating these, it will be impossible for any service provider and fund to avoid severe penalties for failure to meet the law’s requirements, in the regulator’s opinion. Considering our new President’s resolve to reduce costs through a leaner government structure. Should our regulators not also follow her example? I suggest that now is the time to pause and reevaluate the appropriateness of the FIMA to avoid overregulation and its consequences, as the BON Governor cautioned. |
||||
 |
||||
| COMPLIMENT | ||||
|
Compliment from a principal officer
Dated 1 April 2025 |
“Hi Jolene Thank you for your prompt response. I truly appreciate it. The new benefits statement looks fantastic! The design and overall presentation are impressive, making it visually appealing and user-friendly. Kudos to the development team for their excellent work creating such a well-structured and professional statement. Looking forward to its implementation. Kind regards.” |
|||
|
Read more comments from our clients, here...
|
||||
 |
||||
| BENCHMARK: A NOTE FROM GÜNTER PFEIFER | ||||
| Circulars issued by the Fund | ||||
The Benchmark Retirement Fund did not issue any new circular or announcement after -
|
||||
 |
||||
| NEWS FROM RFS | ||||
| RFS celebrates 35 years of Namibian independence | ||||
| On the occasion of Namibia's 35th-anniversary celebrations, staff dressed beautifully in their traditional attire. | ||||
 |
||||
| RFS shares views on financial services sector with Forbes Africa | ||||
| RFS MD Marthinuz Fabianus had an exclusive interview with Forbes Africa. He discussed RFS’ strategic vision for Namibia's financial services sector, pension fund opportunities, and its commitment to driving economic growth as Namibia celebrates 35 years of independence. RFS Fund Administrators were grateful for the opportunity to share insights highlighting the critical role of financial services in Namibia’s development. | ||||
 |
||||
| RFS sponsors the SKW soccer tournament | ||||
| RFS has been a main sponsor of the SKW youth soccer tournament since 2000, continuing its 15-year tradition of supporting Namibian youth football with a generous sponsorship for the tournament from 25-27 April 2025 on the SKW sports fields. This sponsorship demonstrates RFS’ long-standing commitment to developing young football talent in Namibia. With 65+ teams across U7-U15 categories, RFS is proud to help tomorrow’s stars showcase their skills! (photo attached) In the photo, director Kai Friedrich hands over the sponsorship to Leander Schatz of SKW to celebrate this enduring partnership. |
||||
 |
||||
| RFS sponsors Windhoek Karneval | ||||
| RFS has been a faithful sponsor of the Windhoek Karneval since 2004. This year, RFS sponsored KIKAWI, an event for our youth and school-going kids in the name of the Benchmark Retirement Fund. | ||||
 RFS director Kai Friedrich, leisurely dressed for this social event, collected the sponsor certificate and medal
|
 The medal and certificate
|
|||
| RFS sponsors t-shirts for Holy Cross Convent | ||||
| Rauha Hangalo, senior manager of client services at RFS and parent of a Holy Cross Convent Pre-Primary School learner, arranged for RFS to sponsor T-shirts for Teachers and their Assistants at the Holy Cross Convent Pre-Primary School. “Thank you to RFS Fund Administrators for sponsoring our beautiful teacher and assistant’s t-shirts – we love it”, said Sanja Kritzinger, the pre-primary school’s HOD, in recognising RFS’ sponsorship. |
||||
 FLTR Maria Simunja (3rd), Rauha Hangalo (fifth), Sanja Kritzinger (HCC – sixth), Salomé Sloa (7th)
|
 |
|||
 |
||||
| Holy Cross Convent pre-primary school teacher’s assistants | ||||
| RFS encourages complaints and fraud reporting | ||||
| NAMFISA assists the public in resolving complaints regarding non-banking financial institutions such as RFS, the Benchmark Retirement Fund or RFS Financial Advisers. However, it expects any complainant to have first unsuccessfully approached the relevant financial institutions regarding the complaint before it would assist. The RFS website was expanded recently to allow the public to lodge complaints. The RFS website also allows the public to confidentially alert an independent professional adviser about any suspected or committed fraud a person may become aware of regarding RFS, the Benchmark Retirement Fund or RFS Financial Advisers. The adviser will inform RFS management of the report without disclosing the reporting person's identity. |
||||
| Elevate your fund experience with EPIC | ||||
| Members of funds administered by RFS can now access EPIC, its member communication platform, if the trustees agree to make the platform available to members. Members can access benefits and investment values online from any place at any time. Members of the Benchmark Retirement Fund take note that they have similar functionality through Benefit Counsellor. We encourage our fund members to make the best use of these facilities. |
||||
 |
||||
| The RETIREMENT COMPASS | ||||
| RFS Fund Administrators sponsor this newsletter as part of their social responsibility and initiatives to support the retirement fund industry. It aims to provide members of funds managed by RFS Fund Administrators and other parties in their network with retirement funding and planning-related news and insights, presented understandably. This issue covers the following insightful articles:
|
||||
| Important circulars issued by RFS | ||||
RFS issued no new circular after the circular
|
||||
 |
||||
| NEWS FROM NAMFISA | ||||
| Notes of the Industry meeting of 27 March | ||||
|
NAMFISA’s quarterly industry meeting took place at NIPAM on 27 March. For an early insight into the discussions, our Mrs Carmen Diehl provided the following notes of the meeting:
Download the NAMFISA presentation slides here...
|
||||
 |
||||
| LEGAL SNIPPETS | ||||
| Admissibility of affidavits as evidence in death benefit claims | ||||
| Under SA [and Namibian] law, an affidavit is a statement made under oath by an individual to a Commissioner of Oaths. While the person making the statement does so knowing that if it contains false information, they could face a jail sentence, this doesn’t necessarily mean that the affidavit is proof of the claims it contains. This means that trustees should be wary of simply accepting affidavits as substantial evidence to back a benefit claim. Section 37 requires the trustees to
Download the full article by Wahida Parker in Pensions World of June 2015 here… |
||||
| Death benefit payment: L Dickson v Netcare Pension Fund and another | ||||
| Introduction: The deceased nominated the complainant to receive 100% of the benefit. The deceased passed away on 21 June 2019, and the nomination form was completed in 2004. The fund allocated 100% of the benefit to the deceased’s mother. The complainant submitted that her grandparents raised the deceased from the age of four months, and for most of her life, she had an estranged relationship with her mother. The mother lived in the UK until her retirement and then relocated to South Africa, where she lives off her pension and rental income from her 5-bedroom house. The mother is 73 years old, resides on her own, and only has herself to fend for. From 1999 to 2008, the complainant and the deceased were in a romantic relationship and engaged. Despite the break-up, they maintained a close friendship and agreed to keep their nominations unchanged, as she did with her PPS policy. Further, this was the deceased’s wish. The complainant submitted that the board’s decision be revised to reflect a more equitable split between her and the deceased’s mother. According to the complainant, a fair and equitable award would be 50% each. The fund submitted that the board had to consider the deceased’s Nomination of Beneficiary Form completed in 2004, in which the complainant was nominated to receive 100% of the death benefit against the deceased’s addendum to her will in which she had nominated her mother to receive 100% of her death benefit in 2017. Further, since the deceased had not updated the said form, the board elected rather to allocate 100% of the death benefit to the deceased’s mother in line with the will and the submitted proof of financial dependency on the deceased. The Adjudicator held that:
|
||||
 |
||||
| SNIPPETS FOR THE PENSION FUND INDUSTRY | ||||
| Diversify or di-worse-ify: The fine balance between smart strategy and risky overload | ||||
| This article takes a sharp look at one of investing’s golden rules — diversification — and flips it on its head. While spreading your investments is key to managing risk, going overboard can backfire, leading to a bloated, underperforming portfolio that’s harder to manage and less effective. Charize Beukes of Brenthurst Wealth Management unpacks how trying to “own everything” can reduce returns and shares practical tips on finding the sweet spot between smart diversification and risky overload. The article also shares clear, actionable strategies to help you refine your portfolio and avoid common traps:
|
||||
| Diversifying your portfolio beyond forex | ||||
| This article raises the following key poiThis article highlights the risks of overtrading and over-diversifying in forex trading and emphasises the importance of strategic diversification. Roger Eskinazi, Managing Partner at Tickmill, shares insights on how diversifying a portfolio across asset classes, including stock indices, commodities, and bonds, can help mitigate risks and unlock new profit opportunities. By balancing different assets, traders can offset volatility, hedge against inflation, and preserve capital during economic downturns. The article also examines how instruments such as stock indices, commodities, and bonds can complement forex trading, providing stability and potential returns. If you're looking to refine your trading strategy and manage risk effectively, this article in Money Marketing of 3 April 2025 is a must-read... |
||||
 |
||||
| SNIPPETS OF GENERAL INTEREST | ||||
| Vishing: The Voice Scam You Need to Know About | ||||
| Vishing (voice phishing) is a fast-growing scam where cybercriminals call victims pretending to be from a trusted institution, like a bank, and pressure them into sharing sensitive information such as passwords or PINS. This tactic is increasingly sophisticated due to spoofing technology and the emotional urgency created over a call. Reports show a 442% increase in vishing attacks in late 2024 and a 1,265% rise in voice-based scams since the launch of AI tools like Chatgpt. Steps to Avoid Being Vished
Read the full article in Cover of 7 April 2025, here... |
||||
| Investing offshore: A brief guide. | ||||
|
With South Africa’s economic challenges and low GDP growth, more investors are looking beyond local borders for better returns. But how exactly can they do this? Investing offshore is simpler than many think, especially when aiming for hard currencies like the US dollar, euro, or pound.
One of the key hurdles is transferring money abroad, but South African citizens can easily take out up to R1 million per year (R2 million for couples) using their Single Discretionary Allowance. A tax clearance certificate is required for larger amounts, though this process has become more complicated. Despite these hurdles, the reward is worth it — investing offshore provides access to global markets and assets, potentially protecting against local economic risks. Offshore investments come in various forms, from flexible discretionary investments to endowments offering tax benefits and estate planning advantages. These investments allow exposure to diverse global sectors like healthcare and technology. Fixed investments provide a safer option with some capital assurance, while asset swaps and feeder funds allow offshore exposure through local funds. Opening an offshore bank account might also be beneficial for those serious about maximising their offshore investments. Given the complexities, seeking advice from a qualified professional is always recommended to ensure the best strategy is in place. Read the article by Magnus Haystek in Moneyweb of 26 March here... |
||||
| Essentials of a power of attorney | ||||
|
Granting someone the authority to manage your financial affairs is a significant decision that requires careful consideration. A Power of Attorney (POA) allows an agent to act on your behalf, whether due to illness, travel, or other circumstances. But with this responsibility comes risks, so understanding the rights, responsibilities, and potential pitfalls is crucial.
Broadly speaking, a power of attorney is a written declaration by one person (the principal) to bestow powers on another person (the agent) to perform juristic acts (i.e. actions that are intended and capable of having a legal effect) on their behalf. A power of attorney is not a contract but, rather, is made possible in terms of the South African [and Namibian] law of agency – the basis of which is that an agent is not permitted to perform any juristic act that the principal is incapable of performing. A POA can be general, giving the agent broad authority, or special, with more limited powers for specific tasks like managing tax affairs. However, in South Africa, the process isn’t straightforward. There’s no standard form; certain situations, like property purchases or banking, have specific requirements. For those with elderly parents or individuals losing mental capacity, managing finances becomes even more challenging. While a POA can provide assistance, it automatically terminates if the principal becomes mentally incapacitated or passes away, potentially complicating matters. The document must be carefully drafted to ensure it’s legally valid, and professional guidance is recommended to protect all parties involved. Whether managing a loved one’s affairs or considering a POA for your own reasons, it’s essential to know the risks and ensure all legal steps are followed. Read the article by Eric Jordaan of Crue Investments in Moneyweb of 26 March here... |
||||
 |
||||
| AND FINALLY... | ||||
| Wise words from wise men | ||||
| "The Budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed, lest Rome becomes bankrupt. People must again learn to work instead of living on public assistance." ~ Cicero (106-43 B.C.) |
||||
| Unsubscribe If you do not want to receive these newsletters {unsubscribe}click here...{/unsubscribe} Disclaimer Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Fund Administrators (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager. |
||||
2025-03
 |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| Issued March 2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||
  This email address is being protected from spambots. You need JavaScript enabled to view it.   |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| In this newsletter... | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Benchtest 02.2025 – The FIMA restarted. What does fit and proper mean? And more... | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Jump to... | |||||||||||||||||||||||||||||||||||||||||||||||||||
 |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| IMPORTANT NOTES AND REMINDERS | |||||||||||||||||||||||||||||||||||||||||||||||||||
NAMFISA levies
The repo rate remained unchanged at 6.75% during March. The interest rate of 10.75% on funds’ direct loans and repayments will remain unchanged for March 2025. Social Security rate changes The Social Security Commission announced certain rate changes in the government gazette no. 8461 of 1 October 2024. These changes are effective on 1 March 2025 and are as follows:
|
Interest rates under the VAT Act The interest rate of VAT tax debits under section 53 of the VAT Act will be 10.5% and on tax credits 6.75% as of 1 February 2025, per Government Gazette no 8570. Registered service providers Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2024, here... Retirement calculator Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here... If you need help with your financial planning, get in touch with
RFS provides comprehensive support for trustees. Find a list of download documents to assist with governance and management of private funds, registered as of June 2024, here... |
||||||||||||||||||||||||||||||||||||||||||||||||||
 |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| IN THIS NEWSLETTER... | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
In this newsletter, we address the following topics:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||
|
In 'Tilman Friedrich's industry forum' we present...
|
In 'Legal snippets', read about...
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 2025 |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| In February 2025, the average prudential balanced portfolio returned minus 0.2% (January 2024: 1.6%). The top performer is the Allan Gray Balanced Fund, with 0.5%, while the Lebela Balanced Fund, with minus 0.8%, takes the bottom spot. NAM Coronation Balanced Plus Fund took the top spot for the three months, outperforming the ‘average’ by roughly 0.8%. The Stanlib Managed Fund underperformed the ‘average’ by 1.4% on the other end of the scale. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 28 February 2025 reviews portfolio performances and provides insightful analyses. Download it here... |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| The new world order and your investments | |||||||||||||||||||||||||||||||||||||||||||||||||||
| The term "new world order" gained prominence during President George H.W. Bush's administration, particularly in the post-Cold War era and the Gulf War. In his 1991 State of the Union Address, President Bush shared his vision for this new order, emphasising a world where diverse nations collaborate to achieve universal aspirations such as peace, security, freedom, and the rule of law. This envisioned order was characterised by strengthened international cooperation, collective security measures, and a commitment to resolving conflicts diplomatically. The aim was to move beyond the bipolar tensions of the Cold War, fostering a global environment where nations work together to uphold shared values and address common challenges. In contrast, the new Trump administration's philosophy departs from this vision. President Trump's recent address to Congress highlighted a shift towards nationalism and a focus on American sovereignty. The administration's policies reflect a preference for bilateral agreements over multilateral institutions, emphasising "America First" principles. This approach includes reassessing traditional alliances and international commitments, focusing on protecting U.S. interests, reducing involvement in global governance structures, and unwinding all ‘woke’ practices and policies. At the recent Munich Security Conference, Vice President JD Vance gave further insight into the Trump administration’s new noble beliefs, criticising the European allies about their lack of democracy, suppression of free speech, failure to control mass migration and the resulting internal security challenges, practices of marginalising populist movements and restricting genuine democratic choice. Read paragraph 6 of the Monthly Review of Portfolio Performance to 28 February 2025 for our views on investment markets and global political developments. It also reviews portfolio performances and provides insightful analyses. Download it here... |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| The FIM Act – a new start Contributed by Carmen Diehl, C.A.(Namibia), Senior Manager: Risk Management and Compliance |
|||||||||||||||||||||||||||||||||||||||||||||||||||
|
The FIMA (Act 2 of 2021) was promulgated in Government Gazette no. 7645 on 1 October 2021. The Minister of Finance has not yet set a date for it to become effective. It has hibernated ever since, but following last year’s elections, we will see action on it again in 2025, once the new Minister of Finance has been appointed and has found his feet. NAMFISA, however, has not been idle, spending a lot of time revising and issuing FIMA standards and regulations. In the next few issues of this newsletter, we will present the latest status on the standards and regulations and provide a brief overview.
This is a summary of main provisions of draft standards and regulations under the FIM Act and implication for retirement funds
|
|||||||||||||||||||||||||||||||||||||||||||||||||||
| GEN.S.10.2 – Fit and proper: changes in qualification and experience requirements | |||||||||||||||||||||||||||||||||||||||||||||||||||
Key points to note regarding the qualifications and experience requirements under the Fit and Proper statement:
Here is a detailed breakdown by institution and role under Schedule 1, Part A of the standard relevant to the retirement funds industry: Insurance Agent or Corporate Insurance Agent:
Summary of Changes: Market Entry Exam: the "Market Entry Exam" now replaces "None" as a form of qualification in the revised version.Clarification of Experience: The revised version has "the financial services or markets sector" in the first cell of experience, adding “or” instead of “and”. 2. Chapter 5 and Fund Administrators
Summary of Changes:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||
 |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| COMPLIMENT | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
Compliment from a fund member
Dated 18 February 2025 |
“Dear Me Rukero Thank you very much for the information regarding the switch from the current Investment Portfolio to the new Portfolio. It is correct and according to instructions, thank you. I would also like to take this opportunity to thank you, your colleagues and Benchmark / RFS staff for excellent service over many years. A special "Thank you" to Annemarie Nel for her, always, prompt response and advice / assistance with all my questions and concerns! She's a Mainstay! It makes me proud to be able to say "Benchmark got my back..." I truly believe that my decision to invest in the Benchmark Retirement Fund will be in my best interest in the long run. Kind regards and take care. Lourina.” |
||||||||||||||||||||||||||||||||||||||||||||||||||
|
Read more comments from our clients, here...
|
|||||||||||||||||||||||||||||||||||||||||||||||||||
 |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| BENCHMARK: A NOTE FROM GÜNTER PFEIFER | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Charting the waters into the FIMA future | |||||||||||||||||||||||||||||||||||||||||||||||||||
The fund’s trustees recently held another strategic planning meeting at Hotel Am Weinberg to chart the fund’s future in anticipation of daunting challenges with the prospects of the National Pension Fund and the likely implementation of the FIMA. Fund members can rest assured that the trustees are not taking lightly their fiduciary duty to act in the best interests of its members and are working hard not to be caught off guard by these developments.
 |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| Circulars issued by the Fund | |||||||||||||||||||||||||||||||||||||||||||||||||||
The Benchmark Retirement Fund did not issue any new circular or announcement after -
|
|||||||||||||||||||||||||||||||||||||||||||||||||||
 |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| NEWS FROM RFS | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Long service awards complement our business philosophy | |||||||||||||||||||||||||||||||||||||||||||||||||||
| RFS places a high value on its employees and recognises the importance of their contributions to the company’s success. Long service awards are a great way to acknowledge and celebrate the commitment and loyalty of employees who have been with the company for a significant time. In addition to recognising employees’ contributions, long service awards can be a powerful retention tool, demonstrating that the company values and appreciates its employees’ dedication and hard work. These awards create a positive and motivating work environment where employees feel supported and encouraged to continue to grow and develop within the company. In February, March and April, RFS recognises the following anniversaries:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||
| RFS encourages complaints and fraud reporting | |||||||||||||||||||||||||||||||||||||||||||||||||||
| NAMFISA assists the public in resolving complaints regarding non-banking financial institutions such as RFS, the Benchmark Retirement Fund or RFS Financial Advisers. However, it expects any complainant to have first unsuccessfully approached the relevant financial institutions regarding the complaint before it would assist. The RFS website was expanded recently to allow the public to lodge complaints. The RFS website also allows the public to confidentially alert an independent professional adviser about any suspected or committed fraud a person may become aware of regarding RFS, the Benchmark Retirement Fund or RFS Financial Advisers. The adviser will inform RFS management of the report without disclosing the reporting person's identity. |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| The RETIREMENT COMPASS | |||||||||||||||||||||||||||||||||||||||||||||||||||
| RFS Fund Administrators sponsor this newsletter as part of their social responsibility and initiatives to support the retirement fund industry. It aims to provide members of funds managed by RFS Fund Administrators and other parties in their network with retirement funding and planning-related news and insights, presented understandably. This issue covers the following insightful articles:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||
| Important circulars issued by RFS | |||||||||||||||||||||||||||||||||||||||||||||||||||
RFS issued the following circular:
Clients are welcome to contact us if they require a copy of any circular. |
|||||||||||||||||||||||||||||||||||||||||||||||||||
 |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| NEWS FROM NAMFISA | |||||||||||||||||||||||||||||||||||||||||||||||||||
| NAMFISA engages industry on RBS | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
NAMFISA invited trustees, principal officers, other officers of pension funds, and service providers of pension funds to the NAMFISA Risk-based Supervisory Framework engagement. The engagement occurred at the Hilton Hotel on 27 February 2025.
NAMFISA embarked on this project to keep aligned with global changes in the financial landscape and deliver on its mandate more effectively and efficiently. Until now, NAMFISA has followed a more compliance-based approach in their supervisory interventions. A compliance-based approach is reactive, whereas a risk-based approach is more forward-looking and addresses emerging risks in regulated entities. Under the risk-based approach, more attention and focus will be placed on entities with a higher risk rating. This will continue until the entity satisfactorily addresses the identified deficiencies, and consequently, the overall risk is reduced to an acceptable level. |
|||||||||||||||||||||||||||||||||||||||||||||||||||
 |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| LEGAL SNIPPETS | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Payment of death benefits | |||||||||||||||||||||||||||||||||||||||||||||||||||
Section 37C of the Pension Funds Act outlines the distribution of death benefits from pension funds, ensuring that these benefits are allocated fairly among dependants and nominees. The Act creates various scenarios for the payment of these benefits, each with specific guidelines regarding the timing of payments.
Under Section 37C of the Pension Funds Act, the distribution of a deceased member’s death benefit is primarily aimed at ensuring that dependants are not left without support, even if this overrides the member’s wishes. Key Considerations:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||
| Death benefit payment mode probed in De Jager v McDonalds (SA) Provident Fund | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Introduction: This case deals with the Pension Funds Adjudicator’s determination in the complaint of AC De Jager v McDonalds (SA) Provident Fund & AON South Africa (Pty) Ltd. The case focuses on the mode of payment of a death benefit under section 37C of the Pension Funds Act, 24 of 1956 (“the Act”). It highlights key legal principles surrounding trustees' discretion in distributing death benefits and placing minor beneficiaries’ funds into a beneficiary fund. Background of the Case:
Read the determination here... |
|||||||||||||||||||||||||||||||||||||||||||||||||||
 |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| SNIPPETS FOR THE PENSION FUND INDUSTRY | |||||||||||||||||||||||||||||||||||||||||||||||||||
| How to build a portfolio that works | |||||||||||||||||||||||||||||||||||||||||||||||||||
| This article emphasises that portfolio construction is not about chasing returns or picking the best fund managers but rather about creating an investment strategy that aligns with personal financial goals and sticking to it. Key Steps in Portfolio Construction
|
|||||||||||||||||||||||||||||||||||||||||||||||||||
| The art of asset allocation | |||||||||||||||||||||||||||||||||||||||||||||||||||
This article raises the following key points when it comes to asset allocation.
A well-structured asset allocation strategy integrates both long-term fundamentals (SAA) and short-term tactical adjustments (TAA) to optimise risk-adjusted returns. Read the article by Rothea van Biljon of Jenwil BlueStar in Moneyweb of 7 February here... |
|||||||||||||||||||||||||||||||||||||||||||||||||||
 |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| SNIPPETS OF GENERAL INTEREST | |||||||||||||||||||||||||||||||||||||||||||||||||||
| The importance of holistic retirement planning (continued) | |||||||||||||||||||||||||||||||||||||||||||||||||||
This article provides a comprehensive guide to living annuities, addressing key considerations for retirees making informed decisions about their retirement income. Differences applicable to Namibia are reflected in square brackets [ ].
Read the article by Eric Jordaan of Crue Investments in Moneyweb of 27 February 2025 here... |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| Who should administer your estate? A guide to choosing your executor. | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
This article provides a comprehensive guide to selecting an executor for an estate, emphasising the complexity and demands of the role. Key considerations include:
It is important to carefully evaluate an executor’s qualifications, location, and personal dynamics to ensure a smooth and conflict-free estate administration.
Read the article by Hannah Myburgh in Moneyweb of 28 February 2025 here... |
|||||||||||||||||||||||||||||||||||||||||||||||||||
 |
|||||||||||||||||||||||||||||||||||||||||||||||||||
| AND FINALLY... | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Wise words from wise men | |||||||||||||||||||||||||||||||||||||||||||||||||||
| "A person who never made a mistake never tried anything new" ~ Albert Einstein (1879-1955) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsubscribe If you do not want to receive these newsletters {unsubscribe}click here...{/unsubscribe} Disclaimer Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Fund Administrators (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager. |
|||||||||||||||||||||||||||||||||||||||||||||||||||
2025-02
|
|||||||||||||||||||
| Issued February 2025 | |||||||||||||||||||
| This email address is being protected from spambots. You need JavaScript enabled to view it. |
|||||||||||||||||||
| In this newsletter... | |||||||||||||||||||
| Benchtest 01.2025 – squandering of pension money, a new start of the FIMA, survey outcome and more... | |||||||||||||||||||
| Jump to... | |||||||||||||||||||
|
|||||||||||||||||||
| IMPORTANT NOTES AND REMINDERS | |||||||||||||||||||
NAMFISA levies
Following the Bank of Namibia’s announcement of a cut in the Repo rate by 0.25% to 6.75%, the interest rate on funds’ direct loans will be reduced to 10.75%, and repayments will be adjusted accordingly as of 1 March 2025. Interest rates under the VAT Act The interest rate of VAT tax debits under section 53 of the VAT Act will be 10.75% and on tax credits 7% as of 1 February 2025, per Government Gazette no 8570. |
Registered service providers Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2024, here... Retirement calculator Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here... If you need help with your financial planning, get in touch with
RFS provides comprehensive support for trustees. Find a list of download documents to assist with governance and management of private funds, registered as of June 2024, here... |
||||||||||||||||||
|
|||||||||||||||||||
| IN THIS NEWSLETTER... | |||||||||||||||||||
|
In this newsletter, we address the following topics:
|
|||||||||||||||||||
|
In 'Tilman Friedrich's industry forum' we present...
|
In 'Legal snippets', read about...
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 January 2025 |
|||||||||||||||||||
| In January 2025, the average prudential balanced portfolio returned 1.6% (December 2024: 0.4%). The top performer is M&G Managed Fund, with 2.4%, while Stanlib Managed Fund, with 0.9%, takes the bottom spot. NAM Coronation Balanced Plus Fund took the top spot for the three months, outperforming the ‘average’ by roughly 2.2%. Momentum Namibia Growth Fund underperformed the ‘average’ by 0.7% on the other end of the scale. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 31 January 2025 reviews portfolio performances and provides insightful analyses. Download it here... |
|||||||||||||||||||
| Market Outlook 2025: How to navigate opportunities and risks | |||||||||||||||||||
| The political and economic environment has not changed since I expressed my views in this column last month, and I stand by those views. I concluded that the world faces many uncertainties that could severely impact economies and the financial market. During 2024, my main theme was that the world might drift into World War III. President Donald Trump’s election statements on the US waging never-ending costly wars and ending the Ukraine war within 24 hours dimmed the prospect of a major military confrontation somewhat. However, following his inauguration, his most recent rhetoric leaves doubt about his electioneering statements, and he has not yet ended the Ukraine war. A meeting between President Putin and President Trump may provide more direction. Read paragraph 6 of the Monthly Review of Portfolio Performance to 31 January 2025 for our views on investment markets and global political developments. It also reviews portfolio performances and provides insightful analyses. Download it here... |
|||||||||||||||||||
| Benchtest newsletter contents survey | |||||||||||||||||||
| In February, we surveyed our newsletter readers better to understand their preferences regarding its content and presentation. We received 30 responses from our readership of around 300. Just under half the respondents were fund members. The balance comprised regulators, trustees and principal officers, HR practitioners, fund service providers and people reading the newsletter out of general interest. We sincerely thank the thirty respondents for their time and views! As one may expect, most ‘nos’ (i.e. the least satisfied with the current contents and presentation) came from fund members (61 of 125). Members want a shorter newsletter, do not read the technical columns and the compliments and do not want to pay for it. If one removes the fund members from the ‘nos’, one may conclude that the other reader categories are generally satisfied with the contents and presentation of the newsletter. While we take note of the member respondents’ preferences, we must point out that the newsletter is aimed at retirement industry professionals. We also produce the Retirement Compass targeting fund members as its readership. |
|||||||||||||||||||
| What do you do when a family member squanders his pension | |||||||||||||||||||
| A reader recently posed the following dilemma: “I am acting on behalf on my father who receives a monthly annuity from the fund. We are faced with a predicament at home due to my father's spending habits or prodigal tendencies when it comes to his pension salary that he receives monthly from the fund. My father is not using his money to take care of himself or the household needs. He spends almost everything on alcohol and cigarettes. The situation is worrisome and we as a family has now step in to try and help. One of the ways we suggest is to create a separate savings account for him so that he can save part of his funds monthly. Now, I just want to find out if the pension fund has possible measures in place that we can take to create this saving plan on his behalf taking into consideration the legal implications? Does the pension fund have a rehabilitation programme in place for the pensioners? We just want to assist him to be assisted in managing his funds efficiently or appoint someone to help him in this regard. I will be looking forward to your response.” Our response: The predicament indicates that the family member has an addiction. Numerous other addictions also cause people to neglect their wellness and health. For example, the US has a severe problem with fentanyl. This potent synthetic opioid is being illicitly smuggled into the United States from Mexico and, to a lesser extent, Canada. In response to the escalating opioid crisis, President Donald Trump has announced plans to impose tariffs on goods from Mexico, Canada, and China to pressurise these countries to combat the production and flow of fentanyl into the U.S. Fentanyl is significantly more potent than heroin, making even small amounts potentially lethal. While the US has criminalised the possession, distribution and trafficking of fentanyl, it still recorded over 100,000 fatalities from an overdose of fentanyl in 2023. Despite fentanyl being an illegal substance and its use being criminalised, people still use and die from it. Alcohol and cigarettes are not illegal substances in Namibia, and their use and misuse are left to the discretion of the citizens. Namibian law-enforcement agencies cannot assist when someone chooses to misuse legal substances despite them creating addictions. The best this reader’s family can hope for is the pensioner’s willingness to cooperate. When the pensioner cooperates, the suggested route of setting up a savings plan could be feasible. However, the Pension Funds Act provides for the strict protection of a member’s benefits under Sections 37A, B and D. It would require that the savings plan be in the pensioner's name. Furthermore, the pensioner must authorise one or more family members to transact on the savings plan. He could even exclude himself from transacting on his savings plan. Suppose the pensioner is not willing to cooperate and is not of sound mind. In that case, the only route available to the family is to have a court declare the pensioner unfit to manage his affairs and appoint a curator or guardian to look after his affairs. Curatorship and guardianship are not quite the same, and it may be useful for the family to understand the main difference and decide if one or the other could be a viable route to take,
|
|||||||||||||||||||
| The FIM Act – a new start Contributed by Carmen Diehl, C.A.(Namibia), Senior Manager: Risk Management and Compliance |
|||||||||||||||||||
|
The FIMA (Act 2 of 2021) was promulgated in Government Gazette no. 7645 on 1 October 2021. The Minister of Finance has not yet set a date for it to become effective. It hibernated ever since, but following last year’s elections, we will see action on it again in 2025, once the new Minister of Finance has been appointed and found his feet. NAMFISA, however, has not been idle, spending a lot of time revising and issuing FIMA standards and regulations. In the next few issues of this newsletter, we will present the latest status on the standards and regulations and provide a brief overview.
This is a summary of main provisions of draft standards and regulations under the FIM Act and implication for retirement funds
|
|||||||||||||||||||
| GEN.S.10.2 – Fit and proper requirements reissued | |||||||||||||||||||
| This statement applies to any person registered under the FIMA and to directors, members of a board, principal officers, other officers, trustees, custodians, auditors and valuators of financial institutions and financial intermediaries, and any other person subject to the FIMA. Definitions (Clause 1):
Schedule 1 - Part A Competence and Capability:
The new version introduces significant changes over the previous version, especially in the definition of "key person", assessment requirements and qualification/experience requirements in Schedule 1. In our next newsletters, we will examine these changes more closely. There are also changes to other schedules, both in content and layout. Recommendation It's crucial to carefully review the differences in the qualification and experience requirements detailed in Schedule 1. The changes to definitions like "key person" may also have a significant impact depending on how it was interpreted previously. |
|||||||||||||||||||
|
|||||||||||||||||||
| COMPLIMENT | |||||||||||||||||||
|
Compliment from a trustee of a prominent retirement fund
Dated 25 June 2024 |
“Dear Carmen Thank you for putting this forward for clarification. See my comments below in green. We are nearly there. I must acknowledge how much we appreciate your work, professionalism, and commitment. Thank you Lloyd” |
||||||||||||||||||
|
Read more comments from our clients, here...
|
|||||||||||||||||||
|
|||||||||||||||||||
| BENCHMARK: A NOTE FROM GÜNTER PFEIFER | |||||||||||||||||||
| Important circular and announcement issued by the Fund | |||||||||||||||||||
The Benchmark Retirement Fund issued the following new circular and announcement:
|
|||||||||||||||||||
|
|||||||||||||||||||
| NEWS FROM RFS | |||||||||||||||||||
| The RETIREMENT COMPASS | |||||||||||||||||||
| RFS Fund Administrators sponsors this newsletter as part of our social responsibility and initiatives to support the retirement fund industry. It aims to provide members of funds managed by RFS Fund Administrators and other parties in their network with retirement funding and planning-related news and insights, presented understandably. Read the latest Retirement Compass (vol 1, no 4) here... |
|||||||||||||||||||
| Annemarie Nel obtains a postgraduate diploma in financial planning | |||||||||||||||||||
|
We congratulate Annemarie on completing the Postgraduate Diploma in Financial Planning at the University of Stellenbosch and qualifying for the CFP® designation!
Well done, Annemarie! Your clients will now benefit from your firm technical foundation and the best advice! |
|||||||||||||||||||
| RFS encourages complaints and fraud reporting | |||||||||||||||||||
|
NAMFISA assists the public in resolving complaints regarding non-banking financial institutions such as RFS, the Benchmark Retirement Fund or RFS Financial Advisers. However, it expects any complainant to have first unsuccessfully approached the relevant financial institutions regarding the complaint before it would assist.
The RFS website was expanded recently to allow the public to lodge complaints. The RFS website also allows the public to confidentially alert an independent professional adviser about any suspected or committed fraud a person may become aware of regarding RFS, the Benchmark Retirement Fund or RFS Financial Advisers. The adviser will inform RFS management of the report without disclosing the reporting person's identity. |
|||||||||||||||||||
| Important circulars issued by RFS | |||||||||||||||||||
RFS issued no new circular after RFS 2024.10-07:
|
|||||||||||||||||||
|
|||||||||||||||||||
| NEWS FROM NAMFISA | |||||||||||||||||||
| GEN.S.10.2 – Fit and proper requirements reissued | |||||||||||||||||||
|
NAMFISA published a revised version of GEN.S.10.2 “Fit and proper requirements for any person registered under the act, and for directors, members of a board, principal officers, other officers, trustees, custodians, auditors and valuators of financial institutions and financial intermediaries, and for any other person subject to the act.” in Government Gazette 8567 of 30 January 2025. It invites the public to submit comments by 3 March 2025 on its ‘Standard-Industry-Comments’ template.
|
|||||||||||||||||||
|
|||||||||||||||||||
| LEGAL SNIPPETS | |||||||||||||||||||
| Will the all-new Marriage Act impact retirement funds? | |||||||||||||||||||
| The all-new Marriage Act 14 of 2024 was promulgated in the Government Gazette no. 8548 pm on 30 December 2024. It will replace the Marriage Act 25 of 1961 and all its amendments. It repeals sections 23, 24 and 25 of the Married Persons Equality Act 1 of 1996 and amends sections (10) and 226 of the Child Care and Protection Act 3 of 2015. The Minister must still determine when it will come into operation. Key Takeaway: The Act primarily deals with Namibia's legal framework and marriage processes. It does not directly impose new compliance requirements on pension funds themselves. However, it provides crucial context for verifying marital status, which is essential for accurate benefits administration, especially regarding spouse’s benefits, divorce settlements, and the recognition of various forms of marriage.
|
|||||||||||||||||||
| Death Benefit Allocation - Nielsen v Alexander Forbes Retirement Fund | |||||||||||||||||||
| Introduction: This article deals with the SA PFA’s review of the allocation of death benefits in the Nielsen v Alexander Forbes Retirement Fund case. This case highlights the complexities surrounding Section 37C of the Pension Funds Act, 24 of 1956, and the crucial role of the fund's board in ensuring equitable distribution. Background of the Case: Bruce Nielsen, the deceased, was a member of the Alexander Forbes Retirement Fund (Provident Section). He passed away, leaving behind a death benefit. He was survived by his two sons, one of whom was the complainant, and his life partner, Ina Knowles. Complainant's Assertions:
The Pension Funds Adjudicator emphasised the board's duty to conduct a thorough investigation to identify all dependants and ensure equitable distribution. The Adjudicator highlighted the Sithole case's guidelines for equitable distribution, including consideration of age, relationship, dependency, deceased's wishes, and beneficiaries' financial affairs. The Adjudicator found that both the sons and Ina qualified as dependants. The crucial point was the extent of Ina's dependency. The Adjudicator criticised the fund for failing to adequately investigate Ina's financial position, including her income, assets, and any financial support from other sources. Simply living together and sharing expenses did not automatically equate to financial dependency. The Adjudicator stressed that the primary objective of Section 37C is to protect financial dependants, necessitating a thorough assessment of each beneficiary's financial circumstances. Decision: The Adjudicator set aside the fund's decision to allocate the entire benefit to Ina. The fund was ordered to reinvestigate the allocation, specifically considering Ina's financial position, and then re-allocate the benefit. Key Takeaways:
Read the determination here... |
|||||||||||||||||||
|
|||||||||||||||||||
| SNIPPETS FOR THE PENSION FUND INDUSTRY | |||||||||||||||||||
| Retirement funds are at risk | |||||||||||||||||||
| South African retirement funds face growing cyber threats due to outdated software, lack of cybersecurity awareness, and weak cyber attack planning. Toni Cantin, head of ICTS Academy, warns that as retirement funds rely more on technology, they become prime targets for cybercriminals. Key Cyber Threats
Retirement funds must comply with South Africa’s Protection of Personal Information Act (POPIA), which requires strict data protection. Failure to secure data can result in fines, lawsuits, and reputational damage. Cantin stresses cybersecurity as a shared responsibility among trustees, administrators, and service providers. Conclusion Cybersecurity is a critical issue for South African retirement funds. Trustees must invest in strong security measures, train staff, and work with reliable service providers to protect members. Funds risk financial losses, operational disruptions, and legal consequences without these safeguards. Read the full article by Bianke Neethling in Daily Investor of 16 February 2025 here... |
|||||||||||||||||||
| Market Outlook 2025: How to Navigate Opportunities and Risks | |||||||||||||||||||
| Looking ahead to 2025, global markets present a mix of opportunities and risks. While the US economy is showing strong growth, driven by consumer spending and a resilient labour market, inflation concerns, though muted, still exist, primarily driven by housing costs. The lingering effects of Trump-era tariffs are a risk but are unlikely to cause sustained inflation. The Federal Reserve is expected to proceed cautiously with monetary easing, and interest rates may remain higher than pre-COVID levels due to increased productivity. Regarding investments, valuations for US and European equities are stretched, leading to a cautious outlook. Emerging market equities are a mixed bag, with some regions offering opportunities while others face challenges. However, South African equities are viewed favourably due to moderate valuations and improving investor sentiment. US bonds are less attractive in the fixed-income category due to the inverted yield curve and limited demand. South African bonds, on the other hand, present a neutral to positive outlook with improving sentiment and available term premium. Finally, the South African Rand is seen as a strong investment opportunity due to its undervaluation, a favourable global environment for carry trades, and improved sentiment. The advice is to use hedging strategies to manage currency risks. Essentially, the article suggests a cautious approach to developed market equities, a more positive view of South African assets (equities and currency), and a nuanced approach to fixed income, emphasising the importance of managing currency risk. Read the full article by Bastian Teichgreeber, CIO of Prescient Investment Management, in Cover, January 2025 edition... |
|||||||||||||||||||
| South African markets poised for pleasant surprises in 2025? | |||||||||||||||||||
| Despite global uncertainties, South Africa presents a compelling investment landscape heading into 2025, argues the author of this article. Key drivers include improvements in bonds and property, encouraging economic indicators like easing inflation and progress at Eskom and Transnet, greater political stability following the formation of the GNU, and a re-rating of local assets. While global risks, particularly surrounding the US and China, remain, the author suggests a tactical, diversified approach, focusing on undervalued opportunities and high-quality assets, could lead to strong performance in the coming year. Is South Africa the investment surprise of 2025? This article explores the factors driving this optimistic outlook and offers insights for investors seeking long-term growth. Read the full article by Adrian Pask, CIO of PSG Wealth in Cover, February 10, 2025. |
|||||||||||||||||||
|
|||||||||||||||||||
| SNIPPETS OF GENERAL INTEREST | |||||||||||||||||||
| The importance of holistic retirement planning (continued) | |||||||||||||||||||
| This article emphasises the importance of calculating how much you need to save for retirement to avoid financial insecurity, reliance on family or government, and a diminished quality of life. Key Takeaways:
Proper retirement planning is essential to maintain financial independence and avoid hardship. Start early, calculate your needs, and save strategically to enjoy a secure retirement. Source: Moneyweb, article series by Jaco Fouché, Jenwil Blue Star. |
|||||||||||||||||||
| How much must you save to retire comfortably? | |||||||||||||||||||
|
This article discusses the critical issue of retirement planning, particularly given the current economic climate in South Africa. A recent report highlights a concerning trend: only a small fraction of South Africans are on track for a comfortable retirement. This is largely due to a low national savings rate, exacerbated by economic pressures like high unemployment and household debt. Essentially, many people feel they can't afford to save.
A new "two-pot" pension system was recently introduced, allowing some access to retirement funds before retirement. While this might offer short-term relief, the substantial withdrawals we've seen since its implementation raise concerns about long-term financial security. It also highlights the immediate financial struggles many face. Another issue is the common practice of cashing out retirement savings when changing jobs, significantly impacting long-term growth. The good news is that it's not too late to start or to adjust your current plan. Your thirties are a crucial time to focus on retirement savings. Financial experts recommend aiming to replace about 75% of your pre-retirement salary. For someone starting at 35, this could mean saving around 21% of your gross monthly income. For example, if your current salary is R40,000, you need to save roughly R8,000 per month, increasing with inflation, to target a R30,000 monthly retirement income (in today’s value) by age 65. This assumes a 10% annual investment growth rate. It is important to remember that retirement planning isn't just about the numbers. Your thirties often involve significant life events like marriage, parenthood, and homeownership. One must balance retirement savings with these other financial priorities, such as children's education. We should also review your insurance coverage – life and disability insurance are crucial to protect your family's financial well-being. The financial adviser must discuss his client’s current situation and goals and create a personalised plan considering all these factors. This is an ongoing process and must be reviewed, and the plan must be adjusted regularly as the client’s circumstances change. Despite the discouraging statistics, a comfortable retirement is achievable with proactive planning and consistent effort. Read the full article by Malcolm Libera in Businesstech of 1 January 2025, here... |
|||||||||||||||||||
|
|||||||||||||||||||
| AND FINALLY... | |||||||||||||||||||
| Wise words from wise men | |||||||||||||||||||
| "Act as if the maxim of your present sacrifice were to become, through your will, a universal law for the betterment of future generations." ~ Immanuel Kant (1724-1804) This reflects Kant's emphasis on universalizability and the moral imperative to consider long-term consequences. |
|||||||||||||||||||
| Unsubscribe If you do not want to receive these newsletters {unsubscribe}click here...{/unsubscribe} Disclaimer Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Fund Administrators (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager. |
|||||||||||||||||||
2025-01
|
||||
| Issued January 2025 | ||||
| This email address is being protected from spambots. You need JavaScript enabled to view it. |
||||
| In this newsletter... | ||||
| Benchtest 12.2024 – tax-free investments, a new start of the FIMA and more... | ||||
| Jump to... | ||||
|
||||
| IMPORTANT NOTES AND REMINDERS | ||||
NAMFISA levies
The interest rate on funds’ direct loans and repayments remained at 11% for January 2024. Registered service providers Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2024, here... |
Retirement calculator Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here... If you need help with your financial planning, get in touch with
RFS provides comprehensive support for trustees. Find a list of download documents to assist with governance and management of private funds, registered as of June 2024, here... |
|||
|
||||
| IN THIS NEWSLETTER... | ||||
|
In this newsletter, we address the following topics:
|
||||
|
Read the New Year message to RFS stakeholders in ‘A note from the Managing Director’.
In 'Tilman Friedrich's industry forum' we present...
|
In 'Legal snippets', read about...
As always, your comment is welcome, so open a new mail and drop us a note! Regards Tilman Friedrich |
|||
 |
||||
| A NOTE FROM THE MANAGING DIRECTOR | ||||
| New Year message to RFS stakeholders | ||||
| Dear RFS stakeholders, We have turned our back on 2024 and are into 2025, boots and all! I hope you all had a relaxing festive season and found ample opportunity to regenerate and recharge your energy to head into the winds 2025 may blow at you! I look forward to seeing and interacting with you in the year ahead. At RFS, we stand ready to serve you and live up to our credo of providing rock-solid fund administration that lets you sleep in peace! I wish you a prosperous 2025 with lots of fun, excitement, health, and happiness! |
||||
|
||||
| TILMAN FRIEDRICH'S INDUSTRY FORUM | ||||
| Monthly Review of Portfolio Performance to 31 December 2024 |
||||
| In December 2024, the average prudential balanced portfolio returned 0.4% (November 2024: 1.8%). The top performer is Ninety-One Namibia Managed Fund, with 0.8%, while Allan Gray Namibia Balanced Fund, with -0.2%, takes the bottom spot. NAM Coronation Balanced Plus Fund took the top spot for the three months, outperforming the ‘average’ by roughly 1.8%. Allan Gray Namibia Balanced Fund underperformed the ‘average’ by 1.1% on the other end of the scale. These returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 31 December 2024 reviews portfolio performances and provides insightful analyses. Download it here... |
||||
| Will a meeting between President Putin and Trump provide direction for investment in 2025? | ||||
| The political and economic environment has not changed since I expressed my views in this column last month, and I stand by those views. I concluded that the world faces many uncertainties that could severely impact economies and the financial market. During 2024, my main theme was that the world might drift into World War III. President Donald Trump’s election statements on the US waging never-ending costly wars and ending the Ukraine war within 24 hours dimmed the prospect of a major military confrontation somewhat. However, following his inauguration, his most recent rhetoric leaves doubt about his electioneering statements, and he has not yet ended the Ukraine war. A meeting between President Putin and President Trump may provide more direction. Read paragraph 6 of the Monthly Review of Portfolio Performance to 31 December 2024 for our views on investment markets and global political developments. It also reviews portfolio performances and provides insightful analyses. Download it here... |
||||
| What tax-free investments can you make in Namibia? | ||||
| A reader recently posed the following questions; I read the article "How can I minimise tax on my retirement income?" in Moneyweb and have the following questions:
|
||||
| The FIM Act – a new start Contributed by Carmen Diehl, C.A.(Namibia), Senior Manager: Risk Management and Compliance |
||||
| The FIMA (Act 2 of 2021) was promulgated in Government Gazette no. 7645 on 1 October 2021. The Minister of Finance has not yet set a date for it to become effective. It hibernated ever since, but following last year’s elections, we will see action on it again in 2025, once the new Minister of Finance has been appointed and found his feet. NAMFISA, however, has not been idle, spending a lot of time revising and issuing FIMA standards and regulations. In the next few issues of this newsletter, we will present the latest status on the standards and regulations and provide a brief overview. Introduction Since 2015, NAMFISA has issued draft standards and regulations under the FIM Bill and the FIM Act to the Industry for comment. Because of industry comments or other developments, various standards and regulations have been updated, reissued, withdrawn, or included in other standards or regulations. Below is a list of all draft standards and regulations under the FIM Act that apply to retirement funds. A summary of their main provisions will be presented over the next few newsletter issues. The FIM Act includes retirement funds in the definition of ‘financial institutions’, so all standards and regulations applicable to financial institutions also apply to retirement funds (unless they are explicitly excluded). NAMFISA issues standards, while the Minister of Finance issues regulations. List of draft standards and regulations under the FIM Act The draft standards and regulations under the FIM Act applicable to retirement funds and approved by the NAMFISA Board by the end of 2022 are as follows: Standards Chapter 5: Retirement Funds
The following draft standards under the FIM Act applicable to retirement funds were issued by NAMFISA to the Industry for comment (it is not certain whether the NAMFISA Board has approved these standards in the meantime): Standards Chapter 10: General
|
||||
| Our safety net for our clients | ||||
RFS confirms that it holds the following covers through our brokers until 30 June 2025. Details were forwarded to all clients under separate cover.
|
||||
|
||||
| COMPLIMENT | ||||
|
Compliment from a pensioner
Dated 1 November 2024 |
“Dear Bianca Thank you for your instant response. Amazing. This proves once more that RFS is one of the very few service providers who stand out by more than a mile in delivering outstanding service and response times !! Much appreciated in this day and age of constant admin obstacles with banks, large insurers and others. Kind regards Jens C Kuehhirt t/a JCK Consulting” |
|||
|
Read more comments from our clients, here...
|
||||
|
||||
| BENCHMARK: A NOTE FROM GÜNTER PFEIFER | ||||
| Important circulars issued by the Fund | ||||
The Benchmark Retirement Fund issued the following new circular:
|
||||
|
||||
| NEWS FROM RFS | ||||
| The RETIREMENT COMPASS | ||||
| RFS Fund Administrators sponsors this newsletter as part of our social responsibility and initiatives to support the retirement fund industry. It aims to provide members of funds managed by RFS Fund Administrators and other parties in their network with retirement funding and planning-related news and insights, presented understandably. Read the latest Retirement Compass (vol 1, no 4) here... |
||||
| Annemarie Nel scoops another insurer’s award. | ||||
|
We congratulate Annemarie on scooping another Ruby Award for the amount of business placed with Sanlam. It is one thing to do what you love—in her case, keeping clients happy and providing peace of mind with professional advice and great client service—but it is quite another when you get recognition for it!
Well done, Annemarie. Keep it up! This inspires the rest of the RFSFA colleagues and the RFS team! |
||||
| RFS encourages complaints and fraud reporting | ||||
|
NAMFISA assists the public in resolving complaints regarding non-banking financial institutions such as RFS, the Benchmark Retirement Fund or RFS Financial Advisers. However, it expects any complainant to have first unsuccessfully approached the relevant financial institutions regarding the complaint before it would assist.
The RFS website was expanded recently to allow the public to lodge complaints. The RFS website also allows the public to confidentially alert an independent professional adviser about any suspected or committed fraud a person may become aware of regarding RFS, the Benchmark Retirement Fund or RFS Financial Advisers. The adviser will inform RFS management of the report without disclosing the reporting person's identity. |
||||
| Important circulars issued by RFS | ||||
RFS issued no new circular after RFS 2024.10-07:
|
||||
|
||||
| LEGAL SNIPPETS | ||||
| The all-new Marriage Act | ||||
| The all-new Marriage Act 14 of 2024 was promulgated in the Government Gazette at 8548 pm on 30 December 2024. It will replace the Marriage Act 25 of 1961 and all its amendments. It repeals sections 23, 24 and 25 of the Married Persons Equality Act 1 of 1996 and amends sections (10) and 226 of the Child Care and Protection Act 3 of 2015. The Minister must still determine when it will come into operation. The Act’s purpose is to regulate the solemnisation of marriages, to provide for the validation and recognition of certain marriages, and to provide for incidental matters. The following is a summary of the Namibian Marriage Act for young people contemplating marriage.
Here's a summary of the prohibitions and their consequences within the Namibian Marriage Act: Part 2: Pre-Marriage Procedures
|
||||
| The Electronic Transactions Act is moving forward. | ||||
| The Electronic Transactions Act (Act 4 of 2019) was promulgated in Government Gazette no. 7068 on 29 November 2019. The Act, except for Section 20 (electronic signature) and Chapters 4 (Consumer Protection) and 5 (Accreditation of Security Services or Products), came into operation on 29 November 2019. The general purpose of the Act is to
|
||||
| SA PFA orders death benefit payment despite time barring of complaint | ||||
| The Pension Funds Adjudicator has ordered the Mineworkers Provident Fund to investigate and pay a death benefit. However, the complaint was time-barred as it was received out of the prescribed time limit. The respondent submitted it was almost 14 years since the deceased had passed away. Although the complainant said she claimed the death benefit in 2004, there were no records to prove that she lodged a claim before the expiry of the prescribed three-year minimum period permitted in terms of the Act for her complaint to be investigated. The respondent said that upon receipt of the complaint, a detailed investigation was carried out, and certain documents were outstanding, delaying the process of finalising the claim. The respondent also submitted that confirmation was required on whether or not the deceased was maintaining his mother. However, the PFA said the board had 12 months to identify the dependants of the deceased and allocate and pay a death benefit. The respondent submitted that there is no record of this claim. However, the respondent should be aware of the death of the deceased as he was its member. According to the PFA, the board failed to investigate the matter in terms of section 37C of the Act. She added that more than 14 years had passed without the respondent's completion of its investigation. The PFA ruled that the respondent failed to provide a satisfactory explanation as to the delay in the investigation and ordered the respondent to complete its investigation and proceed with the allocation and distribution of the death benefit. |
||||
|
||||
| SNIPPETS FOR THE PENSION FUND INDUSTRY | ||||
| Current challenges in the group benefits space | ||||
| This interview with Sheldon Friedericksen, General Manager of Group Benefits at FedGroup, explores the challenges and opportunities in group benefits. It highlights the need for modernised benefit packages, the impact of the post-COVID cost-of-living crisis, and the importance of engaging and educating employees about financial planning. Key Points: Challenges in Group Benefits
The interview underscores the need for transparent, innovative, and practical group benefits that adapt to changing workforce dynamics. By simplifying products and leveraging technology, companies like FedGroup aim to provide financial security and better retirement outcomes, ensuring relevance and value for diverse, global workforces. Read the full article in Cover of 2 July 2024, here… |
||||
| Working longer vs retiring now: What’s best for your retirement | ||||
This article explores critical considerations for deciding whether to retire now or work longer, emphasising the importance of sustainable retirement planning tailored to individual circumstances. Key points include:
Read the full article by 10X Investments in Moneyweb of 9 December 2024, here… |
||||
|
||||
| SNIPPETS OF GENERAL INTEREST | ||||
| The importance of holistic retirement planning (continued) | ||||
| Mastering time when investing for a secure future Timing in retirement planning and starting to save early is critical for building a secure financial future. By beginning early, investors allow more time for compounding to grow their savings significantly. The author outlines three key dates—when saving starts, the retirement date, and life expectancy—that influence the sustainability of retirement funds.
Start saving early, stay consistent, and focus on the factors you can control to build a strong, resilient retirement plan. Why your risk profile matters This article highlights the role of risk in retirement planning, explaining how understanding and managing your risk profile ensures your investments align with your goals and comfort level. Taking the right amount of risk at different life stages is key to growing and preserving wealth for retirement. The article also warns against overly cautious investing, which can result in inflation eroding savings, and the dangers of scams like Ponzi schemes. Key Messages
|
||||
| Safeguard your financial journey with an emergency fund | ||||
|
This article emphasises the importance of an emergency fund in safeguarding your financial journey, much like a cheetah relies on its tail for balance and agility. An emergency fund ensures stability, enabling you to handle unexpected expenses—such as medical bills, car repairs, or job loss—without resorting to high-interest debt or compromising long-term savings.
Key Takeaways:
Conclusion:
An emergency fund is essential for financial stability and progress. By preparing for the unexpected, you protect your retirement savings and ensure your financial aspirations remain on course, no matter what challenges arise. |
||||
|
||||
| AND FINALLY... | ||||
| Wise words from wise men | ||||
| "We cannot choose our external circumstances, but we can always choose how we respond to them." ~ Epictetus (55 – 135A.D.), Greek philosopher. This underscores the power of attitude over the situations we find ourselves in. |
||||
| Unsubscribe If you do not want to receive these newsletters {unsubscribe}click here...{/unsubscribe} Disclaimer Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Fund Administrators (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager. |
||||
2024-12
|
|||||||||||||||||||||||||||||||||||||
| Issued December 2024 | |||||||||||||||||||||||||||||||||||||
| This email address is being protected from spambots. You need JavaScript enabled to view it. |
|||||||||||||||||||||||||||||||||||||
| In this newsletter... | |||||||||||||||||||||||||||||||||||||
| Benchtest 11.2024 – year-end-message from the managing director, cybersecurity in Namibia and more... | |||||||||||||||||||||||||||||||||||||
| Jump to... | |||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||
| IMPORTANT NOTES AND REMINDERS | |||||||||||||||||||||||||||||||||||||
NAMFISA levies
The Bank of Namibia announced a further reduction in the repo rate to 7% in early December. The interest rate on funds’ direct loans will reduce to 11% from 1 January 2025. Registered service providers Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2024, here... |
Retirement calculator Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here... If you need help with your financial planning, get in touch with
RFS provides comprehensive support for trustees. Find a list of download documents to assist with governance and management of private funds, here... |
||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||
| IN THIS NEWSLETTER... | |||||||||||||||||||||||||||||||||||||
|
In this newsletter, we address the following topics:
|
|||||||||||||||||||||||||||||||||||||
|
Read the end-of-year message to RFS stakeholders in ‘A note from the managing director’.
In 'Tilman Friedrich's industry forum' we present...
|
In 'Legal snippets', read about...
As always, your comment is welcome, so open a new mail and drop us a note! Regards Tilman Friedrich |
||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||
| A NOTE FROM THE MANAGING DIRECTOR | |||||||||||||||||||||||||||||||||||||
| End-of-year message to RFS stakeholders | |||||||||||||||||||||||||||||||||||||
| RFS Fund Administrators (RFS): A Year in Review 2024 2024 was an eventful year, filled with significant achievements and growth. Through determination and teamwork, our team successfully tackled challenges while staying dedicated to delivering on commitments to our pension fund clients and their members. Here’s a look back at a year of transformation and resilience. Innovation at the Core: Driving Future Growth We took a monumental step by deciding to change our core business system, a transformation we began last July 2023. Completing the migration of all client records for our stand-alone pension funds by June this year was a tremendous achievement. We encountered unfamiliar hurdles, from pressure on our project leaders to team-wide challenges adapting to the new system. Adapting the new system to meet our stringent and unique operational needs required patience, flexibility, and resilience from all involved. We want to thank our exceptional team for their perseverance and our clients for their patience. This project is crucial to our future success; together, we are making daily progress. Celebrating Milestones: A Year to Remember In September 2024, we celebrated our company’s 25-year milestone in style, and we thank our dedicated employees, our loyal customers, our trusted partners, and our supportive communities. This milestone is a testament to the hard work, trust, and unwavering belief in us and our vision. Our success over the past quarter-century is a collective achievement - the overwhelming and patriotic support of our clients, most of whom supported us from the very beginning and have since not looked back. Together, we have built something truly special, a company that not only thrives but also makes a difference in the lives of many. Stronger Together: Our People, Our Strength We are thrilled to have added several new faces to our team, bringing fresh perspectives, enthusiasm, and talents that enrich our team. They have jumped in during a year of transformation, and we are deeply grateful for how they have embraced both the excitement and challenges. Building long-lasting service relationships is at the core of our business. This philosophy is extended to our employment relationships, and we celebrated service milestones of many of our colleagues - those marking 5, 10, 15, 20, and remarkably 25 years celebrated by Tilman Friedrich as founder employee of RFS Fund Administrators. We thank our loyal employees for their dedication, resilience, and the years of service that shaped our path. Delivering Value, Upholding Trust This year, we had the privilege of reaffirming the value we bring to our clients. During their regular service reviews, many of our clients benchmarked our offerings against strong competition, carefully evaluating their options. We are proud to have remained the partner of choice for many of our clients, a testament to their trust and confidence in our team. This trust underscores our commitment to delivering measurable value, fostering genuine relationships, and consistently exceeding expectations. We deeply appreciate the opportunity to serve as a reliable partner. Building Wealth, Securing Futures Responding to the fast-changing regulatory landscape, we established RFS Financial Advisors (RFSFA), which opened its doors at the beginning of March this year. This entity houses our Long-Term Insurance broker services and responsibilities. RFSFA currently employs a young and vibrant team of financial advisors under the experienced leadership of Annemarie Nel. We are excited and believe RFSFA will go a long way in building on our inspiring solutions and fostering innovation to navigate our business challenges and secure a resilient future for our business and the retirement funding industry. A Vision for Tomorrow: 2025 and Beyond It is not just about looking back. It’s also about looking forward. The world is changing faster than ever, and while we celebrate the past year, we embrace the future with the same passion and commitment that got us here. The next years hold incredible potential. With the successful implementation of our new and exciting pension fund management system, the addition of RFS Financial Advisors, alongside our tried and tested flagship umbrella fund, the Benchmark Retirement Fund, has given us every reason to remain confident and committed to the growth of our business and to be at the forefront and of service to our clients. |
|||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||
| TILMAN FRIEDRICH'S INDUSTRY FORUM | |||||||||||||||||||||||||||||||||||||
| Monthly Review of Portfolio Performance to 30 November 2024 |
|||||||||||||||||||||||||||||||||||||
| In November 2024, the average prudential balanced portfolio returned 1.8% (October 2024: -0.2%). The top performer is NAM Coronation Balanced Plus Fund, with 3.3%, while Momentum Namibia Growth Fund, with 0.8%, takes the bottom spot. NAM Coronation Balanced Plus Fund took the top spot for the three months, outperforming the ‘average’ by roughly 2.8%. Allan Gray Namibia Balanced Fund underperformed the ‘average’ by 1.2% on the other end of the scale. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 30 November 2024 reviews portfolio performances and provides insightful analyses. Download it here... |
|||||||||||||||||||||||||||||||||||||
| An outlook on the world economy and financial markets in 2025 | |||||||||||||||||||||||||||||||||||||
| As we cross into 2025, the world faces many uncertainties that could severely impact economies and the financial market. During 2024, my main theme was that the world might drift into World War III. President-elect Donald Trump’s election statements on the US waging never-ending costly wars and ending the Ukraine war within 24 hours dim the prospect of a major military confrontation somewhat. My fear is, though, that there are very strong vested interests in driving global conflict. Commentators refer to these interests as the military-industrial complex in the US. Where I would have expected the US war industry to pull back in anticipation of a change of direction by President Donald Trump, I am seeing the opposite happening. Pressure on Russia and its allies is being intensified unrelentingly. Most recently, we had to witness the fresh offensive of Jihadists in Syria and social unrest in several neighbouring countries of Russia. Perhaps the US war industry intends to create facts for the new president that will force him to abandon his plans for America. In the event of a global conflict, the dynamics would change drastically. It would severely disrupt international trade, financial flows, economies, and supply chains while reallocating resources towards the war economy and essential services. Read paragraph 6 of the Monthly Review of Portfolio Performance to 30 November 2024 for our views on investment markets and global political developments. It also reviews portfolio performances and provides insightful analyses. Download it, here... |
|||||||||||||||||||||||||||||||||||||
| Cybersecurity in Namibian pension fund administration: a path forward | |||||||||||||||||||||||||||||||||||||
| In today’s digital age, cybersecurity is critical across all sectors, especially in financial services. As Namibia’s largest pension fund administrator (outside the GIPF), we are at the forefront of addressing these cybersecurity demands. However, Namibia’s small-scale economy, limited economies of scale, and international competition present unique challenges that must be addressed holistically. This article outlines the current cybersecurity landscape in Namibia’s pension fund administration and proposes regulatory strategies to protect our members effectively. The Cybersecurity Landscape and Challenges The Namibian pension fund administration environment is unique. We operate in a small market where our entire member base constitutes only 46,000 records, a relatively modest number by international standards. Meeting global cybersecurity standards is challenging due to the high costs of implementing advanced cybersecurity infrastructure, often designed for larger markets. For our members, the cost implications are significant and unavoidable, as the expense of cybersecurity is ultimately reflected in administration fees. Our foreign competitors, on the other hand, benefit from economies of scale linked to their global operations. These companies rely on the cybersecurity infrastructure of their international parent organisations, achieving compliance more cost-effectively. However, this also limits our national regulator, the Namibia Financial Institutions Supervisory Authority (NAMFISA), from having clear, transparent oversight of the efficacy and scope of the foreign operators’ cybersecurity measures. A Path Forward for NAMFISA To effectively protect public interests while considering the limitations of the local market, NAMFISA could implement a multi-faceted approach to cybersecurity that balances regulatory oversight with practical, scalable solutions for Namibia’s pension fund administrators. Below are some recommendations:
In Namibia’s unique economic and regulatory environment, achieving robust cybersecurity requires innovative regulatory solutions that accommodate local realities and global best practices. By implementing a risk-based approach, encouraging certification for foreign operators, fostering resource-sharing, and emphasising continuous monitoring, NAMFISA can protect the public against cybersecurity risks while supporting the growth and competitiveness of Namibia’s financial sector. This balanced approach would protect Namibians’ financial security while enabling local administrators to compete in a challenging market, ultimately enhancing Namibia’s cybersecurity resilience for the future. |
|||||||||||||||||||||||||||||||||||||
| Our safety net for our clients | |||||||||||||||||||||||||||||||||||||
|
By sound business practice, we confirm that we have just renewed the following covers through our brokers until 30 June 2025. Details were forwarded to all clients under separate cover.
|
|||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||
| COMPLIMENT | |||||||||||||||||||||||||||||||||||||
|
Compliment from an investor
Dated November 2024 |
“Middag Christina Ek wil net vir jou bedank, jy is uitstekend, vriendelik en was baie behulpsaam. Dankie vir jou vinnige diens en dat jy so met geduld alles aan my verduidelik het. Jy is puik, jy is beslis ‘n aanwins, ek sal enige tyd die vrymoedigheid hê om jou te skakel. Mooi naweek. Groete Marietjie Taljaard” |
||||||||||||||||||||||||||||||||||||
|
Read more comments from our clients, here...
|
|||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||
| BENCHMARK: A NOTE FROM GÜNTER PFEIFER | |||||||||||||||||||||||||||||||||||||
| Fund annual member meeting feedback | |||||||||||||||||||||||||||||||||||||
|
The Benchmark Retirement Fund held its well-attended, dual modus annual member meeting on Thursday, 21 November, at the Weinberg under the theme -
Beyond Challenges Embracing the Future Keynote speaker Solomon Hei spoke on ‘Geopolitics and Economic Trends: Impact on Asset Allocation and Investment Returns’, summarised here... The fund showcased its impressive growth and excellent returns over the years under the watchful eyes of a highly qualified and experienced board of Trustees. The fund’s growth: |
|||||||||||||||||||||||||||||||||||||
 The fund’s investment returns: |
 |
||||||||||||||||||||||||||||||||||||
 The Board of Trustees and its advisers: Present at the Weinberg was the board of trustees with its advisers. In the photo, on the left, Mrs Raazia Ganie, investment consultant (NMG), Mrs Sophia Amoo-Chimunda, principal officer, second from the left and Mr Günter Pfeifer, employee benefits consultant (director of RFS), fifth from the left.
From left to right, the board comprises Mr Harald Müseler, who will be retiring at the end of the year after serving on the board for 18 years, 13 of which as the chairman; Mrs Sabrina Jacobs, chairlady of the death claims committee, Mr Tilman Friedrich (chairman of RFS board), chairman of the finance committee, Mr Marthinuz Fabianus, (managing director of RFS), Mrs Afra Schimming-Chase, chairlady, Mr Hermann Hentschel and Mrs Malverene Theron, chairlady of the FIMA committee. |
|||||||||||||||||||||||||||||||||||||
 |
|||||||||||||||||||||||||||||||||||||
| A farewell message to Harald Müseler by Afra Schimming-Chasse, chairperson of the board As 2024 draws to a close, we bid farewell to Harald Müseler. Harald has become a familiar face at the Benchmark Retirement Fund over the years, having served the board since 2006 as trustee until 2011, when he became the fund’s first independent chairman. In that position, he brought a wealth of experience and expertise as a Chartered Accountant and Auditor, leading the Board, navigating challenges with great skill, brokering consensus, and allowing every board member to express their contribution to any matter at hand. Harald’s manner was always inclusive, and he took time to check in with various stakeholders and service providers with a genuine interest in each and everyone’s personal well-being.
As the Fund’s new chairperson, I will miss his quiet wisdom and consistent encouragement while keeping the risks the fund faces front and centre of every board meeting. Throughout this first year as board chair, I have been lucky to have his ear whenever I needed it, his counsel on every occasion that I found it challenging to be decisive and move forward. The entire board acknowledges his unwavering commitment to serve the best interests of the members, participating employers and beneficiaries. His absence on the board will surely be felt, yet at the same time, it is with happy hearts that we wish him well as he embarks upon the next phase of his great life. Every journey must come to an end, and at the end of every journey lies the promise of a new beginning, fresh opportunities and exciting paths that lead to the next experience. I do not doubt that wherever Harald finds himself, he will always offer the best of himself in service to the bigger community he serves. I am honoured and truly grateful to have worked with Harald over the years, and thank him for the difference he has made on the board and to us all.
Benchmark sponsors DHPS achievers. The Benchmark Retirement Fund sponsored top achievers in four categories at the D.H.P.S. We congratulate all prize winners and wish them all the best in the future!
|
|||||||||||||||||||||||||||||||||||||
 |
 |
||||||||||||||||||||||||||||||||||||
|
 |
||||||||||||||||||||||||||||||||||||
|
Fund Announcements
The Benchmark Retirement Fund issued no new circular after Announcement 202404 – Benchmark default portfolio annual review: Clients are welcome to contact us if they require a copy of any circular. |
|||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||
| NEWS FROM RFS | |||||||||||||||||||||||||||||||||||||
| The RETIREMENT COMPASS | |||||||||||||||||||||||||||||||||||||
| RFS Fund Administrators sponsor this newsletter as part of its social responsibility and its initiatives to support the retirement fund industry. It aims to provide members of funds managed by RFS Fund Administrators and other parties in their network with retirement funding and planning-related news and insights presented understandably. Read the latest Retirement Compass here... |
|||||||||||||||||||||||||||||||||||||
| Important circulars issued by RFS | |||||||||||||||||||||||||||||||||||||
| RFS issued no new circular after RFS 2024.10-07: Confirmation of professional indemnity and fidelity insurance cover. Clients are welcome to contact us if they require a copy of any circular. |
|||||||||||||||||||||||||||||||||||||
 |
|||||||||||||||||||||||||||||||||||||
| NEWS FROM THE MARKET | |||||||||||||||||||||||||||||||||||||
| Sanlam and Ninety-One transaction | |||||||||||||||||||||||||||||||||||||
|
Sanlam’s recent announcement to select Ninety-One as its primary active manager for single-managed assets will not impact Sanlam Investments Namibia’s investment strategies. This transaction is specific to South Africa, and clients in Namibia will continue to experience the same level of service and management as before.
Read the announcement by clicking here...
|
|||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||
| LEGAL SNIPPETS | |||||||||||||||||||||||||||||||||||||
| The Employment Equity Bill vs the Affirmative Action Act | |||||||||||||||||||||||||||||||||||||
The draft Employment Equity Bill (EEB) expands upon and modifies the AAEA in several significant ways:
The EEB introduces several new compliance requirements not found in the AAEA, such as monetary penalties, more detailed reporting requirements, a focus on violence and harassment in the workplace, and a more explicit emphasis on reasonable accommodation for persons with disabilities. The EEB also significantly expands the potential penalties for non-compliance. Conclusion: The EEB substantially strengthens Namibia's employment equity framework compared to the AAEA. The compliance burden on employers is likely to be considerably greater under the EEB, requiring more detailed planning, record-keeping, and reporting and potentially facing harsher penalties for non-compliance. |
|||||||||||||||||||||||||||||||||||||
Fiduciary Duties and Benefit Withholding PFA Determination: KK Maharaj v Corporate Selection Umbrella Retirement Fund No: 2 |
|||||||||||||||||||||||||||||||||||||
| 1. Case Overview The determination by the South African Pension Funds Adjudicator (PFA) addresses a dispute between KK Maharaj (the complainant), Corporate Selection Umbrella Retirement Fund No. 2 (the fund), Liberty Group Limited (the administrator), and Manuchar SA (the employer). The primary issue is whether the fund's decision to withhold the complainant’s withdrawal benefit for over six years complied with fiduciary and statutory obligations. 2. Background
Fund and Administrator
Key Findings:
Read the case report here... |
|||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||
| SNIPPETS FOR THE PENSION FUND INDUSTRY | |||||||||||||||||||||||||||||||||||||
| SA Inc. shares still have the potential to surprise to the upside | |||||||||||||||||||||||||||||||||||||
| Have you been keeping an eye on the South African market? It's an interesting time, especially post-election. With a positive sentiment and rising asset prices, things seem to be looking up. The local investors are driving the market right now. It's unusual, as foreign investors haven't been as active. That could be a good thing! It might mean there's untapped potential, especially for those willing to dig deeper. One thing to consider is the "SA Inc" segment. It's a group of companies focused on the domestic market. Many of these companies are undervalued, and with the improving economic outlook, they could be poised for growth. Think about sectors like construction and infrastructure – they might be worth a closer look. However, as with any investment, it's important to be selective. Not all SA Inc. stocks are created equal. Some might be overpriced, while others could be real gems. Doing your research or consulting with a financial advisor to make informed decisions is crucial. Overall, the future looks promising for the South African market. With careful consideration and a long-term perspective, some exciting opportunities could be on the horizon. Read the full article in Cover of 26 November 2025 here.. |
|||||||||||||||||||||||||||||||||||||
| Schroders crystal ball 2025 investment outlook | |||||||||||||||||||||||||||||||||||||
| The "Schroders Crystal Ball 2025 Investment Outlook" emphasises the need for investors to diversify and look beyond recent equity market winners to identify new return opportunities in the evolving financial landscape. Key Insights:
|
|||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||
| SNIPPETS OF GENERAL INTEREST | |||||||||||||||||||||||||||||||||||||
| The importance of holistic retirement planning (to be continued) | |||||||||||||||||||||||||||||||||||||
| Understanding Your Risk Profile in Retirement Planning In the latest instalment of this retirement series, the author dives into the critical role of risk profiles in shaping your investment strategy. Understanding your risk tolerance is essential for aligning your investments with your financial goals and comfort level. Key takeaways include:
Exploring the financial foundations essential for a secure retirement, it is clear that many are unprepared for the realities of this significant life phase. This article emphasises the importance of proactive financial planning to enhance retirement comfort and fulfilment. Key Insights Include:
This comprehensive guide underscores the importance of planning beyond saving—engaging with professionals and understanding your financial landscape can lead to a more fulfilling retirement. Don’t miss out on these insights to secure your financial future! The Longevity Blueprint In an age where life expectancy is soaring, planning for retirement means more than just financial stability—it’s about crafting a life filled with health, purpose, and connection. The latest research reveals that while genetics play a role, 75% of longevity is influenced by lifestyle choices. From the Blue Zones, regions known for their centenarians, we learn key habits that promote a long and fulfilling life: natural movement, a positive outlook, strong social ties, and a plant-based diet. The article outlines six essential habits to incorporate into daily life, emphasising that many changes are low-cost and accessible. In the next edition, the author examines the financial strategies essential for a secure and rewarding retirement! Source: Moneyweb, article series by Jaco Fouché, Jenwil Blue Star. |
|||||||||||||||||||||||||||||||||||||
| Life and living annuities – what you must know | |||||||||||||||||||||||||||||||||||||
|
The article by Devon Card from Crue Invest discusses the critical decision retirees face when choosing between life and living annuities, outlining their main differences, benefits, and risks.
The choice between life and living annuities significantly impacts financial security and requires careful consideration of personal financial goals and risk tolerance.
Read the full article by Devon Card, Crue Investments, in Moneyweb of 7 November September 2024 here… |
|||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||
| AND FINALLY... | |||||||||||||||||||||||||||||||||||||
| Wise words from wise men | |||||||||||||||||||||||||||||||||||||
| "Die Macht des Geldes wirkt auf den Menschen genau wie jede andere irdische Macht: wohltätig, solange er sie beherrscht, verderblich aber, sobald er ihr zu gehorchen beginnt." “The power of money affects humans just like any other earthly power: beneficial as long as they control it, but corrupting as soon as they begin to obey it.” ~ Karl May (1842 – 1912), German author. |
|||||||||||||||||||||||||||||||||||||
| Unsubscribe If you do not want to receive these newsletters {unsubscribe}click here...{/unsubscribe} Disclaimer Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Fund Administrators (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager. |
|||||||||||||||||||||||||||||||||||||
2024-11
|
||||
| Issued November 2024 | ||||
| This email address is being protected from spambots. You need JavaScript enabled to view it. |
||||
| In this newsletter... | ||||
| Benchtest 10.2024 – guiding investors through uncertain times, familiarity risk and your administrator and more... | ||||
| Jump to... | ||||
|
||||
| IMPORTANT NOTES AND REMINDERS | ||||
NAMFISA levies
NamRA issued a press release on 13 November urging all taxpayers to complete their income tax and update their tax records and banking details for a refund. Download the media release here... Repo rate unchanged in November The repo rate remains unchanged since the last reduction in October to 7.25%. The interest rate on funds’ direct loans will reduce to 11.25% from 1 November 2024. |
Registered service providers Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2024, here... Retirement calculator Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here... If you need help with your financial planning, get in touch with
RFS provides comprehensive support for trustees. Find a list of download documents to assist with governance and management of private funds, registered as of June 2024, here... |
|||
|
||||
| IN THIS NEWSLETTER... | ||||
|
In this newsletter, we address the following topics:
|
||||
|
In 'Tilman Friedrich's industry forum' we present...
|
In 'Legal snippets', read about...
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 30 November 2024 |
||||
| In October 2024, the average prudential balanced portfolio returned -0.2% (September 2024: 1.8%). The top performer is NAM Coronation Balanced Plus Fund, with 0.08%, while Allan Gray Namibia Balanced Fund, with -0.5%, takes the bottom spot. NAM Coronation Balanced Plus Fund took the top spot for the three months, outperforming the ‘average’ by roughly 1.7%. Allan Gray Namibia Balanced Fund underperformed the ‘average’ by 2.0% on the other end of the scale. Note that these returns are before (gross of) asset management fees The Monthly Review of Portfolio Performance to 31 October 2024 reviews portfolio performances and provides insightful analyses. Download it here... |
||||
| A guide for investors through uncertain times | ||||
| When you live in Namibia, the biggest portion of your wealth is invariably in Namibia, a bit in South Africa, and the balance is likely in the traditional offshore investment markets. If you have liquid capital you want to invest, you should be concerned about a major confrontation looming between the 'global West' and the 'global East' as evidenced by the war in Ukraine and the conflict in the Middle East. Should it come to a global conflict between the West and the East, your offshore capital will become inaccessible because of capital controls. Your offshore investment could also face severe impairment from war causes, for being invested in countries that are a party to the global conflict. Hopefully, southern African countries will not become parties to the global conflict which will likely happen in the next five years. It would conceivably carry on for about five years. The outcome would be -
Read paragraph 6 of the Monthly Review of Portfolio Performance to 31 October 2024 for our views on investment markets and global political developments. It also reviews portfolio performances and provides insightful analyses. Download the Monthly Review of Portfolio Performance to 31 October 2024, here... |
||||
| The familiarity risk and your fund administrator | ||||
| NAMFISA regularly expresses concern about service provider familiarity, as regulatory scrutiny over long-standing relationships aims to ensure objectivity, transparency, and compliance. Its focus on familiarity risk emphasises avoiding potential conflicts of interest or lapses in objective oversight. Familiarity risk is the risk that, due to a long or close relationship with the service provider, the fund will become too sympathetic to the service provider's interests or too accepting of the service provider's work or product. While a long-standing relationship with the fund administrator poses a familiarity risk, the rotation of the fund’s administrator also poses risks. Trustees should certainly not rotate their administrator, believing it would please NAMFISA. Trustees have a duty of care towards their fund and its members, and only a court may adjudicate if they have complied with this duty. This article aims to help trustees manage the familiarity risk of retaining their administrator and the diverse risks of rotating the administrator.
The Namibian retirement funds market of stand-alone funds (excluding the GIPF) of merely 50,000 members is too small to sustain one fund administrator. Together with the stand-alone umbrella funds, the 140,000 members do not provide a viable business basis for more than three administrators. The viability of the pensions industry will worsen further due to the dramatically increasing compliance requirements and associated costs of the FIMA. The National Pension Fund, with compulsory participation, will shave off around one-half of the industry’s current membership (i.e. leaving around 70,000 members), adding to the woes of the industry and its service providers. It will scarcely offer an economically viable base for one administrator, and there will be little space left for effective competition. Over the past thirty years since Namibia’s independence, the number of administrators has always reverted to three, despite hopeful aspirants entering the market now and then, only to fade away again. There are six administrators, of which one-half will likely disappear in the next five years. Trustees would be short-sighted not taking these constraints of the Namibian retirement funds market into account and how their decision could impact the industry and remove the only remaining competitor. The FIMA standards text-book approach to good corporate governance does not consider this' bigger picture', yet it is highly relevant to the fund and its members. |
||||
| Remuneration packages and your pension fund | ||||
| IIn recent years, changes to how employees are compensated have gradually reduced the effectiveness of retirement benefits, leaving employees at risk of insufficient retirement income. Many employees don't realise this issue when they are young and healthy and frequently change jobs. Often, they only recognise the importance of a well-structured retirement plan later in life — when it is much harder to correct past choices. This is where employers play a critical role. Employers can protect their employees from the consequences of underfunded retirement accounts by taking a proactive, long-term approach to retirement benefits. Without this guidance, employees might later blame their employer despite their control over their financial choices. To ensure retirement goals are met, we recommend employers calculate retirement contributions based on an employee’s total guaranteed compensation package — not just base salary. The traditional retirement structure, designed over the past century, aims to provide a decent income replacement for retirement, death, or disability. This goal generally requires a total net contribution towards retirement of around 15% of remuneration throughout employment. A balanced contribution model would include 10 to 11% from the employer and about 7% from the employee. This ‘market standard’ helps fund retirement benefits effectively without putting excessive strain on employees’ take-home pay. For employers already contributing more than the typical total contribution rate of 17%, the standard of 100% of the employee’s compensation package could be reduced slightly. For example, suppose the employer contributes around 20% of income. In that case, they might set the contribution based on 85% of the employee’s compensation package to achieve a well-funded retirement plan without impacting employees’ current pay. This topic is essential for both trustees and employers to discuss with their retirement consultants to ensure they’re meeting both today’s and tomorrow’s needs for their employees. |
||||
| Our safety net for our clients | ||||
|
By sound business practice, we confirm that we have just renewed the following covers through our brokers until 30 June 2025. Details were forwarded to all clients under separate cover.
|
||||
|
||||
| COMPLIMENT | ||||
|
Compliment from a former fund member
Dated September 2024 |
“Dear Ms. Visser, I trust this email finds you well. Wow, what can I say? Thank you very much for your prompt response and assistance, even thinking ahead and providing us with more information for ease of reference. People like you make a difference and positively impact the world. People like you are rare in today's world. I appreciate your kindness and helpfulness. May you have a wonderful day and weekend ahead. Kind regards, Junin Buys” |
|||
|
Read more comments from our clients, here...
|
||||
|
||||
| BENCHMARK: A NOTE FROM GÜNTER PFEIFER | ||||
| Important circulars issued by the Fund | ||||
|
The Benchmark Retirement Fund issued the following new circulars:
Clients are welcome to contact us if they require a copy of any circular.
|
||||
|
||||
| NEWS FROM RFS | ||||
| RFSFA sponsors schools' soccer | ||||
|
RFS Financial Advisors proudly supports the development of talents and the growth of our community. Its recent sponsorship of the Future Stars Football Academy has enabled the acquisition of essential soccer kits for young players, marking a significant milestone.
Acknowledging the sponsorship, the trainer said, "On behalf of Future Stars Football Academy, I would like to express our sincere gratitude for your generous sponsorship of our soccer kits.” |
||||
 |
||||
| The RETIREMENT COMPASS | ||||
| RFS Fund Administrators sponsor this newsletter as part of its social responsibility and its initiatives to support the retirement fund industry. It aims to provide members of funds managed by RFS Fund Administrators and other parties in their network with retirement funding and planning-related news and insights presented understandably. Read the latest Retirement Compass here... |
||||
| Important circulars issued by RFS | ||||
| RFS issued no new circular after RFS 2024.10-07: Confirmation of professional indemnity and fidelity insurance cover. Clients are welcome to contact us if they require a copy of any circular. |
||||
|
||||
| NEWS FROM NAMFISA | ||||
| Cyber security | ||||
|
NAMFISA issued Circular RPS/01/2024, dated 24 September 2024, requesting financial institutions to submit documentation on their cyber security arrangements. Specifically, it requests information by 18 October on the following aspects:
|
||||
|
||||
| LEGAL SNIPPETS | ||||
| The Employment Equity Bill vs the Affirmative Action Act (a contribution by Carmen Diehl) |
||||
General approach
|
||||
| Adjudicator Determination in HT Mashaba vs ABSA Pension Fund and Others | ||||
| 1. Introduction This case involves an interpretation of section 37D(1)(b)(ii) of the South African Pension Funds Act, which allows for withholding a member’s pension benefits under certain circumstances. Specifically, it involves whether a pension fund may lawfully withhold benefits when an employee faces unresolved criminal charges of fraud against their employer. 2. Background to the Case The case involves:
3. Complaint Details Mashaba argued that her pension benefit should not be withheld as she had no involvement in the alleged fraud. She noted that although she had been cleared of some suspicions by the police, the employer still held onto her benefit, citing the unresolved criminal case. Mashaba requested the PFA to order the pension fund to release her benefits immediately. 4. Respondents’ Argument
The determination of the case hinges on section 37D(1)(b)(ii) of the Pension Funds Act. Generally, section 37A protects members' benefits from being reducible or executable. However, section 37D(1)(b)(ii) provides an exception, allowing pension funds to deduct amounts for compensation due to the employer where:
6. Analysis and Adjudicator’s Rationale The PFA examined whether this withholding was lawful under both the Pension Funds Act and the rules of the ABSA Pension Fund:
7. Conclusion and Order The Tribunal dismissed Mashaba’s complaint, concluding that withholding benefits was justified under the Act and the fund’s rules. However, it mandated that if the National Prosecuting Authority (NPA) finds no grounds for prosecution and the employer does not pursue a civil claim, the pension fund must release Mashaba’s benefit. This case emphasises the balance pension funds must maintain between protecting employers’ rights to recover losses and safeguarding employees’ rights to timely access to their benefits. Read the Pension Fund Adjudicator’s determination here... |
||||
|
||||
| SNIPPETS FOR THE PENSION FUND INDUSTRY | ||||
| Is your retirement plan sustainable? | ||||
To assess the sustainability of your retirement plan based on Erin White's advice, here’s a summarised approach:
Read Buitomelo Ntsoko’s interview with Erin White of Crue Investments in Moneyweb of 8 November 2024 edition here… |
||||
| Should I invest in an annuity or property for a better return? | ||||
| This article discusses how, despite the dominance of the "Magnificent 7" technology stocks in 2023, many other global stocks and sectors have outperformed them. While these tech giants—Nvidia, Apple, Microsoft, Alphabet, Amazon, Meta, and Tesla — have had strong returns, many other companies, particularly in sectors like utilities and financials, have achieved even better returns. Lamont emphasises the importance of recognising a broader range of investment opportunities beyond just these tech leaders, noting that many companies in Europe, Japan, and emerging markets are expected to deliver substantial earnings growth in the coming year. He warns that equity investors may be overly concentrated in a few stocks, posing risks and limiting exposure to potentially undervalued companies. The article also critiques the rise of passive investing, which tends to allocate assets based on market capitalisation, favouring these large tech stocks and neglecting smaller, potentially lucrative investments. Lamont suggests that historical trends indicate that periods of high concentration in a few stocks often precede underperformance relative to the broader market. Finally, the article briefly discusses various stock market valuation measures, such as forward P/E and trailing P/E, highlighting the complexities and limitations of these metrics in guiding investment decisions. Lamont concludes by advising investors to be cautious and consider a diverse range of opportunities in today's market landscape. Read the full article by Duncan Lamotte of Schroders in Cover of 6 November 2024 here… |
||||
|
||||
| SNIPPETS OF GENERAL INTEREST | ||||
| The importance of holistic retirement planning (to be continued) | ||||
| Retirement should be more than just a financial milestone; it’s a significant life transition requiring comprehensive planning. A recent survey reveals that a staggering 76% of retirees struggle to adapt, with many facing identity loss, loneliness, and mental health challenges. This article emphasises the need for a holistic approach to retirement planning that encompasses emotional, social, and physical well-being alongside financial security. Retirement coaching offers a proactive way to cultivate a fulfilling lifestyle, encouraging individuals to prepare for economic stability and embrace a life filled with purpose and joy. Join us as we delve into the complexities of retirement in the coming weeks, exploring its evolution, the impact of longevity, and the essential elements of a rewarding retirement experience. Don’t let your retirement be the end of your journey—make it the start of an exciting new chapter! As life expectancy increases, the landscape of retirement is rapidly evolving. No longer just about financial stability, retirement planning now requires a holistic approach that addresses health, social connections, and a renewed sense of purpose. Baby Boomers, the largest and most active generation, face unique challenges as they navigate this transition, influenced by historical shifts from defined benefit plans to individual savings responsibility. With retirees potentially enjoying decades of life post-career, it’s crucial to rethink retirement as a time for personal growth and engagement rather than mere leisure. The upcoming article delves into the historical context of retirement, the significance of social structures, and the concept of the "two curves of life"—the shift from youthful ambition to a stage focused on wisdom and service. As we prepare for these changes, thoughtful planning that encompasses emotional, social, and physical well-being is essential for a fulfilling retirement. The following article addresses the implications of longevity in retirement planning! Source: Moneyweb, article series by Jaco Fouché, Jenwil Blue Star. |
||||
| Life and living annuities – what you must know | ||||
|
The article by Devon Card from Crue Invest discusses the critical decision retirees face when choosing between life and living annuities, outlining their main differences, benefits, and risks.
The choice between life and living annuities significantly impacts financial security and requires careful consideration of personal financial goals and risk tolerance.
Read the full article by Devon Card, Crue Investments, in Moneyweb of 7 November September 2024 here… |
||||
|
||||
| AND FINALLY... | ||||
| Wise words from wise men | ||||
| "Coming together is a beginning; keeping together is progress; working together is success." ~ Henry Ford | ||||
| Unsubscribe If you do not want to receive these newsletters {unsubscribe}click here...{/unsubscribe} Disclaimer Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Fund Administrators (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager. |
||||
2024-10
|
||||
| Issued October 2024 | ||||
| This email address is being protected from spambots. You need JavaScript enabled to view it. |
||||
| In this newsletter... | ||||
| Benchtest 09.2024 – it is not easy doing business in Namibia, is the old age grant taxable, and more... | ||||
| Jump to... | ||||
|
||||
| IMPORTANT NOTES AND REMINDERS | ||||
NAMFISA levies
BIPA released an urgent notice calling on all persons owning immovable property through a legal entity to comply with the beneficial ownership requirements. Failure to comply could entail deregistration of the legal entity and the property falling to the state. If you missed this notice, download it here... Repo rate declines in October The repo rate was reduced by 0.25% on 16 October to 7.25%. The interest rate on funds’ direct loans will reduce to 11.25% from 1 November 2024. |
Registered service providers Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2023, here... Retirement calculator Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here... If you need help with your financial planning, get in touch with
RFS provides comprehensive support for trustees. Find a list of download documents to assist with governance and management of private funds, registered as of June 2024, here... |
|||
|
||||
| IN THIS NEWSLETTER... | ||||
|
In this newsletter, we address the following topics:
|
||||
|
In 'Tilman Friedrich's industry forum' we present...
|
In 'Snippets for the pension funds industry,' read about...
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 30 September 2024 |
||||
| In September 2024, the average prudential balanced portfolio returned 1.8% (August 2024: 1.3%). The top performer is NAM Coronation Balanced Plus Fund, with 2.7%, while Stanlib Managed Fund, with 1.0%, takes the bottom spot. M&G Managed Fund took the top spot for the three months, outperforming the ‘average’ by roughly 0.8%. Stanlib Managed Fund underperformed the ‘average’ by 1.3% on the other end of the scale. Note that these returns are before (gross of) asset management fees The Monthly Review of Portfolio Performance to 30 September 2024 reviews portfolio performances and provides insightful analyses. Download it here... |
||||
| Avoid any permanent loss, but be prepared to give up value. | ||||
| If you own something you do not use, chances are you will lose – “use it or lose it” is a rugby rule. It applies to all spheres of life. No one can take what you use from you if we equate ‘using’ to ‘consuming. This wisdom also applies to your investments. Since you do not use your investments, chances are you will lose. This is not to say that you will permanently lose, but there will be times when you will lose. The best thing you can do is to be prepared for losing at times. One also needs to distinguish between different types of losses, namely, temporary and permanent losses. You cannot recover a permanent loss as opposed to a temporary loss. To the analogy of a house: if you bought the house for N$ 1 million and the valuator now values the house at N$ 850,000, you made a temporary (or unrealised) loss. The market may pick up again in a year when the home may be worth more than N$ 1 million. However, if you sold the house for N$ 850,000, you made a permanent (or realised) loss. If you own shares in a company listed on the stock exchange and its price declines, it is only a temporary loss. However, it is a permanent loss if the company goes into liquidation (like Steinhoff). Since we are dealing with pension funds and personal investments, in terms of market conditions, we find ourselves in a situation where we feel we have been on a losing streak for quite some time. But how do you define loss in these circumstances? Is it a loss relative to inflation, or is it a loss relative to the returns one has seen in investment markets until the advent of the financial crisis (GFC) at the end of 2008? I suspect many investors are still clamouring for past returns of 20% and more. Importantly, it should only be your above-inflation return; inflation should be your bottom line! Where would you have invested had you anticipated developments in financial markets since the financial crisis? It was not too difficult to predict the impact of quantitative easing, the low interest rate environment, and the COVID-19 stimulus. Still, no one would have expected such a strong recovery for the four years since the GFC, followed by a flattening of financial markets afterwards. What alternative investments could you possibly have made in anticipation of what was expected - property, life stock, vintage cars or other exotic objects? Well, test them one by one. Property in Namibia would not have been a good idea until the COVID-19 shock. Life stock in Namibia would have been a dull investment. Gold or any other exotic object? Read paragraph 6 of the Monthly Review of Portfolio Performance to 30 September 2024 for our views on investment markets and global political developments. It also reviews portfolio performances and provides insightful analyses. Download it, here... |
||||
| Will the government do more than pay lip service to improving the ease of doing business? | ||||
| The Fraser Institute measures economic freedom using five key areas, namely: (1) size of government, (2) legal system and security of property rights, (3) sound money, (4) freedom to trade internationally, and (5) regulation. In an article by Robert McGregor of Cirrus Capital on LinkedIn, it was revealed that the Frazer Institute ranks Namibia in the 113th position (of 165 countries measured) for economic freedom. According to the author, “This puts Namibia in the third quartile. While Namibia has improved her score to decent levels for Size of Government and Sound Money, Namibia scores poorly (and her score has deteriorated) for Legal System and Property Rights (owing to crime and court backlogs, amongst others), Freedom to Trade Internationally (given tariffs and other protectionist measures), and Regulation (particularly on business regulation and freedom to compete). The evidence is clear that the approach to growth, wealth creation and prosperity requires economic freedom. Providing institutions and protections for core principles is necessary, but there must also be allowance for individuals – natural and juristic – the freedom to make their own economic decisions. Unfortunately, Namibia still falls short in allowing such economic freedom.” It is alarming that the government entrusted business regulation and freedom to compete to SOEs, hoping they could outperform the government in achieving its economic objectives. Yet, it is the area where the government’s endeavours are marked down by global research institutions such as the Frazer Institute. We talk a lot about the ‘ease of doing business’ in Namibia and its importance in attracting foreign investment and developing our economy. Yet when you speak to anyone who has to deal with SOEs entrusted with the Regulation of business and freedom to compete, it is a tale of frustration and dismay about the attitude of these regulators. In theory, the CEOs of all SOEs and other government bodies should have a performance agreement. However, if these performance agreements fail to support the government’s objectives, one may ask if they are worth the paper they are written on. Critically, do these performance objectives address the ‘ease of doing business’ in Namibia? To attract foreign capital and grow the economy and employment, Namibia should offer a superior environment for the ‘ease of doing business’ relative to our neighbours. I suggest that the government must ascertain that every new CEO performance agreement of every SOE or government body that is supposed to promote the business environment, economic development, job creation and other socio-economic government objectives must stipulate how their achievement of socio-economic objectives will be measured and must account to what extent there was progress towards the achievement of the envisaged socio-economic objective. In the pensions industry, the following are key metrics and should be measured relative to our neighbouring countries:
|
||||
|
||||
| COMPLIMENT | ||||
|
Compliment from a pensioner
Dated September 2024 |
“Dear B You are an absolute star!! Once again proof that RFS / Benchmark outperforms any other fund administrator in town for client service! Much appreciated. Thank you and regards Jens C Kuehhirt t/a JCK Consulting” |
|||
|
Read more comments from our clients, here...
|
||||
|
||||
| BENCHMARK: A NOTE FROM GÜNTER PFEIFER | ||||
| Annual member meeting | ||||
| The annual Benchmark Retirement Fund member meeting will be held on Thursday, 21 November, starting at 15h00. Members are invited to save the date for joining the meeting. Further information will follow via the media. | ||||
| Important circulars issued by the Fund | ||||
The Benchmark Retirement Fund issued the following new circulars:
|
||||
|
||||
| NEWS FROM RFS | ||||
| Staff improving their competencies. | ||||
| It is inspiring that RFS staff commit to their ongoing education and professional development. As Nelson Mandela once said, “Education is the greatest equaliser,” and by investing in the education and training of its employees, RFS is helping to create a more skilled and knowledgeable workforce. As staff members become more competent and knowledgeable, they are better equipped to provide high-quality service to clients and to help the company stay competitive in a rapidly changing market. RFS congratulates the following RFS staff members who have successfully advanced their qualifications! Pursuing further education can be a challenging and arduous road, and the achievement of this milestone is a testament to their hard work and dedication.
|
||||
| A gesture of support from the RFS team to the Bible Society | ||||
|
The Bible Society launched an essay writing competition at the beginning of August. This is an initiative for Bible engagement among secondary school learners. It approached business associates to sponsor six winners for two tablets, two mobile phones, two smartwatches, and printing paper boxes. RFS decided to sponsor printing paper boxes for N$ 3,200
|
||||
|
In the picture below, Rudigar van Wyk and Crezelda Kooper, Benchmark client managers, handed over the photocopying paper to Mrs. Bernada Nghikevali from the Bible Society.
|
||||
 |
||||
| The RETIREMENT COMPASS | ||||
| RFS Fund Administrators sponsor this newsletter as part of its social responsibility and its initiatives to support the retirement fund industry. It aims to provide members of funds managed by RFS Fund Administrators and other parties in their network with retirement funding and planning-related news and insights presented understandably. Read the latest Retirement Compass here... |
||||
| Important circulars issued by RFS | ||||
RFS issued the following new circular:
|
||||
|
||||
| NEWS FROM NAMFISA | ||||
| FIMA Standards republished | ||||
|
NAMFISA has completed its public consultation on Gen.S.10.10 (Outsourcing – prohibition of outsourcing of ‘principal business functions’, as defined and permission of outsourcing of ‘material business functions’ within confines of standard) and Gen.S.10.21 (Treating Customers Fairly) and re-issued these statements following the public’s submission of comments.
Download the final (‘fairly final’) draft general standards, here… |
||||
|
||||
| LEGAL SNIPPETS | ||||
| Adjudicator Determination in M Barnard v Momentum RA and Others | ||||
| The complainant was divorced from the deceased member. She claimed that during their marriage, the deceased was financially irresponsible and that she had taken out a retirement annuity policy in his name, paid the contributions and made it paid up before their divorce. She submitted that in their divorce settlement, they had agreed that if the deceased member predeceased her, the benefit would be paid to her. She intended to divide the benefit between their two sons, aged 21 and 23, when their father passed away. She claimed that since she paid for the policy, was the nominee on the policy, was named in his will, and was recorded in the divorce settlement as a beneficiary, she should have been awarded the death benefit. The deceased had a life partner whom he had been in a relationship with for 18 months before his death. They were engaged to be married.p The fund submitted that although the complainant was married to the deceased for 21 years, she was not financially dependent on him at the time of his death, nor was there a maintenance order in her favour following their divorce. The children of the deceased submitted affidavits to the fund stating that they were not financially dependent on the deceased. The fund submitted that the deceased’s life partner shared a joint household with him and shared expenses. She fell within the definition of a spouse as a permanent life partner of the deceased. Based on certain assumptions about the permanent life partner’s level of dependency on the deceased and her projected life expectancy, the life partner’s dependency was calculated by the fund to be R657,094.00. Considering that the amount available for distribution was only R91,761.00, the fund allocated 100% of the benefit to the deceased’s permanent life partner. The fund submitted that the nomination form was not binding and only serves as a guide to the board, which the board may not use to fetter its discretion. Since the value of the benefit was insufficient to cover the life partner’s loss of support, the fund decided not to allocate a portion to the complainant based on the nomination form. The Adjudicator held:
From the Pension Fund Adjudicator’s annual report 2022-2023 |
||||
| Every annuity is taxable, but what is an annuity? | ||||
| Because an annuity always constitutes ‘gross income’ and is always subject to income tax, it is important to understand what constitutes an annuity. Old age grant In Namibia any citizen is entitled to the state old age grant of currently N$ 1,600 as from age 60. The pensioner has not worked for this ‘windfall’, at least not directly. Is this an annuity and therefor taxable? Well, there is no provision in the Income Tax Act exempting this grant, and the grant is thus clearly taxable, as it is an annuity payable for more than two years, as argued further. The old age grant is, therefore, taxable. Maintenance upon divorce The same question should be posed regarding maintenance payments by one divorced spouse to the other. Section 16(1)(q), however, exempts from income tax “…any amount received by or accrued to any person from such person’s spouse or former spouse by way of alimony or allowance or maintenance…” Regular maintenance payments are, therefore, tax-exempt. Annuities from pension – and retirement annuity funds ‘Closer to home’, the Income Tax Act stipulates in the definition of ‘pension fund’ as follows: “(a) that the fund is a permanent fund bona fide established to provide annuities for employees on retirement or for widows, children, dependants or nominees of deceased employees (i.e. upon death in service)…” The definition of ‘retirement annuity fund’, in turn, provides as follows: “(a) that the fund is a permanent fund bona fide established solely to provide life annuities for the members of the fund or annuities for the spouses' children, dependants or nominees of deceased members …” and goes on “(b) (vii) that where a member dies after he or she has become entitled to an annuity no further benefit shall be payable other than an annuity or annuities…” Take note of the difference in the definition of ‘pension fund’ that merely refers to an annuity for members or their dependants as opposed to ‘retirement annuity fund’ that relates to life annuities for members and annuities for dependants. So, the Income Tax Act distinguishes between annuities and life annuities without defining these terms. In South Africa, two prominent cases in the Appellate Division dealt with this subject. In SIR v Watermeyer, Holmes JA said the following in respect of annuities: “Used in connection with payments, the word, from its very nature, postulates the element of recurrence, in the sense of annual payments (even if made, say, quarterly during the year). This element of necessary annual recurrence cannot be present unless the beneficiary has a right to receive more than one annual payment… Hence, if voluntary and payable at will, de facto recurrent payments do not qualify as annuities.” The decision in KBI v Hogan affirmed the principles laid down in SIR v Watermeyer regarding the characteristics of an annuity. When Inland Revenue responded to a new product in the market referred to as ‘living annuity’ or ‘flexible annuity’ by way of practice note 1/96, it required that “…where the annuitant dies, the annuity available to the deceased’s spouse, children, dependants or nominees, shall constitute an annuity for a minimum of 5 years.” This practice note refers to annuities paid by retirement annuity funds (although it vaguely discusses retirement annuity agreements). Inland Revenue later issued practice note 1/98 that refers to flexible annuities paid by any pension fund and directs that “…where the pensioner dies, the annuity available to the deceased’s spouse, children dependants or nominees, shall constitute a life annuity.” Since the definition of ‘pension fund’ does not require a life annuity in respect of either the member or their dependants, practice note 1/98 is ultra vires Inland Revenue’s powers to the extent that it requires a life annuity for dependants of a deceased fund member. Considering the judgements above, Inland Revenue is probably also wrong in directing that the annuity should be paid for a minimum of 5 years. According to those judgements, living or flexible annuities can thus be accelerated to pay over a minimum of two years to members of pension funds and their dependants and dependants of members of retirement annuity funds. The annuity payable to the member of the retirement annuity fund, however, must be an annuity for life |
||||
| Can capital be transferred from a retirement annuity fund to an untied insurance product at retirement? | ||||
| It is common practice in the market that members of retirement annuity funds, upon retirement, purchase an untied annuity from an insurance company. Is this practice consistent with the Pension Funds Act and the Income Tax Act? Firstly, NAMFISA has confirmed in writing that it is comfortable for retirement capital to be moved into an untied insurance policy that provides the annuity. Effectively, capital from a pension fund leaves the safety of the Pension Funds Act to move into an insurance policy under the Long-term Insurance Act without any formal requirements. Where the money is paid as a benefit, the beneficiary can remain in the safety of the PFA but is not obliged to do so. The PFA does not prescribe how a benefit must be paid, but the rules would. If the money is not a benefit (i.e. a compulsory transfer), section 14 of the Pension Funds Act prescribes stringent formalities for it to move from a pension fund to any other person. A benefit is an amount accrued to the member legally entitled to it. The Income Tax Act (ITA) determines how any benefit is taxed. Thus, if it is a benefit, it is taxable; if it is not a benefit and is moved to any other person, it must comply with the PFA section 14 requirements. Because NAMFISA has not qualified its opinion to only relate to a benefit due to a member (i.e. a voluntary transfer), it has opened the door to move pension funds without the section 14 formalities to any other person even though it is not a benefit. Insurance companies argue that where the rules oblige the member to arrange an annuity at retirement, money due from a pension fund at retirement is not a benefit and not taxable. Inland Revenue bought the argument of insurance companies in support of being allowed to issue untied annuity policies with money derived from a pension fund and to transfer the capital tax-free upon retirement from the fund. (Note: The obligation to buy an annuity can only apply to a pension fund as it would always be optional in a provident fund.) In essence, the status quo means that NamRA considers the capital of untied annuities as retirement fund capital and affords it the same tax preferential treatment as pension funds, even though the link between the retirement capital and the PFA was severed. In contrast, NAMFISA allows the capital to leave the PFA’s safety net without any formality. But what about retirement annuity funds? In the definition of ‘retirement annuity fund’, the Income Tax Act sets out the benefits a retirement annuity fund may provide under various circumstances. In subparagraph (x) it states “that save as is contemplated in subparagraph (ii), no member’s rights to benefits shall be capable of surrender, commutation or assignment or of being pledged as security for any loan.” Subparagraph (ii) states “that no more than one-third of the total value of any annuities to which any person becomes entitled may be commuted for a single payment...” The crux of the matter is the word ‘assignment’. The Oxford English dictionary defines ‘assign’ as “to give something to somebody as a share of work to be done or of things to be used…”. Another dictionary defines ‘assign’ as “allot, apportion, ascribe, transfer”. Unless the annuity is purchased from an insurer in the name of the retirement annuity fund, it would imply that the member’s retirement capital is transferred or given to somebody else. My conclusion thus is that a retirement annuity fund cannot allow the purchase of an annuity from an untied insurance product once a member becomes entitled to a retirement benefit. |
||||
|
||||
| SNIPPETS FOR THE PENSION FUND INDUSTRY | ||||
| Invest Offshore with your eyes wide open. | ||||
This article discusses the complexities South Africans face when investing offshore, particularly for currency diversification or hedging against currency volatility. Key issues include:
|
||||
| Should I invest in an annuity or property for a better return? | ||||
In this conversation, a reader asks an investment expert two questions.
|
||||
|
||||
| SNIPPETS OF GENERAL INTEREST | ||||
| Navigating the authentic leadership tightrope | ||||
| As leaders, we often find ourselves walking a tightrope between our genuine emotions and the expected display of positive, supportive energy for our teams. This emotional labour can be challenging but is essential to effective leadership. So, how can we authentically manage this delicate balance? Let's explore some techniques to help us navigate the world of leadership with authenticity and empathy. Do an Emotional Audit: Start by taking a moment to reflect on your emotions. Ask yourself: What am I feeling right now? Where in my body do I feel it? What is causing these emotions, and how do they differ from what's expected of me? This reflective exercise can enhance your emotional intelligence and self-awareness — two crucial qualities of successful leaders. Reappraise the Situation: To genuinely tap into the positive emotions you're expected to project, focus on finding genuine reasons to feel those emotions. You won't need to fake your feelings when you can identify these reasons. Authenticity shines through when your emotions align with your thoughts and actions. Focus on the Big Picture: Sometimes, it helps to step back and remind yourself why your work matters. Reflect on your leadership's impact on your team, customers, or community. Recognising the positive outcomes your efforts bring can be a source of motivation for both you and your team. Take Time to Reconnect and Replenish: Emotional labour can be draining, so seeking support and practising self-care is crucial. Connect with people you trust, whether your partner, a therapist, or trusted colleagues, with whom you can share your unfiltered thoughts and feelings. Engaging in activities that help you relax and recharge, such as meditation, journaling, art, or nature walks, can also alleviate the toll of emotional labour. Authentic leadership isn't about concealing your true feelings or pretending to be someone you're not. Instead, it's about acknowledging your emotions, understanding their source, and finding constructive ways to align them with your leadership responsibilities. By practising these techniques, you can become a more authentic and effective leader who empowers your team while staying true to yourself. Source: Business Buzz (the Namibia digital newsletter) of 30 September 2024. |
||||
| Rethinking Employee Benefits – tailoring rewards for true impact | ||||
|
This article emphasises the need to modernise traditional employee benefits (EB) to better address the diverse needs of today's workforce. While existing EB packages often suffice for mid- to high-income earners, lower-income employees, mainly blue-collar workers, are underserved. They typically receive limited benefits like funeral cover and small savings, leaving their broader needs unmet.
Botes argues for a more inclusive approach, urging HR professionals to customise benefits based on income levels. Low-income employees' access to affordable healthcare, such as subsidised primary healthcare plans, could significantly improve their well-being. Additionally, wellness initiatives should offer mental health counselling, family planning, and financial advice to provide better value. The article also highlights the importance of non-financial rewards. Recognising and rewarding employees for their achievements, whether through bonuses, social recognition, or development opportunities, boosts morale, reinforces positive behaviour, and enhances overall performance. Tailoring benefits and rewards across all income levels fosters a more engaged and motivated workforce. Read the full article by Reo Botes, Managing Executive at Essential Employment Benefits, in Cover September 2024 edition, here... |
||||
|
||||
| AND FINALLY... | ||||
| Wise words from wise men | ||||
| "It’s not the employer who pays the wages. Employers only handle the money. It’s the customer who pays the wages." ~ Henry Ford | ||||
| Unsubscribe If you do not want to receive these newsletters {unsubscribe}click here...{/unsubscribe} Disclaimer Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Fund Administrators (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager. |
||||
2024-09
|
||||
| Issued September 2024 | ||||
| This email address is being protected from spambots. You need JavaScript enabled to view it. |
||||
| In this newsletter... | ||||
| Benchtest 08.2024 – RFS celebrates 25 years, FIMA’s best practice questioned, 11 predictions that came true and more... | ||||
| Jump to... | ||||
|
||||
| IMPORTANT NOTES AND REMINDERS | ||||
NAMFISA levies
The repo rate remains unchanged in September at 7.50%. The interest rate on funds’ direct loans remains at 11.50%. Income Tax Act amended The latest amendments to the Income Tax Act were published in government gazette no 8442 of 16 September 2024. The Deloitte newsletter in this link aptly summarises the amendments. |
Registered service providers Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2024, here... Retirement calculator Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here... If you need help with your financial planning, get in touch with
RFS provides comprehensive support for trustees. Please find a list of documents to assist with the governance and management of their private funds here... |
|||
|
||||
| IN THIS NEWSLETTER... | ||||
|
In this newsletter, we address the following topics:
|
||||
|
In ‘A note from the Managing Director read about
|
In 'Legal snippets', read about...
As always, your comment is welcome, so open a new mail and drop us a note! Regards Tilman Friedrich |
|||
|
||||
| A NOTE FOM THE MANAGING DIRECTOR | ||||
| Celebrating 25 Years of Excellence: A Milestone Under the Namibian Sky | ||||
| On a beautiful evening under the Namibian sky, RFS Fund Administrators marked a significant milestone — our 25th anniversary — with an open-air reception at the Eagle's Beer Garden in Avis. It was an evening to remember as we gathered with clients, staff, and esteemed guests to celebrate a journey of dedication, growth, and unwavering commitment. As Managing Director, I was privileged to address the attendees and express heartfelt gratitude to everyone who has been part of our success story. Twenty-five years ago, RFS was founded by Tilman Friedrich and Mark Gustafsson with a vision to deliver home-grown expertise to Namibian pension fund clients. After our first five years, a then small venture managing N$1.3 billion for 8,000 members has grown into a thriving business. Today, with 81 employees, we manage N$25 billion in assets for 26,000 members and pensioners of private funds. Our Benchmark Retirement Fund has similarly flourished, now overseeing N$9 billion for around 19,000 members across 140 employer groups. This success is not mine alone; it is a collective achievement. Our loyal clients, trusted partners, and dedicated team have been the backbone of our growth. While challenging, the recent migration to a new fund administration system demonstrated our team's resilience and professionalism, ensuring we remain at the forefront of our industry. During the event, I had the pleasure of introducing the leadership teams of RFS and the Benchmark Retirement Fund. These individuals have played pivotal roles in our journey, and their contributions have been instrumental in our continued success. I also addressed some challenges, particularly the regulatory hurdles imposed by NAMFISA and the SSC's impending introduction of a National Pension Fund. These are significant challenges, but they also present opportunities for us to adapt, innovate, and continue providing exceptional service to our clients. Looking forward, I am filled with optimism. Establishing RFS Financial Advisors is a strategic move that strengthens our service offerings and positions us for future growth. As we celebrate this milestone, we embrace the future with the same passion and commitment that have brought us this far. In conclusion, this evening was not just about reflecting on our past but also about looking ahead. With the trust and support of our clients and the dedication of our team, I am confident that RFS will continue to lead, innovate, and thrive for many years to come. |
||||
|
||||
| TILMAN FRIEDRICH'S INDUSTRY FORUM | ||||
| Monthly Review of Portfolio Performance to 31 August 2024 |
||||
| In August 2024, the average prudential balanced portfolio returned 1.3% (July 2024: 2.0%). The top performer is Investment Solutions Balanced Fund, with 2.10%, while Allan Gray Namibia Balanced Fund, with 0.40%, takes the bottom spot. Momentum Namibia Growth Fund took the top spot for the three months, outperforming the ‘average’ by roughly 1.2%. Allan Gray Namibia Balanced Fund underperformed the ‘average’ by 1.2% on the other end of the scale. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 31 August 2024 reviews portfolio performances and provides insightful analyses. Download it here... |
||||
| How to hedge your bets on the road to a new world order | ||||
| In a global conflict, the dynamics would change drastically. It would severely disrupt international trade, financial flows, economies, and supply chains while reallocating resources towards the war economy and essential services. While global investment diversification is a sound investment principle, keeping your belongings under your control and close to home will be wise, as your foreign assets are likely impaired and inaccessible in a global conflict. We live in a time between a fainting old and a new world order. One cannot foresee what the new world order would look like. It could be a capitalist autocracy, a more pragmatic multipolar order or a socialist autocracy. The old world order is likely to end within the next five years. The world will then witness a global confrontation, laying the foundation for the future world order. In this interregnum, we will experience high levels of market volatility and large swells between out-of-favour and in-favour sectors, but markets generally drifting along. Stock-picking skills will prove superior to index investing. The investor must understand how the feared conflict will impact stocks to select the right stocks. The Monthly Review of Portfolio Performance to 31 August 2024 reviews portfolio performances and provides insightful analyses. Dowload it, here... |
||||
| The FIMA and the oversold notion of ‘global best practice’ | ||||
| NAMFISA prides itself with this omnibus legislation, as representing global best practices. It has put a lot of energy into this legislation, and understandably, it refuses to move off its fixed standpoint, believing that global best practices are all that is required. But are global best practices necessarily appropriate for Namibia? Has NAMFISA ever tried to question its position and establish if the new legislation's cost is economically justifiable? For all bigger infrastructure projects, an environmental impact assessment has to be carried out before the government can proceed. This new legislation is a massive project that has never been subject to an environmental assessment study, and we have no clue about its impact on the economy. The man in the street whose investments are to be protected through the FIMA is not financially sophisticated enough to understand what a cost factor of 1% per year of their investment value over 30 or 40 years would mean for their retirement wellness. They rely on someone unknown to ascertain that their interests will not suffer. NAMFISA believes it is responsible for protecting his interests – and relies on global best practices. However, its is not accountable to the man in the street. Being responsible but not accountable has never been a good recipe. The Minister of Finance is responsible to the president, who is answerable to the electorate. However, as the NAMFISA CEO acknowledged, “FIMA is quite technical, and as a technical act, not everybody understands financial matters, and even our financial literacy in Namibia is quite low...”. He is quite correct and it is too technical for those accountable to the electorate. Simply resting on the global best practice laurels is not sufficient. The parliament needs a different model for evaluating such complex and technical laws. In a previous newsletter, I proposed a model for the parliament to apply to such technical laws. We have appropriate experts in Namibia who can advise, and it is crucial to rely on local industry experts instead of foreigners because they must implement the new laws. If the new law is beyond their capabilities, the government must expect to face endless problems in the future. Although local experts were allowed to provide their input, most critical issues dealing with the principles were ignored for not being global best practice. As often expressed by NAMFISA, it suspects the industry of having an agenda of making as much money as it can at the cost of the consumer. For that reason, NAMFISA is always suspicious of advice from industry experts and instead relies on foreign experts (who, of course, never have an agenda except perhaps to establish a never-ending dependency between them and their Namibia clients.) I acknowledge that local industry experts do and should have a business motive. That does not mean that the business motive is short-term and unsustainable. On the contrary, the motivation of a prospect of gain drives human activity. To manage the risk of the profit motive killing the man in the street, we only need to ensure competitive market conditions and proper risk management at the top level! It seems that dependencies on foreign agents are forced upon Namibia (as referred to in the following article on new cross-border payment rules), or we subject ourselves to ‘benevolent’ foreign agents voluntarily because we do not trust our local experts! |
||||
| New cross-border payment rules – FATF bullying CMA? | ||||
| Gone are the days when making an EFT payment to someone within the CMA was fast, cheap and painless. It seems CMA regulators caved in on FATF pressure (and to reverse their greylisting), allegedly because treating cross-border payments as domestic transactions was not compliant with international Anti-Money Laundering and Combating of Financing of Terrorism (AML/CFT) standards. The new rules remove a vital benefit for CMA residents and their countries being part of the CMA. As fund administrators, RFS must regularly pay fund benefits to someone living in SA or another CMA country. CMA residents living outside Namibia were used to receiving their benefits promptly, at a low cost and without red tape. These new rules do not amuse them. One ‘The Namibian’ reader asked in ‘SMS of the day” of 3 September, “Can ‘The Namibian’ please investigate the impact of the UBO rules and other FATF implemented by FIC on the average Namibian? It seems all Namibians are treated as criminals and not citizens of an independent country...” Another reader commented, “How can you [BON and FIC] treat Namibians as criminals and contribute to the deteriorating business environment and increasing costs of doing business?” The problem with the global financial system is that rules are made for those who cannot stand up for themselves but do not apply to those who made the rules. (How else do Western countries pride themselves on sponsoring ‘regime change’ all over the world?) The fact that CMA countries may use their own currencies at home does not change the fact that all financial transactions outside CMA countries are Rand-denominated. For all intents and purposes, the Rand is the official currency of all CMA countries for international trade. European Union countries, similar to CMA countries, use a single currency for financial transactions with countries that are not members. No FATF currency controls are imposed on Euro transactions between European Union member countries. The EU operates under the principle of free movement of capital, which includes the free transfer of funds and payments between member states! |
||||
| 11 Predictions for the next ten years | ||||
| Here is an amazing article from Benchtest 12.2014, circulated on 26 January 2015. Ten years later, every prediction has materialised as if David Murrin had a hand steering their realisation! “James Rickards, an American lawyer, regular commentator on finance, and the author of The New York Times bestseller Currency Wars, first acquainted the editor of this newsletter to the concept of financial war games, defined by James as a branch of 'asymmetric or unrestricted warfare'. The editor of the Benchtest newsletters consequently realised that there is a close linkage between politics and economic interests that should never be underestimated or ignored when interpreting and understanding economic events. David Murrin, globally acclaimed scientist, asset manager, historian, lecturer and author ('Breaking the Code of History'), made 11 predictions for the next ten years [in 2014!] that are very interesting in the context of politics and economic trends.” Here are the 11 predictions.
|
||||
|
||||
| COMPLIMENT | ||||
|
Compliment from a former pension fund member
Dated August 2024 |
“Once again, thank you Ms. S for efficiently and effectively attending to inquiries regarding my file. You have been of such help since last year and I really appreciate it.” |
|||
|
Read more comments from our clients, here...
|
||||
|
||||
| BENCHMARK: A NOTE FROM GÜNTER PFEIFER | ||||
| The status of converting to Everest | ||||
| By the end of August, the take-on of member static data and member fund credits for all employers and all retail products of around 20,000 members had been finalised. The rules and categories set up were also completed for all employers and retail products. While RFS made good progress on the accounting data take-on as of 30 June, there was still a way to go until the completion of this task. The first contribution runs were still in progress, while all payrolls ran successfully. As soon as all reconciling items have been cleared, RFS will proceed with the unit pricing and investment cash flows. Our former Managing Director, Tilman Friedrich, always said he would never want to go through an administration system conversion. However, in the interest of RFS’ technological advancement and the extensive requirements of the FIMA, RFS was left with no choice but to venture into the dreaded conversion. Such a project is never easy. It will experience hiccups and unexpected challenges along the way. With the experience RFS gained on its free-standing funds’ conversions, we are confident we will conclude the project successfully sooner than we have anticipated so that RFS and its clients can experience the benefits and enhancements of the new administration platform. We appeal to our Benchmark clients to bear with us with patience and indulgence! |
||||
| Important circulars issued by the Fund | ||||
| The Benchmark Retirement Fund issued no new circular since the previous newsletter 202309 – changes to survivor annuity investments. Clients are welcome to contact us if they require a copy of any circular. |
||||
|
||||
| NEWS FROM RFS | ||||
| Another feather added to RFS cap | ||||
| RFS prioritises the ongoing education and professional development of its staff. As Nelson Mandela once said, “Education is the greatest equaliser,” and by investing in the education and training of its employees, RFS is helping to create a more skilled and knowledgeable workforce. Pursuing further education can be challenging and arduous, which is a testament to the hard work and dedication of those who have achieved this milestone. By supporting its staff in their pursuit of further education, RFS is also investing in the long-term success of its business. As staff members become more skilled and knowledgeable, they are better equipped to provide high-quality service to clients and to help the company stay competitive in a rapidly changing market. We wish the following staff member continued success in the future as you continue to prioritise education and professional development and congratulate Sebastian Frank-Schultz on completing the Financial Planning Institute of South Africa’s CFP® Professional Competency Examination with flying colours! He should soon be authorised to add the ‘CFP®’ designation to his title. His qualification would lift the number of professionally qualified CFP® practitioners employed by RFS to three. We wish Sebastian all the best on the road to greater heights! It is a remarkable achievement and a shining example for others to follow! |
||||
| Long service awards complement our business philosophy | ||||
| RFS places a high value on its employees and recognises the importance of their contributions to the company’s success. Long service awards are a great way to acknowledge and celebrate the commitment and loyalty of employees who have been with the company for a significant time. In addition to recognising employees’ contributions, long service awards can be a powerful retention tool, demonstrating that the company values and appreciates its employees’ dedication and hard work. These awards create a positive and motivating work environment where employees feel supported and encouraged to continue to grow and develop within the company. In September amd October, RFS celebrates the following anniversaries:
|
||||
| RFS 25th anniversary celebration | ||||
|
RFS celebrated its 25th anniversary at the Eagles Beer Garden on Thursday, 5 September 2024. It was another unique, home-grown occasion in a pleasant setting with exceptional catering, as RFS clients, associates, and friends have come to expect over the past 25 years! The following feedback is how some of our guests experienced the evening:
“Dear Gentlemen & Lady… On behalf of the Agra Ltd. executive team, I would like to express our sincere gratitude for RFS Fund Administrators - 25th Anniversary Function last night. It was very enjoyable, and congratulations once again on the achievement of this milestone. Have a splendid weekend. Best Regards Griffort Beukes | General Manager: Human Resources” “Dear RFS 25 Team, Thank you very much for the splendid evening you treated me and all your invitees to last night. I thoroughly enjoyed meeting up with many old friends and having interesting discussions with a number of other guests and staff members in Blue. The entertainment, formal speeches and excellent food and drinks made it a memorable event fit for a 25-year celebration. Thank you for serving us as clients and the Namibian pension (administration) industry for the past quarter century and all the best for the completion of the rest of a full century of excellence. You have proven yourselves, just continue the good work! Kind regards, Wessel van der Vyver” In the RFS time capsule of 5 years ago, we found the following encouraging words: “Dear RFS and Benchmark, I look forward to celebrating your silver anniversary. I know you will have scaled even greater heights. Every blessing to you” – Andreen Moncur “The wagon has been pulled through various rivers. – Now you need to pull it up the hill for the years to come.” – Tessa Kok “RFS – may you have grown from strength to strength into 2024! See you in 2024. Keep it up! The journey of a thousand miles begins with one step!” – Heidi, Bank BIC Here is a photographic impression of the evening. |
||||
 |
 |
|||
| Speeches and acknowledgements | ||||
 |
 |
|||
| RFS staff serving our guests exquisite cuisine | ||||
 |
 |
|||
 |
||||
| RFS sponsors Coppelia ballet | ||||
|
RFS proudly sponsored the Coppelia ballet at the National Theatre of Namibia, showcasing 30 talented dancers, most of whom are still in school.
Supporting the arts is integral to fostering creativity and discipline among our youth. We believe that investing in their talents today contributes to a brighter, more vibrant future for our country. RFS remains committed to empowering the youth and enhancing their educational and artistic experiences, ensuring they have the tools they need to succeed in all their endeavours. The company looks forward to continuing its support for initiatives that uplift the community and foster the growth of Namibia's young talents |
||||
 |
 |
|||
| RFS AA Compliance | ||||
|
The Employment Equity Commission recently completed RFS’ annual Affirmative Action review and gave it an 85% ‘A’ rating.
|
||||
 |
||||
| The RETIREMENT COMPASS | ||||
| RFS Fund Administrators sponsor this newsletter as part of its social responsibility and its initiatives to support the retirement fund industry. It aims to provide members of funds managed by RFS Fund Administrators and other parties in their network with retirement funding and planning-related news and insights presented understandably. Read the latest Retirement Compass here... |
||||
| Important circulars issued by RFS | ||||
| RFS issued no new circulars after circular 2024.08-05 in August: Clients are welcome to contact us if they require a copy of any circular. |
||||
|
||||
| NEWS FROM NAMFISA | ||||
| FIMA is still under review | ||||
|
‘The Observer’ on 5 September reported the following on the status of the FIMA.
“The technical committee under the Ministry of Finance is still scrutinising the Financial Institutions Markets Act (FIMA). The Windhoek Observer understands that while public consultations have concluded, the research component is ongoing, and findings have yet to be presented to the finance minister. During a media engagement last week in Windhoek, Namibia Financial Institution Supervisory Authority’s (Namfisa) chief executive officer, Kenneth Matomola, stated that FIMA can only come into effect once the minister gives the green light. “As it stands now, FIMA can only come into force once the minister says, ‘Yes, let’s go and implement,’” he said. Matomola explained that the delay in finalising FIMA stems from a lack of broader consultation on the benefits of subordinate legislation, which necessitated preservation...” Read the full article here... |
||||
| Industry meeting feedback | ||||
|
An industry meeting was held at NIPAM on 10 September. Mrs Carmen Diehl of RFS attended and prepared the following notes. Download the abbreviated presentation here...
|
||||
|
||||
| LEGAL SNIPPETS | ||||
| FundsAtWork vs AM Guarnieri and others on the distribution of death benefits | ||||
| Section 37C of the Pension Funds Act of 1956 is pivotal in distributing death benefits within the South African pension fund framework. Its primary objective is to protect the financial well-being of those dependent on the deceased member, ensuring that their needs are considered when allocating benefits. The section aims to strike a balance between the member's wishes (as expressed in their beneficiary nomination) and the actual needs of dependants. Key Terms and Concepts Before diving into the specifics of the section, it’s essential to understand the definitions and roles of the key parties involved:
Upon the death of a pension fund member, the board of trustees is tasked with several critical responsibilities under Section 37C:
The judgment by Judge Wallis in FundsAtWork Umbrella Pension Fund v. Guarnieri and Others (830/2018) clarifies the timing aspect when determining who qualifies as a dependant.
The distinction in timing between dependants and nominees is a crucial aspect of the distribution process:
The judgment has several practical implications:
Section 37C of the Pension Funds Act protects the financial security of those dependent on the deceased member. The judgment in FundsAtWork Umbrella Pension Fund v. Guarnieri underscores the importance of timing in determining who qualifies as a dependant, emphasising that this determination for dependants must be made at the time of distribution rather than at the time of death. This approach ensures that the distribution of benefits aligns with the current needs of dependants, fulfilling the social welfare objectives of the Act. Trustees, members, and potential beneficiaries must understand these nuances to navigate the distribution process effectively and equitably. Editor’s note: This judgement creates a problem for trustees. Obtaining information on dependants is usually a drawn-out process. As a result, the dependants’ situation regarding their dependency on the deceased member would likely have changed in many cases by the time the trustees make the distribution. The judgement implies that the trustees must contact all identified dependants to establish if and how their dependency has changed. This follow-up process could take some time, and the dependants’ situation could change once again since it was initiated. Is it a classical case of squaring the circle? |
||||
| Section 14 Transfer to SA Fund | ||||
| How will a transfer from a Namibian to a South African fund under PFA section 14 be treated for income tax purposes? Here is the response RFS received from Inland Revenue: "Please be informed that a transfer from an approved Namibian fund to a South African fund does not imply a receipt or accrual in terms of the definition of "gross income" in the Income Tax Act. There is also no accrual of any benefit to any member of the [Namibian] fund. The Namibian pension fund administrator should obtain clarity from NAMFISA, their counterpart in South Africa, and SARS on whether such transfer can be done and the requirements to do such transfer." |
||||
| Can retirement capital be transferred from a retirement annuity to a pension fund at retirement? | ||||
| This question is intricate, particularly because retirement annuity funds are offered mainly by insurance companies even though a retirement annuity fund is a pension fund subject to the Pension Funds Act. Because insurance companies offer it as an insurance product, the Long-term Insurance Act and the Pension Funds Act apply to retirement annuity funds. The Long-term Insurance Act does not explicitly prohibit the transfer of capital accumulated in an individual policy to a pension fund, but this would have to be provided for by the rules or policy of the product. (The Act prohibits the transfer of an insurance business or a particular type of insurance business to another entity without approval by the High Court.) The Pension Funds Act similarly does not prohibit the transfer of capital accumulated in an individual pension fund to another entity, but this would have to be in terms of the rules of the pension fund. The Pension Funds Act makes provision for transferring business to or from another entity, which does not have to be a pension fund, in terms of section 14. Where individual transfers are allowed in terms of the product rules or policy, these are benefits the product pays. The Income Tax Act defines how benefits are taxed and prescribes what type of benefits an approved fund (retirement annuity, pension, provident, and preservation fund) may offer. In the case of pension fund benefits, the Act allows benefits to be transferred tax-free from any approved fund, other than a retirement annuity fund, to any other approved fund, including a retirement annuity fund. The ‘preservation fund’ definition prohibits transferring a member’s interest between two preservation funds. The definition of the ‘retirement annuity fund’ allows members’ interest to be transferred between approved retirement annuity funds. Such a transfer is not a benefit or taxed, as the only benefit a retirement annuity may pay is a life annuity, of which up to one-third may be commuted. A transfer from a retirement annuity fund before retirement is typically prohibited in terms of the product rules or policy as the insurer uses actuarial calculations to determine premiums, guarantees and benefits dependent on fixed pre-determined parameters that cannot be made subject to member discretion. At retirement, the policy matures (or terminates) and then typically allows the transfer of a member’s interest to another retirement annuity fund. Therefore, this transfer would not constitute a benefit and is not subject to taxation. Members of a retirement annuity are thus prevented from transferring their interest to another approved fund upon retirement by the definition of ‘retirement annuity fund’ in the Income Tax Act, which means that this Act would have to be amended. (Note that section 14 of the PFA allows such transfers.) If one wanted to accommodate such transfers before retirement, the product rules or policy would have to be amended, which should be possible for investment-linked products without any risk benefits or other guarantees but is not likely to be considered by insurers for any other type of product. |
||||
|
||||
| SNIPPETS FOR THE PENSION FUND INDUSTRY | ||||
| Pruning your wealth farm | ||||
| The article by Dawn Ridler uses gardening metaphors to explain how managing a wealth portfolio requires ongoing care and adjustments to ensure long-term health and balance. Just as plants need regular pruning to thrive, a wealth portfolio must be periodically reviewed and rebalanced to avoid risk from over-concentration in certain assets or sectors. Ridler emphasises the importance of having an "advice-led" portfolio that aligns with specific financial goals. She contrasts this with a "DIY" or "organic" approach, where portfolios often grow unchecked, leading to imbalances, such as one stock dominating a portfolio and increasing risk. She explains that portfolio objectives—whether for retirement, passive income, or legacy planning—dictate the appropriate asset allocation and must evolve. Changing market conditions, personal circumstances, and regulatory factors also impact how a portfolio should be managed. Pruning involves taking profits, diversifying investments, and rebalancing to prevent risks, much like cutting off the first fruit of a young tree to strengthen its growth. Ridler also warns against excessive reliance on market-cap-weighted ETFs, which can lead to unintended concentration risks, similar to certain shares dominating an index like the JSE or Nasdaq. She stresses that a more prudent approach is necessary for retirement portfolios, in line with regulations such as South Africa’s Regulation 28. Read the full article by Dawn Ridler in Moneyweb of 15 August 2024 here… |
||||
| Don’t invest in an investment you don’t understand or can’t value | ||||
| In this podcast, Ryk van Niekerk interviews Derinia Mathura, manager of the Melville Douglas Global Equity Fund. Derinia emphasised the importance of fundamental understanding in investing. She shared that, as a fundamental analyst, she prioritises understanding the valuation and drivers of an investment before committing to it. Her approach aligns with a "quality growth" strategy, focusing on companies with substantial competitive advantages or "moats" that protect them from competitors. She believes in investing for the long term, particularly in equities, which she argues tend to outperform over time despite short-term volatility. Mathura prefers individual companies over funds but admits that broader market exposure, like ETFs, can be a good starting point for those with less in-depth knowledge. Her investments reflect her professional philosophy, which is biased towards global equities, particularly in quality growth stocks. Her strategy is built around a clear understanding of what drives value in a company. For instance, she avoids investing in cryptocurrencies, which she cannot value or understand fundamentally. Instead, she focuses on sectors or companies where she can make educated predictions based on supply, demand, and market fundamentals. Read the interview in Moneyweb on 5 September 2024 here… |
||||
|
||||
| SNIPPETS OF GENERAL INTEREST | ||||
| A reality check on Namibia’s green hydrogen ambitions | ||||
| South Africa has strong potential to play a vital role in the global energy transition through green hydrogen, thanks to its abundant renewable energy resources, especially sun and wind. Green hydrogen is produced using renewable energy to split water into hydrogen and oxygen, unlike grey hydrogen, derived from fossil fuels. Green hydrogen is viewed as a viable alternative for sectors that are difficult to electrify, such as heavy industry, aviation, and long-haul transportation. While the European Union has pledged €32 million (R628 million) to support South Africa's green hydrogen industry, experts caution that this is insufficient. Green hydrogen production remains expensive, with costs between US$5 and US$8 per kilogram—about five times the cost of fossil-fuel-based hydrogen. Substantial government subsidies, international investments, and favourable regulations—such as carbon taxes and mandates for sustainable chemicals like green ammonia—are essential to make green hydrogen competitive. South Africa has ambitious goals to produce one million tonnes of green hydrogen annually by 2030, which could contribute R75 billion to its GDP and create up to 370,000 jobs by 2050. However, achieving these targets depends heavily on external financial support, particularly from the global north. The current grants from the European Union represent less than 0.2% of the estimated R410 billion needed to meet the 2030 production goals. Moreover, the risks associated with green hydrogen megaprojects, including cost overruns, delays, and stranded assets if demand does not materialise, are significant. The European Court of Auditors has also raised concerns about the high costs, infrastructure bottlenecks, and overly optimistic expectations surrounding the green hydrogen market. These warnings serve as a crucial reality check, highlighting that early-stage enthusiasm could lead to value-destructive projects where returns do not justify the investments. While South Africa has the potential to become a global leader in green hydrogen, significant international support is needed to manage the financial risks. The global south, including South Africa, may bear much of the risk, while consumers in the global north benefit from the product. Caution for Namibia: Like South Africa, Namibia is caught up in the green hydrogen excitement, driven by similar hopes of economic transformation and job creation. As Transnamib just announced the suspension of its green hydrogen conversion project, the warnings from the European Court of Auditors should not be ignored. Namibia must approach its green hydrogen ambitions with caution and realism. Production costs are still high, and international financial support is uncertain. Large-scale projects frequently face cost overruns, delays, and operational risks, potentially leaving Namibia with stranded assets and unfulfilled promises if demand for green hydrogen does not meet expectations. As Namibia looks to develop this sector, it should carefully consider these risks and ensure that any green hydrogen initiatives are built on realistic financial projections, strong international partnerships, and a clear understanding of the challenges ahead. Read the article in Businesstech of 15 September here... |
||||
| Investing offshore – where to start | ||||
|
Offshore investing provides access to a broader range of investment opportunities and currency diversification and can help preserve and grow wealth over the long term. However, it is essential to approach offshore investing as part of a strategic asset allocation rather than reacting to short-term market volatility or negative news headlines.
Reasons to Invest Offshore:
Currency Considerations: Exchange rates fluctuate due to factors like economic growth, inflation, and interest rates. Although exchange rates can deviate from theoretical values, trying to time currency movements is difficult. For example, the South African Rand frequently trades outside its estimated fair value. Currency risk adds volatility to offshore portfolios, making asset allocation and understanding valuations critical for long-term success.
Offshore Investment Strategies:
Choosing the Right Investment Manager: Selecting a trusted investment manager with a strong track record and low fees is crucial. A well-diversified portfolio with appropriate asset allocation helps achieve long-term goals.
Conclusion: When investing offshore, it is essential to:
Offshore investing offers opportunities but requires careful planning and strategy.
Read the article by Francis Marais in the May 2024 edition of Cover here...
|
||||
|
||||
| AND FINALLY... | ||||
| Wise words from wise men | ||||
| ""Know thyself." ~ Socrates 469 – 399 BC. This quote underscores the importance of self-awareness. Socrates believed that true knowledge begins with knowing oneself—a critical step towards wisdom. |
||||
| Unsubscribe If you do not want to receive these newsletters {unsubscribe}click here...{/unsubscribe} Disclaimer Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Fund Administrators (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager. |
||||
2024-08
|
||||
| Issued August 2024 | ||||
| This email address is being protected from spambots. You need JavaScript enabled to view it. |
||||
| In this newsletter... | ||||
| Benchtest 07.2024 – Navigating investment decisions, S37C and death benefits, the NPF and more... | ||||
| Jump to... | ||||
|
||||
| IMPORTANT NOTES AND REMINDERS | ||||
NAMFISA levies
At its August meeting, BON announced that the repo rate is dropped by 0.25% from 7.75% to 7.50%. The interest rate on funds’ direct loans will consequently drop by 0.25% to 11.5% from 1 September 2024. Registered service providers Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2024, here... |
Retirement calculator Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here... If you need help with your financial planning, get in touch with
RFS provides comprehensive support for trustees. Find a list of download documents to assist with governance and management of private funds, registered as of June 2023, here... |
|||
|
||||
| IN THIS NEWSLETTER... | ||||
|
In this newsletter, we address the following topics:
|
||||
|
In 'Tilman Friedrich's industry forum' we present...
|
In 'Snippets for the pension funds industry,' read about...
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 July 2024 |
||||
| In July 2024, the average prudential balanced portfolio returned 2.0% (June 2024: 1.7%). The top performer is Allan Gray Balanced Fund, with 3.6%, while NAM Coronation Balanced Fund, with 1.3%, takes the bottom spot. Old Mutual Pinnacle Profile Growth Fund took the top spot for the three months, outperforming the ‘average’ by roughly 1.2%. NAM Coronation Balanced Fund underperformed the ‘average’ by 1.5% on the other end of the scale. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 31 July 2024 reviews portfolio performances and provides insightful analyses. Download it here... |
||||
| Navigating investment decisions amid global uncertainty | ||||
| As a Namibian investor with a diversified portfolio, navigating the complexities of global financial markets has always required a thoughtful approach. However, the current international landscape presents unique challenges and opportunities. With geopolitical tensions escalating and economic conditions fluctuating across different regions, making informed investment decisions more crucial than ever. This article provides strategic guidance for those looking to invest their discretionary assets over the next one to two years and beyond. Understanding the current market landscape Before diving into specific investment strategies, it’s essential to understand the financial ratios and economic indicators that shape the global markets. Here’s a snapshot of the key financial ratios for major bourses:
The Monthly Review of Portfolio Performance to 31 July 2024 reviews portfolio performances and provides insightful analyses. Download it, here... |
||||
| Death benefits and S 37C envisages five scenarios | ||||
A few important points that are overlooked too easily, regarding the time frames for the payment of death benefits in case of each of the 5 different scenarios envisaged in section 37C:
|
||||
| Can a death benefit be paid in instalments? | ||||
| PFA section 37C specifies the time within which a death benefit must be paid. In broad terms, if the trustees established that there are no dependants, the benefit must be paid twelve months after date of death. If there are dependants, the death benefit must be paid once the fund is in mora. Where a debtor’s (the fund’s) liability is dependent upon the performance of certain conditions (e.g. as prescribed in section 37C), the debtor will not be in mora until a duty to pay arises (e.g. all dependants of a deceased needed to be and then have been determined and the trustees finalised the benefits allocation). Mora can arise where the creditor’s need is urgent and the delay in paying the creditor is unreasonable. The common belief that a fund’s duty to pay is contingent upon the expiry of the 12 month period referred to in section 37c is not correct. The duty to pay is not dependent on this but instead on whether the trustees are satisfied that they have investigated and considered with due diligence and are in a position to make a decision. Most trustees are familiar with the demanding process they need to follow when faced with the disposition of a benefit due in respect of a deceased member. Section 37C (2) then stipulates that “…the payment…shall be deemed to include a payment made by the fund to a trustee contemplated in the Trustee Moneys Protection Act…for the benefit of a dependant…” Section 37C thus makes no prescription as to the manner of payment but only explicitly allows for payment to a trust. As stated above the obligation of a fund making payment arises upon the fund being ‘in mora’ towards a dependant. This means that either all dependants have been identified or a dependant’s needs are urgent and a delay would be unreasonable. In practice trustees often believe that they have identified all dependants, but cannot be certain. This uncertainty exists mostly in the case of a deceased male member, where one can not be sure of his dependants. In such cases, the trustees must be mindful that dependants can still appear to lay claim on sharing in a benefit until 12 months following the member's death date have expired. In such a case, the trustees need to assess the needs of those identified dependants. Should there be an urgent need, mora arises, and the fund is obliged to pay. Since the quantum of the benefit due to the dependant in urgent need can only be determined upon expiry of the 12 months following the date of death of the member, or the identification of all dependants (whichever occurs last), in my opinion, the only manner in which the trustees can reasonably meet their obligation is to make one or more interim payments to those dependants with urgent needs of a portion of the full benefit that would be allocated to them in the event of no other dependants being identified subsequently and up to the expiry of the 12 months. |
||||
| More stakeholder engagement on the NPF | ||||
| With the help of the ILO actuary, the SSC presented the ILO NPF model to the pension funds industry consisting of RFIN, GIPF and NAMFISA on Friday, 02 August 2024. The same presentation was provided to employers about a month ago. SSC was also supposed to present the governance framework but did not present anything, indicating that none of the governance framework options formulated by Manfred Zamuee was acceptable to the Ministry of Labour. The presentation by SSC and ILO was also supposed to come up with a roadmap for the implementation of NPF. However, they had nothing to present in this respect to employers and the pension fund industry stakeholders. We understand that the SSC plans to continue with their consultations and will present the ILO NPF model that the government prefers to different stakeholders, including members of the public. The Namibia Employer’s Federation hosted a feedback and engagement session with its stakeholders on 7 August at NIPAM. The GIPF CEO, his legal experts, various principal officers of umbrella funds, a few large funds, ICAN and NASIA, attended the meeting. The purpose of the NEF consultation was to solicit views regarding the ILO NPF model and a plan of action in response. Marthinuz Fabianus is a member of the NEF committee that hosted this session. Here is feedback from a few high-profile attendees of the engagement session: “It was an informative session but, at the same time, very concerning regarding the possible unintended consequences an NPF would pose to the ecosystem. Perhaps the real focus should be on possible avenues of engagement that would yield desirable outcomes. The “SSC model” would be a better compromise. There must be a recognition that those covered by existing PFs don’t need to be brought into the net. What is the “ILO model” fixing for the existing PFs? Whatever must be fixed surely can and should be done with such funds. If at all necessary. The “ILO model” is opaque on governance and investment strategy. Admittedly I haven’t read the full report. But worried that the NPF would not be under the watch of Namfisa but managed and run by a yet-to-be-established team. Under whose auspices, no one knows!” ~ Asset management industry spokesperson “I was happy to receive the invite, and I found the session very informative especially the ILO influence. I believe Ramon articulated the key issue well. “What is it we want to achieve with the NPF”? If it is to provide “appropriate” or “adequate” income to all Namibian’s who are over a certain age, then we need to address the issue at the right platform and not try to fix or tamper with a system that is not broken.” ~ Former senior NAMFISA official |
||||
|
||||
| COMPLIMENT | ||||
|
Compliment from a Pension Administration Officer of a large employer
Dated 26 July 2024 |
“Yo! Elbie, I did not even blink and the PAYE was staring at me. LOL….. That was super fast. Appreciated.” |
|||
|
Read more comments from our clients, here...
|
||||
|
||||
| NEWS FROM RFS | ||||
| RFS celebrates its 25th anniversary! | ||||
| As we mark this incredible milestone, we extend our heartfelt gratitude to our valued partners, clients, shareholders, and dedicated employees. Your trust, support, and hard work have been the cornerstone of our journey. Together, we've built a legacy of integrity, innovation, and excellence. Thank you for being an essential part of RFS Fund Administrators. Here's to the next 25 years of shared success and growth! |
||||
 |
||||
| RFS welcomes new (and old) staff members | ||||
|
We are delighted to announce that Vesoreendo Poulletter Kangootui will join our permanent staff as a pension fund administrator in the RFLAUN team on 1 August 2024. Pouletter is an experienced human resources practitioner. She holds a Bachelor of Human Resources Management Honours from NUST. She joined RFS from !Kharos Benefit Solutions, where she held the position of payroll administrator. She started her career in the personnel department of Air Namibia in 2016. She is married, and the couple have a son and a daughter.
We also happily welcome back an ‘old face’, Riduwone Farmer. Riduwone will re-join our permanent staff complement on 1 September as a Benchmark Client manager. He served a portfolio of Benchmark clients as a client manager for just more than 5 years before he left Namibia in September 2022 for Germany, where his wife served in the Namibian embassy. His former clients will no doubt be thrilled having him back! Riduwone is well-known in our industry. He started his career at UPA in 1998, under our former managing director, and became part of Alexander Forbes with the merger. He gained experience in almost all administration related fields over a period of more than 20 years with AlexForbes and RFS. Riduwone holds a bachelor’s degree in business administration. We warmly welcome Poulletter and Riduwone to the team and look forward to their contribution to ensuring their RFLAUN and Benchmark employers rest easy, knowing that RFS is attending to their retirement nest egg. We are confident that their friendly and outgoing personalities will be complement our team well. We wish Riduwone and Poulletter all the best in their roles and look forward to having them around for many years! |
||||
| The RETIREMENT COMPASS | ||||
|
Sebastian Frank-Schulz, Senior Manager of Client Services, Benchmark, and editor of the Retirement Compass, recently finalised the second edition of our newsletter for pension fund members.
RFS Fund Administrators sponsor this newsletter as part of its social responsibility and its initiatives to support the retirement fund industry. This newsletter aims to provide members of funds managed by RFS Fund Administrators and other parties in their network with retirement funding and planning-related news and insights presented understandably. Read the latest Retirement Compass here... |
||||
| RFS sponsors Ruimte PS netball dresses | ||||
|
Leana Rickerts, Client Manager of the Benchmark Retirement Fund, arranged with RFS to sponsor sports uniforms for the netball team of the Ruimte Primary School in Rehoboth. In the picture on the left, she hands the uniforms to the netball coach and teacher at Ruimte Primary School, Mrs Husselman. The other images show how the team looks in their new netball uniforms.
|
||||
 |
 |
|||
 |
||||
| Important circulars issued by RFS | ||||
RFS issued the following circulars in August:
|
||||
|
||||
| LEGAL SNIPPETS | ||||
| Pension Funds Law: Adjudicator's Determination in NG Mkhungo vs Trentyre Provident Fund and others | ||||
| This article analyses a recent determination by the Office of the Pension Funds Adjudicator concerning the non-payment of a death benefit under the Pension Funds Act, 24 of 1956 (the "Act"). The determination highlights crucial legal principles governing the administration and distribution of pension benefits, particularly death benefits. We will explore pension fund boards' legal obligations, beneficiaries' rights, and the Adjudicator’s role in resolving disputes. Background of the Case In this case, the complainant, NG Mkhungo, brought a complaint against the Trentyre Provident Fund (the first respondent), NBC Unclaimed Benefit Fund (the second respondent), and NBC Fund Administration Services (the third respondent). The dispute arose from the first respondent's failure to pay a death benefit following the death of Mr. Weideman, a member of the fund. Legal Framework: Section 37C of the Pension Funds Act
The determination underlines the critical importance of adherence to the legal duties imposed on pension fund trustees. Failure to comply with these duties can result in significant financial liabilities and reputational damage. This case serves as a reminder of the importance of proper governance, timely decision-making, and diligent communication in managing pension funds. Editor’s note: The Namibian PFA does not contain an equivalent to section 7C, common law would likely impose a fiduciary duty on the board to act in the best interests of members and beneficiaries. Namibian courts will likely follow the same principles set out in this determination. Read the determination here... |
||||
| Adjudicator determination: NE Lipali v Afrox Provident Fund and Others | ||||
| In this case, the Adjudicator reconsidered a determination after the original determination was set aside by the FST and remitted because the deceased's siblings were not added as parties to the original complaint. The deceased passed away, leaving behind two siblings and a nominee. The nominee used to be the deceased's fiancé. However, their relationship had ended four years prior to his death. Before his death, he informed a work colleague that he intended to substitute his former fiancé with his sister as a nominee. Shortly before his death, he visited the employer's HR department with his siblings to collect a beneficiary nomination form and nominate his sister. However, he was unable to complete it before his death due to his ill health. The deceased's siblings indicated that upon leaving the HR department, he informed them that he had impregnated a woman many years ago and that he wished to contribute towards the child. After that, he attended with his brother at the woman's last known place of employment, and they were told that the woman's whereabouts were unknown. Her employers were unaware that the woman was pregnant at any stage. The deceased's parents had predeceased him. He passed away intestate on 3 December 2019. The siblings claimed that 100% of the death benefit should be paid to them as they fell into all three categories of dependants, i.e. legal, factual and future. The ex-fiancé claimed that she was a nominee and that she should accordingly be paid the death benefit. The fund resolved that:
Editor’s note: The Adjudicator pointed out that under South African common law, a person can become liable to maintain their siblings if two factors are present, viz. the sibling must be needy (in the true sense of the word), and the sibling must be unable to claim maintenance from their blood relations that fall within the first degree of consanguinity, i.e. their parents or their children. Namibia introduced the Maintenance Act No. 9 of 2003 in 2011, which prescribes certain maintenance obligations, such as a parent regarding his children or a child regarding his parents under certain circumstances. However, Section 2(b) of the Act states that it “must not be interpreted to derogate from the law relating to the duty of persons to maintain other persons.” This Act, therefore, does not derogate from any common law obligations to maintain other persons, and Namibian courts will likely follow the same principles set out in this determination. From the Pension Fund Adjudicator’s annual report 2022-2023. |
||||
|
||||
| SNIPPETS FOR THE PENSION FUND INDUSTRY | ||||
| Beware of these big retirement risks | ||||
| Retirement in South Africa has several financial risks, making effective planning crucial for maintaining wealth and lifestyle. The retirement journey can be divided into three phases: Active, Passive, and Supported, each with different financial needs. Three Phases of Retirement:
|
||||
| Dreaming about retirement? Keep these factors in mind! | ||||
| Whether you are still young or approaching retirement, preparing for retirement is always a good idea, and it will bring about significant changes in your circumstances. When you plan for retirement, consider the following factors. Financial Considerations
|
||||
|
||||
| SNIPPETS OF GENERAL INTEREST | ||||
| Three things Steve Jobs did every night to sleep better | ||||
| Steve Jobs was well known for being one of the most driven, hard-working, and successful innovators ever. He did three things each evening: rest, recharge, and get a good night’s sleep. Jobs would drink hot herbal tea after dinner each evening, with herbs such as lemon verbena coming from his garden. Drinking herbal tea has been proven to remove toxins from the body, aid digestion, and help you relax. The tech innovator would then go for a walk in the evenings, which has been proven to improve sleep quality. Jobs was an avid walker and often opted for ‘walking meetings’ rather than sitting in a conference room. It has been reported that Jobs would spend the final hour of his day meditating or listening to music. Studies have shown that relaxing music can lower your blood pressure, reduce stress, and aid sleep. Meditation can help us lower our heart rate, slow our breathing, and increase our chance of sleeping well. | ||||
| Who owns your employees' inventions – lessons from the ‘call me saga’ | ||||
|
This article highlights the importance of addressing intellectual property (IP) ownership in employment contracts to avoid legal disputes between employers and employees. It uses the "Please Call Me" case as example, where Vodacom's ex-employee Kenneth Makate claimed compensation for an idea he developed while working at the company. Despite his verbal agreement with a Vodacom director, the company refused to pay him, leading to prolonged court battles, with the final compensation potentially amounting to billions of rand.
The article emphasises that, under common law, IP created by employees during their employment typically belongs to the employer. However, disputes can arise when employees claim their inventions were made outside the scope of their employment. To prevent such IP disputes, the author recommends that employers clearly outline IP ownership in employment contracts, ensuring that any IP created during employment belongs to the employer, regardless of the circumstances. Steps for Employers to Secure IP Rights:
Read the full article by Pyper Turner Inc, Chartered Accountants, here...
|
||||
|
||||
| AND FINALLY... | ||||
| Wisdom from great philosophers | ||||
| "Ideologies separate us. Dreams and anguish bring us together." ~ Eugene Ionesco 1909 – 1994 (French-Romanian author) | ||||
| Unsubscribe If you do not want to receive these newsletters {unsubscribe}click here...{/unsubscribe} Disclaimer Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Fund Administrators (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager. |
||||
2024-07
|
||||
| Issued July 2024 | ||||
| This email address is being protected from spambots. You need JavaScript enabled to view it. |
||||
| In this newsletter... | ||||
| Benchtest 06.2024 – S37A does not deal with the benefit build-up, funds fail to pay benefits, Namibia should vie for millionaires and more... | ||||
| Jump to... | ||||
|
||||
| IMPORTANT NOTES AND REMINDERS | ||||
NAMFISA levies
After its June meeting, BON announced that the repo rate remains unchanged at 7.75%. The interest rate on funds’ direct loans remains at 11.75%. Registered service providers Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2023, here... |
Retirement calculator Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here... If you need help with your financial planning, get in touch with
RFS provides comprehensive support for trustees. Find a list of download documents to assist with governance and management of private funds, registered as of June 2023, here... |
|||
|
||||
| IN THIS NEWSLETTER... | ||||
|
In this newsletter, we address the following topics:
|
||||
|
In 'Tilman Friedrich's industry forum' we present...
|
In 'Legal snippets', read about...
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 30 June 2024 |
||||
| In June 2024, the average prudential balanced portfolio returned 1.7% (May 2024: 1.2%). The top performer is Momentum Namibia Growth Fund, with 2.8%, while Allan Gray Balanced Fund, with 0.01%, takes the bottom spot. Momentum Namibia Growth Fund took the top spot for the three months, outperforming the ‘average’ by roughly 1.3%. Allan Gray Balanced Fund underperformed the ‘average’ by 2.0% on the other end of the scale. The Monthly Review of Portfolio Performance to 30 June 2024 reviews portfolio performances and provides insightful analyses. Download it here... |
||||
| S 37A: Member’s Right to Contributions and the Protection of Benefits | ||||
| Clement Marumoagae, Associate Professor, School of Law, University of the Witwatersrand, South Africa, published an interesting article in Law Democacy and Development volume 25 of 2021. In its abstract the author points out the fragmentation of the industry with regard to the protection of benefits, as the result of the different pension laws. This fragmentation leads to the development of confusing jurisprudence regarding the protection of benefits and suggests that it should be addressed. The abstract concludes that legislative protection of retirement benefits is available before these benefits accrue to members, there is, however, controversy whether this protection remains intact when these benefits have accrued to members, but not paid yet. NAMFISA is lately declining rules where any costs are accounted for in the build up of a member’s fund credit, i.e., before the benefit has accrued to the member. It argues its decision on section 37 A(1) of Namibia’s PFA (a copy of the South African equivalent quoted by the author below). It appears that NAMFISA might be relying on this article for its decision to decline rules that provide for the accounting of costs in the build up of a member’s fund credit. By implication NAMFISA should also argue that no costs may be accounted for in calculating the portion of monthly contributions to be allocated to a member’s fund credit, based on the member’s ‘right in respect of contributions…’ contained in the section. If NAMFISA indeed relies on the cited article, it overlooks or ignores the author’s unambiguous conclusion that the protection only relates to a member’s creditors and not to the fund’s creditors! In the build-up before a benefit accrues, the member only has an interest in the fund based on the fund’s rules but the assets belong to the fund! If one follows NAMFISA’s assumed rationale, there is actually no manner in which a retirement fund could fund its management costs, as even a reduction of the investment returns would meet the prohibitions NAMFISA seems to read into section 37A(1). In practice retirement funds have, over many years, funded its management costs from contributions, member’s fund credits and investment returns. Section 37A(1) states “No benefit provided for in the rules of a registered fund (including an annuity purchased or to be purchased by the said fund from an insurer for a member), or right to such benefit, or right in respect of contributions made by or on behalf of a member, shall, notwithstanding anything to the contrary contained in the rules of such a fund, be capable of being reduced, transferred or otherwise ceded, or of being pledged or hypothecated, or be liable to be attached or subjected to any form of execution under a judgment or order of a court of law, or to the extent of not more than three thousand rand per annum, be capable of being taken into account in a determination of a judgment debtor’s financial position in terms of section 65 of the Magistrates’ Courts Act, 1944 (Act No. 32 of 1944) …”. I have narrowed down the content of the article to only focus on the member’s rights to contributions and the protection of benefits under the PFA, without delving into comparisons with other laws. Introduction The South African Pension Funds Act 24 of 1956 (PFA) [and the Namibian PFA, in the same manner] includes provisions designed to protect the retirement benefits of members from the reach of their creditors. These legislative measures are crucial in ensuring that members can sustain themselves during retirement, establishing a general rule that protects pensioners from being deprived of their income source during retirement. Protection of Retirement Benefits
Section 37A(1) of the PFA:
Editor’s note Retirement fund consultants frequently find themselves in a difficult position due to sudden rulings by NAMFISA that long-standing industry practices violate the PFA. These decisions are made without prior notice or consultation with stakeholders. As discussed in this article, NAMFISA’s new interpretation of section 37A(1) is likely incorrect. Unfortunately, NAMFISA is not inclined to seek workable solutions when it diverges from well-established practices that have stood the test of time in Namibia and South Africa. While NAMFISA often suggests that disputes be reviewed, it is well aware that few Namibian funds can afford the costs associated with such reviews unless NAMFISA itself is committed to resolving the matter swiftly and economically. NAMFISA has the opportunity to play a crucial role in safeguarding the interests of retirement funds and their members. By engaging with industry stakeholders and thoroughly considering the long-term implications of its rulings, NAMFISA can ensure that regulatory changes do not disrupt the stability and reliability of retirement planning. A collaborative approach would not only uphold the integrity of the regulatory framework but also enhance the confidence of fund members in the system’s ability to protect their retirement benefits. NAMFISA’s willingness to find solutions that respect established practices while ensuring compliance with the PFA can foster a more cooperative and constructive relationship with the industry. This cooperation, in turn, would lead to better outcomes for all stakeholders involved. We urge NAMFISA to consider its interpretations’ significant impact and work proactively with the industry to develop transparent, fair, and beneficial guidelines for funds and their members. |
||||
| Do NAMFISA’S achievements point to pension funds’ failure? | ||||
| The media regularly reports on the large amounts of money NAMFISA boasts to have extracted from pension funds and paid to members. The latest quarterly report mentioned a figure of around N$ 6 million. We understand that NAMFISA desires to justify its role in protecting benefits. However, without context, these reports can easily be misinterpreted and harm the image of pension funds and their administrators amongst members and the general public. NAMFISA does not pay benefits to fund members. NAMFISA sometimes intervenes in a member’s complaint about non- or late payment of his benefit. There are many reasons for non, or late payment of a benefit. Reasons could those envisaged in the Pension Funds Act or procedural. Mostly, the members’ tax affairs are not up-to-date because of their own doing. If they are not up-to-date, NamRA will not issue a tax directive, and the fund (the administrator on the fund’s behalf) cannot pay the benefit. Often, an outstanding form prevents a fund from paying a benefit. The fund (and its administrator) cannot be held accountable for outstanding forms. Forms are outstanding because the employer is missing certain information from the member or his signature, there is a dispute between the employer and the member, or the employer lays claim against the benefit under the PFA. There are a few legal reasons for late payment or non-payment of a benefit by a fund. These reasons are set out in Section 37D and relate to legal claims against the member’s benefit from a bank or the employer. A bank could claim an outstanding housing loan guaranteed by the fund. An employer could claim a housing loan guarantee or for loss suffered by the employee’s fraud, theft, dishonesty or misconduct. If an employer has incurred a loss for the described reasons, an investigation into the matter could take time, causing a delay in the payment. It could also result in the benefit being reduced or attached by the fund for the employer’s benefit. In the case of a death claim, the fund’s trustees are responsible for allocating the benefit to the deceased’s dependents and nominees and are legally liable for a defective allocation. The PFA generally affords trustees twelve months to absolve themselves of their onerous responsibility. Very often, the deceased’s family members object to a trustee decision. Such an objection could easily delay payment beyond the allowed twelve months. The fact that funds eventually paid out around N$ 6 million over the quarter following NAMFISA’s enquiry does not mean that they would not have paid otherwise. Lastly, the N$ 6 million paid after NAMFISA’s enquiry represents a minute 0.2% of total benefit payments of around N$ 3 billion made by the industry quarterly. |
||||
| Namibia should compete for migrating millionaires | ||||
Henley and Partners is a global advisor on migration. One of its recent reports read ‘The Great Wealth Migration”, “Britain’s Wealthy are Voting with the Feet”, “UK to see Highest Millionaire Loss on Record”. In its Private Wealth Migration Report 2024, it lists the top ten destinations. Since Nambia is well out of the line of fire in the ongoing and escalating global conflict between the West on the one side and Russia and China with their allies on the other, Namibia should offer an attractive alternative to the top ten countries in the list above. Only the UAE may not be in the line of fire. However, the simmering conflict in the Middle East will likely explode, too, when the East-West conflict does. Of course, Namibia has a lot of other virtues to offer! The saying goes – if you snooze, you loose. Will Nambia seize on this opportunity? |
||||
|
||||
| COMPLIMENT | ||||
|
Compliment from a former member
Dated November 2023 |
Good day Ms. D and Ms. L, I would like to take this opportunity to thank you for your exceptional service. I really appreciate the prompt service and for your ability to go above and beyond for your clients. We will definitely cross paths again in the future. Thank you once again. Regards, M |
|||
|
Read more comments from our clients, here...
|
||||
 |
||||
| BENCHMARK: A NOTE FROM GÜNTER PFEIFER | ||||
| Benchmark Retirement Fund and the ITA | ||||
| To assist brokers in correctly advising their clients regarding retirement fund benefits, we are posing a few scenarios below, what the Income Tax Act (ITA) prescribes and a few other important considerations. Scenarios before a member reaches retirement age:
|
||||
| Important circulars issued by the Fund | ||||
| The Benchmark Retirement Fund issued no new circular since the previous newsletter 202309 – changes to survivor annuity investments. Clients are welcome to contact us if they require a copy of any circular. |
||||
|
||||
| NEWS FROM RFS | ||||
| RFS welcomes new staff member | ||||
| We are delighted to announce that Dennis Fabianus, son of Marthinuz Fabianus, our managing director, will be joining our permanent staff as a financial adviser on 1 August 2024. Dennis has done vacation work as a student for a few holiday seasons. Dennis completed Grade 12 in 2017 and is currently busy with his final exams for a bachelor’s degree in business management at NUST. We warmly welcome Dennis to the RFS Financial Advisors (RFSFA) team and look forward to his contribution to helping our private clients rest easy, knowing that RFSFA is attending to their retirement business. We are confident that Dennis’ friendly and outgoing personality will be a valuable addition to our team and its private clients, and we wish him all the best in his new role. |
||||
| The RETIREMENT COMPASS | ||||
| Read the quarter 1, 2024 Retirement Compass here... | ||||
| Important circulars issued by RFS | ||||
| RFS issued no new circular after circular RFS 2024.05-03 – Administration System Progress Update. Clients are welcome to contact us if they require a copy of any circular. |
||||
 |
||||
| News from RFIN | ||||
| RFIN announces its new strategy | ||||
RFIN has announced significant structural changes implemented from May 2024, aiming to enhance value, improve member services, and optimise efficiency, with completion by July 2024. Established in 1997, RFIN serves the retirement funds industry in Namibia. The Board of Directors has adopted an outsourced management model for the RFIN Secretariat, with a management consultant taking over its functions. The consultant will:
Download the RFIN circular here… |
||||
| RFIN’s latest newsletter | ||||
| The RFIN website is a valuable resource for pension fund trustees and other industry stakeholders. It would be worth your while rummaging around on it here… If you missed the RFIN’s latest quarterly newsletter, find it here… |
||||
|
||||
| LEGAL SNIPPETS | ||||
| SA Adjudicator determination: prescription and outstanding withdrawal notice | ||||
| Complainant: GJ Schindehutte Respondents: Alexander Forbes Retirement Fund (Provident Section) and Scoin Trading (Pty) Ltd Basis of the Complaint The complainant, GJ Schindehutte, alleged an undue delay in paying his withdrawal benefit from the Alexander Forbes Retirement Fund due to his employer, Scoin Trading (Pty) Ltd, failing to sign the necessary claim form. Schindehutte was an Administration Manager from 3 February 2007 to 23 August 2013 and contributed to the provident fund from January 2012 to August 2013. Despite completing the claim form in 2017 and again in January 2021, his benefit of R31,676.70 remained unpaid. Arguments from the Fund
|
||||
| SA Adjudicator determination: section 14 delays and loss of investment returns | ||||
| Complainant: PT Smolak Respondents: Alexander Forbes Retirement Fund (Provident Section), first respondent; Alexander Forbes Life Limited as administrator, second respondent; and EOH Holdings Limited as employer, third respondent Nature of the Complaint This complaint addresses the delay in transferring PT Smolak’s fund credit from the Alexander Forbes Retirement Fund (Provident Section) to the 10X Umbrella Provident Fund (“10X Fund”). The delay has allegedly caused financial prejudice to Smolak. Factual Background
Smolak is aggrieved by the delay in transferring his fund credit from the first respondent to 10X Fund, which has allegedly caused him financial loss due to the better performance of his chosen investment portfolio at 10X Fund than the first respondent’s. Additional Submissions
Delay in Transfer
The delay in transferring PT Smolak’s fund credit from the first respondent to 10X Fund constitutes a breach of the fund rules, requiring corrective actions as outlined in the Tribunal’s order. However, no financial prejudice was found due to the portfolio performance. The wrongful disinvestment must be compensated. Editor’s comment: From the case report, I conclude that the adjudicator’s order that the transferor fund pay an additional R36,530.95 was due to a misunderstanding of the facts. The actuary calculated the transfer value in the underlying portfolio of the transferor fund from the exit date to the date of payment to the transferee fund. The additional payment covers the period for which the actuary calculated the loss and amounted to duplicating investment returns for the period the capital was incorrectly disinvested and re-invested. Does the transferor fund now have to appeal against the adjudicator’s order for the additional payment? Read the determination here… |
||||
|
||||
| SNIPPETS FOR THE PENSION FUND INDUSTRY | ||||
| What you need to save to retire comfortably | ||||
| The article “What you need to save in your 20s, 30s, and 40s to retire comfortably in South Africa” emphasises the importance of early retirement planning due to South Africa’s low savings rate. It recommends aiming for a retirement income of 75% of one’s current salary. Key points include:
|
||||
| Three common mistakes investors make | ||||
The article discusses three common mistakes that investors often make and provides strategies to avoid them, thereby improving investment performance. Drawing a parallel with Michael Johnson’s quote about self-defeat, the article suggests that investors are often their own worst enemies.
Read the article by Sean Kelly in Moneyweb Magazine, 10 June 2024 edition here… |
||||
|
||||
| SNIPPETS OF GENERAL INTEREST | ||||
| Dodgy sick notes – what employers need to know | ||||
| This article deals with a South African Labour Appeal Court (LAC) ruling that employers cannot dismiss employees for misconduct based on suspicions about the validity of a medical certificate issued by a doctor. This decision stems from a 2018 case involving a Woolworths employee dismissed for submitting a medical certificate from a doctor suspected of selling fake certificates. Woolworths argued that the certificate was irregular, but the Commission for Conciliation, Mediation and Arbitration (CCMA) found the dismissal unfair due to lack of evidence proving the employee was not sick. The Labour Court and, subsequently, the LAC dismissed Woolworths’ appeals, emphasising that suspicion alone is insufficient for disciplinary action. Employers need concrete proof of misconduct or tampering with medical certificates. Employment law expert Chloë Loubser advises employers to be cautious when doubting the integrity of an employee’s sick note and suggests that they should inform employees about suspicious practitioners only after thorough investigations. Read the article by Seth Thorne in Moneyweb of 29 June here… |
||||
| Five powerful ways to master self-discipline | ||||
|
Self-discipline is critical to effective leadership and personal fulfilment, enabling achieving meaningful goals amid distractions and temptations. Here are five powerful ways to master self-discipline:
By Rishabh Chauhan, in India Today of 13-06-2024.
|
||||
|
||||
| AND FINALLY... | ||||
| Wise words from wise men | ||||
| The insights of ancient philosophers still resonate today and offer timeless wisdom on the relationship between money, virtue, and well-being. "The life of money-making is one undertaken by compulsion, and wealth is evidently not the good we are seeking; for it is merely useful and for the sake of something else." ~ Aristotle (384 BC – 322 BC) |
||||
| Unsubscribe If you do not want to receive these newsletters {unsubscribe}click here...{/unsubscribe} Disclaimer Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Fund Administrators (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager. |
||||
2024-06
|
||||
| Issued June 2024 | ||||
| This email address is being protected from spambots. You need JavaScript enabled to view it. |
||||
| In this newsletter... | ||||
| Benchtest 05.2024 – making hay, the NPF looms, planning your retirement, housing loan risks, unpaid contributions in multi-employer funds and more... | ||||
| Jump to... | ||||
|
||||
| IMPORTANT NOTES AND REMINDERS | ||||
NAMFISA levies
BON announced after its June meeting that the repo rate remains unchanged at 7.75%. The interest rate on funds’ direct loans remains at 11.75%. Registered service providers Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2023, here... |
Retirement calculator Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here... If you need help with your financial planning, get in touch with
RFS provides comprehensive support for trustees. Find a list of download documents to assist with governance and management of private funds, registered as of June 2023, here... |
|||
|
||||
| IN THIS NEWSLETTER... | ||||
|
In this newsletter, we address the following topics:
|
||||
|
In 'Tilman Friedrich's industry forum' we present...
|
In 'Legal snippets', read about...
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 2024 |
||||
| In May 2024, the average prudential balanced portfolio returned 1.2% (April 2024: 1.0%). The top performer is Allan Gray Balanced Fund, with 1.7%, while Lebela Balanced Fund, with 0.7%, takes the bottom spot. NinetyOne Managed Fund took the top spot for the three months, outperforming the ‘average’ by roughly 0.8%. Lebela Balanced Fund underperformed the ‘average’ by 1.0% on the other end of the scale. The Monthly Review of Portfolio Performance to 31 May 2024 reviews portfolio performances and provides insightful analyses. Download it here... |
||||
| Should you still try to make hay while the sun shines | ||||
| Would you invest in Europe or the US if you knew that Russia would launch missiles armed with nuclear warheads tomorrow? It is perhaps a hypothetical question now but closer to reality than most people might think. When we think of investing, we think of Europe, the US and Japan. Every other destination would only be considered hesitantly. Pension fund asset managers’ asset allocation reflects the same thinking. Besides their compulsory domestic exposure, most of their funds are invested in Europe, the US and Japan. The investment in other markets is usually well below 10%. I have never seen any Chinese, Indian or Turkish share in their top ten. It is a bit of herd mentality aimed at protecting their interests. They do not want to be the tallest poppy getting its head chopped off. The West is facing a severe threat to its economic system that dominates the global economy. As a result, many prominent commentators agree that World War III is already raging in Ukraine and now the Middle East. Europe is not ready to enter the war yet. Europe is propping up Ukraine while it gears up to join the war with all its resources. In the meantime, it will push ever more resources into Ukraine, hoping it will last long enough until Europe is ready. Will Russia afford Europe the time to prepare? It is inconceivable as it would drastically weaken Russia’s chances of surviving. As things stand, Russia’s best bet is to overrun Ukraine before Europe is ready to engage it. However, Russia is facing a dilemma… Read paragraph 6 of the Monthly Review of Portfolio Performance to 31 May 2024. It also reviews portfolio performances and provides insightful analyses. Download the Monthly Review of Portfolio Performance to 31 May 2024, here... |
||||
| Employers and Labour take note: MLIREC bulldozes ILO’s NPF model! | ||||
| What is the purpose of our so-called tripartite model to social security when the government, through the Ministry of Labour, Industrial Relations and Labour Creation, ignores the results of a long consultative process on a model for a National Pension Fund for Namibia? All the time and money invested by the SSC, Labour and Employer organisations have been wasted. The waste of resources is very disappointing, as is the fact that the SSC is now trying to blame the NEF for not responding by the due date for comments. Factually, MLIREC has long made up its mind about the ILO design and has no interest in SSC’s proposed design. There was no MLIREC representative at the meeting called by SSC to present their model during September 2023. Yes, the NEF was requested after the SCC presentation to express its preference between the two. The problem was that, in terms of fairness to its members, the NEF needed more time to consult with them. The NEF informed the SSC that it could not comment by the requested date. The SSC indicated that it was going to wait for the NEF. The NEF followed up its verbal communication with a short letter before the SSC communicated a new deadline. However, before the NEF could provide its formal response, rumours were already circulating early this year about the meeting held in December between the SSC and the MLIREC about its decision in favour of the ILO model. A letter of 13 June from the SSC to the NEF states, “We are pleased to invite you as our valued stakeholder to participate in an engagement with the Social Security Commission, scheduled for 24 June 2024, from 08h30 - 13h00 at AVANI Hotel in Windhoek, to discuss and seek clarification on the SSC’s implementation of the National Pension Fund (NPF)… Given the above, the SSC once more seek your audience to obtain relevant input, comments and guidance as we navigate the NPF Journey. This workshop with the NEF has the following objectives :
Employers and Labour are urged to mobilise resources and make their voices heard. Interested persons should find our commentaries in previous newsletters helpful. |
||||
| Planning your retirement | ||||
|
Most people approaching retirement do not know where and how to start planning for retirement. Planning for retirement probably requires the retiree to make some of the most intimidating decisions in his life. What is worse, some of the decisions cannot be ‘rolled back’ again, and the pensioner will have to live with them for the rest of his life.
Here are a few practical guidelines for your retirement:
The above exposition should indicate the required information before considering how to deal with your pension or provident fund retirement capital.
|
||||
| Pension-backed housing loans are risky business | ||||
| Pension-backed housing loans offered by commercial banks are based on an agreement between the bank, the fund and the employer. The primary responsibilities of the parties are as follows: The employer is required to
The meticulous reader might already have realised from the above exposition that the fund is obliged to repay the outstanding loan balance to the bank. But what if there is a shortfall between the amount refunded to the bank and the member’s available capital? There are a few reasons for a possible shortfall, such as negative returns on the pension fund investment, arrears tax deducted from the benefit or the benefit being paid out without deducting the outstanding housing loan. The fund bears this risk! There can be several reasons for the failure to have deducted the outstanding housing loan balance from the member’s benefit. The member record may not have shown this member to have had a loan. Since such entry on a member’s record is not the result of the fund’s book entry, it is utterly dependent on manual intervention. A member’s details may have changed, either through marriage or because the member has two different identity documents, which is not unusual, or the fund incorrectly recorded the identification number allocated by the bank. Another risk often overlooked in ignorance of the legal prerequisites is that the Labour Act is pretty prescriptive and restrictive regarding when an employer may make deductions from an employee’s salary and how much it may deduct if anything. Thus, The fund may happily agree with the bank and the employer only to find that the employer is legally prevented from making the required deductions from members’ salaries. If the fund incurred a loss because of a shortfall between the outstanding loan balance it was required to pay over to the bank and the available capital, the fund would have to attempt to recover the shortfall from the exited member. The prospect of success then depends on the fund’s agreement with the member and what recourse it offers the fund for such an instance. In our experience, funds mostly do not enter into a separate agreement with their members who borrow for housing purposes and rely on the documents the bank has compiled regarding the housing loan scheme. These documents are typically only concerned about the bank’s interests and offer little respite to the fund. Banks have also not been accommodating in considering requests to better protect the funds’ interests. Funds that grant pension-backed housing loans are advised to ascertain that repayment deductions are permissible in terms of the Labour Act and to consider entering into a separate agreement with borrowers that will afford funds the necessary recourse in the event of a member or former member not repaying the outstanding housing loan balance. |
||||
| Multi-employer funds and the risk of unpaid contributions | ||||
| The column ‘legal snippets’ article deals with unpaid employer contributions and how they affect the member’s benefit. How unpaid contributions jeopardise a member’s benefits is relevant to multi-employer funds. Such funds face risk in the case of delinquent employers if their rules do not consider unpaid contributions. In the case reported below, the Adjudicator instructed the fund to pay the fund credit immediately, as well as the outstanding employer contributions once received. The Adjudicator did not address the situation of the employer failing to pay the unpaid contributions. It implies that the fund would not pay the outstanding contributions if it did not receive them. The rules of most occupational funds, as the Adjudicator also insinuates in this case, provide that the main portion of the member’s benefit would always comprise his fund credit. The definition of fund credit would primarily determine that it will consist of the ‘retirement portion’ of the employer’s contributions, the member’s contributions and the interest allocated. In most cases, contributions are a function of the member’s ‘pensionable’ salary. As long as the member is employed, he will earn a pensionable salary, and the fund must build up the fund credit independently of whether the contributions were paid. The fund credit should, thus, comprise all contributions payable under the rules. The benefit, therefore, cannot be reduced by outstanding contributions, as underscored by section 37A of the PFA. In the reported case, the Adjudicator did not enter the details addressed in this article. With the information, I suggest that the determination is incorrect unless the Adjudicator knew that the definition of fund credit excludes unpaid contributions without referring to it in her determination. In the case of an umbrella retirement fund comprising unrelated employers, the fund faces the risk of paying the fund credit without receiving all prescribed contributions. Such umbrella funds must ascertain that their rules define the fund credit as comprising only contributions received (rather than receivable) plus interest. I believe a rule that reduces the fund credit by unpaid contributions would contravene section 37A and be null and void. An umbrella fund comprising multiple employers within one group of companies is mostly not exposed to the above risk as the holding company would stand for a delinquent group company. However, where this is not the case, the fund’s rules should also ensure that the fund credit is built up only with contributions received (rather than receivable). |
||||
|
||||
| COMPLIMENT | ||||
|
Compliment from a former member
November 2023 |
“L I wanted to take a moment to express my sincere gratitude for the exceptional service that you and C, and the rest of the team provided. Your dedication, attention to detail, and unwavering commitment to excellence set you apart. It’s rare to encounter such outstanding professionalism, and I am truly grateful for the positive impact you ladies had. Thank you once again for your exceptional service. It has been a pleasure working with you all, and I look forward to the opportunity to do so again in the future.” |
|||
|
Read more comments from our clients, here...
|
||||
|
||||
| BENCHMARK: A NOTE FROM GÜNTER PFEIFER | ||||
| Welcoming Namibia Breweries to the Benchmark Retirement Fund | ||||
| We are delighted to announce that Namibia Breweries has joined the Benchmark Retirement Fund, further solidifying our commitment to providing top-tier retirement solutions. Established in 2000, our fund has grown to serve 19,000 members and manage assets worth N$9 billion, a testament to the trust placed in us by employers, pensioners, and individuals preserving their capital. As Namibia’s largest umbrella fund and the second largest fund overall, following the GIPF, we take immense pride in being Namibia’s preferred choice for retirement benefits. Namibia Breweries’ decision to become part of our fund underscores our reputation for excellence and dedication to supporting our employers’ and their employees’ long-term financial security. We warmly welcome the employees of Namibia Breweries to our community. Your inclusion enriches our collective strength and diversity. We are committed to providing exceptional service, the best pension expertise, and industry-leading solutions to help you achieve your retirement goals. We thank Namibia Breweries for choosing the Benchmark Retirement Fund. We look forward to a prosperous and rewarding partnership. |
||||
| Important circulars issued by the Fund | ||||
| The Benchmark Retirement Fund issued no new circular since the previous newsletter 202309 – changes to survivor annuity investments. Clients are welcome to contact us if they require a copy of any circular. |
||||
|
||||
| NEWS FROM RFS | ||||
| The RETIREMENT COMPASS | ||||
| Read the quarter 1, 2024 Retirement Compass here... | ||||
| Important circulars issued by RFS | ||||
| RFS issued no circulars after circular RFS 2024.05-03 – Administration System Progress Update. Clients are welcome to contact us if they require a copy of any circular. |
||||
|
||||
| NEWS FROM NAMFISA | ||||
| Name reservations and ERS access applications | ||||
|
NAMFISA advised stakeholders who wish to apply for a name reservation or online access to the ERS system that it operates a dedicated mailbox for these purposes and that such applications must be sent to any of the following email addresses:
An application for ERS access must be accompanied by the required form. Download it here…
|
||||
|
||||
| News from RFIN | ||||
| RFIN submits comments on outsourcing standard | ||||
| RFIN submitted commentary on the standard Gen.S.10.10 regarding outsourcing services, as discussed in the three sessions at NAMFISA, in time for the closing date. Download the comments here… |
||||
| RFIN’s trustee training calendar | ||||
| The RFIN website is a valuable resource for pension fund trustees and other industry stakeholders. It would be worth your while rummaging around on it here… If you missed the RFIN’s latest quarterly newsletter, download it here... |
||||
|
||||
| LEGAL SNIPPETS | ||||
| SA Adjudicator determination: Prinsloo vs. Metal Industries Provident Fund and Global Engineering Worx | ||||
| Introduction to the Case This article discusses an adjudicator’s determination regarding the failure of an employer to remit provident fund contributions to an employee. The determination was made under Section 30M of the SA Pension Funds Act, 24 of 1956. The parties involved are the complainant, PG Prinsloo, the Metal Industries Provident Fund, and the employer, Global Engineering Worx (Pty) Ltd. Background
This case highlights the critical obligations of employers to remit pension contributions promptly and the protections afforded to employees under the Pension Funds Act. It underscores the importance of adherence to fund rules and statutory provisions to safeguard employees’ retirement benefits. This determination not only resolves the individual complaint of Mr Prinsloo but also reinforces the mechanisms for enforcing employer compliance within the pension fund system. Read the determination here… |
||||
|
||||
| SNIPPETS FOR THE PENSION FUND INDUSTRY | ||||
| The retirement curse and how to avoid it | ||||
| This article explores whether retirement can lead to adverse health and well-being outcomes if not managed properly. Known as the “retirement curse,” this phenomenon includes both physical and mental health declines, such as increased risks of heart disease, stroke, dementia, and mental illness, which are partly attributed to the abrupt lifestyle changes retirement brings. Key Points:
Download the full article from Stories by Stars Insider of 30 May 2024 here… |
||||
| Five key considerations for your offshore investment strategy | ||||
This article outlines essential considerations for South African investors aiming for long-term wealth creation through offshore investments. These considerations are:
Read the article by Maarten Ackerman of Citadel in Cover Web Magazine, May 2024 edition, here… |
||||
|
||||
| SNIPPETS OF GENERAL INTEREST | ||||
| The benefits of building new leaders internally | ||||
Greg Lewis and Jamila Smith-Dell of LinkedIn highlight the advantages of promoting new organisational leaders. Key findings from LinkedIn data reveal several benefits for companies that cultivate internal leadership:
|
||||
| Blackrock CEO - AIs’ hunger for electricity offers investment opportunities | ||||
|
ROME, 17 May (Reuters) - The infrastructure for the vast and increasing electricity demand of artificial intelligence (AI) will require the involvement of private investors, according to BlackRock CEO Larry Fink. “These AI data centres will require more energy than we could ever have imagined,” Fink said on Friday via video link at the meeting of the B7 economic group in Rome. “We don’t have enough electricity in the G7,” he added, referring to the top seven industrialised countries (G7), whose finance ministers will meet next week. “Trillions of dollars” would be needed. Such investments are opportunities for pension funds and insurance companies.
According to Fink, Blackrock talks with various governments about financing opportunities to expand AI. The power supply is the most urgent issue. “This will pose a real competitive challenge for the states,” he continued. Presumably, data centres would be built where the power supply is cheaper. Power supply will require government subsidies for areas where energy costs are not competitive. “The deficits we see in the G7 are becoming a burden for my children, your children, our grandchildren.” With the rise of AI technology comes the hope of a global productivity boost. However, this requires data centres and semiconductor plants, which consume enormous amounts of electricity. Japan predicted earlier this week that between 35 and 50 per cent more electricity would have to be produced by 2050 to power the AI industry’s chip factories and data centres. According to a government report, up to 1.5 trillion kilowatt hours (kWh) would have to be produced. Meeting the increasing demand must be achieved by restarting nuclear power plants, novel solar modules with perovskite technology and wind farms at sea. (Reporting by Valentina Za, writing by Scot W. Stevenson) Read the article here... |
||||
|
||||
| AND FINALLY... | ||||
| Wise words from wise men The insights of ancient philosophers still resonate today and offer timeless wisdom on the relationship between money, virtue, and well-being. |
||||
| "The Master said, “Wealth and honor are things that all people desire, and yet unless they are acquired in the proper way I will not abide them. Poverty and disgrace are things that all people hate, and yet unless they are avoided in the proper way, I will not despise them.” ~ Confucius (551 BC – 479 BC) |
||||
| Unsubscribe If you do not want to receive these newsletters {unsubscribe}click here...{/unsubscribe} Disclaimer Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Fund Administrators (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager. |
||||
2024-05
|
|||||
| Issued May 2024 | |||||
| This email address is being protected from spambots. You need JavaScript enabled to view it. |
|||||
| In this newsletter... | |||||
| Benchtest 04.2024, the emerging global conflict and Africa, housing loans, the value of the Rand and more... | |||||
| Jump to... | |||||
|
|||||
| IMPORTANT NOTES AND REMINDERS | |||||
NAMFISA levies
After its April meeting, BON announced that the repo rate remains unchanged at 7.75%. The interest rate on funds’ direct loans remains at 11.75%. Registered service providers Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2023, here... |
Retirement calculator Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here... If you need help with your financial planning, get in touch with RFS Financial Advisers (Pty) Ltd.
RFS provides comprehensive support for trustees. Find a list of downloadable documents to assist with governance and management of private funds, registered as of June 2023, here... |
||||
|
|||||
| IN THIS NEWSLETTER... | |||||
|
In this newsletter, we address the following topics:
|
|||||
|
In 'Tilman Friedrich's industry forum' we present...
|
In ‘News from RFIN”, read about …
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 30 April 2024 |
|||||
| In March 2024, the average prudential balanced portfolio returned 1.3% (February 2024: 0.7%). The top performer is Allan Gray Balanced Fund, with 2.0%, while Lebela Balanced Fund, with 0.5%, takes the bottom spot. Namibia Coronation Capital Plus Fund takes the top spot for the three months, outperforming the ‘average’ by roughly 1.7%. Lebela Balanced Fund underperformed the ‘average’ by 1.6% on the other end of the scale. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 30 April 2024 reviews portfolio performances and provides insightful analyses. Download it here... |
|||||
| Africa’s role in the emerging global conflict: implications and strategies for Namibia and Africa | |||||
| The world is teetering on the brink of a potentially devastating conflict as the geopolitical landscape shifts from a unipolar world dominated by the United States to a multipolar world championed by Russia, China, and the other BRICS countries. The Ukraine conflict and tensions in the South China Sea are manifestations of this struggle, with the US seeking to contain and wear down Russia and China’s economic and military capabilities to preserve its hegemony. As these global powers jockey for position, Africa, specifically Namibia, will inevitably be drawn into the fray. This article explores how the impending global conflict might affect Africa, specifically Namibia… Read on in paragraph 6 of the Monthly Review of Portfolio Performance to 30 April 2024. It also reviews portfolio performances and provides insightful analyses. Download the Monthly Review, here... |
|||||
| Employer guaranteed housing loans – a real-life scenario | |||||
| 1. The employer’s housing loan scheme The scenario in this article is that the employer offers housing loans to its employees under an employment policy. A local commercial bank provides the housing loans, and the employer provides a surety to the bank for a specified portion of the loan. The employee must complete an application form. The employee certifies that he has acquainted himself with the scheme’s rules and subjects himself to the scheme conditions. The surety agreement between the bank and the employer requires the employer to pay the bank the value of the outstanding loan up to the value of the surety it gave when the employee’s service terminates. The rules contain a schedule of benefits that quantifies the withdrawal, retirement, death and disability benefits. The fund’s rules explicitly allow benefit deductions for compensating the employer regarding damage caused to the employer, medical aid and insurance premiums and any other purpose approved by the Registrar. The rules further authorise the fund to grant housing loan guarantees for the purpose referred to in PFA section 19(5)(a). 2. The Pension Funds Act on housing loans The PFA section 37D(b)(i)(bb) states that the fund (of which the employee was a member) “… may deduct any amount due by a member to his employer on the date of his retirement or on which he ceases to be a member of the fund, in respect of any amount for which the employer is liable under a guarantee furnished in respect of a loan by some other person (the bank in this scenario) to the member for any purpose referred to in section 19(5)(a) … from any benefit payable in respect of the member or a beneficiary in terms of the rules of the fund, and pay such amount to the employer concerned.” PFA section 37A prohibits the reduction, transfer, cession, pledge or hypothecation of the member’s benefit and protects the benefit from attachment or execution except as provided in this section. One of the exceptions is the deduction per section 37D(b)(i)(bb) cited above. The PFA, therefore, requires that the benefit must be paid to the member and nobody but the member. 3. The employer, the member and NAMFISA’s position on the member’s complaint Under the agreement with the bank, the employer was obliged to pay up the surety value. It approached the fund to deduct its surety payment from the member’s benefit. The member objected and complained to NAMFISA that he never expressly consented to the deduction from his benefit. NAMFISA advised the fund that it may not deduct the benefit because the rules have no explicit provision mandating the trustees to deduct the employer’s surety payment. 4. Must the rules authorise trustees to withhold the employer’s housing loan surety? While sections 37A and 37B offer exceptional protection to members’ benefits, section 37A makes a few exceptions. It allows the following:
Schedule 2 of the Income Tax Act requires the deduction of income tax on any benefit defined as gross income and for the tax debt of the member as instructed by NamRA under section 91. The only permitted deductions under the PFA are provided in section 37D. Amongst the permissible deductions are housing loans. Sections 37D(a)(i) and (ii) deal with direct (fund granted) and indirect (fund guaranteed) loans. These sections do not apply to the scenario sketched in this article. Section 37D(b)(i)(aa) deals with housing loans granted by the employer. Section 37D(b)(i)(bb) deals with “any amount for which the employer is liable under a guarantee furnished in respect of a loan by some other person (the bank) to the member for any purpose referred to in section 19(5)(a) to an amount not exceeding the amount which in terms of the Income Tax Act, 1962, may be taken by a member or beneficiary as a lump sum benefit as defined in the Second Schedule to that Act;” In our scenario the employer was liable for its guarantee to the bank. Provided the bank made the loan for the purpose referred to in section 19(5)(a), section 37(D)(b)(i)(bb) allows the fund to deduct the employer’s surety payment. The section has no other precondition. Unlike section 19(5)(a), which says that loans may only be granted if the rules allow it, it does not require that the rules permit the deduction. This section also does not require the member to consent to the deduction, unlike in the case of a deduction for theft, fraud, dishonesty or misconduct without a court judgment. In our scenario, the rules permit housing loans but do not explicitly speak about benefit deductions for housing loans. 5. May the fund pay directly into the member’s loan account? After NAMFISA advised the fund that it may not deduct the benefit, the question arose of whether the fund could pay the employer’s surety amount directly into the member’s housing loan account as it is the member’s account. The fact that a commercial bank maintains such an account of the member’s housing loan debt does not make the account the member’s property on which he can transact as he wishes. The account is merely the bank’s record of the member’s debt. Therefore, the fund paying the member’s benefit into his housing loan account does not constitute a payment to the member and would contravene section 37A. 6. Does section 19(5) impact the fund’s ability to withhold the employer’s surety payment? Section 19(5) sets out the purposes for which a fund may grant a housing loan or guarantee and other obligatory terms and conditions where the fund would grant the loan or give a guarantee to the bank. It does not refer to Section 37D and is irrelevant to the fund’s ability to deduct under Section 37D. It also does not speak about an employer-granted housing loan or guarantee as iis the case in the scenario sketched in this article. |
|||||
| What is the actual value of the Rand? | |||||
| Our monthly Benchmark performance review contains graph 5.1, copied below, that tracks the actual value of the Rand. There are many ways of determining its actual value. We measure the true value by adjusting the exchange rate from the starting point with the difference in the US vs Namibian inflation rate. Businesstech had an article on 30 January, ‘The ‘real’ value of the Rand in 2024 – according to the Big Mac Index’. It is interesting to compare the results. The Economist’s updated Big Mac Index for 2024 indicates that the South African Rand is significantly undervalued against the US dollar. Overview of the Big Mac Index
Raw PPP Measure:
Despite accounting for GDP differences, the Rand remains substantially undervalued, with broader economic and policy factors contributing to its weakened state. The Big Mac Index offers a simplified yet insightful perspective on currency valuation, highlighting the disparity between the market exchange rate and the implied fair value of the Rand. Graph 5.1 shows that if one starts measuring the US vs Namibia inflation rate differential from the beginning of 1987, the Rand’s real value should be 11.77, as opposed to the official exchange rate of 18.69. The Big Mac index, adjusted by the GDP per capita consideration, arrives at an actual value of 11.32. Graph 5.1
 |
|||||
|
|||||
| COMPLIMENT | |||||
|
Compliment from an Employee Benefit Consultant
August 2023 |
“Goodness gracious, but that was quick!!! Thanks, G and RFS team!” |
||||
|
Read more comments and compliments from our clients, here...
|
|||||
|
|||||
| BENCHMARK: A NOTE FROM GÜNTER PFEIFER | |||||
| Benchmark trustees hold a strategy session | |||||
|
The Benchmark Retirement Fund trustees convened for a fruitful strategy session at Am Weinberg on Friday, 17 May. Mr Eben de Klerk, a highly qualified expert holding various degrees and post-graduate qualifications, including a Master's degree in future studies, acted as the facilitator.
|
|||||
 |
|||||
| Important circulars issued by the Fund | |||||
| The Benchmark Retirement Fund issued no new circular since the newsletter 202309 – changes to survivor annuity investments. Clients are welcome to contact us if they require a copy of any circular. |
|||||
|
|||||
| NEWS FROM RFS | |||||
| Long service awards complement our business philosophy | |||||
|
RFS places a high value on its employees and recognises the importance of their contributions to the company’s success. Long service awards are a great way to acknowledge and celebrate the commitment and loyalty of employees who have been with the company for a significant time.
In addition to recognising employees’ contributions, long service awards can be a powerful retention tool, demonstrating that the company values and appreciates its employees’ dedication and hard work. These awards create a positive and motivating work environment where employees feel supported and encouraged to continue to grow and develop within the company. In May, RFS celebrated the following anniversaries:
We sincerely thank our two fund accountants, Vernon and Elray, for their dedication, loyalty, and support over the years since joining RFS. We look forward to their contribution to the good of RFS, our clients, and our colleagues in the future!
|
|||||
| The RETIREMENT COMPASS | |||||
|
Read the latest version of the Retirement Compass here...
|
|||||
| RFS staff support Môreson Special School fun walk | |||||
| The Môreson fun walk for inclusivity took place on Saturday, 27 April. Through their participation in the Môreson Special School fun walk, RFS staff made a meaningful difference in the lives of the special needs school children. The event was a huge success, and judging from the angelic smiles on the faces of those who took part in the walk, the impact was noticeable. RFS staff collected N$2,400, which was used to purchase much-needed toiletries for the children and stocked the water points with water, cooldrinks and oranges. These, along with the seizable amount of toiletry items collected from staff on the ground, were handed to the Môreson staff, who extended their heartfelt appreciation for the generous donation. The photos below give an impression of the spirit prevailing at the fun walk. |
|||||
 |
|||||
| On the road again… | |||||
 |
 |
||||
|
Rudigar van Wyk with his daughter.
|
Martha Nakaambo (l) and Hilde Towe (r) with their children. | ||||
| Important circulars issued by RFS | |||||
RFS issued the following circulars:
|
|||||
|
|||||
| NEWS FROM NAMFISA | |||||
| Circular on block submissions of rule amendments | |||||
|
NAMFISA issued Circular PI/PF/DIR/01/2024 on 3 May 2024. The directive aims to streamline amending pension fund rules to ensure operational efficiency and clarity. Here’s a breakdown of its key points:
|
|||||
| Changes to ERS and chart of accounts | |||||
|
When compiling the quarterly reports on the Electronic Regulatory System (ERS) and the chart of accounts (COA) for March, which were due by 25 April, RFS realised that changes were made to the ERS and COA. Upon enquiry, NAMFISA confirmed changing the system.
It then issued a circular dated 23 April 2024, informing the pension funds industry about significant changes it made to the ERS and chart of accounts for pension funds. If you missed the Circular, download it here… |
|||||
|
|||||
| NEWS FROM RFIN | |||||
| RFIN’s trustee training calendar | |||||
|
|||||
| LEGAL SNIPPETS | |||||
| Withholding of benefit for dishonesty and fraud | |||||
| This article deals with the case NI Jonck (“complainant”) v Retail and Allied Employees Provident Fund (“fund”) and HR Focus (Pty) Ltd (“employer”). Background The case involves the withholding of NI Jonck’s withdrawal benefit by the fund at the request of her employer under section 37D(1)(b)(ii) of the Pension Funds Act [theft, fraud, dishonesty or misconduct]. The Complaint The complainant resigned on 2 June 2021, citing gross mistreatment and abuse from the employer, and referred the dispute to the CCMA. She contacted the fund regarding the payment of her withdrawal benefit but was informed that no payment would be made due to ongoing legal proceedings initiated by the employer. The employer had summoned her for allegations of gross dishonesty and fraud. The complainant’s attorneys contested that no judgment had been granted against her, nor had she admitted liability. Thus, the fund should not withhold her benefit. Undisputed Facts
Complainant’s Arguments
The Adjudicator ordered the fund to pay the complainant’s withdrawal benefit, highlighting that the legal action taken by the employer did not meet the necessary criteria under section 37D(1)(b)(ii) to justify the withholding of her benefit. The Adjudicator emphasised the need for a balanced and fair process, which the fund’s board had failed to provide. Read the determination here… |
|||||
|
|||||
| SNIPPETS FOR THE PENSION FUND INDUSTRY | |||||
| Nine habits for becoming truly happy in retirement | |||||
Retirement is often perceived as a time of freedom and relaxation, yet it comes with challenges and uncertainties for many. However, some seem to have mastered the art of retirement, radiating genuine happiness in their golden years. What’s their secret? It turns out they’ve embraced specific daily habits that keep them thriving. Here is a summary of these nine habits adopted by men who find true happiness in retirement.
|
|||||
| Middle East conflict and market responses: what does it mean for investors? | |||||
| This article discusses recent events in the Middle East and their implications for global markets. The discussions in the article reveal a nuanced understanding of the shifting alliances in the Middle East. General Sir Nick Carter points out Iran’s alliances with Russia and North Korea, suggesting a potential anti-Western coalition. Additionally, he highlights China’s cautious approach and Russia’s engagement with Hamas, indicating a complex web of relationships in the region. Schroders investment experts, represented by Duncan Lamont and Matthew Michael, anticipate spikes in market volatility primarily due to the risk of oil supply disruptions from the Middle East. They also identify investor behaviour, such as seeking safe havens like gold, contributing to potential market fluctuations. However, they argue that historical precedent suggests markets recover swiftly after geopolitical crises, implying a degree of resilience. By emphasising the need for cautious market assessment, the experts suggest that investors carefully evaluate the geopolitical landscape’s impact on market fundamentals and avoid knee-jerk reactions. This approach involves analysing the broader context of geopolitical events, considering historical patterns, and assessing the long-term implications for investment strategies. It advocates for a measured and strategic approach to navigating market uncertainties arising from geopolitical developments in the Middle East. Read the article in Cover of 7 May 2024 here… |
|||||
|
|||||
| SNIPPETS OF GENERAL INTEREST | |||||
| How to build lasting customer relationships | |||||
| In the face of rising living costs and limited disposable incomes, financial services and insurance products are often the first to be cut from household budgets. For financial service providers (FSPs), building strong client-advisor relationships and fostering customer loyalty is crucial, especially in challenging economic environments. Strategies for Improving Customer Loyalty FSPs must evaluate their current practices to identify shortcomings and implement strategies to enhance client retention. Key recommendations include:
Read the article by Danielle Wassermann in the April edition of the Cover web magazine here… |
|||||
| How much money is enough, and at what point does it stop making you happier? | |||||
|
This article emphasises that while money can increase happiness up to a certain point, its impact diminishes beyond specific income levels, with significant policy implications for addressing social inequities.
Key Points:
This article by Paula Luckhoff appeared in Eyewitness News on 23 April 2024 here...
|
|||||
|
|||||
| AND FINALLY... | |||||
| Wise words from wise men | |||||
| The insights of ancient philosophers still resonate today and offer timeless wisdom on the relationship between money, virtue, and well-being. “Excessive wealth can lead to corruption, inequality, and a focus on material possessions rather than the pursuit of virtue and wisdom.” ~ Plato (428 BC – 348 BC) |
|||||
| Unsubscribe If you do not want to receive these newsletters {unsubscribe}click here...{/unsubscribe} Disclaimer Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Fund Administrators (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager. |
|||||
2024-04
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issued April 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| This email address is being protected from spambots. You need JavaScript enabled to view it. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In this newsletter... | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Benchtest 03.2024 – the resource curse, rule amendments without tax approval, risk benefits and PI cover and more... | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Jump to... | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| IMPORTANT NOTES AND REMINDERS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NAMFISA levies
After its April meeting, BON announced that the repo rate remains unchanged at 7.75%. The interest rate on funds’ direct loans remains at 11.75%. Registered service providers Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2023, here... |
Retirement calculator Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here... If you need help with your financial planning, get in touch with RFS Financial Advisers (Pty) Ltd.
RFS provides comprehensive support for trustees. Find a list of downloadable documents to assist with governance and management of private funds, registered as of June 2023, here... |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| IN THIS NEWSLETTER... | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
In this newsletter, we address the following topics:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
In 'Tilman Friedrich's industry forum' we present...
|
In ‘News from RFIN”, read about …
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 March 2024 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In March 2024, the average prudential balanced portfolio returned 1.3% (February 2024: 0.7%). The top performer is Allan Gray Balanced Fund, with 2.0%, while Lebela Balanced Fund, with 0.5%, takes the bottom spot. Namibia Coronation Capital Plus Fund takes the top spot for the three months, outperforming the ‘average’ by roughly 1.7%. Lebela Balanced Fund underperformed the ‘average’ by 1.6% on the other end of the scale. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 31 March 2024 reviews portfolio performances and provides insightful analyses. Download it here... |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Namibia must avoid contracting the ‘Dutch Disease’ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| I was recently invited to M&G Investments Leonard Krüger’s insightful presentation on ‘Resource Discovery: best practice and avoiding the resource curse’. Yes, I am sure many readers also noticed how many media commentators are already counting their blessings and awaiting the new dawn in great anticipation of securing personal riches. Leonard’s talk aimed to put our newfound riches into perspective to moderate exaggerated expectations and warn that things can go horribly wrong, as they have in many other countries, if Namibia does not promptly establish sustainable resource exploitation policies. Leonard pointed out that while Namibia is one of the world’s ‘hottest exploration plays’, there were many other significant discoveries worldwide in 2022 and 2023, notably Guyana, Iran, and Namibia only in third place. Namibia’s resource represents less than 1% of the global fossil fuel resource. Namibia is competing against many other countries and faces the challenge that its resource is in ultra-deep waters on the edge of what can be exploited economically with current technology, making it very expensive for investors. Read a summary of Leonard’s interesting talk and our view on global investment markets in the Monthly Review of Portfolio Performance to 31 March 2024 Download the Monthly Review, here... |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The consequence of rule amendments lacking tax approval | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The Income Tax Act offers the most valuable tax benefits to retirement fund arrangements, not offered to any other investment product. Firstly, while employer contributions would be tax deductible as an expense incurred in producing income, the same cannot be said about employee contributions. While an employee generally cannot deduct any expenses from his salary, pension fund contributions are explicitly tax deductible. Secondly, any person whose endeavours are intended to generate an income must pay tax on his taxable income determined per the Income Tax Act prescriptions. In contrast, a pension fund is tax-exempt despite endeavouring to generate investment income for its members. Lastly, in the case of pension funds, the general tax principle of taxing any income derived from tax-deductible expenditure, and vice-versa, is diluted. When a pension fund returns an employee’s tax-exempt contributions with tax-exempt investment returns and sometimes insurance policy proceeds funded from the employer’s tax-deducted pension fund contributions, only a portion of the benefit is taxable. These income tax incentives for retirement funds only apply if the fund meets certain conditions in the Act. Most importantly, NAMFISA must have registered it, and NamRA must have approved it. Furthermore, NamRA must be notified of all rule amendments, and the fund must have complied with its rules. Notably, under the Income Tax Act, the NamRA approval of a fund is only valid for the year of assessment. Legally, NamRA must re-approve a fund for every year of assessment. Although this is not NamRA’s practice, it can invoke the practice at any time. If a fund has not received NamRA’s confirmation of a rule amendment submitted for approval, it cannot be applied from a tax perspective. However, once NAMFISA registered a rule amendment, the fund must apply it from a legal perspective. Effectively, NamRA would argue that, by applying an unapproved amendment, the fund has not complied with the NamRA-approved rules. From a tax perspective, the fund does not meet the requirements of the Income Tax Act and is not entitled to the tax benefits under the Act. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk benefits and PI Cover | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The principles of good governance prescribe that trustees must manage their fund’s risks. It entails their identification, rating regarding probability and impact and any action the trustees will take to manage the risks. Trustees would either accept, reduce, avoid or transfer the risk. Because the majority of funds in Namibia are small, they cannot ‘self-insure’ any risk and must transfer it to a service or product provider or an insurance company. In the final analysis, the fund will bear the cost of the risk either in the fees the service or product provider would charge or through an insurance premium. Transferring a risk means the fund smoothes its cost and avoids facing an unexpected, costly, and unaffordable incident in a particular year. Unfortunately, for most funds in Namibia, NAMFISA adopted a position on the Pension Funds Act ridiculing a 30-year industry practice of restricting risk benefits to the amount the insurer pays. This practice transferred the risk of the insurance company restricting the payment, from the fund to the member who presents the risk. Independent of their size, funds must now remove all terms and conditions concerning their risk benefits from their rules. As a result, where an insurance company would limit or not admit a claim because of its terms, conditions and restrictions, the fund has to stand in for any shortfall between what the rules offer and what the insurer pays. To avoid exposure to such unforeseeable risks over which they have no control, funds are now transferring the risk to the employer. Because the employer’s employment terms and conditions fall outside NAMFISA’s jurisdiction, it can re-impose the insurer’s terms, conditions and exclusions by mirroring them in its employment contract. Of course, in real life, employers might have a moral challenge not paying out an unlimited benefit to its employee. Because death benefits are typically of high value and the insured portion comprises a significant component, they are probably the most important single consideration for setting indemnity cover levels. A typical formula for determining the cover level required suggests it should be calculated as the greater of:
Assumptions:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COMPLIMENT | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Compliment from the Head: Group Remuneration and Benefits of a large company
March 2024 |
“For sure a huge pleasure to work with your team. Always hands-on and professional.” |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Read more comments and compliments from our clients, here...
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BENCHMARK: A NOTE FROM GÜNTER PFEIFER | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| When is a beneficiary nomination form valid? | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| When a member passes away, the fund’s trustees have the onerous duty to distribute the member’s death benefit to his dependants and nominees. Dependency is a factual question and could become subjective. If a person was dependent on the deceased member at the date of death, the trustees are obliged to consider the dependant’s needs vis-à-vis all other dependents. Whether a person is a nominee is an objective, legal question. Under the Pension Funds Act (PFA), section 37C(b), a valid beneficiary nomination requires that the fund member designates the nominee in writing to the fund. Where the fund did not receive a nomination from the deceased member designating dependants, the PFA’s requirement is not met, and no person has a legal claim as a nominee. Section 37C(b) prescribes that if the trustees cannot trace any dependants within twelve months, they must award the deceased member’s death benefit as per the member’s nomination form. Section 37C(c) prescribes that if the trustees traced dependants and the deceased member nominated beneficiaries, they must “…pay the death benefit or such portion thereof to such dependant or nominee in such proportions as the person managing the business of the fund may deem equitable,” meaning the trustees (“the person managing the business of the fund”) must apply their unfettered discretion. When an employer transfers its pension arrangement from Fund A to Fund B through a section 14 procedure, all nomination forms its members completed in writing and submitted to Fund A are invalid in Fund B. The trustees of Fund B cannot use the nomination form submitted to Fund B to award any portion of the death benefit to a non-dependant nominee. If there were only valid, non-dependent nominees, section 37C(b) directs that the benefit must be paid to the deceased member’s estate. Suppose the deceased member only nominated persons in writing to Fund A, and there are dependants. In that case, the trustees must ignore the nominated persons and pay the benefit to the deceased member’s dependants. Fund members often submit a completed nomination form reflecting dependant and non-dependent persons. A nomination form to Fund A could, therefore, still be a valuable source for Fund B trustees to identify dependants. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The consequences of moving insured benefits out of the fund | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Most retirement funds in Namibia (stand-alone and umbrella funds) provide ancillary benefits to their members to cover events like death and disability and sometimes dread disease or other risk benefits. These benefits would be paid over and above the member’s accumulated fund credit (retirement savings) in the retirement fund. The benefit used to be insured by an insurance company. Most retirement funds in Namibia are defined contribution funds, so they would not hold large reserves to cover insured benefits. When a fund member passes away, the death benefit payments made to beneficiaries and dependants have a huge positive social impact. Similarly, disability payments assist the member to fund his cost of living. Where the fund provides the insured benefits -
The new interpretation effectively makes it impossible for retirement funds to offer these ancillary risk benefits to their members as in the past. A defined contribution retirement fund can only provide these benefits via an insurance policy. In the past, funds purchased the risk cover from an insurance company. The premium was covered by the employer’s contribution to the retirement fund. The principle of insurance is that it provides for unforeseeable incidents and the insured must have an interest in the insured incident not happening. Insurers will always exclude fairly foreseeable incidents (e.g. an existing health condition) and incidents the insured might want to happen (e.g. suicide, or overinsuring), and impose several conditions under which the benefit would be restricted (overinsurance) or excluded (suicide). The retirement fund rules would mirror the insurance policy conditions to avoid the retirement fund having to pay a promised benefit that the insurer might not honour (e.g. suicide or overinsurance). Retirement funds can no longer mirror the insurance policy’s terms and conditions in their rules as NAMFISA believes it would contravene the Pension Funds Act. Employers who still want to offer these ancillary risk benefits must now purchase an employer-owned insurance policy and provide the risk benefits to their employees outside of the retirement fund. This arrangement presents various concerns:
Interestingly, the Registrar of Pension Funds in South Africa never had an issue with rules containing insurer dependent conditions and restrictions despite the Namibian Pension Funds Act being an outdated version of its South African equivalent. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Important circulars issued by the Fund | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The Benchmark Retirement Fund issued no new circular since the previous newsletter 202309 – changes to survivor annuity investments. Clients are welcome to contact us if they require a copy of any circular. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NEWS FROM RFS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long service awards complement our business philosophy | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
RFS places a high value on its employees and recognises the importance of their contributions to the company’s success. Long service awards are a great way to acknowledge and celebrate the commitment and loyalty of employees who have been with the company for a significant time.
In addition to recognising employees’ contributions, long service awards can be a powerful retention tool, demonstrating that the company values and appreciates its employees’ dedication and hard work. These awards create a positive and motivating work environment where employees feel supported and encouraged to continue to grow and develop within the company. In April, RFS celebrated the following anniversaries of the following exemplary staff:
We sincerely thank Hannes, Lizette and Desiré for their dedication, loyalty and support over the past so many years since joining RFS. We look forward to their contribution to the good of RFS, our clients, and our colleagues in the future!
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The RETIREMENT COMPASS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
RFS introduced its new RETIREMENT COMPASS newsletter as part of its social responsibility and in line with its resolve to support the retirement funds industry.
This newsletter aims to provide RFS-managed funds’ members and other parties in its network with retirement funding and related news and financial planning insights in an easily understandable manner. Read the latest version here... |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RFS launches RFS Financial Advisers | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RFS launched RFS Financial Advisers (Pty) Ltd (RFSFA) on 1 April 2024. RFSFA will distribute and market financial services and products for the retail segment. Where necessary, client contracts with RFS will be moved to RFSFA. Our team is unchanged and comprises Annemarie Nel (061 660 473) and Christina Linge (061 660 475) as intermediaries. Revena Diergaardt and Dennis Fabianus provide back-office support.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2024-03
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issued March 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| This email address is being protected from spambots. You need JavaScript enabled to view it. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In this newsletter... | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Benchtest 02.2024 – offsetting housing loan debt, do we need the ILO for our NPF, new PFA regulations and more... | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Jump to... | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| IMPORTANT NOTES AND REMINDERS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NAMFISA levies
After its February meeting, BON announced that the repo rate remains unchanged at 7.75%. The interest rate on funds’ direct loans remains at 11.75%. Registered service providers Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2023, here... |
Retirement calculator Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here... If you need help with your financial planning, get in touch with
RFS provides comprehensive support for trustees. Find a list of downloadable documents to assist with governance and management of private funds, registered as of June 2023, here... |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| IN THIS NEWSLETTER... | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
In this newsletter, we address the following topics:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
In 'Tilman Friedrich's industry forum' we present...
|
In 'Legal snippets', read about...
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 29 February 2024 |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In February 2024, the average prudential balanced portfolio returned 0.7% (January 2024: -0.2%). The top performer is Namibia Coronation Balanced Plus Fund, with 1.8%, while Lebala Balance Fund, with -0.3%, takes the bottom spot. Namibia Coronation Capital Plus Fund takes the top spot for the three months, outperforming the ‘average’ by roughly 1.8%. Ninety One Namibia Managed Fund underperformed the ‘average’ by 1.6% on the other end of the scale. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 29 February 2024 reviews portfolio performances and provides insightful analyses. Download it here... |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The band keeps playing while the Titanic is sinking | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Watching the situation in and around Ukraine and listening to US and Western media, I perceive the US wanting to rid itself of any further financial commitments to the Ukraine war and to put the Europeans in front of that cart. It seems the US wants to push the Europeans into a major confrontation with Russia, and be ‘the laughing third’. Both sides will be badly bruised militarily and economically. Russia already stated that it will use its nuclear arsenal if its national survival is threatened. The European media are on a mission to prepare their citizens for a war against Russia, and too often in history, such war propaganda has become a self-fulfilling prophecy. In such a prospective conflict, China cannot sit on the sideline as NATO would advance to its border should Russia lose. We will inevitably have World War III! Investment markets will take a severe knock during such a conflict and remain in the doldrums. Once the conflict ends, the world will move to a new economic order, likely multipolar, unless the West prevails. Investment will not be what it has been since the Second World War. In the run-up to such a war, only very few investment managers will take bold action in preparation for the great conflict. The action will, in most cases, also be too late. I perceive that we are sailing into troubled waters, but the band keep playing while the Titanic is sinking! In the Monthly Review of Portfolio Performance to 29 February 2024, we elaborate on the strategies an investor should follow under the above circumstances. It also reflects the editor’s views on current developments and their impact on investment markets. In the Monthly Review of Portfolio Performance to 29 February 2024, we elaborate on the strategies an investor should follow under the above circumstances. It also reflects the editor’s views on current developments and their impact on investment markets Download the Monthly Review of Portfolio Performance to 29 February 2024, here... |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| More on suspicious transactions under the FIA | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In a previous newsletter, we reported on the shortening of the reporting obligation to “promptly”, which means without delay but not later than three (3) days after the suspicion arose. After the article was posted on social media, a few interesting questions were posed that I will try to answer. I will start by summarising the key requirements of the FIA read together with the POCA and then use this summary to address the questions posed. What the FIA prescribes The FIA creates the obligation to report a suspicious transaction on any person carrying on any business and by accountable and reporting institutions. The obligation only relates to the matters covered by the FIA, being activities relating to possible money laundering or the financing of terrorism as defined by parliament, relying on the OAU's Convention on the Combating and Prevention of Terrorism of 1999. These activities must involve the proceeds of, or the collection and provision of funds for unlawful activities, being any conduct that constitutes an offence or contravenes any law in Namibia, wherever it occurred and of which a person had or ought reasonably to have known. Money laundering covers disguising the unlawful origin of property and assisting someone else to benefit from the proceeds of or the acquisition, possession or use of the proceeds of unlawful activities. First question When is a transaction suspicious? As I interpret the requirement, is it in relation to money laundering or financing of terrorism? If a business person were to evade taxes, it might be criminal but not be suspicious. My response If you carry on any business and know, or reasonably ought to have known, of someone who collects and provides funds to someone else to undertake tax evasion, I would argue it is reportable as tax evasion contravenes the Income Tax Act. However, if there is no transaction by way of funds involved, I would say that you have no reporting obligation. Second question With specific reference to tax evasion. There are no proceeds as you have not received something. You have just not paid the tax authority its fair share? Surely, this will have to be litigated under the Tax Act and not the FI Act? Or could it be both? My response If you evade your tax obligation, there is no transaction, therefore, no unlawful origin of property or provision of funds for this unlawful activity; no one else is benefiting, acquiring or possessing any unlawful proceeds. Hence, the reporting obligation under the FIA does not apply. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| When may a fund offset a delinquent borrower’s housing loan? | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Section 19(5) allows retirement funds to grant housing loans to members under certain circumstances (refer to last month’s newsletter) against the security of the member pledging his benefit, a first mortgage or both. If a fund wants to grant housing loans, NAMFISA insists that the rules must provide for granting loans. Funds usually append sections 19(5) and 37D to their rules. While sections 37A and 37B strictly protect members’ benefits even when the member wants to dispose of them, sections 37A and 37D make certain exceptions. Section 37A This section allows a fund to deduct a maintenance order by the Maintenance Court and income tax. Section 37D This section deals specifically with deductions a pension fund can make from pension benefits:
Based on the wording of sections 37D(a) and 37D(b):
A word of caution: Despite the above conclusion, funds must note that NAMFISA interprets section 37D(a) differently. It insists that a loan or payment for a guarantee furnished by the fund may only be deducted once the member exits the fund. Funds may apply their interpretation and leave it to NAMFISA to challenge it in court. Although some legal experts believe the fund rules do not explicitly have to allow the granting of loans or furnishing of guarantees and deducting amounts owing in this regard, it is advisable to include section 37D verbatim in the rules. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Does Namibia need an ILO to tell us all about a National Pension Fund? | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The Social Security Act of 1994 provides for the Maternity Leave, Sick Leave and Death Benefit Fund, and a National Training Fund, a National Medical Fund and a National Pension Fund (NPF). A National Medical Fund is currently not yet topical. The Ministry of Labour identified the NPF as a priority. It tasked the Social Security Commission (SSC) to formulate a proposal for a compulsory, contributory NPF under a tripartite steering committee comprising the SSC, organised labour and the employers in person of the NEF. After more than 20 years of deliberation and extensive consultation with local and South African experts, the SSC submitted its first report and recommendations to the Ministry of Labour in 2018. After the Ministry raised some concerns and objections, insisting on a defined benefit model, further consultation and deliberations followed, and the final report and recommendations were submitted in 2022. These recommendations still envisaged a defined contribution model with a defined benefit and redistribution element and providing for conditional exemption of existing arrangements. Dissatisfied with the proposed model, the Ministry engaged the ILO to submit its proposals. During 2023, the ILO conducted a few meetings presenting its thoughts to interested parties. It proposes a pure defined benefit model without an exemption. Early this year, the NEF also conducted a member meeting to sensitise them on the proposed SSC and ILO models for an NPF. The SSC requested employers and labour to consider the SSC model and to provide feedback on their preferred option. The SSC granted the NEF time until the beginning of February 2024 for its feedback. Even before the NEF presented its conclusions to the SSC, it received information that the Ministry of Labour already adopted the ILO proposal for the NPF in December 2023. At this stage, it is unclear how the Ministry of Labour plans to proceed. Presumably, they will take (or have taken) their decision to Cabinet. As a global labour union, it is clear that the ILO will promote socialist economic principles. The IMF is a free-market-orientated international multilateral institution and will, therefore, have different economic principles. Why should Namibia follow the ILO principles and not the IMF’s? The following are some of the ILO’s principles from its presentation. Similarly:
Graph 1
 Graph 1 above is one of the slides used by the ILO expert to show the defined contribution replacement ratios (blue line) from 1980 to 2020 relative to the defined benefit contribution ratio (orange straight line). The defined contribution model’s apparent underperformance was one of the expert’s main arguments to substantiate the ILO’s NPF preference for a defined benefit arrangement. The blue line is suspiciously similar to the US ten-year government bond yield. Note the steep decline of defined benefit yields since 2000. The graph conveniently ends just before an equally steep reversal since the middle of 2020. I suspect that the graph depicts a portfolio primarily invested in government bonds and property, which have performed very poorly since the Global Financial Crisis in 2007 to 2009 due to heavy central bank intervention. The ILO’s argument would imply that the NPF’s assets are primarily invested in government bonds. It would look quite different if it were to depict the yield of the average prudential balanced portfolio of the typical defined contribution fund in Namibia investing in a much wider spread of asset classes. Clearly, much depends on how the assets are invested. Typically, Western social security systems invest primarily in interest-bearing assets. Both models, principally, invest in the same assets and will have the same investment experience. In the defined benefit model, however, the collective membership would have carried the burden of that underperformance by spreading the underperformance across future generations. In contrast, in a defined contribution model, each generation would carry its investment experience, positive and negative. The presentation further claims that the DB system has much lower volatility because the impact is assumed collectively. The same result can be achieved in a DC system through investment smoothing. The ILO then raves about gender equality in the defined benefit system because males and females get the same income benefit after retirement. A male would get a higher pension in the defined contribution system due to a shorter life expectancy. How is this gender equality if my retirement capital must also provide for my wife after my passing? In the case of a female, statistically, no provision is made for a surviving husband who would have passed away before the wife. Clearly, we are dealing with a philosophical question. One model is not superior to the other. They are principally different, and each coin has two sides. The defined benefit model principally represents a socialist philosophy with inter-generational cross-subsidisation. In contrast, the defined contribution model principally represents a free-market philosophy. A socialist philosophy is more appropriate for homogenous societies, but it leads to social friction in heterogenous societies, which is becoming more pronounced in Western countries. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NAMFISA proposes substantial changes to the PFA investment regulations | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In last month’s newsletter, we informed you that NAMFISA issued draft revised regulations for comment on or before 31 March 2024. The revised regulations will affect the short-term and long-term insurance and pensions industries. Most changes relate to fund investments, special purpose vehicles and unlisted investment managers. They are very technical, and funds’ asset managers must ascertain that they comply with the new requirements. A few changes will affect the fund administration. They are as follows
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COMPLIMENT | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Compliment from the Principal Officer of a large fund
5 March 2024 |
“Dear Marthinuz and Sharika, If memory serves me correctly, I believe it’s the first time since my involvement with the …. Retirement Fund that all Certificates of Existence were submitted to RFS, achieving the Fund’s aim of zero suspended pensioners. Please convey our appreciation to J… and R… for their consummate support and dedication in making this possible. Kind regards…” |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Read more comments from our clients, here...
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BENCHMARK: A NOTE FROM GÜNTER PFEIFER | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Important circulars issued by the Fund | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The Benchmark Retirement Fund issued no new circular since the previous newsletter '202309 – Changes to survivor annuity investments'. Clients are welcome to contact us if they require a copy of any circular. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NEWS FROM RFS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long service awards complement our business philosophy | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
RFS places a high value on its employees and recognises the importance of their contributions to the company’s success. Long service awards are a great way to acknowledge and celebrate the commitment and loyalty of employees who have been with the company for a significant time.
In addition to recognising employees’ contributions, long service awards can be a powerful retention tool, demonstrating that the company values and appreciates its employees’ dedication and hard work. These awards can help to create a positive and motivating work environment where employees feel supported and encouraged to continue to grow and develop within the company.
We sincerely thank Yolinde, Amanda and Belinda for their dedication, loyalty and support over the past years since joining RFS. We look forward to their contribution to the good of RFS, our clients, and our colleagues!
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RFS welcomes new staff member | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
We are delighted to announce that Reneva Diergaardt joined our permanent staff complement on 1 March 2024. She grew up in Kalkfeld and matriculated at Paresis Secondary School in Otjiwarongo in 2006. She started her career as a switchboard operator at Telcom and later at the Ministry of Education. In 2010, she changed careers and began working in different banking industry positions. In 2017, Reneva moved to the insurance industry as a service broker with FNB Insurance Brokers and later at King Price as a manager assistant at the Otjiwarongo branch.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Important circulars issued by RFS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RFS issued no new circular since circular ‘RFS 2024.01-01 – Static Member Data’. Clients are welcome to contact us if they require a copy of any circular. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NEWS FROM NAMFISA | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| First pension funds industry meeting of 2024 By Sebastian Frank-Schultz |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
The first industry meeting was held on 4 March. Our Sebastian Frank-Schultz attended the meeting and prepared the following notes of the discussions, referenced to the agenda:
4.1. RFIN Update
4.2. Statutory submissions feedback
Q1-Q4 2023 off-site inspection findings
Last five quarters – 153 complaints
Circular MCD/2/2023 complaints handling procedure issued 20 December 2023.
4.4 Regulatory Framework Update
6. Other matters:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NEWS FROM THE MARKET | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| M&G CEO leaves | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
M&G informed its stakeholders of the resignation of its CEO, Chris Sickle. In November 2021 Sickle replaced Bernard Fick, who resigned as CEO after 14 years at the company, then called Prudential Portfolio Managers. Group Chief Risk Officer for M&G Group, Marius Botha, will serve as interim CEO.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NEWS FROM RFIN | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RFIN’s trustee training calendar | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LEGAL SNIPPETS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| More on withholding of a benefit in Kutting vs Old Mutual | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| KUTTING SA (PTY) LTD, the complainant, requested the Old Mutual Superfund Provident Fund to withhold the withdrawal benefit of their former employee, Mr J Mabunda. This request was made under section 37D(1)(b)(ii) of the Act due to alleged debts incurred by Mr Mabunda, including a substantial stock loss and a loan obtained under false pretences. Facts of the Case (as Established by the Adjudicator): 1. Employment and Membership:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SNIPPETS FOR THE PENSION FUND INDUSTRY | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| What happens to a living annuity if there is no will? | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| This article suggests it is very important to align investment choices with individual financial goals, particularly in the context of retirement planning. It warns against common investment pitfalls that can lead retirees into financial difficulty during their retirement years. Firstly, it cautions against overspending on luxurious houses, which may result in excessive mortgage debt, especially for retirees with modest incomes. Secondly, it advises against investing in cryptocurrencies, highlighting their volatile nature and potential for significant losses. Thirdly, it suggests diversifying away from holding too many company shares, emphasising the need for a balanced portfolio and avoiding emotional investment decisions. Additionally, it warns against relying too heavily on property investments, which may lack liquidity and income generation during retirement. The article also discourages single-strategy portfolios, advocating instead for a diversified approach to mitigate risk. It advises against investing in souvenirs or collectibles, which typically offer low liquidity and uncertain returns. Lastly, it cautions against financially supporting family members at the expense of one's own retirement savings, emphasising the importance of preserving capital. In conclusion, the article underscores the need for careful consideration of investment choices and alignment with individual financial circumstances and goals. It stresses the importance of seeking guidance from experienced financial planners to navigate the complexities of retirement investing effectively. Read the article by Michael Haldane in Moneyweb here… |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six rules of thumb to save enough for retirement | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In this article, the two commentators answer the following three questions:
Read the article in Moneyweb of 6 February 2024 here... |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The free lunch from guarantees may come at a hefty cost | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In this article, retirement annuities are presented as an alternative to trusts in estate planning and financial management. It highlights the complexities and costs associated with managing a trust and suggests that retirement annuities can serve as effective substitutes. Retirement annuities offer tax advantages and are powerful tools for estate planning, aiming to foster asset growth outside of one's estate. The recent increase in tax deduction limits and the allure of tax-free investment growth make retirement annuities an appealing option. Despite differences, retirement annuities and trusts share benefits such as protection against creditors, asset growth outside the estate, and fiduciary duties. However, there are liquidity restrictions associated with retirement annuities, requiring careful financial planning. The decision between a retirement annuity and a trust depends on individual financial goals, estate planning needs, and tax considerations. Consulting with a financial or estate planning professional is crucial to tailor the decision to one's specific circumstances and ensure a comprehensive and aligned financial strategy. The article emphasises the importance of seeking advice from certified professionals in navigating the complex financial landscape. Read the full article by Wouter Fouries of Ascor Independent Wealth Managers in Moneyweb of 12 February 2024 here… |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SNIPPETS OF GENERAL INTEREST | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Key risks for directors and officers | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| This article highlights the increasing liability risks board members and company executives faced in 2024. Factors such as economic pressures, geopolitical issues, the implementation of innovative technologies like GenAI, and environmental, social, and governance (ESG) challenges contribute to the possibility of lawsuits against companies and their Directors and Officers (D&Os). While D&O insurance buyers have seen favourable pricing and broader coverage up to 2023, risks remain significant. Inflation, higher settlement values, increased defence costs, rising insolvencies, geopolitical uncertainty, cyber risks, and ongoing ESG challenges pose substantial risks to D&Os and their insurers. The article emphasises the need for D&Os to be prepared for these challenges and have adaptable strategies. It also mentions the importance of diversity in the boardroom to enable varied approaches to problem-solving. Economic growth remains disappointing globally, with an expected rise in business insolvencies by 10% in 2024. Inflationary pressures, debt refinancing challenges, and scrutiny of capital expenditure decisions add to the difficulties companies and their leadership face. Geopolitical risks are also highlighted, including the war in Ukraine, Middle East conflicts, and worldwide tensions. Political risk was at a five-year high in 2023, placing pressure on directors to ensure their companies can withstand business interruptions and ensure employee safety, especially in higher-risk territories. Lastly, the article discusses GenAI (generative artificial intelligence), describing its impact on business processes. A third of organisations regularly use GenAI in at least one business function, indicating its growing importance in corporate operations and decision-making. Read the full article by Vanessa MaxwellGlobal, head of financial lines and Allianz Commercial, in the January edition of the Cover magazine, here… |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Advice for becoming a self-disciplined person | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
This article discusses the challenges of driving change in organisations. It presents insights from a Harvard Business School webinar by Frances Frei and Anne Morriss on leveraging storytelling for bold change, based on their book "Move Fast and Fix Things."
The authors highlight four ways to use storytelling for organisational change:
Read the full article in the Harvard Business Review magazine November - December 2023, here…
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| AND FINALLY... | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Wise words from wise men | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The insights of ancient philosophers still resonate today and offer timeless wisdom on the relationship between money, virtue, and well-being. “Not what we have, but what we enjoy, constitutes our abundance.” ~ Epicurus (341 BC – 270 BC) |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unsubscribe If you do not want to receive these newsletters {unsubscribe}click here...{/unsubscribe} Disclaimer Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Fund Administrators (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2024-02
|
||||
| Issued February 2024 | ||||
| This email address is being protected from spambots. You need JavaScript enabled to view it. |
||||
| In this newsletter... | ||||
| Benchtest 01.2024 – we need a competing global financial system, risk management, housing loans and co-owners, and more... | ||||
| Jump to... | ||||
|
||||
| IMPORTANT NOTES AND REMINDERS | ||||
NAMFISA levies
After its February meeting, BON announced that the repo rate remains unchanged at 7.75%. The interest rate on funds’ direct loans remains at 11.75%. Registered service providers Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2023, here... |
Retirement calculator Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here... If you need help with your financial planning, get in touch with
RFS provides comprehensive support for trustees. Find a list of downloadable documents to assist with governance and management of private funds, registered as of June 2023, here... |
|||
|
||||
| IN THIS NEWSLETTER... | ||||
|
In this newsletter, we address the following topics:
|
||||
|
In 'Tilman Friedrich's industry forum' we present...
|
In 'Legal snippets', read about...
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 January 2024 |
||||
| In January 2024, the average prudential balanced portfolio returned -0.2% (December 2023: 1.7%). The top performer is Namibia Coronation Balanced Plus Fund, with 0.4%, while Allan Gray Balanced Fund, with -0.8%, takes the bottom spot. Namibia Coronation Balanced Fund takes the top spot for the three months, outperforming the ‘average’ by roughly 3.5%. Hangala Capital Absolute Balanced Fund underperformed the ‘average’ by 2.2% on the other end of the scale. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 31 January 2024 reviews portfolio performances and provides insightful analyses. Download it here... |
||||
| The world needs competing financial systems | ||||
| Through the manipulation of interest rates and money printing by the Fed-led reserve banks around the globe since the GFC, the world may have avoided a ‘financial melt-down’, but it has come at a substantial cost to investors since then. Total global pension fund assets are currently estimated at US$ 48 trillion. A very crude calculation (assuming an annual growth of 2% in pension fund assets) suggests that the actual real return of 3.8% since the GFC is 2.2% below expectation, producing a ‘loss to pension fund investors worldwide of US$ 13 trillion over the sixteen years. The same crude calculation for Namibia implies a loss to Namibian pension fund investors of N$ 54 billion. This figure represents 26% of one’s pension fund assets! Where pension funds aim to replace one’s re-retirement income at 2% per year of membership, this loss means that pensioner’s pre-retirement income replacement rate has declined to only 1.5%! Reserve bank intervention during the GFC saved delinquent Western lenders too big to fail and short-term pain to the global economy but has showered severe pain on the world’s pension fund savers over the past sixteen years, even though our local banks never were faced with the issues Western banks faced at the time. And the end is not in sight yet! In short, the world’s pension fund savers saved delinquent Western financial institutions at the Fed’s instigation. Now, we are facing another similar situation where the rest of the world is made to pay for the US’s resolve to weaken its global adversaries, China, Russia and the BRICS countries of late. If their efforts of decoupling trade from the US Dollar are successful, the US will face severe challenges in funding its trade deficits, exporting inflation and borrowing cheaply from the rest of the world. The US will, therefore, be hell-bent on preventing this from happening and will use its supremacy over the global financial system to hurt its adversaries. Is it possible that the weakness of the Rand is the result of such a concerted effort by the West under US leadership? The world needs an alternative financial system… In the Monthly Review of Portfolio Performance to 31 January 2024, we elaborate on the strategies an investor should follow under the above circumstances. It also reflects the editor’s views on current developments and their impact on investment markets Download the Monthly Review of Portfolio Performance to 31 January 2024, here... |
||||
| The importance of risk management | ||||
| Those entrusted with safeguarding the financial future of countless individuals, navigating the ever-evolving landscape of investment markets may feel like walking a tightrope. Pension fund trustees carry tremendous responsibility, and effective risk management lies at the core of their duties. But why is risk management so crucial? Understanding the potential pitfalls and proactively mitigating them is the only way trustees can ensure the pension fund's long-term sustainability and solvency, ultimately protecting its members' financial security. The Multifaceted Landscape of Risks:Pension funds are exposed to a diverse range of risks, each potentially eroding member benefits and jeopardising the fund's stability. Here's a brief overview of some key categories:
Failing to manage these risks adequately can expose trustees to several liabilities, both legal and financial:
The good news is that effective risk management frameworks can be implemented to mitigate these threats and protect the fund. Here are some critical steps:
|
||||
| Housing loans and shared ownership | ||||
| Section 19(5)(a) of the Pension Funds Act outlines several scenarios in which a fund may grant a member a loan for various housing purposes. Specifically, subparagraph (i) allows for the redemption of a loan granted by a person other than the fund, buying land an erecting a dwelling, buying a dwelling or doing renovations to a dwelling, against the security of immovable property belonging to the member or their spouse and occupied or to be occupied by the member or a dependent. The critical condition for granting such a loan, as outlined in subparagraph (b), is that it must be fully secured. This security can be in the form of a first mortgage on the immovable property owned by the member or their spouse, a pledge of the member's benefits from the fund, or both. Additionally, the loan must adhere to certain limitations outlined in subparagraphs (ii), (iii), and (iv), which include not being liable for any other loan to the fund, not having a lower interest rate than prescribed by regulation, and having a redeemable capital sum over a specified period. Furthermore, subparagraph (c) outlines the maximum limits for the loan amount based on the type of security provided. If a mortgage on the property secures the loan, it cannot exceed 90% of the property's market value. When a fund member co-owns a house with another person who is not a fund member, the fund may still grant a loan for housing purposes to the member, as long as certain conditions in the Pension Funds Act are met, as briefly referred to above. However, it's crucial to note that in the event of default, the fund may only be able to attach half the property's value, given that the member co-owns it with someone who is not a fund member. This limitation of attaching only half the property's value in case of default introduces additional risk for the fund. Therefore, the fund must factor in this risk when determining the loan terms, including the loan amount, interest rate, and repayment period. Furthermore, the maximum loan amount the fund can grant is typically limited to a percentage of the property's market value, as outlined in the Act. However, given the risk associated with only being able to attach half the property's value in case of default, the fund needs to adjust this percentage accordingly to mitigate its risk exposure. In conclusion, while the Namibian Pension Funds Act allows for the granting of loans to fund members for housing purposes, including scenarios where the member co-owns a property with a non-member, the fund must carefully consider the additional risk introduced by the limitation on attaching only half the value of the property in case of default, and adjust its lending policies accordingly to manage this risk effectively. |
||||
|
||||
| COMPLIMENT | ||||
|
Compliment from a former fund member
19 January 2024 |
“Good Day V Thank you so much for your excellent service, it is rare that one finds this class service in Namibia. You and your company indeed stick to your promises. May you grow in your career because of the valuable input you give. Regards SG” |
|||
|
Read more comments from our clients, here...
|
||||
|
||||
| BENCHMARK: A NOTE FROM GÜNTER PFEIFER | ||||
| Important circulars issued by the Fund | ||||
| The Benchmark Retirement Fund issued no new circular since the previous newsletter Clients are welcome to contact us if they require a copy of any circular. |
||||
|
||||
| NEWS FROM RFS | ||||
| Staff improving their competencies | ||||
|
RFS prioritises the ongoing education and professional development of its staff. As Nelson Mandela once said, "Education is the greatest equaliser," and by investing in the education and training of its employees, RFS is helping to create a more skilled and knowledgeable workforce.
By supporting its staff in their pursuit of further education, RFS is also investing in the long-term success of its business. As staff members become more skilled and knowledgeable, they are better equipped to provide high-quality service to clients and to help the company stay competitive in a rapidly changing market. Pursuing further education can be challenging and arduous, and it is a testament to hard work and dedication to achieve such a milestone in one’s life. We congratulate:
We wish these two ladies all the best on the road to greater heights! Considering their circumstances, this is a remarkable achievement and a shining example for others to follow!
|
||||
| RFS welcomes back an ‘old face’ | ||||
|
After a brief stint on ‘greener pastures, ' RFS welcomes back Sharita Visser. Sharita picks up the baton on our permanent staff complement again on 1 March. We welcome Sharita back wholeheartedly and look forward to her contributions to the Benchmark team and her clients!
|
||||
| Long service awards complement our business philosophy | ||||
|
RFS places a high value on its employees and recognises the importance of their contributions to the company’s success. Long service awards are a great way to acknowledge and celebrate the commitment and loyalty of employees who have been with the company for a significant time.
In addition to recognising employees’ contributions, long service awards can be a powerful retention tool, demonstrating that the company values and appreciates its employees’ dedication and hard work. These awards can help to create a positive and motivating work environment where employees feel supported and encouraged to continue to grow and develop within the company. Günter Pfeifer, Director Operations: Benchmark, celebrated his fifteenth work anniversary at RFS on 1 February 2024! We sincerely thank Günter for his leadership, dedication, loyalty and support over the past fifteen years. We look forward to his continued contribution to building the Benchmark Retirement Fund and RFS, our clients and colleagues! |
||||
| It is ‘Back to School’ for RFS staff | ||||
 |
||||
| Here are the pupils of Khomasdal Funky Town SSS, smartly dressed in their school uniforms. | ||||
|
The theme of our first staff event of 2024 was ‘Back to School’. Although most pupils looked suspiciously over age, all thoroughly enjoyed the afternoon and are looking forward to the new ideas of our new social committee for the upcoming events.
|
||||
| No Volleyball for All tournament without RFS | ||||
 |
||||
|
Since RFS was founded 25 years ago, it enrolled teams for the annual DTS Volleyball for All tournament. 2024 was no exception, with RFS being represented by two teams. Here are our warriors after their gruelling endeavours to win for once. Do their faces express fatigue, disappointment, or both? If nothing else, it portrays their wonderful team spirit!
|
||||
| Important circulars issued by RFS | ||||
RFS issued the following new circular since the previous newsletter:
|
||||
|
||||
| NEWS FROM NAMFISA | ||||
| NAMFISA invites to pension funds industry meeting | ||||
|
NAMFISA invites all Trustees, Principal Officers and other officers to attend the first industry meeting scheduled for 4 March, and to forward any annotated items for inclusion on the agenda by 22 February 2024 to Ms. Martha Mavulu at email address: This email address is being protected from spambots. You need JavaScript enabled to view it.. The meeting is strictly reserved for Trustees and Fund Officers.
|
||||
| NAMFISA proposes substantial changes to the PFA investment regulations | ||||
|
||||
| NEWS FROM RFIN | ||||
| RFIN’s trustee training calendar | ||||
|
||||
| LEGAL SNIPPETS | ||||
| Bank of Namibia increases foreign investment allowance | ||||
| In exchange control circular no 2023/02, the Bank of Namibia informs authorised dealers that it has been decided, with effect from 14 December 2023, to increase the applicable limit from the current 35% to 40% of total assets under management. | ||||
| PFA determination on Covid-19 relief and non payment of contributions: MA CORNELIUS v THE HOSPITALITY AND GENERAL PROVIDENT FUND and others | ||||
Background
|
||||
| Can trustees remove nominated beneficiaries? | ||||
| In a landmark case reported in the Allgemeine Zeitung of 2 February 2024, the court was requested to set aside a decision by a board of trustees of a family trust, to remove certain persons from the trust’s list of beneficiaries. The article sheds light on a significant court ruling in Namibia regarding the dynamics between trustees and beneficiaries within a trust. The court's decision, delivered on 15 December 2023, marks a pivotal moment in clarifying the roles and rights within such arrangements. At the center of the legal dispute were the trustees, including Hans Wilhelm Schütte, Dorothea Schütte, and Herbert Maier, who had taken steps to remove certain beneficiaries from the trust. On the opposing side were the beneficiaries, represented by Ascan and Gesa Schütte, who contested this action. The crux of the matter revolved around the trustees' decision to exclude Brigitte Schütte-Barry, the eldest daughter, from the list of beneficiaries without her explicit consent. Interestingly, although this decision was a point of contention, it wasn't directly addressed in the court's final ruling. The court's judgment underscored a fundamental principle: trustees cannot unilaterally remove beneficiaries from the trust without their explicit consent. This ruling reinforces the importance of respecting the rights and interests of beneficiaries within trust arrangements. Furthermore, the court clarified that while trustees can be requested to resign from their position, their entitlement as beneficiaries doesn't automatically cease upon resignation. Unless voluntarily relinquished, a trustee's entitlement remains intact. This aspect of the ruling delineates the distinction between the roles of trustee and beneficiary, emphasising that one's status as a beneficiary is not contingent upon one's role as a trustee. The court's decision upheld the lower court’s ruling, dismissing the trustees’ appeal. Consequently, Ascan and Gesa Schütte are to be reinstated as beneficiaries retroactively. Moreover, all decisions made by the trust over the past five years are deemed null and void. The trust is also mandated to cover the legal expenses incurred by both parties. In summary, the court's judgment serves as a significant precedent in defining the rights and responsibilities of trustees and beneficiaries within trust structures in Namibia, emphasising the importance of transparency, consent, and adherence to legal protocols in such arrangements. Would this decision be relevant to retirement funds that are, of course, also trusts? Does it mean trustees cannot remove or ignore a beneficiary from a deceased’s nomination form? In the case of a retirement fund, the prohibition of removing a beneficiary won’t apply to nominated beneficiaries to a retirement fund death benefit. The entitlement to a benefit in a testamentary trust arises from the trust deed. As is evident from the Schütte case, the trustees attempted to remove persons whose benefit entitlement arose from the trust deed. In the case of a retirement fund, a prospective entitlement to a benefit only arises upon the fund member's death. Until then, the member can still change his nomination at any time, provided he informs the fund thereof in writing. A nominated beneficiary’s legal entitlement to a benefit would only arise once the trustees allocate the death benefit unless there are no dependents. Dependants, in contrast with nominated beneficiaries, are entitled to a benefit, even if they were not nominated by the deceased member. It is often a job to identify the dependants. Once all dependants have been identified, the trustees must establish how much to allocate to each dependant and the nominated beneficiaries. Nominated beneficiaries only need to be considered if there is surplus capital after the allocation to the dependants. The existence of a nominated beneficiary is a factual question. Did the member inform the fund in writing of the beneficiary he wanted to benefit? The trustees cannot remove a nominated beneficiary, but they are not obliged to allocate anything or according to the written member nomination, unless the member left not dependants. Subsequent events can impact the quantum of dependency but not the legal entitlement. The trustees determine the quantum at their discretion, and some beneficiaries may get nothing because of insufficient capital and a lower priority ranking. The trustees’ allocation will be the dependents’ and nominated beneficiaries’ legal entitlement. If the deceased had no dependants but nominated beneficiaries, the beneficiaries become entitled per the nomination form after the fund extinguished any shortfall in the deceased member’s estate. Section 37A prohibits the trustees from exchanging beneficiaries once they have allocated and paid the benefit, even if a beneficiary subsequently passes away. Nominated beneficiaries would only be considered once all dependents were considered, and the allocation is entirely at the trustees’ discretion. If there are no dependants, the trustees have no discretion and must follow the nomination form. |
||||
|
||||
| SNIPPETS FOR THE PENSION FUND INDUSTRY | ||||
| Investments that may not be suitable for retirement fund portfolios | ||||
| This article suggests it is very important to align investment choices with individual financial goals, particularly in the context of retirement planning. It warns against common investment pitfalls that can lead retirees into financial difficulty during their retirement years. Firstly, it cautions against overspending on luxurious houses, which may result in excessive mortgage debt, especially for retirees with modest incomes. Secondly, it advises against investing in cryptocurrencies, highlighting their volatile nature and potential for significant losses. Thirdly, it suggests diversifying away from holding too many company shares, emphasising the need for a balanced portfolio and avoiding emotional investment decisions. Additionally, it warns against relying too heavily on property investments, which may lack liquidity and income generation during retirement. The article also discourages single-strategy portfolios, advocating instead for a diversified approach to mitigate risk. It advises against investing in souvenirs or collectibles, which typically offer low liquidity and uncertain returns. Lastly, it cautions against financially supporting family members at the expense of one's own retirement savings, emphasising the importance of preserving capital. In conclusion, the article underscores the need for careful consideration of investment choices and alignment with individual financial circumstances and goals. It stresses the importance of seeking guidance from experienced financial planners to navigate the complexities of retirement investing effectively. Read the article by Michael Haldane in Moneyweb here… |
||||
| Six rules of thumb to save enough for retirement | ||||
| This article emphasises the importance of securing a comfortable retirement for South African families through early planning and a solid strategy, especially in uncertain times. It highlights that while balancing monthly expenses with saving for the future can be challenging. It is crucial, though, given that 50% of South Africans prioritise a comfortable retirement. Rising costs have led many South Africans to hold multiple jobs. Experts suggest several rules of thumb for retirement savings:
Read the article by Seth Throne in Businesstech of 10 February here... |
||||
| Retirement annuities as an alternative to a trust | ||||
| In this article, retirement annuities are presented as an alternative to trusts in estate planning and financial management. It highlights the complexities and costs associated with managing a trust and suggests that retirement annuities can serve as effective substitutes. Retirement annuities offer tax advantages and are powerful tools for estate planning, aiming to foster asset growth outside of one's estate. The recent increase in tax deduction limits and the allure of tax-free investment growth make retirement annuities an appealing option. Despite differences, retirement annuities and trusts share benefits such as protection against creditors, asset growth outside the estate, and fiduciary duties. However, there are liquidity restrictions associated with retirement annuities, requiring careful financial planning. The decision between a retirement annuity and a trust depends on individual financial goals, estate planning needs, and tax considerations. Consulting with a financial or estate planning professional is crucial to tailor the decision to one's specific circumstances and ensure a comprehensive and aligned financial strategy. The article emphasises the importance of seeking advice from certified professionals in navigating the complex financial landscape. Read the full article by Wouter Fouries of Ascor Independent Wealth Managers in Moneyweb of 12 February 2024 here… |
||||
|
||||
| SNIPPETS OF GENERAL INTEREST | ||||
| Major win for SA’s skills crisis | ||||
| The South African Department of Home Affairs has approved the first companies for the Trusted Employer Scheme (TES), addressing the country's skills crisis. Introduced in 2023, the TES streamlines immigration processes for large employers, aiming to attract foreign talent and investment. Strict qualifications ensure only reputable companies benefit, offering streamlined processes, reduced documentation requirements, and faster processing times. The TES is seen as a bold step to strengthen South Africa's appeal for talent and investment, providing a solution to immigration challenges faced in the past 24 months. Approved companies will experience more efficient immigration procedures, marking an exciting development in the nation's economic growth. Read the full article by Luke Fraser in Businesstech of 23 January 2024 here… Editor’s note: The Bank of Namibia will likely bring its repo rate on par with the SARB if the SARB lowers its repo rate, as this article suggests. |
||||
| South Africa’s Rand manipulation case falls apart | ||||
| The Competition Appeals Court has thrown out the Competition Commission’s case against most of the banks accused of manipulating trades involving the rand/dollar pair. The case has been ongoing for eight years, but was dismissed due to a lack of evidence, jurisdiction, and overreach by the Commission. Only four banks are still under consideration, and no guilty verdicts have been given yet. However, there is enough evidence for a case to be brought against them. The court emphasised that the Commission needed to show a common anti-competitive objective among all banks. Despite the high profile of the case, experts argue that the manipulation was an isolated incident, and that it only harmed individual clients, rather than the entire South African economy. The National Treasury confirmed that market manipulation ceased in 2013, and regulations were put in place to prevent it from happening again. Read the full article by Staff Writer in Businesstech of 9 January 2024 here… |
||||
| Advice for becoming a self-disciplined person | ||||
|
Discipline as a crucial skill for personal and professional successand is neither innate or excessively challenging. Discipline, defined as self-control over actions and behaviors, is achieved through accountability, responsibility, and choice.
Benefits of discipline include improved productivity, goal achievement, resilience, and mental well-being. Core principles for building discipline involve setting clear and achievable goals, managing triggers, building habits, and making mindset adjustments. Challenges in developing discipline include coping with distractions, procrastination, lack of motivation, and breaking positive habits. Strategies for building everyday discipline include creating clear and achievable goals, identifying and managing triggers, establishing consistent habits, optimising environments, and adjusting mindsets. A case study featuring James illustrates how applying these strategies led to significant improvements in his work routines, health habits, productivity, confidence, and mental wellness. The key takeaways include the learnability of discipline, its impact on various aspects of life, the importance of addressing goals, triggers, habits, environment, and mindsets, and the transformative power of consistency and self-compassion. In conclusion, the article encourages individuals to make discipline a lifelong practice, providing frameworks, schedules, and psychological insights to empower self-control and achieve clarity of purpose in both professional and personal life. Read the full article by Julianna Summers here… |
||||
|
||||
| AND FINALLY... | ||||
| Wise words from wise men | ||||
| The insights of ancient philosophers still resonate today and offer timeless wisdom on the relationship between money, virtue, and well-being. ”If thou wilt make a man happy, add not unto his riches but take away from his desire.” ~ Epicurus (341 BC – 270 BC) |
||||
| Unsubscribe If you do not want to receive these newsletters {unsubscribe}click here...{/unsubscribe} Disclaimer Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Fund Administrators (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager. |
||||
2024-01
|
||||
| Issued January 2024 | ||||
| This email address is being protected from spambots. You need JavaScript enabled to view it. |
||||
| In this newsletter... | ||||
| Benchtest 12.2023 – another great war looming, employer arranged death benefits and more... | ||||
| Jump to... | ||||
|
||||
| IMPORTANT NOTES AND REMINDERS | ||||
NAMFISA levies
After its December meeting, BON announced that the repo rate remains unchanged at 7.75%. The interest rate on funds’ direct loans remains at 11.75%. Registered service providers Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2023, here... |
Retirement calculator Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here... If you need help with your financial planning, get in touch with
RFS provides comprehensive support for trustees. Find a list of downloadable documents to assist with governance and management of private funds, registered as of June 2023, here... |
|||
|
||||
| IN THIS NEWSLETTER... | ||||
|
In this newsletter, we address the following topics:
|
||||
|
In 'Tilman Friedrich's industry forum' we present...
|
In 'Snippets for the pension funds industry,' read about...
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 December 2023 |
||||
| In December 2023, the average prudential balanced portfolio returned 1.70% (November 2023: 5.9%). The top performer is Namibia Coronation Balanced Plus Fund, with 2.4%, while Ninety One Namibia Managed Fund, with 0.8%, takes the bottom spot. Namibia Coronation Balanced Fund took the top spot for the three months, outperforming the ‘average’ by roughly 1.7%. Hangala Capital Absolute Balanced Fund underperformed the ‘average’ by 1.9% on the other end of the scale. Note that these returns are before (gross of) asset management fees The Monthly Review of Portfolio Performance to 31 December 2023 reviews portfolio performances and provides insightful analyses. Download it here... |
||||
| Is anyone out there concerned about another ‘great war’? | ||||
| I observe with trepidation how the US got half the world to firmly toe its line in meeting the concerted challenge to its dominance relating to Russia, the Middle East and the Far East. I perceive a vigorous US will to reinforce itself by all means. Its economic measures proved to be ineffective against Russia. It has not yet instituted any determined economic measures against China, as it could be a double-edged sword. As for Europe, in the case of Russia, the US prefers to let its European allies carry the costly burden of its economic measures. While there is still too much at stake for sanctioning China, shifting manufacturing away from China will make it easier to put the thumbscrews on China. In the cases of other smaller countries, in particular the smaller BRICS member states, the US will pursue its maxim of ‘divide et empera’. The unjustified Rand weakness is a symptom of political pressures on ‘unruly’ countries. However, Africa has the market and the natural resources to withstand any pressure from anywhere, provided it stands together to the motto, ex unitate vires. The US is now left with one of two options. Either it accepts the establishment of a multipolar world and finds its best fit into the new global order, or it embroils all its geopolitical adversaries in a third World War. Reading European media, one must become very concerned about the evident shift from a pacifist tone since World War II to creating a war atmosphere more recently. I believe the stakes for the US are too high to give up its global dominance. It does not seem that its major global adversaries will relent in their challenge of US dominance. Because the Ukraine proxy war is unlikely to subjugate Russia, and because China will unlikely backtrack on its chosen path, the US will only have a chance to maintain its dominance by going to war. European leaders have stated in unison that Russia may not win this war. It becomes evident that Ukraine will not withstand the Russian pressure for too long. The fact that one reads more regularly about peace initiatives supports the assertion that Ukraine is losing this war. Russia’s progress in the war would leave the European leaders with only one face-saving alternative: to get involved actively. If it were left to Ukraine, NATO would have been drawn into the war a long time ago with claims of a Russian missile attack on Poland that later proved to be a Ukrainian missile. Now, Poland wants NATO to help it protect its airspace. In my reading, it is another pretence for drawing NATO into the war, unleashing World War III. It seems governments worldwide believe another great war will be good for the world and solve many problems it is currently facing. In the Monthly Review of Portfolio Performance to 31 December 2023, we elaborate on the strategies an investor should follow under the above circumstances. It also reflects the editor’s views on current developments and their impact on investment markets Download the Monthly Review of Portfolio Performance to 31 December 2023, here... |
||||
| Moving death benefits out of your fund | ||||
| Following NAMFISA’s insistence that trustees may not abdicate their responsibility to third parties, such as insurance companies, and that fund rules, therefore, cannot refer to their underwriting policy for risk exclusions and limitations, many funds are moving their death benefits out of the fund to an employer-owned policy. Any benefit arising under an employer-owned life policy is due to the employer, even if the insurer would pay it directly to a beneficiary per the employer’s instruction. While the distribution seems simpler and quicker than the section 37C process trustees must follow, it entails various important differences. Firstly, persons dependent on the deceased employee may not receive any benefit as the employer does not carry the fiduciary duty of trustees under section 37C. Secondly, any benefit paid to a beneficiary does not enjoy the protection of sections 37A and B. A beneficiary may never enjoy the benefit because of a default judgment against him. The employer would also be entitled to deduct any amount the deceased employee owed. Thirdly, the benefit will not enjoy the beneficial tax treatment a retirement fund benefit would. The tax treatment of a policy pay-out could be pretty tricky from the employer’s and employee’s perspective and would depend on the contract between the employer and employee. The proceeds on an employer-owned policy could become taxable for the employer or the beneficiary. The amendment of the Income Tax Act by Act 15 of 2011, stopped the practice of insurance companies paying out death benefits on employer-owned policies directly to beneficiaries, tax-free (read ‘Employer-owned life policies and the Income Tax Act’ under ‘Legal Snippets’). Now, employers must ensure that they treat death benefits correctly for tax purposes and should consult a tax expert. The tax expert should review the employer’s standard employment contract to ensure it provides the most beneficial tax arrangement. The legal framework for paying a death benefit under an employer-owned policy differs significantly from a retirement paying a death benefit under the Pension Funds Act, section 37C. In the former case, labour law, the employment contract and the Income Tax Act relating to employment constitute the legal framework. In the latter case, the Pension Funds Act and the Income Tax Act relating to pension fund benefits form the legal framework. Beneficiaries and prospective beneficiaries enjoy different rights under each arrangement. I suggest that it is inappropriate to task pension fund trustees with distributing the death benefit under the employer’s policy in the same way they will distribute the pension fund death benefit under section 37C. The employer could end up short-changed and might not even have recourse to his insurer because the board of trustees serves a different legal entity and is not an extension of the employer. The employer may establish a committee comprising the same persons to deal with the death benefit under its policy. The committee acts in a different capacity under different rules. The rules applying to the benefit under the employer’s policy are less stringent than those under the Pension Funds Act. The employer committee must consider the employment contract and precedent set in previous cases. It can distribute the death benefit much sooner than the trustees would generally be able to. When considering how to distribute a death benefit from the pension fund, trustees must take cognisance of the death benefit distribution under the employer’s employment contracts. |
||||
| Housing loans and homeowner’s insurance | ||||
| After a trend away from in-fund to pension-backed housing loans some years ago, we noticed a reversal of this trend in the last two years. The trustees must ensure that in-fund loans comply with all legal requirements. In the case of pension-backed loans, the compliance responsibility is outsourced to the bank. Trustees often wrongly believe they do not need to be overly concerned about legal compliance as the member uses his money to take up a loan. Although the Pension Funds Act is not very explicit, trustees should take guidance in NAMFISA’s pronouncements. NAMFISA issued but later retracted circular PF 3/2003 on housing loans that revealed some of its thinking. It suggested the trustees must deal with a loan as if it were a fund investment. NAMFISA also believes a fund may not offset an outstanding housing loan balance against a member’s fund credit until the member exits the Fund. Should a property be destroyed by fire, it will have no investment value. The fund may also not simply offset the loan until the member exits the fund. The result is that the fund has a loan which has no value. Strictly speaking, retracted PF 3/2003 would have required the loan value to be written off. When the member eventually exits the fund, and it deducts the value previously written off, it would record a recovery. Until the recovery realises years later, the fund’s write-off would reduce its reserve available for distribution to members. Members who then exit the fund before the loan recovery will have lost out. The borrowing member would have to continue repaying without the house’s utility value. He would likely have to rent a dwelling, which could put him in a difficult financial position. Property insurance could address the problem for the trustees and members. I suggest the trustees consider requiring the member to submit proof of property insurance before granting a loan to purchase or construct a dwelling. Proof of insurance renewal should be required annually, and procedures must be implemented to administer these requirements. Alternatively, the fund may consider establishing a group scheme at its cost to avoid the administrative burden. |
||||
| What is your performance benchmark? | ||||
| A large fund recently announced that its investments returned 7.23% for six months, against its benchmark of 6.85%. A look at the investment returns produced by prudential balanced portfolios in our Benchtest performance review revealed that the average portfolio returned 7.67%. Clearly, the peer fund does not constitute this fund’s benchmark. It raises the question of whether the trustees should be satisfied with their fund’s return. If the fund’s benchmark return was 6.85%, it has outperformed its benchmark but has underperformed the average of its peers. Typically, trustees would be guided by their investment consultants when constructing a benchmark portfolio that will be used to calculate the benchmark return of the fund. Do trustees understand how their benchmark portfolio is constructed and how the particular portfolio structure will respond to varying market conditions? Do trustees know whether the benchmark portfolio captures the desired outcomes for the fund’s investments under different market conditions? Should trustees then not be concerned about outperforming their benchmark, as this may indicate the live portfolio structure is taking higher or lower risks than intended? I would suggest that, despite any internal benchmarks, every fund whose membership represents a typical demographic profile should also measure its performance against its peers, which essentially represents ‘best practice’ for funds with an average demographic profile. Ideally, the investment consultant would analyse and explain the difference in performance between the peer manager and the benchmark portfolio. |
||||
|
||||
| COMPLIMENT | ||||
|
Compliment from the Chairperson of a prominent pension fund
3 January 2024 |
“Dear C Thank you so much for your quick and expeditious response. It was a pleasure working with you, as it always is working with A. Highly appreciated. L.” |
|||
|
Read more comments from our clients, here...
|
||||
|
||||
| BENCHMARK: A NOTE FROM GÜNTER PFEIFER | ||||
| Important circulars issued by the Fund | ||||
| The Benchmark Retirement Fund issued no new circular since the previous newsletter Clients are welcome to contact us if they require a copy of any circular. |
||||
|
||||
| NEWS FROM RFS | ||||
| Long services awards complement our business philosophy | ||||
|
RFS places a high value on its employees and recognises the importance of their contributions to the company’s success. Long service awards are a great way to acknowledge and celebrate the commitment and loyalty of employees who have been with the company for a significant time.
In addition to recognising employees’ contributions, long service awards can be a powerful retention tool, demonstrating that the company values and appreciates its employees’ dedication and hard work. These awards can help to create a positive and motivating work environment where employees feel supported and encouraged to continue to grow and develop within the company. Janolene Rittmann, the friendly face and voice in our reception, celebrates her fifth work anniversary at RFS on 1 February 2024! We express our sincere gratitude for her loyalty and support over the past five years. We look forward to her continued dedication and commitment to the company, its clients and colleagues! |
||||
| Important circulars issued by RFS | ||||
| RFS issued no new circular since the previous newsletter. Clients are welcome to contact us if they require a copy of any circular. |
||||
|
||||
| NEWS FROM NAMFISA | ||||
| Complaint handling procedure | ||||
|
NAMFISA issued circular MCD/2/2023 on 20 December 2023, on Complaint Handling Procedures to all pension funds and other non-banking financial institutions. The new procedure intends to streamline the complaints process and avoid submitting complaints to NAMFISA before the relevant institution can respond to a complainant.
The following outlines the responsibilities of complainants before involving the regulator and the steps financial institutions and NAMFISA should take to handle complaints effectively in the non-banking financial service sector. Complainant’s Responsibilities Before Submitting a Complaint to the Regulator:
Financial Institution’s Responsibilities in Complaint Handling:
NAMFISA’s Complaint Handling Process:
You can download the circular here…
|
||||
|
||||
| LEGAL SNIPPETS | ||||
| Late payment interest on unpaid contributions and prescription | ||||
This complaint deals with the case filed by the Legal Provident Fund (the complainant) against MSM & Associates (the employer), an employer participating in the fund, who failed to pay employer and member contributions.
|
||||
| Complaint about undue delay in death benefit payment | ||||
This case deals with a complaint by Mrs L Naidoo, spouse of a deceased fund member, against the Massmart Provident Fund, Sanlam Employee Benefits as the fund administrator, and the employer, Cambridge Food, for the undue delay in paying the deceased member’s benefit.
|
||||
| Employer-owned life policies and the Income Tax Act | ||||
| The Income Tax Act was amended by Act 15 in 2011 regarding the tax treatment of employer-owned life policies. Paragraph (m) of the definition of „gross income‟ was substituted. In short, this section sets out as “gross income”, “any amount received or accrued under or upon surrender or disposal of, or by way of any loan or advance granted by the insurer…, any policy of insurance upon the life of any person who at any time while the policy was in force was an employee… or director of the company, if any premium paid … was deductible… under section 17…”. Any loan or advance previously included in „gross income‟ is to be excluded. If a policy is terminated and a paid-up policy is issued, the two are deemed the same policy. Section 17(1) deals with “general deductions” which are allowed. Act 15 of 2011 expanded it by adding subsection (w). It deals with “expenditure incurred by the taxpayer in respect of any premiums payable under a long-term policy of which the taxpayer is the policyholder, where…” any of the following conditions apply:
|
||||
|
||||
| SNIPPETS FOR THE PENSION FUND INDUSTRY | ||||
| The competence of retirement fund trustees | ||||
| The article emphasises the importance of efficient governance in retirement funds, highlighting potential risks such as misappropriation, bad investment choices, and higher operating expenses. Trustees are crucial in making prudent investment decisions, but the Pension Fund Act lacks clarity regarding their requirements and fiduciary obligations. The Namibia Financial Institutions Supervisory Authority (Namfisa) has issued guidelines that are not prescriptive. The article suggests that good governance is essential for successful fund management and the protection of member benefits. It calls for more explicit regulations on appointing trustees, including qualifications, financial stability, ethical conduct, and experience. The Fit and Proper requirements under the Financial Institutions and Markets Act (2021) are mentioned, but their implementation has been postponed. The article recommends a more proactive approach by Namfisa in crafting a directive outlining “fit and proper” requirements for trustees. Additionally, it proposes establishing a framework for evaluating potential trustees, making governance standards mandatory, and ensuring regular trustee training. The article concludes by emphasising the need for regulators and retirement funds to enhance trustee recruitment procedures to benefit pension beneficiaries. Download the article by Vincent Shimutwikeni in The Namibian, here... |
||||
| In search of well-rounded investment capability | ||||
| The article discusses the challenges investors have faced in navigating volatile markets over the past three years, including market corrections, global bonds and equities retreats, a banking crisis, and recent fallout in bond and stock markets. Amid uncertainty, investors may question the safety of holding cash versus investing in assets. The author, Dirk Jooste, a Fund Manager at PSG Asset Management, emphasises the importance of careful asset selection, especially during market turmoil. PSG Asset Management follows a price-sensitive, bottom-up stock-picking approach and sets a high bar for including assets in their portfolios. Despite market challenges, their portfolios have not retreated to cash, and high allocations to equities are maintained. Periods of market stress allow selective investors to find overlooked gems and deliver positive returns. However, he acknowledges the anxiety and fear that investors may experience when committing money in uncertain markets. The article presents evidence of PSG Asset Management’s success in adding value to investors through their bottom-up 3M investment process. The focus on quality, price, independent thinking, and in-depth research allows them to replicate their process across asset classes and territories. The performance analysis, particularly in global equities, demonstrates the reliability of their investment approach. In conclusion, investment processes and philosophies matter significantly to investor outcomes. He suggests that in the current investment environment, where the market is undergoing a structural inflection, bottom-up stock pickers who conduct robust research and set high standards for asset selection are well-positioned to excel, especially in overlooked and unloved areas of the market that may become future market leaders. Read the full article by Dirk Jooste of PSG Asset Management in Cover of 11 December 2023, here... |
||||
|
||||
| SNIPPETS OF GENERAL INTEREST | ||||
| Interest rate relief for South Africa [and Namibia?] is coming | ||||
| South Africa will likely join the global trend of cutting interest rates as local and global inflation declines. Investec’s chief economist, Annabel Bishop, believes that the United States may cut its interest rates for the first time in the first half of 2024, possibly in March. This move could positively impact the rand and influence South Africa’s Reserve Bank to consider rate cuts. The South African Reserve Bank (SARB) typically aligns its decisions with the US Federal Reserve owing to their impact on global markets, the rand, and inflation. Bishop notes that the SARB’s monetary policy committee prefers CPI inflation to average around 4.5% year-on-year before considering rate cuts. If the US cuts rates in the first half of 2024, it could lead to a wider interest rate differential, potentially strengthening the rand and justifying rate cuts in South Africa. The inflation outlook for South Africa in 2024 is expected to be volatile, with a slight increase in the early months but an overall downward trajectory, reaching an anticipated average of 4.5% for the year. The SARB may seek consistent lowering of inflation in the second half of 2024 to support rate cuts. Although there are still risks to inflation, the SARB could cut interest rates earlier if it is confident of controlling inflation. However, under current forecasts, no further interest rate hikes are expected in South Africa, with rate cuts anticipated by the second half of 2024. Read the full article by Staff Writer in Businesstech of 8 January 2024, here… Editor’s note: The Bank of Namibia will likely bring its repo rate on par with the SARB if the SARB lowers its repo rate, as this article suggests. |
||||
| The average salary increase you can expect in 2024 | ||||
|
The article projects that South African employers plan to increase average salaries by 6.1% in 2024, aiming to attract and retain staff amid high inflation and a challenging labour market. However, recent trends show that salary increases have consistently lagged behind inflation rates. The 6.1% forecast for 2024 is slightly lower than the 6.6% actual average rise in pay budgets in 2023, according to a report by global broking and solutions company WTW.
Inflationary pressures and a competitive labour market are the primary reasons companies should consider raising compensation budgets. The forecasted salary increase is higher than the global average of 5.0% predicted for 2024. Despite the optimistic outlook, recent salary indices indicate a declining trend in real incomes in South Africa, with salary increases well below inflation rates. Statistics South Africa reports the current average monthly salary as R26,086, and with a 6.1% increase, an individual would have an extra R19,095 annually or R1,591.25 more per month. However, real salary increases have slowed, with October 2023 showing a 1.8% year-on-year increase, significantly below the 5.2% inflation rate. In real terms, there was a -3.4% year-on-year drop in take-home pay. Read the full article by Seth Thorne in Businesstech of 18 January 2024, here… Editor’s note: The South African salary increase scenario may provide a backdrop for salary reviews in Namibia due to the similarity in inflation rates between the two countries. |
||||
|
||||
| AND FINALLY... | ||||
| The latest RFIN newsletter Download it here… Wise words from wise men |
||||
| The insights from ancient philosophers still resonate today and offer timeless wisdom on the relationship between money, virtue, and well-being.
Confucius stresses the importance of prudence in financial matters and the distinction between ethical considerations and mere profitability. |
||||
| Unsubscribe If you do not want to receive these newsletters {unsubscribe}click here...{/unsubscribe} Disclaimer Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Fund Administrators (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager. |
||||
2023-12
|
||||
| Issued December 2023 | ||||
| This email address is being protected from spambots. You need JavaScript enabled to view it. |
||||
| In this newsletter... | ||||
| Benchtest 11.2023 – rotation of underwriters, trustee expenses and more... | ||||
| Jump to... | ||||
|
||||
| IMPORTANT NOTES AND REMINDERS | ||||
NAMFISA levies
After its October meeting, BON announced that the repo rate remains unchanged at 7.75%. The interest rate on funds’ direct loans remains at 11.75%. Registered service providers Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2023, here... |
Retirement calculator Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here... If you need help with your financial planning, get in touch with
RFS provides comprehensive support for trustees. Find a list of downloadable documents to assist with governance and management of private funds, registered as of June 2023, here... |
|||
|
||||
| IN THIS NEWSLETTER... | ||||
|
In this newsletter, we address the following topics:
|
||||
|
Read the end-of-year message to RFS stakeholders in a note from the Managing Director.
In 'Tilman Friedrich's industry forum' we present...
|
In 'Legal snippets', read about...
As always, your comment is welcome, so open a new mail and drop us a note! Regards Tilman Friedrich |
|||
|
||||
| A NOTE FROM THE MANAGING DIRECTOR | ||||
| End-of-year message to RFS stakeholders | ||||
| Hal Borland, author and former editor of The New York Times, said, “year’s end is neither an end nor a beginning but a going on, with all the wisdom that experience can instil in us”. As we approach the end of this year, we indeed had a lot of experiences to learn from this year. Everyone experiences challenges and lows in their lives, varying in degrees. Sometimes, we beat ourselves up because we have disappointed expectations of those depending on us or for not living up to our high standards. When faced with a low period, one often must dig deep to get out of such lows, and it can feel like it cannot happen soon enough. But when you are drawing and feeding from the knowledge that the low is temporary and that you will reach highs again, that is called resilience.  Looking back at the year about to end, I would like to pay tribute to the resilience of the RFS team, both collectively and as individuals. As is to be expected, we faced expected and new, unexpected challenges, but thanks to the combined strength of our team, we were able to succeed through the challenges. Early in the year, we faced an unexpected and unwarranted social media abuse following a communication to a section of our Benchmark Retirement Fund members. The term ‘cancelling’ or ‘cancellation’ has become increasingly known and associated with online abuse of an individual or corporate entity, driven primarily by social media influencer(s). Thanks to the combined efforts of our team, this new and increasing threat to any corporate entity of any size was managed without any major losses to our business. This is, however, a recent phenomenon which we expect to recur and will be dealt with as part of our focused stakeholder engagements. The resilience of our team was also a saving grace when the huge wave termed “the great resignation” battered the financial services industry and took its toll on our various teams, with resignations driven primarily by the difficult economic conditions that prevailed post-Covid. Various teams were stretched beyond acceptable limits as they ensured that our clients’ expectations were met despite the teams operating at only half the strength in some situations. We will rely on the strength and resilience of our team as we navigate the difficult path of changing the administration system. I have previously compared some of the projects carried out by our team to the impossible task of changing an aeroplane’s engine during flight. Why not? Our clients are unforgiving about dropping any of our high service delivery standards. Most of us will equally not be interested in being told why a service we expect and paid for cannot be delivered because of a system change. We have embarked on changing our main business system, fully aware of this. We have had some wins, and our team is working hard to ensure we complete this project successfully. So far, we have successfully converted 5 of our clients with 30 June and 30 September year-ends and will convert clients with 31 December year-ends to the new administration system during January 2024. To provide context, these are only five employers out of over 150 different employer groups whose pension fund arrangements we manage in stand-alone and umbrella arrangements. Further context: We have successfully converted around 6,200 members of approximately 40,000 members and pensioners under our administration. We are under no illusion that we still have a long way to go. We will update our valued clients on progress along the way. Based on our project schedules, we expect to bed down the admin system change project by 31 October 2024, all things being equal. On the business front, we have celebrated some new appointments during the year. Noteworthy was Standard Bank Namibia, which appointed us on 01 April 2023. Its appointment of RFS is a ‘welcome back’ to this client who previously used our services, and we are proud to be associated with them. Several large employer groups joined the Benchmark Retirement Fund. Most notable were Letshego Bank and Coca-Cola, to mention a few. More recently, the First Rand Group decided to join Benchmark Retirement Fund. We appreciate the trust and confidence these Namibian blue-chip companies have shown in us. As a home-grown company, we remain humble and proud of the support we continue to enjoy from the Namibian business community. The sustained and increasing support will not be taken for granted. We are fully aware that the support is behind our sustained service reputation. The ongoing support has allowed us to continue ploughing back directly over N$ 300,000 per annum into our communities, with the amount of time spent by senior management in industry support initiatives exceeding this figure many folds. I want to thank all our staff for their involvement in the different charitable projects funded by the company thanks to their participation. Many of our staff are regular flag bearers who keep fit and healthy by participating in various competitive and social sports and cultural events. Long service bears testimony to our values and business philosophy, as we believe in forging long-term relationships. We have breached a staff complement of 80 employees this year. Five staff members celebrated five years of service, four completed ten years, another five completed 15 years, and two completed 20 years of service with RFS during the year. Our crown jewel of long-term service is none other than Charlotte Drayer, the first employee of RFS. Charlotte will end her illustrious career in the pension funds industry of over 30 years, of which 24 years were in service of RFS. Charlotte will retire on 31 December 2023, and the staff will have the opportunity to bid her farewell at an exclusive staff event. We are hugely indebted to Charlotte, and she will leave an indelible mark in the history books of RFS. Unfortunately, we also had seven staff members that left us during the year. As we look forward to the coming year, we remain alert to the expected and unexpected challenges in 2024. Our operational environment remains challenging. I repeat Hal Borland’s quote, “Year’s end is neither an end nor a beginning but a going on”. We have a long way to go with our business system migration, and we still await the implementation of FIMA. We expect discussions regarding a National Pension Fund (NPF) to take centre stage, and we still hope to deal with regulatory uncertainties in our dealings with NAMFISA. These are among the challenges to be expected. However, we also expect some positive things to come in 2024, with a recovering economy on the back of a recovery in the tourism sector and the hype around the development of the green energy sector and the orange basin oil discovery by global players. We will need each one of our staff to build on their best as we go into another year. Before that, we need each one to rest well with the coming office close and holiday season. I pray that our staff and clients will keep safe and out of harm’s way during this eventful period. |
||||
|
||||
| TILMAN FRIEDRICH'S INDUSTRY FORUM | ||||
| Monthly Review of Portfolio Performance to 30 November 2023 |
||||
| In November 2023, the average prudential balanced portfolio returned 5.9% (October 2023: -1.5%). The top performer is Namibia Coronation Balanced Plus Fund, with 8.0%, while Hangala Capital Absolute Balanced Fund, with 4.0%, takes the bottom spot. For the three months, Allan Gray Namibia Fund takes the top spot, outperforming the 'average' by roughly 0.4%. Namibia Coronation Balanced Plus Fund underperformed the 'average' by 0.8% on the other end of the scale. Note that these returns are before (gross of) asset management fees. (Refer to graphs 3.1.3 to 3.1.5 for a more insightful picture of the relative long-term performances of the portfolios and the asset classes.) The Monthly Review of Portfolio Performance to 30 November 2023 reviews portfolio performances and provides insightful analyses. Download it here... |
||||
| Navigating the shifting economic landscape | ||||
| The undervaluation of the Rand introduces challenges and opportunities for Namibian and South African investors. The potential for capital repatriation, attractive yields in government bonds, and the tax efficiency of returns contribute to a complex investment landscape. Careful consideration of exchange rate dynamics, risk-reward profiles, and tax implications is paramount in making informed and strategic investment decisions. As the global economic landscape evolves, savvy investors in Southern Africa can leverage these insights to navigate uncertainties and position themselves for financial success. In the Monthly Review of Portfolio Performance to 30 November 2023, we elaborate on the strategies an investor should follow under the above circumstances. It also reflects the editor’s views on current developments and their impact on investment markets. Download the Monthly Review of Portfolio Performance to 30 November 2023, here... |
||||
| Should you rotate your underwriter regularly? | ||||
| Most pension funds have their consultant regularly test the insurance premium rates the fund bears in the market. Will it be to the fund’s advantage to move its insurance policies to another insurer every time the other insurer offers a lower premium? While a long-term insurance policy remains in force until terminated, all policies have an annual review procedure. At this time, insurers look at the rating based on statistics and experience to ensure they remain competitive. For larger schemes, insurers typically consider the ratio of claims paid versus the net premium received when assessing their premiums. A ratio between 60% and 90% over the last five years is typically considered normal, whereas ratios outside that range will likely lead to premium adjustments. For smaller schemes, usually up to around 200 members, their claims experience has little statistical validity and is not considered. For such schemes, the underwriter would use its overall rates adjusted for the group’s demographical composition. The bigger the scheme, the more relevance its own experience has, and more reliance will be placed on that by the underwriter. When a new underwriter enters the market, it often consciously undercuts the market rates to attract new business to increase the rates to a market-related level a year or two down the line. Remember that every time a new policy is issued and replaced with another one, it attracts a hefty stamp duty, a wasted cost. Although the insurance company bears stamp duty, it will be built into its pricing to be paid by the fund members. |
||||
| Trustee expenses – the trustees’ fiduciary duty of care | ||||
| The governance landscape for pension funds is evolving, with increasing emphasis on transparency, accountability, and ethical conduct. South Africa prides itself on being at the forefront of good corporate governance based on the 16 plus-one principles formulated in the King IV report. A trustee on a pension fund’s board of trustees is in a more onerous position vis-à-vis his fund members than a company director vis-à-vis his shareholders, as he is responsible for the life savings of the fund’s members. Trustees in SA have been held liable in their personal capacity for wrongdoings on their fund, and Namibian courts will undoubtedly look for SA precedents when adjudicating any wrongdoing by a board of trustees in Namibia. The essential duties of directorship and trusteeship are
But what about fund expenses, managed by the trustees at their discretion? There are no readily available benchmarks. So, one board of trustees may decide that the fund should carry the cost of each of their trustees doing an MBA or similar qualification to qualify them better to manage the fund's affairs. Another board may decide it should be good enough to have each trustee attend a relevant training course once every second year. One board may decide trustees need international exposure to be better equipped to act in the best interests of the fund’s members considering global developments, while another fund is only prepared to support local seminars and courses. The size of the fund and the benefit to the members in relation to the costs incurred must be considered carefully. Trustees must ask themselves: Would I be comfortable if our decision appeared on the front page of the local newspapers? We are seeing a trend of trustees incurring extravagant costs on trustee meetings. A few funds are now meeting at venues outside the company’s offices. It entails renting the facility and refreshments; sometimes, lunch or dinner becomes par for the course. The venue may be at a remote venue, and the meeting may be scheduled for the day before a long weekend. That arrangement then offers the opportunity to enjoy a long weekend. It becomes challenging to draw the line between acceptable and unacceptable behaviour. The decisive question is: would I be comfortable if the Namibian reported on the matter on its front page? So, how does your board of trustees decide if its policies address their duty of care, skill and good faith? These duties of trusteeship are particularly critical regarding expenses incurred for the direct or indirect personal benefit of trustees – an area where trustees are likely to face severe censure if they have not managed to separate personal interests from fund interests. As far as the example of training goes, one crucial consideration is whether trustees are serving the fund full-time or only part-time. If one looks at this question from a company’s point of view, any company would go to a much further extent in training staff to run the business of the company because the benefits of such training would accrue to the company on a ‘24/7 basis’, i.e. the dedicated employee is expected to plough back into the company everything he learnt. Directors or trustees typically only serve the company or fund on a part-time basis and are expected to have a sufficiently solid foundation to understand and to apply their obligation of duty of faith, duty of good care and duty of skill to overseeing the management of the business of the entrusted entity. One needs to distinguish clearly between these two situations. Companies often have benchmarks for staff training, and maybe the VET levy is a good starting point as this is what the government effectively has resolved employers should spend on training their staff. In the pension fund environment, no pointers exist to guide the trustees, but this does not absolve the trustee from applying utmost good faith, care and skill in managing the business of his fund. The King IV principles advocate for ethical leadership, effective control, and accountability. It is essential to scrutinise the decision against these principles. Trustees must act in the best interests of the fund and its members. Incurring expenses at the cost of fund members where it becomes difficult to differentiate between the personal and members’ benefits raises ethical concerns. It might be perceived as a misuse of funds for personal benefit. Guidance for Trustees, Members, and Service Providers:
|
||||
| Signing off for 2023 | ||||
| Dear reader, as editor of the Benchtest newsletter, I hope that you found some interesting reading in this newsletter in 2023, that you were alerted to important developments in the Namibian pensions industry and in achieving this objective, I was able to make your lives easier and save you time. I wish you all a peaceful festive season and an exciting 2024 blessed with health, happiness and success! May Namibia be blessed with a good rainy season and a prosperous economy, and may we all be spared from global shocks such as the COVID pandemic! Until next year, I sign off with my best wishes to all! Tilman Friedrich |
||||
|
||||
| COMPLIMENT | ||||
|
Compliment from a former fund member
21 November 2023 |
“Dear M I wanted to take a moment to express my sincerest appreciation for your incredibly prompt response in providing the tax certificates. Your swift action has been immensely helpful and has allowed me to proceed smoothly with the necessary documentation. I truly value your efficiency and dedication to assisting with this matter. Your promptness not only reflects your professionalism but also your commitment to exceptional service. Once again, thank you for your timely support. I look forward to future interactions and commend your team's outstanding efforts.” |
|||
|
Read more comments from our clients, here...
|
||||
|
||||
| BENCHMARK: A NOTE FROM GÜNTER PFEIFER | ||||
| Annual member meeting at Am Weinberg | ||||
| The Benchmark Retirement Fund conducted its annual member meeting at Am Weinberg on Thursday, 23 November. The meeting was held in a hybrid format so members and stakeholders could attend physically or virtually. Here is a visual impression of this informative and enjoyable occasion. |
||||
 |
 |
|||
|
Guests arriving
|
An illustrious audience | |||
 |
 |
|||
|
The board of trustees FLTR T Friedrich, S Jacobs, H Müseler, A Schimming-Chase, M Fabianus, M Theron, H Hentschel
|
Outgoing Chair H Müseler and incoming chair A Schimming-Chase | |||
|
The videos recorded at the meeting are available on the Benefit Counsellor platform. Please log in and indulge in the content available under the Fund Videos tab. You should find the investment consultant’s presentation very interesting. It provides a short overview of what steps the trustees plan to take in restructuring the default portfolio to improve performance and reduce costs by introducing specialist mandates.
The other videos available on the platform cover:
|
||||
| Important circulars issued by the Fund | ||||
The Benchmark Retirement Fund issued the following new circular:
|
||||
|
||||
| NEWS FROM RFS | ||||
| RFS says farewell to its first employee | ||||
 |
||||
|
RFS bids farewell to Charlotte Drayer, a distinguished colleague and true stalwart of RFS Fund Administrators, whose remarkable 24-year journey shaped our organisation and left an indelible mark on our team.
As Charlotte embarks on a new chapter, we express deep gratitude for her dedication, hard work, and lasting impact. We wish Charlotte a retirement filled with joy and fulfilment in the knowledge that her contributions have forever shaped the legacy of RFS Fund Administrators. Our managing director aptly put her character into the context of the company’s values – “Charlotte leaves a legacy which SHOULD continue to define RFS as a business. For this purpose, I have extracted the following characteristics which immediately came to mind, but I am sure there are a lot more:
|
||||
| Important circulars issued by RFS | ||||
RFS issued the following circulars in July:
|
||||
|
||||
| LEGAL SNIPPETS | ||||
| Admissibility of employer’s claim against a member’s benefit transferred to another fund | ||||
| This matter is an SA Supreme Court of Appeal Judgement in the case of ABSA Bank (Appellant) vs HJ Burmeister (1st Defendant) and two others dealing with an employer’s claim for compensation against a former employee’s pension benefit, which was transferred to another fund. Background: The case involves the interpretation of section 37D(1)(b) of the Pension Funds Act 24 of 1956. ABSA sought damages from the first respondent (Burmeister) for alleged dishonest and fraudulent conduct. The legal process commenced when ABSA filed a lawsuit against Burmeister in the High Court, Johannesburg. It claimed damages amounting to R1,765,269.05, alleging fraudulent and dishonest conduct by Burmeister during his employment. Burmeister initially defended the action but did not appear on the trial date. As a result, a default judgment was granted against Burmeister in the sum of R721,420.56. However, the default judgment remained unsatisfied, prompting the bank to take enforcement action. The sheriff (second respondent) purportedly attached the life annuity to the extent of R300,000. In response, Burmeister sought an urgent order in the High Court, Cape Town, to set aside the attachment of the life annuity. The application primarily focused on the protection provided by Section 37A(1) of the Pension Funds Act, preventing the attachment of pension fund benefits. As the appellant, ABSA brought a counter-application which sought a declaration that the bank's judgment against Burmeister entitled it to attach the annuity. Judge Potgieter granted an order setting aside the attachment and dismissed the bank's counter-application with costs. Dissatisfied with the High Court's decision, ABSA appealed the case to the Supreme Court of Appeal. Appellant's Argument (ABSA):
|
||||
| Complaint about undue delay in death benefit payment | ||||
This case deals with a complaint by Mrs L Naidoo, spouse of a deceased fund member, against the Massmart Provident Fund, Sanlam Employee Benefits as the fund administrator, and the employer, Cambridge Food, for the undue delay in paying the deceased member’s benefit.
|
||||
| The Consumer Credit Bill | ||||
| The Economic Policy Research Association (EPRA) recently published its report on the Consumer Credit Bill. The Bill is still open for comments to NAMFISA until 31 December 2023. The Bill establishes the Bank of Namibia and NAMFISA as consumer credit regulators for all entities they regulate. The EPRA generally believes this law is necessary and well-drafted. It has a few issues, as stated in its report. Its primary issue is with the regulators’ powers to impose excessive penalties on sometimes very subjective matters, in which penalties automatically have the status of “civil judgments”, without the regulators following due process (see pages 31 and 32 of its report). This places credit providers in a predicament, clouded with uncertainty, and exposes them to unfair and unreasonable legal and financial risk. Download the report here… |
||||
| Amendment to the Financial Intelligence Act | ||||
| Every person who carries on any business or is a director, secretary to the board, employed or contracted by any such business or institution must report to the Centre any suspicious activity contemplated by this Act (money laundering or financing of terrorism activities). The obligation arises from the following sections of the Financial Intelligence Act:
In July 2023, the Financial Intelligence Amendment Act 2023 was published in Government Gazette No. 8139. The reporting timeline was now reduced from 15 working days to “promptly”, which means without delay but not later than three (3) days after the suspicion was formed. Furthermore, the following was added: “…irrespective of the size of the transaction.” Therefore, all suspicious transaction independent of size must from now on be reported.. |
||||
|
||||
| SNIPPETS FOR THE PENSION FUND INDUSTRY | ||||
| The biggest retirement mistakes South Africans make | ||||
The author emphasises the importance of making informed decisions about retirement savings and highlights ten common mistakes that South Africans often make, especially during the festive season. The key points include:
Read the article by Luke Frazer in Businesstech of 26 November 2023 here... |
||||
| The great unretirement | ||||
| The author discusses the evolving concept of retirement, shifting from a traditional permanent exit from the workforce to the dynamic idea of "unretirement." Unretirement involves individuals re-entering the workforce or pursuing new professional endeavours after retiring. Such endeavours can take various forms, such as part-time employment, freelance work, starting a business, or exploring personal interests in a structured manner. The motivation behind unretirement is influenced by increased life expectancy and the need to support longer lives with limited retirement savings. The article highlights the benefits of unretirement for both employers and individuals. For employers, unretirement offers:
|
||||
|
||||
| SNIPPETS OF GENERAL INTEREST | ||||
| Which comes first: mortgage freedom or retirement security? | ||||
| In this interview with Gareth Collier, a certified financial planner at Crue Invest, the discussion centres around prioritising between paying down a mortgage or saving for retirement. Collier provides insights into the advantages of paying down a bond early, particularly in the early years when a significant portion of repayments goes toward interest. He emphasises the impact of compound interest and the potential consequences of not finding a balance between bond payments and retirement savings. Collier discusses the argument for early retirement savings, highlighting the benefits of compounding growth over time. He addresses concerns about stock market volatility, explaining how volatility can contribute to returns, especially for those with a longer investment horizon. The interview includes a practical example comparing the outcomes of paying down a bond early versus investing in retirement funds over different periods. Collier suggests a mathematical approach for those seeking a compromise between paying down a mortgage and saving for retirement. Depending on factors like interest rates and tax brackets, a 30-year approach might be more favourable, considering potential tax savings on retirement contributions. He also emphasises the importance of flexibility in managing cash flow during economic fluctuations and recommends finding a balance that suits individual circumstances. Overall, the interview provides valuable insights into the considerations individuals should weigh when deciding between paying down a mortgage and saving for retirement, offering practical advice for finding a compromise that aligns with financial goals and realities. Read the transcript of the interview of Gareth Collier by Boitumelo Ntsoko in Monweyweb on 24 November 2023 here… |
||||
| Tips and talking points for investing right now | ||||
|
The author offers investing tips and talking points for financial advisers when discussing investment decisions with clients amidst economic uncertainty. The key points include:
Read the full article by Nico Janse van Rensburg of Amplify in Moneymarketing of 24 November 2023 here…
|
||||
|
||||
| AND FINALLY... | ||||
| Wisdom from great philosophers | ||||
| "Twenty years from now, you will be more disappointed by the things you didn’t do than by the ones you did, so throw off the bowlines, sail away from safe harbour, and catch the trade winds in your sails. Explore, Dream, Discover." ~ Mark Twain | ||||
| Unsubscribe If you do not want to receive these newsletters {unsubscribe}click here...{/unsubscribe} Disclaimer Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Fund Administrators (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager. |
||||
2023-11
|
||||
| Issued November 2023 | ||||
| This email address is being protected from spambots. You need JavaScript enabled to view it. |
||||
| In this newsletter... | ||||
| Benchtest 10.2023 – ethics in governance, tax rulings create legitimate expectations, and more... | ||||
| Jump to... | ||||
|
||||
| IMPORTANT NOTES AND REMINDERS | ||||
NAMFISA levies
BON announced after its October meeting that the repo rate remains unchanged at 7.75%. The interest rate on funds’ direct loans remains at 11.75%. Registered service providers Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2023, here... |
Retirement calculator Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here... If you need help with your financial planning, get in touch with
RFS provides comprehensive support for trustees. Find a list of download documents to assist with governance and management of private funds, registered as of June 2023, here... |
|||
|
||||
| IN THIS NEWSLETTER... | ||||
|
In this newsletter, we address the following topics:
|
||||
|
In 'Tilman Friedrich's industry forum' we present...
|
In News from the market', read about...
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 October 2023 |
||||
| In October 2023, the average prudential balanced portfolio returned -1.5% (September 2023: -2.3%). The top performer is Investment Solutions Balanced Growth Fund, with -0.9%, while Namibia Coronation Balanced Plus Fund, with -2.4%, takes the bottom spot. For the three months, Allan Gray Namibia Fund takes the top spot, outperforming the 'average' by roughly 2.4%. Namibia Coronation Balanced Plus Fund underperformed the 'average' by 2.1% on the other end of the scale. Note that these returns are before (gross of) asset management fees. (Refer to graphs 3.1.3 to 3.1.5 for a more insightful picture of the relative long-term performances of the portfolios and the asset classes.) The Monthly Review of Portfolio Performance to 31 October 2023 reviews portfolio performances and provides insightful analyses. Download it here... |
||||
| Navigating the Investment Landscape: A Guide for Residents in the SA Rand Common Monetary Area | ||||
| Investing in the SA Rand CMA presents both challenges and opportunities. By carefully considering the global context, understanding SA Rand's dynamics, and seeking professional guidance, investors can make informed decisions that maximise their potential returns while managing associated risks. The Benchmark Default Portfolio is a globally diversified portfolio appropriate for the average fund member with a long-term investment horizon. Graph 6.2 shows how well the black line of the Default Portfolio stood up against the yellow line of the average prudential balanced portfolio and the various underlying asset classes since 2010. Graph 6.2  The Fund’s board of trustees actively manages it in consultation with NMG, our investment consultants. It is aimed at members and employers who are hesitant to make investment decisions. In the Monthly Review of Portfolio Performance to 30 September 2023, we elaborate on the strategies an investor should follow under the above circumstances. It also reflects the editor’s views on current developments and their impact on investment markets. Download the Monthly Review of Portfolio Performance to 31 October 2023, here... |
||||
| The Crucial Role of Ethics in Good Governance | ||||
| Ethics lies at the heart of good governance and is pivotal in steering organisations, institutions, and decision-makers toward responsible, just, and transparent actions. In the realm of governance, whether in public administration, corporate management, or boards of trustees for pension funds, the significance of ethical conduct cannot be overstated. It serves as a guiding light in ensuring fair and moral decision-making, especially when significant financial interests are at stake. Importance of Ethics in Good Governance: Ethics within governance acts as the cornerstone of integrity, dictating that decisions should be based on moral principles, fairness, and accountability. This responsibility is paramount for boards of trustees managing pension funds. Trustees are entrusted with the financial security and well-being of the fund's beneficiaries, necessitating ethical considerations in every decision. Consequences of Failing to Apply Good Governance and Ethics: When ethics in governance falter, the repercussions can be dire. It leads to the erosion of trust, financial mismanagement, and compromised integrity and is equivalent to corruption. A lack of ethical practices could result in skewed decision-making, favouritism, or even exploitation, ultimately undermining the intended objectives of the fund and the trust beneficiaries have in the system. Ethical Dilemma in the Case of a Service Provider Offering Reduced Costs: Consider a scenario where a large service provider offers its services to an entity at half the cost of its smaller competitors and well below the cost it charges to other similar entities. This substantial price difference raises ethical red flags. It prompts a moral dilemma for the service provider and the pension fund's trustees. Is it Ethical for the Service Provider to Offer Services at Such Low Costs? From an ethical standpoint, such a steep reduction in service costs may indicate predatory pricing, potentially aiming to eliminate competition unfairly or compromise the quality of services provided. It raises questions about the sustainability and motivations behind such a pricing strategy. An ethical service provider should offer services at a fair price, ensuring quality and sustainability without engaging in practices that undermine healthy market competition. Is it Ethical for Trustees to Accept Such an Offering? Trustees of pension funds must act in the best interest of beneficiaries, focusing on long-term financial stability and ethical considerations. Accepting a substantially lower-cost service should warrant scrutiny. While reducing costs can benefit the fund and its members, the sustainability and quality of the service at such reduced rates must be thoroughly assessed to prevent any compromise in long-term financial health or service standards. Often, large players pursue the strategy of controlling their market. Once they control the market, they can dictate the price and service offering. Such a scenario removes choice and competition and can ultimately disadvantage the consumer of the service. Addressing the Ethical Quandary: How Should the Pension Fund Respond? The pension fund's response to a reduced-cost offering should prioritise the ethical implications. It is essential to comprehensively evaluate the services offered, assessing quality, sustainability, and potential long-term impacts on the fund. Additionally, trustees must ensure that their decision aligns with their fiduciary duty and ethical standards, avoiding shortsighted gains at the expense of long-term stability and choice. In conclusion, the ethical considerations in governance, especially within pension fund management, demand careful and moral decision-making. Trust, integrity, and responsible stewardship of funds are vital for the well-being of beneficiaries. Ensuring fair practices and ethical conduct not only preserves trust but also safeguards the system's long-term financial health and integrity. Such ethical dilemmas must be navigated with careful consideration of all stakeholders' interests, with the primary focus on maintaining ethical standards and the fund's sustainability. |
||||
| Pension Fund Administration: The Impact of Technology | ||||
| In the ever-evolving landscape of financial services, technology has become pivotal, especially in the administration of pension funds. This technological revolution has significantly transformed how service providers, fund members, and regulators interact and manage pension funds, improving efficiency, transparency, and accessibility. For Service Providers: Technology has revolutionised the operations of pension fund service providers. Automation and digitisation of processes have streamlined administrative tasks, reducing manual errors and enhancing operational efficiency. Advanced software and integrated systems facilitate faster data processing, record-keeping, and reporting, leading to quicker decision-making and better risk management. Moreover, artificial intelligence (AI) and machine learning (ML) applications aid in analysing vast amounts of data, providing insights into fund performance, member behaviours, and market trends. These insights allow service providers to offer members more tailored and informed investment strategies and personalised services. Cybersecurity measures have also become a critical focus for service providers. With sensitive financial data at stake, implementing robust security protocols is essential to safeguarding member information from cyber threats and ensuring data privacy. For Fund Members: The technological advancements in pension fund administration have significantly benefited fund members. Access to online portals and mobile applications enables members to conveniently monitor their pension fund accounts, check contributions, track investment performance, and make informed decisions about their retirement savings. Digital communication tools allow for real-time updates and educational resources, empowering members with the knowledge to make more informed investment choices and retirement planning decisions. Additionally, technology facilitates smoother and more efficient communication between fund members and service providers, reducing response times and improving overall customer service experiences. Conclusion: Technology is revolutionising pension fund administration, offering a spectrum of benefits, from streamlining operations to providing enhanced accessibility and security. The integration of technology has reshaped the pension landscape. However, while technology brings immense advantages, it also introduces challenges, such as new skill sets required from service providers' staff and fund members. It requires stringent cybersecurity measures, ethical use of AI and data analytics, and ensuring that all members have equitable access to technology-based services. The transition usually requires a substantial up-front investment by all stakeholders. The consumer will bear these costs and benefits from its advantages in the final analysis. As technology advances, its role in pension fund administration will continue evolving, promising improvements in efficiency, transparency, and member satisfaction while requiring continued vigilance and adaptability to address emerging challenges. This ongoing evolution will define the future of pension fund administration, shaping the landscape for years to come. |
||||
| NamRA's AVC rulings and the doctrine of legitimate expectations | ||||
| We have come across two NamRA rulings to two different funds this year, wherein NamRA ruled that additional voluntary retirement fund contributions are tax deductible. In one case, its confirmation of a fund's request omitted the critical word 'voluntary' despite the request referring to it. The second request correctly stated the law and concluded that additional voluntary contributions are not tax-deductible. It argued that they should be allowed as a deduction for the country's greater good. These bring into contention the doctrine of legitimate expectations. Per Black's Law Dictionary, this doctrine means "Expectation arising from the reasonable belief that a private person or public body will adhere to a well-established practice or keep a promise." In a South African Income Tax case, ITC 1682, Judge Davis said that "the expectation must be induced by the decision maker either expressly – by means of a promise or undertaking, or implicitly – by means of settled past conduct or practice …(and) if the public authority conducts itself first to create a legitimate expectation that a certain course will be followed, it would often be unfair if the authority were permitted to follow a different course to the detriment of one who entertained the expectation." The exposition on the legal principle of legitimate expectations primarily focuses on the concept that a public body, such as a revenue authority, may be bound by the doctrine of legitimate expectations. This doctrine stems from the idea that if a public authority creates a legitimate expectation in an individual or entity through its actions or statements, it would be unfair for the Authority to act contrary to that expectation, particularly if the individual has relied on it. NamRA issued rulings to two funds that contradict the relevant provisions of the Income Tax Act. The discussion on the doctrine of legitimate expectations suggests that if the Authority (NamRA in these two scenarios) makes a statement or issues a ruling that creates a legitimate expectation in a taxpayer, and the taxpayer acts upon that expectation, the Authority should generally be bound by it. The doctrine of legitimate expectations is rooted in fairness. It suggests that if these two funds rely on a clear and precise statement or ruling from NamRA and act upon it, NamRA should generally be held accountable if it subsequently decides to act contrary to the earlier statement, causing detriment to the taxpayer. As I pointed out, the first ruling omitted the keyword 'voluntary'. Following the above discussion, NamRA's ruling cannot be interpreted but must be applied to the letter. It means that additional contributions, if allowed by the fund's rules, are tax-deductible but not additional voluntary contributions. Under both rulings, there is one question that begs an answer. The rulings were requested on behalf of an employer and a fund, respectively. The employee benefits from the two rulings, not the employer or the fund. Can the benefitting employee argue that he decided to make additional voluntary contributions under a ruling issued to his employer or fund? Should the rulings not instead have been requested on behalf of the employees? In both cases, I caution the employers from proceeding, assuming that additional voluntary contributions are tax-deductible. Even if NamRA felt morally compelled to allow such contributions, it can reverse its decision at any time for the reasons I gave above. The doctrine of legitimate expectations might make the back-dating of the review a bit more difficult. However, NamRA could still argue that any rational person should have concluded that the rulings were defective. |
||||
|
||||
| COMPLIMENT | ||||
|
Compliment from a Principal Officer
Dated 11 August 2023 |
“Dear E You were a star for being in a position yesterday to assist me on short notice and almost immediately, when you were the only one in the office, to provide me with an electronic copy of our AFS. Amazing – staff members geared and hands-on to assist on behalf of their colleagues. Much appreciated. Regards.” |
|||
|
Read more comments from our clients, here...
|
||||
|
||||
| BENCHMARK: A NOTE FROM GÜNTER PFEIFER | ||||
| Important circulars issued by the Fund | ||||
| The Benchmark Retirement Fund issued no new circulars since announcement no. 8 – appointment of trustee. Clients are welcome to contact us if they require a copy of any circular. |
||||
|
||||
| NEWS FROM RFS | ||||
| RFS launches The Retirement Compass | ||||
| This quarterly newsletter is part of our social responsibility and initiatives to support the retirement fund industry. It aims to provide members of funds managed by RFS Fund Administrators and other stakeholders with industry news and insights presented in plain language. We congratulate Sebastian Frank-Schultz on launching this first newsletter under his pen and look forward to future issues. Comments, contributions and suggestions for future content are welcome. Send these directly to This email address is being protected from spambots. You need JavaScript enabled to view it.. Download the newsletter, here... |
||||
| A night under the African skies | ||||
|
RFS celebrated its year-end function under this motto at the SKW courtyard on 3 November. Here are a few visual impressions from this most enjoyable and relaxing occasion to mix and mingle with colleagues and friends.
|
||||
 |
 |
|||
 |
 |
|||
 |
 |
|||
|
The 2023 Social Committee
We say goodbye to the 2023 social committee, l.t.r., Janolene, Timothy, Venessa, Aliza and Sebastian, and thank you for all your dedication and hard work to light up our lifes in 2023! |
The 2024 Social Committee We welcome our 2024 social committee, l.t.r., Wilbard, Richardene, Florencia, Hermine, Cherryl, Cizelle and Elray and look forward to your creativity in shaping our social events 2024! |
|||
| Important circulars issued by RFS | ||||
RFS issued the following circulars in July:
|
||||
|
||||
| NEWS FROM NAMFISA | ||||
| Date for public comment extended | ||||
|
NAMFISA informed the public that the due date for submission of comments on subordinate legislation recently published in government gazette 8237 of 18 October 2023 was extended to 24 November 2023.
Comments must be submitted in the prescribed format. Download the public notice here… The subordinate legislation comprises standards for Collective Investment Schemes, CIS.S.4.8 and 4.22. Gazette number 8237. Download it here… |
||||
| Notice on inactive foreign funds | ||||
|
In a notice to pension fund service providers of November 2023, NAMFISA advises that it will cancel the registration of a fund on proof that it has does not exist anymore. It requests the service providers to revert if they have relationships or hold any assets in the name of the funds reflected on an attached list to provide the contact details on their record to NAMFISA by no later than 30 days from the date of the publication.
Download the notice and attached list here… |
||||
|
||||
| News from RFIN | ||||
| RFIN’s trustee training calendar | ||||
| The RFIN website is a valuable resource for pension fund trustees and other industry stakeholders. It would be worth your while rummaging around on it here… If you missed the RFIN’s training calendar, you can find it under Education and Training here… |
||||
|
||||
| News from the Market | ||||
| M&G offering investment training | ||||
| M&G offers free investment training to trustees and interested service providers. The session duration is about 5 hours, presented either face-to-face or virtually. It is concluded with a test and successful participants receive a certificate. Download a flyer here... |
||||
|
||||
| LEGAL SNIPPETS | ||||
| Complaint about non-payment of disability benefits | ||||
| The complaint involved the non-payment of a disability benefit by the Edupen Umbrella Pension Fund to P. Kitzler, a member of the fund and an employee of Mondeor High School. The member's employment was terminated due to ill health, leading to the dispute. Arguments by the Member (Complainant):
Read the determination by the SA Pension Funds Adjudicator here… |
||||
| Transacting with foreign vendors | ||||
| Funds often acquire services and products from foreign vendors, such as software, consulting services, training, etc. Such transactions may have VAT and Withholding Tax implications. For an answer, one must study the Income Tax Act and the provisions of any double taxation agreement in force between Namibia and the other tax jurisdictions. Failure to comply with the VAT Act and the Income Tax Act concerning Withholding Tax, will expose the fund to penalties and late payment interest. As fund administrators, we do not purport to be tax experts. Such expertise can typically be sourced from Namibian audit firms. In instances where invoices are presented to us for payment in respect of goods or services acquired from a foreign vendor, we presume that the fund has considered the potential implication of VAT (import or normal VAT) and of Withholding Tax the fund may be liable for, as well as any relief granted by the double taxation agreement between the two countries concerned. In our understanding, the purchase of software from a foreign vendor represents a VATable import and VAT should be paid at the same time payment is affected. In our understanding, the cost of attending training or seminars outside Namibia does not represent a VATable import and VAT, if applicable in the foreign country, should be raised by the foreign vendor. Trustee and trainer fees payable to a foreign resident attract Withholding Tax unless the double taxation agreement provides relief. |
||||
| Revisiting Withholding Tax on services payments to non-residents | ||||
In practice, Namibians, including Namibian pension funds, mostly have dealings with South Africans, and in general, the services provided by South African service providers would be subject to Namibia's double taxation agreement with South Africa. This agreement prohibits the taxation by Namibia of any of the following income –
|
||||
|
||||
| SNIPPETS FOR THE PENSION FUND INDUSTRY | ||||
| High interest rates: Are money market investments a good option? | ||||
| In uncertain and volatile markets, investors seek safety for their accumulated capital. Money market investments offer a safe haven and a sense of comfort in the short term. However, money market investments are unsuitable for long-term investors because they do not provide inflation-beating returns. South African equities and global equities have outperformed inflation over five years. Long-term investors with a somewhat aggressive risk profile should consider investing in South African or international equities. Consulting with a financial advisor can help you make the best investment decisions for your needs. Read the article by Aidan James Freswick of Brenthurst Wealth in Moneyweb of 8 September 2023 here... |
||||
| Three vital themes for investing over the next decade | ||||
| The Fabiana Fideli argues that long-term investors should focus on three essential themes: the environment, infrastructure, and innovation. The environment is the greatest threat we face in the next decade, and the author lists several companies helping to solve this problem. Infrastructure is another area of opportunity, with a global infrastructure gap of US$15 trillion. She recommends two companies that are making a difference in this sector. Innovation is her third theme, and she highlights two companies at the forefront of this area. She concludes that investing in the next ten years will differ significantly from investing over the past ten years. Investment firms must be prepared for exponential change and the challenges that will come with it. Here are some key quotes from the article:
|
||||
|
||||
| SNIPPETS OF GENERAL INTEREST | ||||
| In retirement, you sometimes have to be cruel, to be kind | ||||
TThis article offers sound advice focused on three crucial areas:
Read The full article by Marius Fenwick in Monweyweb of 18 August 2023 here… |
||||
| Investing is a journey – advice for young investors | ||||
|
Here are 15 steps young investors should follow to achieve investment success. Fund members who may choose different investment portfolios are also encouraged to heed the advice.
|
||||
|
||||
| AND FINALLY... | ||||
| Wisdom from great philosophers | ||||
| "The ultimate economic goal is not to maximise wealth but to create a society of self-sufficient citizens who are not dependent on others." ~ Aristotle This timeless wisdom from an ancient thinker underscores the importance of balancing economic growth with social equity, ethical practices, and a focus on long-term sustainability. By heeding these principles, societies can foster prosperous and resilient economies that benefit all members of the community. |
||||
| Unsubscribe If you do not want to receive these newsletters {unsubscribe}click here...{/unsubscribe} Disclaimer Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Fund Administrators (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager. |
||||
Retirement Compass Newsletters
| Filename | Date |
|---|---|
 The_Retirement_Compass_Newsletter-Fifth_Edition |
2025-03-18 |
|
The_Retirement_Compass_Newsletter-Fourth_Edition |
2024-12-06 |
|
The_Retirement_Compass_Newsletter-Third_Edition |
2024-08-16 |
|
The_Retirement_Compass_Newsletter-Mar-2024 |
2024-04-02 |
|
The_Retirement_Compass_Newsletter-Nov-2023 |
2023-11-17 |
2023-10
|
||||
| Issued October 2023 | ||||
| This email address is being protected from spambots. You need JavaScript enabled to view it. |
||||
| In this newsletter... | ||||
| Benchtest 09.2023 – best practice for retirement savings, provident fund tax loophole and more... | ||||
| Jump to... | ||||
|
||||
| IMPORTANT NOTES AND REMINDERS | ||||
NAMFISA levies
BON announced after its September meeting that the repo rate remains unchanged at 7.75%. The interest rate on funds’ direct loans remains at 11.75%. Registered service providers Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2023, here... |
Retirement calculator Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here... If you need help with your financial planning, get in touch with
RFS provides comprehensive support for trustees. Find a list of download documents to assist with governance and management of private funds, registered as of June 2022, here... |
|||
|
||||
| IN THIS NEWSLETTER... | ||||
|
In this newsletter, we address the following topics:
|
||||
|
In 'Tilman Friedrich's industry forum' we present...
|
In News from NAMFISA', read about...
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 30 September 2023 |
||||
| In September 2023, the average prudential balanced portfolio returned -2.3% (August 2023: 0.4%). The top performer is Hangala Capital Absolute Balanced Fund, with -1.1%, while Namibia Coronation Balanced Plus Fund, with -4.0%, takes the bottom spot. For the three months, Allan Gray Namibia Fund takes the top spot, outperforming the 'average' by roughly 1.6%. On the other end of the scale, NinetyOne Managed Fund underperformed the 'average' by 1.9%. Note that these returns are before (gross of) asset management fees. (Refer to graphs 3.1.3 to 3.1.5 for a more insightful picture of the rolling long-term performances of the portfolios and the asset classes.) The Monthly Review of Portfolio Performance to 30 September 2023 reviews portfolio performances and provides insightful analyses. Download it here... |
||||
| How do you invest when the Namibia Dollar is weak and political risks are high? | ||||
| Investing when the Namibia Dollar is heavily undervalued and global tensions - such as those arising from the Ukraine and Palestine conflicts, and not to forget the Taiwan tensions between the US and China - requires a strategic approach prioritising capital preservation and wealth protection. Diversifying your assets across different currencies and international markets can help mitigate the impact of a Namibia dollar devaluation and economic instability in the Common Monetary Area. Consulting with a financial advisor specialising in international investments may also be beneficial in developing a tailored strategy. In the Monthly Review of Portfolio Performance to 30 September 2023, we elaborate on the strategies an investor should follow under the above circumstances. It also reflects the editor’s views on current developments and their impact on investment markets. Download the Monthly Review of Portfolio Performance to 30 September 2023, here... |
||||
| Best practices for maximising retirement savings and financial security | ||||
Maximising retirement savings and achieving financial security is a long-term goal that requires careful planning and disciplined financial management. Here are some best practices to help you on your journey to financial security and a comfortable retirement:
|
||||
| Tax evasion at retirement from a provident fund? | ||||
| When a provident fund member retires, he will be entitled to his total retirement benefit as a lump sum, and two-thirds will be taxed if he chooses to take it all in cash. Unfortunately, the Income Tax Act’s section 16(1)(z) offers a loophole. The retiring member can instruct the fund administrator to pay his tax-free one-third and transfer the remaining two-thirds to a preservation fund. Under section 16(1)(z), the transfer to a preservation fund is tax-free, and the Act or the NamRA’s administrative procedures do not require an indication if the transfer amount comprises the taxable portion. NamRA, therefore, cannot track the taxable portion transferred tax-free to a preservation fund. An unscrupulous adviser and fund member can now transfer the untaxed two-thirds to a pension, provident or retirement annuity fund. The member can then retire again from that fund and get another one-third paid out tax-free. Many years ago, the Inland Revenue Department (IRD), realised that advisers exploited the loophole. To uncover the full extent of this tax evasion scheme, IRD instructed all administrators to provide comprehensive details of all retirements for the preceding ten years. This instruction was the proverbial ‘cat amongst the pigeons’. The industry was up in arms and pulled every lever to lobby against the IRD’s instruction. Because of the editor’s nightmarish experience of extracting detailed 10-year history, RFS adopted an internal policy not to allow a provident fund to take a one-third tax-free portion and transfer the two-thirds taxable portion to a preservation fund, even if the fund rules permitted it. The internal policy requires the member to take all in cash or to transfer all to another fund. Although it will be difficult for NamRA to uncover members using the loophole to evade income tax, section 95 gives NamRA the power to tax any transaction that “…was entered into or carried out solely or mainly for the purposes of the avoidance or the postponement of the liability for the payment of any tax, duty or levy …”. Should this happen, NamRA will impose penalties and interest for the late tax payment. If the misuse occurred many years ago, the penalty and interest could add up to a substantial amount. NamRA could even withdraw the tax approval of the fund with severe consequences for the employer and its employees. I acknowledge that RFS’ internal policy restricting partial transfers from a provident fund at retirement has no legal basis. Still, it would not be in a fund’s or the member’s interest to overrule RFS’ internal policy, and we caution against it. |
||||
|
||||
| COMPLIMENT | ||||
|
Compliment from a Benchmark fund member
Dated 6 October 2023 |
“Good morning J Hope you are well. Thank you for the wonderful service that you have provided and always provide to me and all your customers. That's the reason I am transferring my pension from GIPF to RFS.” |
|||
|
Read more comments from our clients, here...
|
||||
|
||||
| BENCHMARK: A NOTE FROM GÜNTER PFEIFER | ||||
| The Benefit Counsellor is now even more user-friendly | ||||
| The Benchmark Retirement Fund recently successfully migrated to the new Benefit Counsellor Platform. The most significant change occurred in the WhatsApp interface, which now also offers all the online options and menus. If you are a member, please play with the WhatsApp feature to see what it offers. |
||||
| Benchmark and RFS welcome prestigious new participating employers | ||||
The Benchmark Retirement Fund (BRF) and RFS Fund Administrators (Pty) Ltd (RFS) are pleased to announce the addition of the following prestigious new clients as participating employers of the BRF and welcome the companies and all their employees:
Benchmark has a proven track record of success in helping businesses of all sizes to improve their employee benefit programs. Benchmark and RFS are committed to these new clients with the highest level of service and support and are confident that this partnership will be mutually beneficial. Benchmark and RFS look forward to a long and successful partnership with their new clients. |
||||
| Benchmark appoints new trustee | ||||
| The Board of Trustees announced the appointment of Mr. Hermann Hentschel as independent trustee to the Benchmark Retirement Fund effective 1 November 2023. Mr. Hentschel brings a wealth of experience to the Benchmark Board, having served as Chairperson of the FirstRand Namibia Board, Vice Chairperson of the FirstRand Namibia Pension Fund, and Trustee on the O&L Pension Fund. Mr. Hentschel holds a Master of Science in Leadership and Change Management and a B-Com (Hons) in Management Accounting. He is an associate member of the Chartered Institute of Management Accountants (CIMA). The Board welcomes Mr. Hentschel to the Board and looks forward to the value he will add to the Benchmark Retirement Fund. |
||||
| Important circulars issued by the Fund | ||||
The Benchmark Retirement Fund issued the following circulars in September:
|
||||
|
||||
| NEWS FROM RFS | ||||
| Saying goodbye is never easy! | ||||
| We regret having to bid goodbye to Austin Thirion, who has served our clients in various capacities over the past ten years. Austin left RFS’ employ at the end of September to pursue other interests. We are grateful for Austin's dedication and commitment to RFS and our customers during this time. He will be missed greatly. We thank Austin for his dedication to the company and our clients and wish him all the best in his future endeavours. |
||||
| Staff improving their competencies | ||||
|
RFS prioritises its staff's ongoing education and professional development. As Nelson Mandela once said, "Education is the greatest equaliser," and by investing in the education and training of its employees, RFS is helping to create a more skilled and knowledgeable workforce.
By supporting its staff in their pursuit of further education, RFS is also investing in the long-term success of its business. As staff members become more skilled and knowledgeable, they are better equipped to provide high-quality service to clients and to help the company stay competitive in a rapidly changing market. We wholeheartedly congratulate
|
||||
| Staff participate in the Paratus Namibian Cycle Classic | ||||
|
Five cyclists represented RFS at this year’s Paratus Namibian Cycle Classic. We congratulate them on achieving their personal goals and proudly flying the RFS flag.
In the picture from left to right are Giovanni van Wyk (30 km), Timothy Wallenstein (60 km), Rudigar van Wyk (30 km), Aliza (30 km), and Marius Prinsloo (30 km). |
||||
 |
||||
| RFS helps souls connect | ||||
|
Singing is the language of the heart, a universal expression of human emotion. It transcends barriers and connects souls, carrying the power to heal, uplift, and inspire. Through song, we find our truest selves, and in the process, we touch the hearts of others. Singing is not just a skill; it's a gift, a treasure that enriches our lives and brings people closer together. Andrea Bocelli, an Italian tenor and one of the most successful opera singers in the world, once said, "Singing is my passion, my first love and the secret of my energy. Music to me is like finding my inner self, my soul."
RFS has supported the Windhoek Men’s Choir (WMC) for many years. Over these years, the choir travelled Namibia far and wide, lighting up people’s hearts and lives. On 23 September, the WMC and the Camerata Vocale Ensemble staged the Spring Serenade evening at de Kayak in Olympia, as seen in the pictures below |
||||
 |
 |
|||
| Annemarie Nel does it again | ||||
|
Annemarie Nel, RFS manager: retail, scooped another Metropolitan Galaxy certificate of recognition in gold for 2022/2023. Well done, Annemarie; we are proud of you and that your client service focus is seen by others, too! We congratulate her for a well-deserved award. Keep up the excellent work!
In the picture below, Metropolitan’s Anna Mbandi hands over the award to Annemarie. |
||||
 |
||||
| RFS donates to Future Hope CYDC | ||||
|
RFS recently donated inkjet printers, cartridges and office chairs to the Future Hope Child and Youth Development Centre. It is an initiative by Pastor Chris Claassen and his wife Wilmarien in Okuryangava and other informal settlements of Windhoek. They have set up a church building in the meantime and continue to provide soup and bread to the community weekly. RFS was involved in previous sponsorships of blankets and food items about three years back.
Thanking RFS for its generous donation, pastor Claassen said: “We will use this to print worksheets for the Sunday school classes we are currently conducting at our soup kitchen at Future Hope Church of the Nazarene in the Okuryangava suburb of Windhoek. We regularly host Vacation Bible Schools during school holidays, where this equipment will greatly benefit us. We aim to open a preschool in this informal settlement by next year to establish a nurturing environment for children in this area. Below is Veueza Kangueehi from RFS handing over printers and cartridges and a picture of a Vacation Bible School conducted during the winter school holidays. |
||||
 |
 |
|||
| Important circulars issued by RFS | ||||
RFS issued the following circulars in July:
|
||||
|
||||
| NEWS FROM NAMFISA | ||||
| 14 September industry meeting minutes | ||||
|
NAMFISA recently circulated the minutes of the Industry Meeting of 14 September 2023. The meeting was poorly attended, with only nine pension funds being represented.
The meeting minutes chaired by Ms. Lovisa Indongo-Namandje, General Manager of the Pension Funds and Friendly Societies Division at NAMFISA, provide an overview of the discussions and key points made during the meeting. Here are the summarised vital points:
|
||||
|
||||
| LEGAL SNIPPETS | ||||
| Old Mutual vs Old Mutual Staff Pension Fund on withholding of benefit revisited | ||||
| In Benchtest 12.2021, we had an article on this topic and issued a circular to private fund clients and Benchmark participating employers. These documents were based on a legal opinion regarding the 'Old Mutual vs Old Mutual Staff Pension Fund and another'. We understood the legal opinion that there must either be a written employee acknowledgement or a judgment at the employee's exit date. This understanding questioned an SA judgment that indicated such a requirement would render section 37D(b) futile. Having read this case, Old Mutual sought an interdict against the OM Staff Pension Fund pending the outcome of an action which Old Mutual wished to institute against its former employee. The former employee had invested money on behalf of a client, one Ms N, which was not a good investment, resulting in Ms N losing a considerable amount. An investigation by Old Mutual showed that there had been misconduct by the former employee, who had resigned from Old Mutual. Old Mutual sought to prevent the pension fund from paying out the former employee's pension, pending the outcome of an action. It transpired from a letter written by Ms N that she would hold Old Mutual vicariously liable for the second respondent's conduct. After dwelling on the purpose of S37D(b) and its preconditions, Judge Maritz held that the threshold requirement contained in s 37D(b) was that the amount must be due by a member to his employer on the date of his retirement or on the date on which he ceased to be a member of the fund. In examining if that requirement has been satisfied, he concluded -
In the Old Mutual case, Ms N had not taken legal action by the time the matter was before the court. It then makes sense that the employer must refrain from withholding the benefit in anticipation of something that might never materialise. Based on the preceding information, a fund should thus not deny an employer a request to withhold a benefit purely because the employee has not acknowledged his wrongdoing or obtained judgment when the employee exited. |
||||
| Can an employer still withhold a benefit? | ||||
| The Pension Funds Act prohibits employers from depriving employees of retirement fund benefits. However, there is an exception to this prohibition, which allows retirement funds to withhold benefits from employees who have caused financial damage to their employer due to theft, fraud, dishonesty or dishonest misconduct. This can only occur where the employee has admitted liability in writing or the employer has obtained a judgment against the employee. The article discusses the case of Highveld Steel & Vanadium Corporation Limited v Oosthuizen, in which the court held that retirement fund trustees may exercise their discretion to withhold benefits from employees pending the outcome of legal action for damages, even if the employer has not yet obtained a judgment. Conclusion: An employer may still withhold a pension fund benefit if the employee has caused financial damage to the employer due to theft, fraud, dishonesty or dishonest misconduct, and the employer has either obtained a judgment against the employee or the employee has admitted liability in writing. However, even if the employer has not yet obtained a judgment, the trustees of the retirement fund may exercise their discretion to withhold benefits pending the outcome of legal action for damages. It is important to note that the trustees of the retirement fund have discretion in this matter, and they are not obliged to withhold benefits simply because the employer has requested them to do so. The trustees must consider all relevant factors, including the strength of the employer's case and the potential prejudice to the employee if benefits are withheld. If you are an employer considering withholding a pension fund benefit from an employee, you should seek legal advice to ensure you comply with the law. Read the article by Kenneth Coster and Nicolette van Vuuren of Webber Wentzel in Cover of 20 September, here... |
||||
|
||||
| SNIPPETS FOR THE PENSION FUND INDUSTRY | ||||
| Don’t accept losses from virtue investing | ||||
The key messages of this article are as follows:
|
||||
| Key decisions to be made at retirement | ||||
The key messages in the article are:
Read the article by Eric Jordaan, Crue Investments, in Moneyweb of 16 November 2023, here... |
||||
|
||||
| SNIPPETS OF GENERAL INTEREST | ||||
| 4 Financial mistakes young people make and how to avoid them | ||||
The key message from the article is that young people should be aware of the common financial mistakes that others have made and take steps to avoid them. These mistakes include:
Read the full article by Staff Writer in Businesstech of 7 October 2023, here... |
||||
| Ranking the top 10 universities in SA | ||||
|
Webometrics has published its mid-year update to the global ranking of universities in 2023, with the University of Cape Town, yet again, coming out on top.
Webometrics said that the rankings are mainly based on three core indicators.
|
||||
 |
||||
| Read the full article by Luke Fraser in Businesstech of 13 September 2023, here... | ||||
|
||||
| AND FINALLY... | ||||
| Wisdom from great philosophers | ||||
| "The greatest happiness you can have is to know that you do not necessarily require happiness." ~ Johan Wolfgang von Goethe | ||||
| Unsubscribe If you do not want to receive these newsletters {unsubscribe}click here...{/unsubscribe} Disclaimer Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Fund Administrators (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager. |
||||
2023-09
Jump to...  Important notes & reminders
 Newsletter In this newsletter, we address the following topics:
 Tilman Friedrich's industry forum
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2023-08
Jump to... Important notes & reminders
Newsletter In this newsletter, we address the following topics:
 Marthinuz Fabianus
A note from the Managing Director
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2023-07
Jump to... Important notes & reminders
Newsletter In this newsletter, we address the following topics:
Marthinuz Fabianus
A note from the Managing Director
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2023-06
Jump to...  Important notes & reminders
 Newsletter In this newsletter, we address the following topics:
 Tilman Friedrich's industry forum
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2023-05
Jump to... Important notes & reminders
Newsletter In this newsletter, we address the following topics:
Marthinuz Fabianus
A note from the Managing Director
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2023-04
Jump to... Important notes & reminders
Newsletter In this newsletter, we address the following topics:
 Tilman Friedrich's industry forum
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2023-03
Jump to... Important notes & reminders
Newsletter In this newsletter, we address the following topics:
Tilman Friedrich's industry forum
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2023-02
Jump to... Important notes & reminders
Newsletter In this newsletter, we address the following topics:
Tilman Friedrich's industry forum
 Compliment
 Benchmark: a note from Günter Pfeifer
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2023-01
Jump to... Important notes & reminders
Newsletter In this newsletter, we address the following topics:
Marthinuz Fabianus
A note from the Managing Director
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022-12
Jump to... Important notes & reminders
Newsletter In this newsletter, we address the following topics:
Marthinuz Fabianus
A note from the Managing Director
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022-11
Jump to... Important notes & reminders
Newsletter In this newsletter, we address the following topics:
Marthinuz Fabianus
A note from the Managing Director
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022-10
Jump to... Important notes & reminders
Newsletter In this newsletter, we address the following topics:
Marthinuz Fabianus
A note from the Managing Director
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022-09
Jump to... Important notes & reminders
Newsletter In this newsletter, we address the following topics:
Tilman Friedrich's industry forum
Compliment
Benchmark: a note from Günter Pfeifer
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022-08
Jump to... Important notes & reminders
Newsletter In this newsletter, we address the following topics:
Tilman Friedrich's industry forum
Compliment
Benchmark: a note from Günter Pfeifer
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022-07
Jump to... Important notes & reminders
Newsletter In this newsletter, we address the following topics:
Tilman Friedrich's industry forum
 Compliment
 Benchmark: a note from Günter Pfeifer
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022-06
Jump to... Important notes & reminders
Newsletter In this newsletter, we address the following topics:
Tilman Friedrich's industry forum
Compliment
 News from RFS
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022-05
Jump to... Important notes & reminders
Newsletter In this newsletter, we address the following topics:
Tilman Friedrich's industry forum
Compliment
Benchmark A note from Günter Pfeifer
News from RFS
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022-04
Jump to... Important notes & reminders
Newsletter In this newsletter, we address the following topics:
Marthinuz Fabianus A note from the Managing Director
Tilman Friedrich's industry forum
Compliment
Benchmark A note from Günter Pfeifer
News from RFS
 Legal snippets Bio Break
 Snippets for the pension fund industry
 Snippets of general interest
 And finally...
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022-03
Jump to... Important notes & reminders
Newsletter In this newsletter, we address the following topics:
Tilman Friedrich's industry forum
Compliment
Benchmark A note from Günter Pfeifer
News from RFS
 !Kharos
 News from NAMFISA
Legal snippets
Snippets for the pension fund industry
Snippets of general interest
And finally...
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022-02
Benchtest 01.2022, expropriation of umbrella fund sponsors, don’t over-insure, trustee fees, and more... Jump to... Important notes & reminders
Newsletter In this newsletter, we address the following topics:
Tilman Friedrich's industry forum
Compliment
Benchmark A note from Günter Pfeifer
News from RFS
News from NAMFISA
Legal snippets
Snippets for the pension fund industry
Snippets of general interest
And finally...
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022-01
Benchtest 12.2021, Income Tax, VAT amendments, umbrella funds and regulatory intervention and more... Jump to... Important notes & reminders
Newsletter In this newsletter, we address the following topics:
Tilman Friedrich's industry forum
Compliment
Benchmark A note from Günter Pfeifer
News from RFS
Legal snippets
Snippets for the pension fund industry
Snippets of general interest
And finally...
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2021-12
Benchtest 11.2021, MD year-end message, NAMFISA bombshell, and more... Jump to... Important notes & reminders
Newsletter In this newsletter, we address the following topics:
Tilman Friedrich's industry forum
Compliment
Benchmark A note from Günter Pfeifer
News from RFS
News from NAMFISA
Legal snippets
Snippets for the pension fund industry
Snippets for investors
And finally...
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2021-11
| In this newsletter: Benchtest 10.2021, transition to FIMA, no risk benefits under FIMA, brokers outlawed under FIMA and more... |
|||||||
|
According to NAMFISA, it is envisaged that the Financial Institutions and Markets Act (the FIMA) will become effective on 1 October 2022. The FIMA provides for a further 12 months after the effective date for retirement funds and financial intermediaries to register under the FIMA, and for retirement funds to submit FIMA-compliant rules. However, the FIMA needs to be complied with from the effective date. This means that retirement funds can only apply the provisions of the existing Pension Fund Act compliant rules in so far that they are not inconsistent with the FIMA after the effective date and before the FIMA-compliant rules of the fund are registered. NAMRA turning away manual submissions ICAN reports that it has come to its attention that manual submissions are being turned away at NamRA’s offices. Senior management at NamRA has confirmed that manual submissions should be permitted. Fieda Muaine can be contacted for assistance should you experience this issue. Email This email address is being protected from spambots. You need JavaScript enabled to view it. Pension fund governance - a toolbox for trustees
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In ‘News from NAMFISA’ read about
In ‘Legal snippets’ read
In media snippets, read about
As always, your comment is welcome, so open a new mail and drop us a note! Regards Tilman Friedrich  Monthly Review of Portfolio Performance to 31 October 2021 In October 2021, the average prudential balanced portfolio returned 2.2% (September 2021: -0.4%). The top performer is NAM Coronation Balanced Plus Fund with 3.7%, while Investment Solutions Balanced Growth Fund with 1.5% takes the bottom spot. For the 3-months Old Mutual Pinnacle Profile Growth Fund takes the top spot, outperforming the ‘average’ by roughly 1.5%. Hangala Prescient Absolute Balanced Fund underperformed the ‘average’ by 2.1% on the other end of the scale. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 31 October 2021 provides a full review of portfolio performances and other insightful analyses. Download it here... The folly of point-in-time performance measurement! Interestingly, most investment performance reports present the performance by way of bar graphs. These bar graphs show the point-in-time investment performance, which is meaningless. It is like looking out of the window and concluding that Namibia must have a very humid climate because it happened to rain at that time. Weather bureaus usually present charts as line charts, or if they are bar charts, each bar will represent a month or a year over a specific time. You cannot judge investment managers’ returns by looking at bar chart performance tables. The folly of looking at bar charts becomes more pronounced when markets are very volatile. To illustrate my point, let’s look at the one-year bar chart performance table for April 2020 and April 2021. For the twelve months to March 2020, shares (JSE Allshare Index) produced a negative return of 22.1%. For the following 12 months to March 2021, shares returned 49.4%! Investment is not a one-game matter but rather like winning the league. One can follow similar approaches when investing. The speculative course means that the investor tries to identify opportunities in the market and invest in these, focusing on making a killing on the investment. How one identifies opportunities is important. Laypeople would consider what has done well over the recent past and jump onto that band-wagon. Experts would use benchmarks for assessing whether an investment presents an opportunity. Often the benchmark considers the investment relative to other similar investments, the market, or the investment’s historical metrics. In a planned approach, the investor would define his ultimate goal and a strategy for achieving this goal… Read part 6 of the Monthly Review of Portfolio Performance to 30 September 2021 to find out what our investment views are. Download it here... FIMA bits and bites – the transition to the FIMA When the FIMA becomes effective, envisaged as 1 October 2022, all regulated entities will enter a 12 month transition period. In this transition period, all funds must register, adapt their rules, and ensure that they comply with FIMA. Every entity registered under the Pension Funds Act and any other non-banking financial services act is deemed to be registered under FIMA but will lose this status unless NAMFISA registers the entity under the FIMA during the 12 month transition period. Pension fund administrators and consultants were never required to register under the Pension Funds Act but are required to register under the FIMA as financial intermediaries. Under the FIMA a ‘pension fund’ will no longer be a ‘pension fund’, but it will be a ‘retirement fund’. While pension funds have 12 months to adapt their rules to meet the FIMA requirements, any provision in their rules inconsistent with the FIMA is invalid. For example, a withdrawal rule that currently provides for the employer contribution only vesting in the member over a number of years is definitely invalid. FIMA prescribes a ‘minimum individual reserve’ that includes the employer and employee contribution. Even if the current rules provide for member and employer contributions to be paid to the member upon his withdrawal, the formula reflected in the FIMA standard RF.S.5.7 prescribes how the minimum individual reserve must be calculated. If that calculation produces a result greater than the rules currently offer, the calculation per RF.S.5.7 will apply. The principal officer and the board will remain in office and the principal officer will now be a member of the board. These officers must apply for approval which means they must all be ‘fit and proper’ (per Gen.S.10.2) and must be independent of the fund (per Gen.S.10.8). The board must have at least 4 members, half of which must be elected by the members and it must hold at least 4 meetings per year. The fund rules must be amended by 30 March 2023 (assuming an effective date of 1 October 2022) to reflect these changes. The auditor and the valuator may remain in office but the fund must re-apply for their approval and they must also be independent of the fund and fit and proper. For the financial year that ended before 1 October 2022, funds must submit the annual financial statements within six months of the year end, and the triannual valuation as of a date after 30 September 2019 but before 30 September 2022, within twelve months of the valuation date. Funds must submit financial statements and triannual valuations for a later date within 90 and 180 days, respectively. All contracts a fund entered into before 1 October 2022 and that are still in force will remain in force but must be amended to meet the FIMA requirement upon their renewal. All regulations issued under the Pension Funds Act that relate to investments (reg 12 to 39), remain in force until replaced through a regulation or standard under the FIMA. No rights or obligations that existed under the Pension Funds Act will expire due to the FIMA becoming effective. FIMA bits and bites – retirement funds cannot offer insured benefits As we wade through the quagmire washed ashore by the FIMA, every other day one comes across a provision the repercussions of which one never realised. One of these repercussions is that, for all intents and purposes, a retirement fund in Namibia, other than the GIPF, can only offer its members benefits derived from the contributions the employer and the member paid to the fund. So if you pass away, or if you become disabled in the month you joined the fund, your retirement fund will pay you a benefit of close to nil, or nil if it happened the day after you joined the fund. Now, NAMFISA will probably say that this is not true. Funds may offer death benefits and disability benefits of more than the contributions received by and on behalf of the member. The problem is that the fund cannot make such benefits subject to any typical insurance terms and conditions, limitations and exclusions. The fund would have to manage its risk presented by the benefit it is obliged to pay in terms of the rules and the benefit it was able to reinsure. Exact reinsurance is no longer possible and the funds will end up in situations where it is under-recovering and has to stand in for the shortfall. A fund may try to mitigate this risk through building up and maintaining a ‘risk reserve’. Unfortunately, as I understand the FIMA, a defined contribution fund may only maintain an expense reserve. Even if a defined benefit fund is allowed to maintain a risk reserve, it is not any consolation as the risk remains very high, particularly in respect of top management with high salaries and death- and disability risk benefits. I can relate my experience with a fairly small fund (about 200 members) that only insured its risk on an ‘approximate basis’. It lost two of its senior staff in one year and its reserves were hopelessly inadequate to cover the shortfall. For many years after, this fund had to withhold investment returns from its members to rebuild its risk reserve. If for any reason, the fund were to have terminated, it would not have paid members there termination benefit in terms of the rules. Therefore, I repeat my earlier statement, that for all intents and purposes Namibian retirement funds cannot offer risk benefits under the FIMA anymore. This will probably present challenges to the employer in terms of the Labour Act. From 1 October 2022, most funds in Namibia cannot offer their members the same death and disability benefits at the same cost as before anymore. Death benefits will not enjoy the same protection as they did under the Pension Funds Act anymore. How does an employer sell this to his employees? NAMFISA is usually very wary of employees’ employment conditions being affected by any rule change, now the law obliges the employer to change his conditions of employment to the disadvantage of his employees! FIMA bits and bites – insurance brokers are prohibited from doing business? Section 5 of the FIMA (in the Insurance Chapter) deals with the prohibition to carry on insurance or reinsurance business unless registered. Sub-section 5(b)(iii) reads as follows:
Interestingly, sections 53 of the FIMA defines an “insurance broker” as follows: “insurance broker” means a person who, on behalf of a member of the public, deals directly with an insurer or a person acting on behalf of an insurer, in arranging insurance or acting or aiding in any manner in connection with the negotiation and, continuance or renewal of insurance or provides consulting services with respect to insurance or insurance claims…” An insurance broker must register with NAMFISA. The definition of “insurance broker” says what his work entails, but section 5(5)(b)(iii) prohibits anyone other than a registered insurer to carry out this work. Also, section 363(1)(c) includes in the definition of the “administration services” which a fund administrator can do, “claims and benefit payment services”. So if a registered fund administrator deals with an insurer with regard to “claims” of the fund it administers, that constitutes administration services even though section 5(5)(b)(iii) also considers it insurance business reserved for registered insurers only. Will a broker and an administrator get away with it under the proviso “in the absence of evidence to the contrary” in section 5(5)? I would not have thought this proviso can refer to other sections of the FIMA but rather talks about a person accused of doing insurance business providing evidence that his doings do not constitute insurance business. I am not a lawyer but it seems even lawyers have their difficulties understanding the FIMA! Not being the top performer is not good enough! The Benchmark Default portfolio is currently experiencing a difficult time, investors taking the fund to task for not featuring at the performance table’s top end. Investing is like a sports game, whether it is soccer, rugby, hockey, or whatever, and the investor serves as the coach. His investment is his team; the opponents are the investment market. The coach may take one of two routes, a speculative route or a planned route. Taking the speculative course, the coach would attempt to capitalise on the opponent’s weakness as the game progresses, focusing on winning the game. The planned route requires the coach to know his opponents and his team and what result he wants to achieve. This knowledge will determine the strategy he must follow. He may not always want to win each game if that means preserving his team’s completeness, fitness, and health for the next game. Investment is not a one-game matter but rather like winning the league. One can follow similar approaches when investing. The speculative course means that the investor tries to identify opportunities in the market and invest in these, focusing on making a killing on the investment. How one identifies opportunities is important. Laypeople would consider what has done well over the recent past and jump onto that band-wagon. Experts would use benchmarks for assessing whether an investment presents an opportunity. Often the benchmark considers the investment relative to other similar investments, the market, or the investment’s historical metrics. In a planned approach, the investor would define his ultimate goal and a strategy for achieving this goal. Pension fund investment is like the investor (fund member) participating in a league that will determine the winner when he retires. Now I hear the typical comments: how long must I bear the pain of my investment not featuring at the table’s top end. People get impatient and want the fund to get rid of under-performing managers and switch to outperforming managers. These persons are focusing on winning the game rather than winning the league. I do not consider myself an expert but well-informed. I have tried switching and, without exception, I regretted doing it because there are always two legs when one switches. Firstly it is the switching-out-leg, and then it is the switching-in-leg. The first leg is the easy one because it considers the past. The second leg is tricky because now one must consider the future, which none of us can with any certainty. In fact, most of us will get it wrong. The more often you switch, the poorer the result. Graph 6.1 depicts the investor’s challenge very nicely, so I will explain what it shows. The yellow line is the cumulative performance of the average prudential balanced portfolio and our benchmark for this purpose. The period I chose to measure starts 1 January 2010, when the trustees restructured Default Portfolio and made it less risk-averse, until 31 August 2021. The other lines show their performance relative to our benchmark (the average prudential balanced portfolio). From top to bottom, we see the following:
 Since the performance of the Default portfolio is currently the bone of contention, I will focus on the black line. For starters, we must understand what this line wants to achieve. We must also understand what the yellow line wants to accomplish since the black line’s and the yellow line’s goals are similar. The yellow line must achieve a long-term investment return of inflation plus 4% after fees, and the black line must achieve the same long-term return. Any investor who does not have the same goal must choose a different portfolio depending on his goal. If the goal lies ahead shortly, the goal is often different than if it lies ahead in the distant future. If the investor has more money than he needs to survive, he will have a different goal than the investor whose money is barely sufficient to survive. If an investor does not need any money when he retires and can keep it invested, he will have a different goal to the investor who needs a portion or all his capital to pay off debt. In summary, the investor must know who he is money-wise. (Your broker can help you to define who you are, money-wise.) Because the yellow line and the black line represent a combination of managers (to diversify risk), they cannot feature at the top of the log, but they will not feature at the bottom of the log. Now let’s look at the black line (the Default Portfolio) over the time shown. The Default portfolio held itself above the average all along. Yes, it was higher up at times but closed the gap, of late, still ending 3% above. We see that it fluctuates more than the straight, yellow line, mainly because it consists of fewer and more conservative managers. To understand its behaviour, we must look at the blue line (JSE Allshare index). The black line is more conservative than the yellow line because it owns fewer shares (as represented by the JSE Allshare index). The result of fewer shares is that when the blue line improves its performance (relative to the yellow line), the black line should do worse than the yellow line and the opposite. The black line’s behaviour is very consistent with its expectation when one follows the two lines. While the JSE performed poorly, the Default Portfolio performed better than the average prudential balanced portfolio. Since 2019 fortunes turned around for shares, and now the black line moves down, and the blue line moves up. Why did fortunes turn up for shares? Well, following the COVID 19 market crash, reserve banks pumped huge amounts of money into the global market. The US markets reached dizzy heights, as we can see in graph 6.2, and the US market is driving other markets. Graph 6.2  I have no doubt that we will see a reversal, and this reversal will happen when central banks stop flooding markets with money or when they start increasing interest rates. Both events are on the table, and the media speculate widely that this may happen soon. One has already seen the US share market getting into a stuttering mode recently, as depicted in graph 6.3 (by courtesy of Capricorn Asset Management Daily Brief 211013). If you have a different expectation of markets, you must choose other investment managers. Graph 6.3  Conclusion Investment markets globally are in a sensitive phase but less so in the developing economies. Shares likely will experience a down-turn, and interest rates will probably go up soon. When interest rates go up, bonds will decline in value, and it means that the investor will lose on his share and his bond investment. For investors with a long-term horizon, it is advisable to invest cautiously rather than aggressively; in other words, rather invest less in shares and spread the investment more widely. One must select individual shares very carefully rather than investing in a share index in the prevailing conditions. One must focus on shares paying high dividends rather than the shares increasing in value. In line with its goal (as described above), the Default portfolio is positioned well, in my opinion, as it only holds 47% in shares compared to the average prudential balanced portfolio’s 65%, and it uses managers known for their stock-picking skills. The Default portfolio is not the right option for all fund members but for most fund members. Those with a different expectation of global financial markets and a shorter investment horizon must not use the Default portfolio.
 From the chairperson of a large fund Dated 1 November 2021 “Wow! I am impressed R and compliment RFS on the progress. I think this [new reporting] makes so much more sense…” Read more comments from our clients, here...  Important circulars issued by the Fund The Benchmark Retirement Fund did not issue any new circular since those reflected in Benchtest 10.2021. Clients are welcome to contact us if they require a copy of any circular.
 Important circulars issued by RFS RFS did not issue any new circular since those reflected in Benchtest 10.2021. Clients are welcome to contact us if they require a copy of any circular.  Industry information session on NAMFISA Act and the FIMA NAMFISA held a virtual meeting with chief executive officer and principal officers of regulated entities on Monday 8 November. The purpose of the meeting was to convey how NAMFISA intends to roll out the formal consultations in respect of the sub-ordinate legislation of the FIM Act. In summary, all standards will appear in the government gazette by the 5th of December for regulated entities to review these and submit any comments by 28 February 2022. The sub-ordinate legislation is already available on the NAMFISA website at this link https://www.namfisa.com.na/legislative-instruments/ It is envisaged that these two Acts will come into force by 1 October 2022. If you missed the presentation, you can find it here... Industry meeting on risk benefits in pension funds We reported in previous newsletters that the pension funds are suddenly experiencing problems getting NAMFISA rule amendment approval where the amendment deals with death and disability benefits (and this applies to all funds whether they are umbrella-, or stand-alone funds and to new rules). RFIN then arranged a meeting between NAMFISA, RFIN, and several industry stakeholders for 11 November. On the part of RFS, its managing director and the principal officer of the Benchmark Retirement Fund attended the meeting. Our managing director compiled the following notes from his recollection of proceedings:
In response to the industry request to urgently issue a directive, the Registrar confirmed that he is giving the matter his urgent attention. However, he needs to ensure that the directive will not adversely affect the current entitlement of members and beneficiaries. In closing the discussions Mr. Matamola acknowledged that NAMFISA treated applications for the registration of rules and rule amendments inconsistently and undertook to ensure that his office will in future treat all applications consistently. Floor is now open for comments NAMFISA just sent out an invitation to submit comments on FIMA subordinate legislation by 28 February 2022. Find the relevant subordinate legislation here... The invitation is available here... Stakeholders must submit comments on the standard template that is available here...  How should you dispose of benefits when the fund member is institutionalised In this real life scenario a member of the fund was accepted for a disability income benefit on the grounds of a serious mental disorder by the fund’s insurer. The member was subsequently institutionalised without the fund having been aware. The disability benefit was suspended by the insurer after the member’s bank account was closed and no futher communication received from the member. Upon investigation and a visit to the member’s family, the fund became aware of the true situation and of the the fact that the member’s dependants were left desitute without any support from the member or the fund. Section 37 A of the Pension Funds Act directs that any benefit must be paid to the member and may not be reduced, transferred or otherwise ceded, pledged or hypothecated or be liable to be attached or subjected to any form of execution. Section 37 D further prohibits any deduction being made from a member’s benefit. In this scenario the benefit was the disbility income that had accumulated by the member since he was institutionalised. Since the member’s bank account was closed and due to his mental incapacity, he is not able to open another bank account. In order to assist the dependants of the member, the fund then contemplated to have a curator appointed by the court, to take care of the member and his dependants. The question arose whether the fund can make an advance payment to pay for legal costs to have a curator appointed and whether such a payment can be recovered from benefits due to be paid to the member. A study of the fund’s rules established that the “Powers and duties of the board of trustees” are defined as follows: “(a) to invest, lend, put out at interest, place on deposit, make advances of, or otherwise deal with all moneys of the fund upon such securities and in such manner as they may determine from time to time…” “(b) in general, to take such steps as shall, in its opinion, be in the interests of the fund;… The powers, duties and authorities of the trustees set out in these rules shall in no way limit or usurp the generally accepted responsibilities of trustees.” Rule (a) thus provides for the fund advancing the costs, or otherwise deal with the moneys, the latter avenue being very vague and potentially risky. However, to ‘advance’ costs would imply a later recovery of the amount advanced from a person. In this case there is really only the member or his beneficiaries from whom such advance could be recovered. Section 37D of the Pension Funds Act deals with the reduction of benefits due to a member. This section is very specific and does not provide the means to recover such an advance payment from the member’s benefit. Once a curator has been appointed, it is within the curator’s powers though, to refund such an advance. The fund would however have no means to enforce such refund and would have to rely on the goodwill of the curator. Rule (b) provides fairly wide powers to the trustees, if the exercise of such power is congruent with their ‘generally accepted responsibilities’. The trustees in our view, have a responsibility to ascertain that the needs of members’ and their dependants are cared for. If a member is unable to take care of his own and/or his dependants’ needs, no fault can in our opinion be found with the trustees taking steps to re-institute care for members and dependants under such circumstances. This would imply the fund incurring the costs and that such costs cannot be recovered from the beneficiaries. The trustees would thus act within their powers if they resolved to carry the costs of having a curator appointed for this member, particularly in view of the fact that no one else assumed responsibility to take care of the member and his dependants, and in view of the fact that a benefit can only be paid to the member or his curator. The trustees may consider requesting the curator, once appointed, to refund these costs, although this would be totally within the curator’s discretion, taking into account the needs and interests of the dependants. Where trustees exercise their discretion as envisaged, the rules would normally require the trustees to take a formal written resolution to this extent which must be signed by a quorum of trustees to be as valid as a decision taken at a properly constituted meeting. Fund ordered to pay for costs of DNA test, if required Masakhane Provident Fund's {the fund) decision to distribute 50% of the death benefit was set aside and it was ordered to determine an equitable distribution of the whole of the deceased's death benefit (not just the remaining 50%). The deceased member left behind his permanent life partner who was pregnant at the time of his death and financially dependent on him. The life partner gave birth to the child after the member died. The status of the life partner as a spouse and the paternity of the child appeared to be supported by the family members of the deceased . The deceased's son {from another relationship) had assisted the life partner in submitting her claim to the fund.The fund never contacted the deceased's son directly during its investigations and eventually decided to exclude the child and the life partner from the distribution of the deceased's death benefit. The life partner heard about the fund's decision from a friend and upon enquiry with the fund was told to communicate with the family of the deceased about a DNA test. However, the family denied being aware of this. In her complaint, the life partner submitted that she requested a full explanation from the fund, However, this was met with threats by an employee of the fund that she would not receive anything without the paternity test. The life partner submitted that she did not object to a DNA test (and attached copies of correspondence exchanged with the fund as proof of same) but also pointed out that she was nominated by the deceased and, therefore , deserved to be treated with respect. In response to the complaint, the fund submitted that it was willing to redistribute the death benefit on condition that the child undergoes a DNA test. The response from the fund was found to be grossly inadequate and,in some respects,misleading because the mother of the child had always indicated to the fund that she was willing to subject the child to a DNA test. The PFA said with regard to the fund's response: “ln the first instance, it fails to take into account that the complainant has already indicated her willingness to subject the child to a DNA test and submits that the complainant refused a DNA test. Unfortunately for the first respondent, this is not borne out in the correspondence attached to the complaint. In the said correspondence. the complainant clearly stated her position as not objecting to a DNA test." Despite this, the fund requested the PFA to dismiss the complaint on the basis of her refusing to agree to a DNA test. Alternatively the fund requested that the PFA order the complainant to subject the minor child to a paternity test. The PFA found that the fund was attempting to shift the blame for its failure to conduct a proper investigation and failed to explain its reasons for excluding the permanent life partner. In this regard, it was held that the fund's attempt to explain away its failure by relying on the absence of a DNA test conflated issues between that of the permanent life partner's dependency and the child's dependency.In this regard,the determination said: “It is not clear how the complainant's dependency or nomination can be forfeited by the absence of a DNA test...” The fund failed to answer the allegation made by the life partner that she was a nominee of the deceased and had also failed to respond to several attempts by the complainant to get an explanation. In this regard, the fund was found to have failed to comply with its fiduciary duties in terms of the Pension Funds Act. It was found that there was no dispute about the permanent life partner's status as a spouse of the deceased or the paternity of the child, and there was no need for a DNA test but that if the fund wanted to have one done then it should be ordered to pay for it. The fund was ordered to pay for all costs associated with the DNA test including the costs of reasonable transport and accommodation where necessary, if the fund required a DNA test to be conducted. It was noted that the complainant may have to travel with the child for purposes of conducting the DNA test and,therefore, any travel and accommodation must be suitable. Source: The 2020-21 annual report of the Office of the Pension Fund Adjudicator.  Investors should prepare for a market correction “Investors should brace themselves for a 10% market correction over the next month as they grapple to get a sense of the Federal Reserve’s thinking on interest rates, says deVere Group CEO Nigel Green. The forecast from chief executive and founder of one of the world’s largest independent financial advisory, asset management and fintech organisations comes as the Federal Reserve is widely expected to announce on Wednesday that it will start unwinding its $120 billion monthly bond purchases. Mr Green says: “Whilst the Fed Chair Jay Powell will be talking about the tapering of the massive bond-buying programme, the real story for the markets is how the Fed, the world’s de facto central bank, will talk about inflation. “Inflation is running hotter and is becoming a bigger issue than most analysts previously expected. “As such, investors will be trying to get a handle on how the Fed intends to fight the trend of higher prices by starting to raise interest rates.” He continues: “It’s highly unlikely that the central bank will now use their previous phrase ‘transitory’ to describe the current price surges. Inflation appears to be stickier than they had expected…” Read this opinion of Nigel Greene, deVere Group, in Cover of 3 November 2021, here… Inflation: the bottom-up case for caution “If headlines are to be believed, people are gravely concerned that inflation will rise. If market prices are to be believed, people are quietly convinced that inflation will fall. To us, markets seem a bit too relaxed about the risk of higher or more persistent inflation. To be clear, we have no edge in forecasting inflation, and big macro questions are not the starting point for our decisions. Macro forces are influenced by a dizzying number of noisy variables, and big questions attract droves of smart people trying to find the answers, making it fiendishly difficult to be different and right. As bottom-up investors, we strongly prefer to make decisions based on narrower questions about individual companies. That does not mean that we ignore the big stuff, as thinking through these issues can be useful to help manage portfolio-level risks. Today, we see plenty of risks to worry about when it comes to inflation. Classically, printing money leads to inflation, but it didn’t after the global financial crisis because it got stuck in the financial system. Central banks pushed plenty of cash onto commercial banks’ balance sheets, but businesses and households were busy paying down loans rather than taking out new ones, and governments were more concerned with austerity than generosity. As a result, relatively little of that freshly printed money actually made it to the real economy. It boosted asset prices for stocks and bonds, but had a limited effect on consumer prices. Covid has been very different...” Read this perspective in the Orbis November newsletter 2021, here… Waiting to save: the cost of delaying your retirement funding “Putting enough money away for a comfortable retirement is a daunting task and, while we all know that starting early is critical, the numbers are alarming…While the government provides us with excellent incentives to invest through approved retirement funds so as to ultimately relieve the financial burden on the state, the uptake remains critically low, and the overwhelming majority of South Africans remain hopelessly underfunded for their retirement years. Many employed South Africans have the option of investing through their employer’s pension or provident funds although, with unemployment being at an all-time high, this option is now available to fewer people than before… However… it is important to start early, consistently invest enough for your goals, invest appropriately and avoid dipping into your retirement savings. Simply put, the best time to start saving is right now – and if you’re still waiting to save, consider the following scenarios which demonstrate the cost of delaying your investment journey. In developing these investment scenarios, we have used the following assumptions:
If Siya begins investing today with his first paycheque, he will need to invest an amount of R4 500 per month towards his retirement, which is approximately 13% of his pre-tax income. Scenario 2: Investing from age 35 If Siya delays starting his savings until he reaches age 35, he will need to invest an amount of R8 500 per month which translates into 24% of his current income. This means that a 40-year investment horizon reduced by 10 years has the effect of almost doubling the required investment premium to achieve the same outcome. If nothing else, the Covid-19 pandemic has highlighted the need to prioritise saving and investing, and to ensure that one’s financial plan is able to withstand unexpected, unforeseeable eventualities…” Read the full article by Craig Torr of Cru Invest, in Moneyweb of 2 November 2021 here…  Four key financial lessons you sometimes only learn over time
Should I invest in a fixed deposit or unit trust for my child? Question: I am a 56-year-old man with a six-year-old daughter. I have R36 000 that I am thinking of investing in an African Bank fixed deposit account (10.5% interest) for my child for five years. Is this the right thing to do? Or should I open a unit trust account for her? Answer: When comparing interest-bearing investment options it is important to understand how the quoted interest is calculated. Does the rate refer to simple interest, which is a rate calculated on the principal investment amount, or does it refer to compound interest, which is the effective interest rate earned when you do not withdraw the interest earned every month? Fixed deposit investments often quote the simple interest rate which can be confusing when comparing the return to that of other investments indicating compound growth, like unit trust funds. A simple interest rate of 10.5% on a principal amount of R36 000, would earn you R3 780 per year for five years. If you were to reinvest the interest, you would receive five times this amount plus the principal amount at the end of the five-year term. This equates to a payment after five years of R54 900. This converts to a compound annual interest rate of 8.81%, which represents the effective interest earned if you reinvest rather than withdraw the interest earned. Another important factor to consider is whether you require flexibility. Do you require access to the funds within the five-year period? Would you like to make additional contributions to the investment? Read the article by Tanya Joubert in Moneyweb of 4 November 2021 here… Note: This article is based on SA tax law. Namibia has no exemption for interest income. Instead the institution will deduct withholding tax on interest at the rate of 10%.  Great quotes have an incredible ability to put things in perspective. "Honesty prospers in every condition of life.” ~ Friedrich Schiller |
|||||||
2021-10
| In this newsletter: Benchtest 09.2021, not being top performer, joining another fund under FIMA and more... |
|||||||||||||||||||
|
The government published the FIMA (Act 2 of 2021) and the NAMFISA Act (Act 3 of 2021) in the government gazette no 7645 on 30 September 2021. Downlaod NAMFISA’s public notice here... Both Acts, or provisions of these Acts, will come into operation on a date the Minister will determine by notice in the Gazette. Pension fund governance - a toolbox for trustees
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In our Benchmark column, read about…
In ‘News from RFS’ read about…
In ‘Legal snippets’ read
In media snippets, read –
As always, your comment is welcome, so open a new mail and drop us a note! Regards Tilman Friedrich  Monthly Review of Portfolio Performance to 30 September 2021 In September 2021, the average prudential balanced portfolio returned -0.4% (August 2021: 1.2%). The top performer is Allan Gray Nambibia Balanced Fund with 1.3%, while Hangala Prescient Absolute Balanced Fund with -1.9% takes the bottom spot. For the 3-months Old Mutual Pinnacle Profile Growth Fund takes the top spot, outperforming the ‘average’ by roughly 1.8%. Hangala Prescient Absolute Balanced Fund underperformed the ‘average’ by 2.4% on the other end of the scale. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 30 September 2021 provides a full review of portfolio performances and other insightful analyses. Download it here... Not being the top performer is not good enough! The Benchmark Default portfolio is currently experiencing a difficult time, investors taking the fund to task for not featuring at the performance table’s top end. Investing is like a sports game, whether it is soccer, rugby, hockey, or whatever, and the investor serves as the coach. His investment is his team; the opponents are the investment market. The coach may take one of two routes, a speculative route or a planned route. Taking the speculative course, the coach would attempt to capitalise on the opponent’s weakness as the game progresses, focusing on winning the game. The planned route requires the coach to know his opponents and his team and what result he wants to achieve. This knowledge will determine the strategy he must follow. He may not always want to win each game if that means preserving his team’s completeness, fitness, and health for the next game. Investment is not a one-game matter but rather like winning the league. One can follow similar approaches when investing. The speculative course means that the investor tries to identify opportunities in the market and invest in these, focusing on making a killing on the investment. How one identifies opportunities is important. Laypeople would consider what has done well over the recent past and jump onto that band-wagon. Experts would use benchmarks for assessing whether an investment presents an opportunity. Often the benchmark considers the investment relative to other similar investments, the market, or the investment’s historical metrics. In a planned approach, the investor would define his ultimate goal and a strategy for achieving this goal… Read part 6 of the Monthly Review of Portfolio Performance to 30 September 2021 to find out what our investment views are. Download it here... FIMA bits and bites – key points to consider when joining another fund after FIMA (Part 2) Read part 1 of this article here... FIMA will raise the goalposts for funds, trustees, and service providers materially. Compliance failure under FIMA may lead to imprisonment of up to 10 years and penalties of up to N$ 5 million. In certain instances, even trivial administrative shortcomings can result in imprisonment. Boards of trustees currently often comprise the employers’ senior management members, and imprisonment would automatically disqualify the senior management member from filling any senior position at the employer. As a result, many employers and trustees are contemplating a move to an umbrella fund. Under FIMA, the fund rules bind the employer, the members and the fund. The fund is a separate legal entity under the trustees’ control. The trustees must take all outsourcing decisions and how to deal with the fund’s assets, subject to FIMA, the fund’s rules and its policies. The employer must consult the fund and its members. Once FIMA has become effective, a fund wishing to transfer to another fund must comply with General Standard 10.10 on outsourcing, and to Retirement Funds Standard 5.22 on the transfer of any business. GEN.S.10.10 – Outsourcing
Funds should ascertain that the rules are amended to provide for making and receiving transfers and for amalgamating with other funds in compliance with this standard. We would advise that funds better carry out their decision to move to an umbrella fund before FIMA becomes effective. Since the Gazette published FIMA, the declaration of its effective date is imminent.
 Compliment from from an HR officer of a former client fund Dated 31 August 2021 “I would like to say that I absolutely enjoyed working with …, one of the best I ever worked with. He is tops in my opinion. Always going out of his way to assist.” Read more comments from our clients, here...  Important circulars issued by the Fund The Benchmark Retirement Fund issued the following fund administration-related circulars to its clients over the last month.
 Important circulars issued by RFS RFS issued the following fund administration-related circulars to its clients over the last month.
Marthinuz Fabianus celebrates 20th anniversary at RFS RFS philosophy is that our business is primarily about people and only secondarily about technology. Every time a fund changes its administrator, a substantial amount of information and knowledge is lost. Similarly, every time the administrator loses a staff member, it loses information and knowledge, also referred to as corporate memory. As a small Namibia-based organisation, we cannot compete with large multinationals technology-wise because of the economies of scale and sophistication that global IT systems offer. To differentiate us, we need to focus on personal service and on the persons delivering that service to foster customer acceptance and service satisfaction and be more flexible and more responsive to local needs and the local environment. With this philosophy, we have been successful in the market, and to support this philosophy, we place great emphasis on staff retention and long service. We congratulate Marthinuz wholeheartedly and express our sincere gratitude for diligently leading the company over the past three years and for his dedication and commitment to the company and our clients and other stakeholders over the past 20 years! Other employment anniversaries Zulene Bio celebrates her 5th anniversary on 1 November 2021. We express our sincere gratitude to Zulene for the years she devoted to RFS and her clients and wish her many more enjoyable and satisfying years with the company! RFS welcomes new staff We are pleased to announce that Crezelda Kooper joins our permanent staff complement on 5 November as a Benchmark client manager with added responsibilities of providing board services to the Benchmark Retirement Fund board of trustees. Crezelda matriculated at Delta Secondary School in 2006. She joined Alexander Forbes in October 2007 as a fund administrator and moved to the fund accounting department at the beginning of 2010, where she was later promoted to the position of team leader: fund accounts. She moved to the retail department of AF as a team leader in April 2014. Crezelda joined Old Mutual in October 2016 as a team leader in their corporate segment. At Old Mutual, she was responsible for administration-related deliverables on both their pension and provident funds. RFS sponsors Projekt Lilie gala event Education is the key to prosperity in any society. To RFS, all forms of education take centre stage in our sponsorship programme. In this endeavour, RFS supports school sports events in various codes and various other related causes and events. September is the month of the Projekt Lilie gala evening in recognition and support of teachers who have excelled in promoting education in Namibia. This project is a legacy of former Privatschule Karibib. The occasion had its 16th anniversary this year, and the board of curators has been chaired since its inception by Tilman Friedrich, who is one of the initiators.
Here are the Lily winners of 2021:
In our June newsletter, we reported on our sponsorship of the Privatschule Grootfontein for the restoration of their historic hostel that once served as a military hospital. Here are a few photos of the project.
 NAMFISA calls virtual meeting to discuss FIMA roll-out FIMA sent out a circular on 10 October, inviting all Chief Executive Officers and Principal Officers of Regulated Entities to a virtual session on how NAMFISA intends to roll out the formal consultations in respect of the sub-ordinate legislation of the FIM Act. The meeting will take place on 8 November from 11h00 to 12h30. Confirmation of attendance is expected by 1 November  When may an employer request its fund to withhold a benefit from a member upon termination of membership The requirements for a deduction by the employer from a benefit due to the member from his retirement fund are:
Paragraph (m) of the definition of „gross income‟ stipulates as „gross income‟ “any amount received or accrued under or upon surrender or disposal of, or by way of any loan or advance granted by the insurer…, any policy of insurance upon the life of any person who at any time while the policy was in force was an employee… or director of the company if any premium paid …was deductible…under section 17…”. Any loan or advance previously included in „gross income‟ is to be excluded. If a policy is terminated and a paid-up policy is issued, these are deemed to be one and the same policy. Section 17(1)(w) deals with „general deductions‟ and more specifically with “expenditure incurred by the taxpayer in respect of any premiums payable under a long-term policy of which the taxpayer is the policyholder, where…” any of the following conditions apply:
In practice, Namibians, including Namibian pension funds, mostly have dealings with South Africans, and in general, the services provided by South African service providers would be subject to Namibia’s double taxation agreement with South Africa. This agreement prohibits the taxation by Namibia of any of the following income –
 Desperate South African workers are ‘resigning’ to get access to retirement funds – but SARS is taking note “Momentum Corporate’s multi-employer umbrella fund, FundsAtWork, has received several requests from participating employers to allow members to resign ‘artificially’ to get access to their retirement savings. Employers then reinstate the employee once they’ve obtained access to their savings. Momentum said this trend is not unique to FundsAtWork and is evident across the industry…The trend reflects the financial vulnerability of many employed South Africans. To make matters worse, many employees are unlikely to receive salary increases, let alone inflationary-related increases, as many businesses struggle to bounce back from the pandemic…Should SARS suspect the exit from employment was formally structured as a legitimate resignation while the real intention was deliberately disguised to allow the employee early access to their retirement savings withdrawal benefit, they will investigate further, and if they find this is in the case, they could revoke the income approval of the retirement fund. This would mean, among other things, contributions to the retirement fund will no longer be tax-deductible and investments and their growth would be taxed, which would impact significantly on the financial viability of the retirement fund…” Read the full article by Staff Writer in Businesstech of 27 September 2021, here… Note: Namibia is no different from SA From the tax perspective. Employers must take note of the potential consequences when allowing employees to resign to get their pension fund benefit. Ten rules for a secure retirement for women “…many women are being overlooked when it comes to retirement planning. When confronted with the hard realities of available retirement money, death, divorce, or disability, it always makes sense to talk openly to your spouse timeously and discuss the exact point of reference and standing for both of you. It would make sense to look at 10 general rules that affect retirement planning for women. These rules apply to both common law and same-gender relationships.
 How much do government employees earn – SA vs. Namibia According to Businesstech of 3 October, the average earnings of SA government employees amounted to R 400,000 in 2019, heading towards R 450,000 in 2021. The article notes that by comparison, the average formal sector remuneration was R 277,500. Taking Namibia’s GIPF 31 March 2020 annual financial statements, its fund members’ average annual pensionable salary was N$ 186,600. By comparison, the average formal sector pensionable remuneration in Namibia was N$ 222,300. The Namibian information derives from RFS’ pension fund database. It is possible that these figures do not quite compare “apples with apples”, but they will be pretty close to that. The SA figures may represent total remuneration, while Namibia figures represent pensionable remuneration. For the “upper echelon,” pensionable remuneration is often lower than total remuneration because of employment benefits. However, it is not clear whether SA figures represent total remuneration. If they do, one can probably add one-third to the Namibian figures for a better comparison. The average remuneration of Namibian government employees would then amount to about N$ 250,000, and the average remuneration of the Namibian formal sector would then amount to about N$ 300,000. One may conclude that SA government employees’ remuneration is totally out of line while the formal sector remuneration is much more in line with Namibian figures. Read the full article by staff writer in Businesstech of 3 October 2021, here... Discussing ethics with children is a vital part of parenthood “Many families and almost all schools spend a great deal of time academically developing their kids. This is a good thing. Yet I think it is at least as important for us to all think consciously about how we ethically develop the next generation to be decent members of society… Ethics and values should be spoken about regularly in homes. Often they already are. Every time your child comes home with an example of something “unfair” that happened at school, this is an opportunity to speak about ethics… Consistently discussing ethics with your kids is one of the most important things you can do. And look at it this way — tens of thousands of parents are out there at the moment drilling their children in extra comprehension, grammar and maths questions that come from joyless “swot-up” books. I doubt that these are producing engaged, quality discussions between parents and kids… Pandemic Ethics are a practical stream into the ocean of personal liberty, choice and the limits of government. They also ask hard questions about the ways we value human life. There is a practical side to this as well… Information, advice and rules come from all sorts of places in a pandemic. Sometimes they will give differing opinions about what to do – whether to go out, how serious it is, whether to wear a mask, etc. Who should you trust to give you reasonable information? Who should you obey if they tell you to do something like stay at home? This question goes to the heart of truth and reliability – with life or death consequences, as we all know. Some key concepts that might affect your discussion include: reliability; track record; our own ability to judge; public health versus private health; corruptibility… Some of these conversations might feel more like tip-toeing through a minefield. In the security of your own home I believe you can let your children say some unvarnished, half-thought-through things from any side of the political or ethical spectrum. They should learn, grow and mature as the years go on, particularly with your guidance…” Read the article by Newington College headmaster Michael Parker, in The Sydney Morning Herald of 27 September 2021 here…  Great quotes have an incredible ability to put things in perspective. "Whenever you find yourself on the side of the majority, it is time to pause and reflect.” ~ Mark Twain |
|||||||||||||||||||
2021-09
| In this newsletter: Benchtest 08.2021, impact of FIMA on fund transfer, insuring risk benefits and more... |
||||||||||||||||||||||||||||||||||
|
We cannot report any further progress, and it appears the Act is currently with the Ministry of Justice. I would think that it must also still go through Inland Revenue’s hands. From the tax perspective, FIMA certainly would require a thorough review and amendments. Home office expenses and your tax return In a letter to the Institute of Chartered Accountants of Namibia of 21 September 2021, NamRA acknowledges that –
Pension fund governance - a toolbox for trustees
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In our Benchmark column, read about…
In media snippets, read –
...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!
Follow this link to the monthly Performance Review and read paragraph 6. FIMA bits and bites – key points to consider when joining another fund after FIMA FIMA will raise the goalposts for funds, trustees, and service providers materially. Compliance failure under FIMA may lead to imprisonment of up to 10 years and penalties of up to N$ 10 million. In certain instances, even trivial administrative shortcomings can result in imprisonment. Boards of trustees currently often comprise the employers’ senior management members, and imprisonment would automatically disqualify the senior management member from filling any senior position at the employer. As a result, many employers and trustees are contemplating a move to an umbrella fund. We would advise that funds better carry out their decision to move to an umbrella fund before FIMA becomes effective. Funds must take note of the following few key points applicable once FIMA is in place:
An inconspicuous NAMFISA circular suddenly causes havoc amongst pension funds When Namibia became independent, Namibia took over the South African laws applicable to Namibia at the time. One of these laws was the Pension Funds Act, and South African pension fund management practices also continued, based on the same laws. For longer than I care to remember, South African and Namibian funds offered death- and disability benefits. In most cases, insurance companies did and still reinsure these benefits. Rules would refer to the fact that these benefits are reinsured and are subject to the insurer’s terms and conditions, limitations, and exclusions. Except for the GIPF, funds in Namibia are too small to carry any death or disability risk. In a pure defined contribution fund, the fund would not have any reserves to absorb any difference between the benefit it has to pay and the insurance recovery. Namibian funds may still maintain a reserve for such purposes, but FIMA prohibits defined contribution funds to maintain a risk reserve. South African defined contribution funds are not allowed to carry such reserve. In 20017 NAMFISA issued circular PI/PF/Cir/01/2017. This circular served to advise funds that no Board of Trustees is permitted to abdicate any of its powers, duties, or responsibilities... in the process of outsourcing certain functions to service providers... The Boards of all Funds are further advised that they will be held fully responsible for action taken by a service provider or other person on behalf of the Fund.” Since the beginning of this year, NAMFISA no longer accepts any reference to the fund’s insurance policy. All-of-a-sudden it requires full disclosure of the insurers’ terms and conditions, restrictions, and exclusions, arguing that a general reference to the insurance policy is an abdication of the board’s powers and that the trustees must take all decisions regarding death benefits. This requirement derives from NAMFISA circular PI/PF/Cir/01/2017 that it issued nearly five years ago! NAMFISA also quotes section 11(d) of the PFA. Section 11 (matters the rules must include) states the following in subsection (d): “the conditions under which any member or other person may become entitled to any benefit and the nature and extent of any such benefit;” Therefore, according to NAMFISA, rules must reflect all terms and conditions, limitations and exclusions. NAMFISA goes further and effectively outlaws the exclusion of causes relating to civil commotion, strikes, and labour unrest, arguing that these are the member’s constitutional rights. Whether NAMFISA will apply the same logic to insurance companies is not known yet. NAMFISA now acts as custodian of any law in the Republic of Namibia, including its constitution. It extends its reach even further. It argues that any reference in the rules to an insurance policy means that the fund is undertaking insurance business. It supposedly contravenes section 10 of the PFA. That section allows funds to only carry on pension fund business, as defined in the PFA. Effectively from one day to the next, pension funds are now accused of doing business illegally. For the past eight months, NAMFISA has been declining many, if not most, applications to register rule amendments and rules. Many funds are paralysed, very often to the detriment of the member. In practice, funds cannot mirror all the insurance company's terms and conditions, limitations, and exclusions in the fund’s rules. When assessing any claim, insurers must apply their expertise and exercise discretion, and anyone questioning the insurer can refer the matter to court. Consider COVID-19, which was declared a pandemic. We know that such pandemics occur infrequently. Insurers suffered severe losses from this pandemic. They will not have taken a pandemic into account when they set their premiums. It also does not make sense to price in occurrences that happen rarely. The insurer would rather exclude such surprises in the future. How is pandemic defined so that rules can include this term? International conventions may have defined this term, but there will be many other terms for which no convention exists. The question then is whether the insurer applied reason in its interpretation of a term. If a fund is large enough, it can self-insure life events. Else, it must purchase insurance coverage from an insurer. Whether large or small, any fund can only carry an element of risk through building up a reserve. Building up a reserve implies cross-subsidisation between member generations and is not fair to those members that do not benefit from the reserve while others are benefiting from the reserve. Any risk beyond what the fund effectively self-insures, the fund must place with an insurance company. The trustees are grossly negligent if the fund does not insure the excess risk and can end up in jail under FIMA. The moment a fund purchases insurance for excess risk from an insurance company, it must ensure that no further liability can arise. It must ensure that it does not offer a benefit that the insurer does not cover. The fund must then insert a copy of the policy in the rules or ensure that the rules generally refer to the policy. From a user’s perspective, there is little difference between these two alternatives. It’s a question of studying the insurance policy addendum of the rules or studying the separate policy. Most members are not affected by the terms of the risk cover and would not want a set of rules containing a copy of each insurance policy. On the contrary, no member would have the courage to study rules comprising of hundreds of pages. Pension funds do not attempt to satisfy the needs of each member but are group arrangements aimed at satisfying the needs of a majority of members at an affordable cost. The retirement funds industry is facing a serious challenge since the beginning of the year. It is as if the government introduced a new law, although nothing actually changed. NAMFISA’s interpretation of 50-year-old sections of the PFA is now causing havoc in the pensions industry. Unfortunately, the current state of affairs is suffocating the industry without benefitting the member. It is causing frustration, undue delays, and additional, unproductive work for NAMFISA and the industry. NAMFISA should first consult the industry and consider its inputs before instituting new requirements or issuing a circular to avoid such situations. If these inputs conflict with NAMFISA’s views, NAMFISA should obtain a legal opinion on its submissions and the submissions made by the industry. The legal opinion should then become the basis for a circular. Before officially issuing the circular, NAMFISA should obtain industry inputs on a reasonable time frame to implement any changes the circular will require. Finally, NAMFISA should issue an official circular to the industry. Preservation fund, retirement annuity fund, and the IT Act The Income Tax Act, Act 24 of 1981 currently only offers two arrangements for individuals to make tax-deductible contributions towards retirement. Firstly, an individual may make tax-deductible contributions to a pension fund or a provident fund arranged by his employer and where the individual is obliged to contribute. Secondly, an individual may make tax-deductible contributions towards a retirement annuity fund as agreed with the fund under a policy (issued by an insurance company) or under a contract (issued by the fund). The importance and the value of retirement provision are recognised globally, and most countries make provision for one or more pension arrangements. The Melbourne Mercer Global Pensions Survey succinctly highlights the challenges faced by global pensions systems. “Pension systems worldwide, including social security systems and private sector arrangements, are now under more pressure than ever before. Significant ageing of the population in many countries is a fact of life. Yet this is not the only pressure point on our pension systems. Others include:
Namibia also experiences most of the challenges highlighted in Global Pensions Survey. COVID exacerbated the situation, as we know. Many employers and their staff took a contribution holiday that may significantly impact the ultimate retirement outcome for the members affected. Our pension system is very similar to that of South Africa. Namibians may currently only deduct N$ 40,000 from tax regarding pension savings contributions and study policies. In contrast, SA allows the taxpayer to deduct up to 27.5% of the individual’s annual income, limited to no more than the actual contributions made. SA only caps the tax deduction at R 350 000 per annum. In addition, SA pays a higher social old age grant of R 1,890 compared to only N$ 1,300 in Namibia. The Global Pensions Survey ranks SA in position 28 of 40 surveyed countries, and Namibia ranks lower. Namibia, therefore, has good reason to consider every option for further encouraging and improving retirement provision. The Income Tax Act is one available tool to achieve the goal of enhancing taxpayers’ retirement provision. While in employment with compulsory participation in the employer’s retirement fund, there is no real need and often no scope to enhance employees’ retirement provision. When leaving employment, employees may and often do preserve their accumulated retirement capital in a preservation fund. By exempting a transfer of such withdrawal benefit to any other tax-approved fund, the Income Tax Act does encourage taxpayers to preserve rather than withdraw their retirement capital. Having exited from the retirement fund, the employee may join another employer where retirement fund membership is compulsory and continue building his retirement capital. However, should he not join another employer with a retirement fund, the employee would have to subscribe to a retirement annuity fund if he wanted to continue saving up for retirement. Compared to pension- or provident funds (including preservation funds), most retirement annuity funds are less flexible and, often, the member incurs high initial fees. It would also require the unnecessary membership of two funds if the employee preserved his capital from his previous retirement fund in a preservation fund. Preservation funds and retirement annuity funds are ‘retail’ products aimed at their members saving up for retirement not linked to employment. In contrast, pension- and provident funds are institutional arrangements requiring an employer-employee relationship. When the Income Tax Act introduced provident funds, it would appear that the focus was solely on the preservation of retirement capital outside an employer-linked arrangement. However, as a retail product, a preservation fund lends itself to receiving ongoing contributions after the member preserved his retirement fund capital in this preservation fund. This arrangement would complement the retirement annuity fund. The employee would not have to belong to yet another fund for saving up for retirement. He would have a more flexible and cost-effective arrangement and more choices, encouraging competition in the retail market. The government should consider expanding the scope of preservation funds as part of its tax policy review for the reasons set out above. To achieve this goal, the government should amend the definition of “preservation fund” along the lines of the definition of “retirement annuity fund” so that a member of the preservation fund can make ongoing, tax-deductible contributions to his preservation fund. It requires that the government also expands other sections of the Income Tax Act that refer to “retirement annuity fund” to include “preservation fund.”
The Benchmark Default Portfolio - Annual newsletter. Download it here...
Important circulars issued by RFS RFS issued the following fund administration-related circulars to its clients over the last month.
Education is the key to prosperity in any society. To RFS, all forms of education take centre stage in our sponsorship programme. In this endeavour, RFS supports school sports events in various codes. More recently, RFS provided funding for the renovation of the historic hostel building of Privatschule Grootfontein. RFS’ former managing director was one of the founders of Projekt Lilie in 2005, which RFS has supported ever since. For the past ten years, RFS has also sponsored prize monies for NAMCOL achievers. RFS’ director Rauha Hangalo handed over the prize monies of between N$ 2,500 and N$ 5,000 to this year’s NAMCOL achievers, in the presence of Dr. Harold Murangi, CEO of NAMCOL and other officials. This year the following Namcol students excelled in their academic performance:
 National Pension Fund – where do we stand? Industry representatives recently called a meeting with the Social Security Commission to establish the status of the National Pension Fund. Unfortunately, the SSC did not provide any concrete information other than confirming that the project is still underway and it will make available the information in good time. The SSC would not comment whether it is looking at a DB or a DC fund or on the contributions or benefits that members would enjoy. Industry meeting cancelled NAMFISA cancelled the industry meeting scheduled for 15 September, as there were no agenda points from its and industry participants’ side. Adjudicator determination on death benefit: This case deals with a complaint by C DIENER (“the Complainant”) v PSG WEALTH RETIREMENT ANNUITY FUND (“the Fund”) AND PSG LIFE LIMITED (“the Administrator”) Facts of complaint The deceased completed a beneficiary nomination form in favour of his estate. He was a PSG Wealth Retirement Annuity Fund member with a benefit of R 1.7 million and a Discovery Retirement Annuity Fund member with a benefit of R 3.1 million. The complaint addresses the allocation the Fund’s trustees made as follows after they identified all surviving persons:
The trustees revised their allocation per the above table after establishing how much the Discovery Retirement Annuity Fund allocated to these beneficiaries. Whereas they initially allocated 21% to SH Naude, they reduced that allocation to 10% after they got the information from the Discovery Retirement Annuity Fund The Complainant provided the following arguments against the allocation:
The tribunal must determine whether the Fund allocated the death benefit fairly and equitably to the beneficiaries. Findings of the Tribunal Citing section PFA 37C, the tribunal pointed out that the board must conduct a thorough investigation to determine the beneficiaries and decide on equitable distribution and on the most appropriate payment mode. More specifically, it must consider the following factors:
The tribunal considered that the PFA recognises three dependant categories: a legal dependant, a non-legal dependant, and a future dependant. It pointed out that there is no legal duty to support a non-legal dependant, but there is a legal duty to support a spouse and children. Factual dependants must prove their dependency. The tribunal agreed that the Complainant qualified as a legal dependant as they shared the same residence and were mutually dependent on each other. The deceased thus had a duty to support the Complainant. The Fund allocated a portion to the two major beneficiaries D Diener and J Naude, under section 1(b)(iii) [this section was introduced in SA but does not apply in Namibia]. The tribunal found that Discovery allocated a significant portion to the Complainant. As a result, she is in a far better position than all other beneficiaries. Section 37C’s object is that dependants are not left destitute by the member’s death and that the Complainant was not left destitute. The Complainant aimed to defeat the purpose of section 37C with her complaint, and the tribunal condemns her conduct as demonstrating the dependants’ greed. The tribunal concluded that the Fund considered the dependants’ financial circumstances and that the Complainant’s needs are properly catered for from the benefits she received from the deceased’s estate, the portion the Fund allocated to her, and the Discovery allocation. The tribunal confirmed that the deceased nominated his estate but that the death benefit does not form a part of the deceased’s estate unless there are no dependants and nominees. Since there are dependants, the nomination failed to act as a guiding tool to assist the Fund. The tribunal found that the Fund considered relevant factors, ignored irrelevant factors, and did not fetter its discretion. It is therefore satisfied that the Fund allocated the benefit properly. Order of the Tribunal The complaint cannot succeed and is dismissed. Read the determination here… SA considering to introduce Social Security Fund “The Department of Social Development has released a green paper on comprehensive social security and retirement reform for 2021. We note that it is largely similar to previous proposals dating back to 2012. In brief, the proposal is to create a centralised National Social Security Fund managed by government. This fund intends to provide basic benefits for all qualifying citizens up to a threshold, including all employees from within the private sector. In addition, citizens can choose to top up their retirement benefits using an occupational or individual arrangement. In practice, this means that most existing members will become dependent on government through the National Social Security Fund for their retirement and insurance benefits rather than through an occupational or individual scheme as is currently the case. We argue that such a route may result in reduced benefit security due to a number of deficiencies in the proposed system.” The author raises the following arguments against the proposal, which are to a large extent also applicable to Namibia.
Note: These developments in SA are of great interest to us in Namibia as the Social Security Commission and government are also mulling the introduction of a National Pension Fund on a very similar basis. The Department of Social Development withdrew the proposal again, but the discussion in SA is unlikely to end. New insights into trust and ethics among advisors and fund managers “Coronation is dead right – ‘trust is earned’. That’s the fund manager’s marketing tagline. Last week it probably ‘unearned’ a huge chunk of trust. On Friday, Fin24 provided details of a letter Coronation had sent to its clients describing how one of its managers had profited from exploiting a “pricing inefficiency”. The letter, which related to the “legal and transparent” trades done by now-former executive Adrian Zetler, highlighted just why so many ordinary investors do not trust the investment community. These ordinary investors comprise pensioners or employees who generally do not have the skills or resources (including time) to constantly track markets. They rely on extremely well-paid financial advisors and fund managers to fill that critical gap. Rightly or wrongly many investors suspect that one way or another – always legal of course – their fund managers and advisors are benefitting unduly at their expense; this is the eternal ‘agency’ problem. It may be just a few cents here and there for every share or unit trust involved, but for the ‘perpetrators’ all these cents add up to a very nice low-risk profit. In the letter, Coronation explains that Zetler, who had been with the company for 11 years, resigned in January after the company took legal advice and launched an inquiry into his trading activity in some of Coronation’s unit trusts. The investigation went back three years. It emerged that Zetler had been involved in the trades since March 2020…” Read the full article by Ann Crotty in Moneyweb of 20 September 2021, here... SARS exercised unreasonable discretion in disallowing penalty “…The taxpayer, Peri Formwork Scaffolding Engineering (Pty) Ltd, paid the PAYE collected of R10 648 340.93 over to Sars on Monday, January 8, 2018, when the payment was ostensibly due on Saturday, January 6, 2018. In terms of the Tax Administration Act, the payment should have been made on the Friday… The taxpayer argued:
Three reasons you are losing the war for talent “…Business leaders just can’t seem to fill their personnel pipeline. Many of those leaders, however, fail to realize that the “good people” they seek may be already on their payroll or have recently departed for a company that treats them better. Those leaders don’t have a recruiting problem; they have a retention problem… So, how can you win the talent war with the talent you already have? Whether you lead an entire company or a small team, you can start by avoiding these three common pitfalls.
Great quotes have an incredible ability to put things in perspective. "Diligence is the mother of good luck..” ~ Benjamin Franklin |
||||||||||||||||||||||||||||||||||
2021-08
| In this newsletter: Benchtest 07.2021, FIMA and independence and more... |
|||||||
|
We cannot report any further progress, and it appears the Act is still a work-in-progress. Pension fund governance - a toolbox for trustees
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link... In a note from our Managing Director, Marthinuz Fabianus examines the state of employers’ pension funds.
In our Benchmark column, read about
In ‘News from RFS’, read about -
In ‘Legal snippets’ read about ‘Death benefit quantum questioned’
As always, your comment is welcome, so open a new mail and drop us a note! Regards Tilman Friedrich Monthly Review of Portfolio Performance to 31 July 2021 In July 2021, the average prudential balanced portfolio returned 1.9% (June 2021: 0.4%%). Top performer is NAM Coronation Balanced Plus Fund with 2.6%, while Allan Gray Balanced Fund with 1.3% takes the bottom spot. For the 3-months Momentum Namibia Growth Fund takes the top spot, outperforming the ‘average’ by roughly 1.2%. On the other end of the scale, NinetyOne Managed Fund underperformed the ‘average’ by 1.2%. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 31 July 2021 provides a full review of portfolio performances and other exciting analyses. Download it here... Understanding Benchmark Retirement Fund Investments In the last and the next few issues of our monthly Performance Review, I will provide background and guidance on investments to assist Benchmark Retirement Fund members taking charge of their fund investments.
Follow this link to the monthly Performance Review and read paragraph 6. FIMA bits and bites – independence FIMA requires that certain persons appointed to specific positions are independent. Independence applies to board members of financial institutions. Section 261 deals with a retirement fund’s board. While this section specifically prohibits persons in a contractual arrangement with a retirement fund to serve on such fund’s board of trustees, the section has no independence prescriptions. However, one-third of the board of directors of financial institutions that are companies, must be independent. As per clause 3(2) (of General Standard 10.8 on independence), in relation to a financial institution (e.g., retirement fund, collective investment scheme, insurer, medical aid fund) or financial intermediary (e.g., fund administrator, insurance broker, stock broker, collective investment scheme manager or trustee), an individual is not considered independent if, in respect of an election or appointment to a position with that financial institution or financial intermediary, the individual:
Compliment from a pensioner Dated 29 April 2021 “Dear S, Thank you very much for your prompt and to the point reply. These days it becomes more regular that requests like mine are either ignored or only attended to after various reminders. Therefore I really appreciate people like you who take their customers’ needs serious. Please keep up the great work and service you are and always have provided to my requests. Thank you very much once again.” Read more comments from our clients, here... Our new, unique member communication platform! If you are a member of an employer fund participating in the Benchmark Retirement Fund, follow these steps to register
Or find it online, here... If you would like to know more about this facility, call your relationship manager or client manager. Don’t wait – register today!. Important circulars issued by the Fund RFS issued the following fund administration-related circulars to its clients over the last month.
RFS bids farewell RFS bids farewell to Mariana Auene, who leaves our employ to join I3 Consultants and Actuaries at the end of August 2021. We thank Mariana for the years she shared with us and wish her well with her future endeavours!. Long service awards complement our business philosophy RFS’ business is primarily about people and only secondarily about technology. Every time a fund changes its administrator, a substantial amount of information and knowledge is lost. Similarly, every time the administrator loses a staff member, it loses information and knowledge, also referred to as corporate memory. As a small Namibia-based organisation, we cannot compete with large multinationals technology-wise because of the economies of scale that global IT systems offer. To differentiate ourselves, we focus on personal service and on the persons delivering that service to foster customer acceptance and service satisfaction. This philosophy has proven itself in the market, and we place great emphasis on staff and corporate memory retention through long service. The following staff member celebrated her fifth work anniversary at RFS! We express our sincere gratitude for her loyalty and support over the past 5 years to
Important circulars issued by RFS RFS issued the following fund administration-related circulars to its clients over the last month.
One of our staff members, Aliza Prinsloo, initiated and coordinated the Jar of Hope social responsibility project. Each Jar of Hope contained 750 ml instant stew mix, providing a full meal for four adults. How to make the Jars of Hope Ingredients
This complaint concerns the deceased member’s benefit quantum.
The deceased’s service commenced in March 2013, and he passed away in August 2014. The Administrator received and allocated contributions for the deceased member from September 2013 to August 2014. The rules obliged the employee to participate in the Fund. The Employer was obliged to register the deceased as a member of the Fund and to pay contributions on his behalf from March 2013 to August 2014. The Employer is consequently in arrears with contributions from March 2013 to August 2013. The Employer owes a duty of good faith but breached that duty by not paying over the contributions timeously. The tribunal successfully reconstructed Fund’s benefit calculation applying the Administrator’s information and the rules’ prescriptions. It found that the dispute only affected the member’s fund credit and that the Fund must pay the outstanding contributions according to Pension Funds Act, section 37 C. Order of the Tribunal The Fund must register the deceased member from March 2013 to August 2014.
Should I pay down my overdraft or increase the repayment? If your salary provides you the capacity to apply some of this excess monthly income, it is a good idea to reduce your debt. The question is ‘which debt do I tackle first?’ It is best to try and settle the more expensive debt first, e.g., the overdraft probably has a higher interest rate than the bond. If your bond has an access facility, the facility can be used to settle the overdraft. Try to keep the ‘overdraft portion’ of the bond repayments as high as you can. Don’t keep your total bond repayments at the same level they were before you consolidated the debt. If you have little retirement savings, focus both on ensuring your bond will be fully repaid by the time you retire and on accumulating some retirement savings. Interest rates are quite low at the moment so it’s a good time to try and get ahead of your bond repayments. Calculate how much you can pay extra by paying more than the required amount. The best way to do this is to set up an extra debit order. It is much better doing it this way than waiting for the end of the month to “see how much is left” to transfer to your bond account. Save into a retirement product like a pension/provident or retirement annuity (RA) you effectively save pre-tax money. A certified financial planner professional will be able to help you establish how much you should be saving now to ensure you can maintain your lifestyle in retirement. Read the full article by Rick Briers-Danks in Moneyweb of 28 July 2021, here… Factors to take into account when moving after retirement “Decisions on where to live when you retire are going to affect the quality of your retirement and should be made with great care, as there are a host of reasons and choices available that could determine a stress-free retirement….” Consider the following factors:
Raising your children to have a healthy relationship with money “As parents, we all want our children to have a healthy relationship with money so that they can enter adulthood with a positive view and a clear understanding of money and how it can be effectively used to achieve their goals. While we know that money won’t necessarily make them happy, through our words and actions we can provide them with a better chance of developing a positive connection with money and a deeper understanding of the role it can serve in their adult lives. Talk openly about money: It is important to talk openly, albeit age-appropriately, with your children about money and finances to demonstrate that financial matters need not be shrouded in secrecy or mystery… Allow them to make their own decisions: If you’re paying your children an allowance or pocket money, avoid trying to micro-manage the way in which they choose to spend their money. Demonstrate honesty: Be sure to always demonstrate honesty when it comes to money so that your children know that it is never okay to cheat, conceal or tell untruths about money. Let them see you using your money for good: It is important for your children to see you using your money and/or resources for good. Demonstrate a work-life balance: Demonstrating a healthy work-life balance will help your children develop a healthy sense that a career can be rewarding and pleasurable and that it is possible to make money doing something that you enjoy. Show them that a budget is not punishment: Speak about the household budget in a positive manner so that your children develop a healthy respect for budgeting. Don’t compare your finances to others: Avoid judging other people on the amount of money that they earn or by their accumulated wealth as this may lead your children to believe there is a link between money and self-esteem. Don’t bicker or fight about money: Arguing with your partner or spouse about money can lead your children to associate money with tension and discord. Don’t make them feel guilty for buying something: Encourage your children to make smart money decisions by encouraging them to do their market research, compare prices, check the quality, and assess whether their desired purchase is a ‘want’ or a ‘need’. Allow them to experience work in exchange for money: Getting children to appreciate the value of money is an age-old challenge. That said, one of the surest ways of helping anyone appreciate its value is to allow them to work or do chores in exchange for money. Don’t kill their entrepreneurial dreams: Do everything you can to encourage their entrepreneurial ambitions by allowing them to share their ideas without fear of ridicule. Don’t let them believe that finding a rich partner is an acceptable path to financial freedom: Raising your children to believe that the only way to wealth is to find a rich partner is a recipe for disaster. Watch your language: Be aware of the way in which you talk about money. Negative words and phrases can cause your child to develop a scarcity mentality which can severely limit their view of money and finance. Honour your financial goals and commitments: Impress on your children the importance of honouring your financial commitments, paying bills on time, repaying loans, and paying your own way. Don’t be scared to talk about your past money mistakes: We’ve all made financial mistakes, and it’s important that we share these mistakes with our children…” Read the full article by Craig Torr of Crue Investments (Pty) Ltd in Moneyweb of 26 July 2021, here... Investing in a post COVID world “Inflation is the enemy of long-term investing and savers. If we look at the big picture, governments are in debt and they need inflation to lesson the burden of that debt, unfortunately. The Fed is talking about 2% as an inflation target. This was the target when inflation was 4-5% and at 2% the dollar depreciates and halves twice in a person’s life time. So it’s surprising that we have not had inflation up to now given the amount of free money in the world. We study it intensely and our take is that governments have avoided deflation. Deflation was actually quite good but the governments avoided it because it is damaging for the heavily indebted…. The fed has made it clear they won’t increase rate, so from our side it’s clear that the Fed and governments generally will err on the side of letting inflation come through. However, the other deflationary forces are still there. There is still a lot of cheap money around which will not necessarily go away. There is a lot of disruption around and there is a lot of base effect going on now – with growth, earnings and inflation numbers. We expect inflation above 2% for a while and it will be interesting to see what happens in a few years – will we come back and neutralise at 2%? In SA, the market is forecasting about 5.2 %. We think that is too high due to the base effects. We think we will get a return to about 4% inflation in SA. So this is not a runaway inflation or scare story but it is something we need to deal with so we must avoid assets that don’t do well in inflation. Equities that have pricing power are the place to be at the moment… The difference we see in Chinese tech companies is that they are serving the Chinese consumer – so it’s a play on the Chinese consumer. China is moving from infrastructure-driven GDP to consumer- driven GDP and benefiting from that. China… One of the things we have benefitted from and the reasons for the strength of the Rand was 14 months of trade surpluses. That’s been mainly driven by the fact that imports collapsed but export continued. So mining volumes and mining efficiency has held up surprisingly well which has been great for South Africa… [With regard to property] we are seeing a huge reduction in the number of people going in to the office, which means that the companies don’t need the space anymore. This is as a result of reduction in head count, efficient technology and the work-from-home benefits to people’s quality of life. Cities have been overtraded and congestion is a problem. I think downtown real estate, particularly commercial has seen its best days…” Subscribe to Cover magazine to read the full conversation with Dave Foord, in the July 2021 edition, page 48 here… The compliment sandwich and four other common mistakes of leaders “Most companies recognize the impact culture has on employee engagement, productivity, and performance. But while many leaders think they are cultivating an effective culture, some of their actions are actually culture mistakes. Take the compliment sandwich, for instance. This is when feedback is provided by sandwiching “negative” feedback between two compliments. There are many other examples of how leaders can inadvertently create culture missteps, some of which are outlined here. If you can recognize the pitfalls early on, you can adjust your leadership style and strategy to create your desired culture. Failing to link culture to strategy What behaviors do you want from your team to achieve that future vision? This process of linking the two helps you ensure that they are not working at cross purposes… Moving too fast to achieve true alignment Spending a few extra hours in conversation with the leadership team about what the strategy really is will not only yield better decisions about the company’s future but will also create a stronger level of team cohesion. Relying on the artifacts Authentic culture is everything to do with the interactions of human beings as they are doing the day-to-day work. Sometimes leaders lean too hard on artifacts and believe having isolated team-building events will create the kind of morale boost that they need. Triangulating (even with good intentions) No matter what the conversation might be when you’re talking about somebody, it can erode trust. The most effective thing for leaders to do is always encourage, invite, and even insist that employees talk directly to one another when they have interpersonal challenges. Failing to invest Culture shifts do not happen overnight, and real change begins from the inside out. By far and away, the biggest mistake the leaders make when it comes to culture is simply not investing in it. Most of the time, the biggest investment is actually the time it takes to have these important conversations. Ultimately, culture can become harmful or ineffective if not planned out carefully and with purpose. Evaluate all culture initiatives based on their ability to drive business results, improve lives and increase employee engagement to determine if they are worth implementing.” Read the full article by Laura Gallaher in Fast Company of 16 July here… Great quotes have an incredible ability to put things in perspective. "Wealth is like sea-water; the more we drink, the thirstier we become; and the same is true of fame.” ~ Arthur Schopenhauer |
|||||||
2021-07
| In this newsletter: Benchtest 06.2021, the state of employers’ funds, the Benchmark Default Portfolio’s performance, and more... |
|||||||||||||||||||||||||||||||||||||||||
|
In light of the unfolding COVID-19 situation, our offices will be closed for any visitors until further notice. We have a skeleton staff complement in the office while other staff members are working from home. We appeal to our clients and the general public -
We apologise for the inconvenience caused and appeal for the indulgence of our clients and the public. FIMA stalled? Although the President signed FIMA, our information is that it is currently being reviewed and that there is a delay in promulgating this new financial services law. ‘News from NAMFISA’ (below) reports that the Parliament removed the Financial Services Adjudicator Bill (FSA Bill) from the parliamentary roll. According to NAMFISA, the FSA Act is critical to the NAMFISA Act and the FIM Act. One may thus speculate that unidentified issues in the FSA Bill require the Parliament’s further consideration. NAMFISA mentioned that it is also waiting to hear from the Minister on the way forward. Pension fund governance - a toolbox for trustees
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link... In a note from our Managing Director, Marthinuz Fabianus examines the state of employers’ pension funds.
In our Benchmark column, read about our new, unique member communication platform!
In ‘News from NAMFISA’, read about –
In ‘Legal snippets’ read ‘Withholding of benefit upon dismissal’
...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!
Monthly Review of Portfolio Performance to 30 June 2021 In June 2021 the average prudential balanced portfolio returned 0.4% (May 2021: 0.3%). Top performer is Prudential Managed Fund with 1.0%, while Hangala Prescient Absolute Balanced Fund with -0.4% takes the bottom spot. For the 3-month period, NAM Coronation Balanced Plus Fund takes the top spot, outperforming the ‘average’ by roughly 1.2%. On the other end of the scale NinetyOne Managed Fund underperformed the ‘average’ by 1.4%. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 30 June 2021 provides a full review of portfolio performances and other exciting analyses. Download it here... Understanding Benchmark Retirement Fund Investments In the next few issues of our monthly Performance Review, I will provide background and guidance on investments to assist Benchmark Retirement Fund members taking charge of their fund investments.
The Benchmark Retirement Fund Default Portfolio performance in perspective The Benchmark default portfolio is by far the biggest portfolio on the Benchmark platform. The Fund’s trustees manage the default portfolio, and the Fund’s expert investment adviser assists them in delivering the best returns at an acceptable level of risk. Fund members, or their employer on their behalf, choose this portfolio because they do not understand enough about investments and prefer to leave investment decisions to the trustees. Looking at the investment returns of this portfolio, we accept that many fund members who have invested their retirement nest egg in this portfolio will not be happy with the returns of this portfolio over the past five years relative to the average portfolio. For longer periods, though, and since the trustees restructured the portfolio at the end of 2010, it stood its ground well. The following table depicts the performance comparison between the default portfolio and the average prudential balanced portfolio up to the end of May 2021:
The objective of the default portfolio is to produce investment returns in line with the average portfolio’s return but with lower fluctuation and, therefore, lower risk. The trustees raised the default portfolio’s performance return objective soon after the global financial crisis struck in 2008/ 2009 from moderate-low to moderate risk. Since then, market conditions did not allow the trustees to move fully to a moderate risk profile. Throughout these ten years to the end of May, the default portfolio only held about 47% in shares. In contrast, the average portfolio held about 63% in shares. As a result, the default portfolio was, and still is, much better protected against a severe drop in share prices than the average portfolio. Looking back over the time since COVID hit markets last year, share prices increased substantially across the globe. The table above clearly shows that the default portfolio lost out on the increase in share prices relative to the average portfolio over the past twelve month. Of course, it was not possible to foresee that shares will recover so soon, and it was not possible to foresee how long COVID will make its impact felt. Where we are today, can we say that we overcame COVID? I do not think so in the light of all the mutations. One must realise that we live in an abnormal world, not only because of COVID but also because of the global central bank’s massive intervention in financial markets. This intervention produced abnormally low interest rates and caused share prices to increase materially, particularly since April of last year. As we know, everything abnormal will revert to normality. Many experts expected this to happen around the time COVID struck. When COVID struck, central bankers threw all their good intentions overboard, and consequently, we still live in abnormal times today. We think share prices will have to revert to normal. The trigger will probably be when interest rates return to normal. Currently, one earns negative interest on government bonds and treasury bills in the larger economies if one takes inflation into account. Negative interest is not sustainable as it erodes the investor’s capital. Investment capital is therefore flowing into shares and other assets instead. In the US, for example, the average inflation over 20 years to the end of 2007 (just before the global financial crisis) was 3.1%, and the average 10-year bond rate was 4.8%. In other words, the real average interest rate was 1.7%. Since then, the average inflation rate was 1.74%, and the average 10-year bond rate was 0.75%. In other words, a real average interest rate of minus 1%. At the end of May, US inflation was 5%, and the 10-year bond rate is 1.6%, a real interest rate of minus 3.4%. This situation is unheard of! Who in his right mind will be happy to lose 3.4% per year on his investment? Either the Fed must increase its policy interest rate massively, or inflation must decline significantly in the medium term. Many experts believe that the Fed will reduce its bond-buying programme, or raise its policy rate sooner than expected, or both. If inflation maintains its current upward trend, the increase will be faster than expected. Once the Fed reduces or stops printing money, inflationary pressures will decline, and investment in shares and other assets will also decrease. When less money is flowing into shares, share prices will drop. The strong growth the share markets experienced since last year will not continue and will likely reverse sooner rather than later, and the Fed’s tapering or an increase in the repo rate, or both, will likely herald this reversal. Under these circumstances, the default portfolio’s low equity exposure gives me comfort even though the portfolio sacrificed some returns over the past year. Once circumstances allow, the trustees will raise the default portfolio’s equity exposure closer to the average prudential balanced portfolio’s exposure. FIMA bits and bites – did the President sign a law never approved by Parliament? The Namibian reported on 28 June that the President finally signed the FIMA into law. In last month’s newsletter, we concluded that Parliament did not approve FIMA version B.7-2021. This version contains changes different to the version introduced in the National Assembly that it or National Council never required. We compared version B.7-2021 with the version the President signed, and we understand that these two documents are identical. Therefore, we are not convinced that the document presented to the President to sign is Parliament’s finally adopted version. Unfortunately, we did not get any conclusive or satisfactory answers from the relevant parties. If the President indeed signed a FIMA version into law not approved by Parliament, it would be a sad day for our democracy and puts a question mark over our law-making process. Pension fund death benefits: the ITA and the PFA must be aligned According to Inland Revenue’s interpretation of the Income Tax Act, pension funds must pay at least 51% of any death benefit in the form of an annuity. A beneficiary of one of our pension fund clients challenged the Fund’s decision to pay 51% of the death benefit in the form of an annuity. Our client consulted lawyers, who advised the Fund that section 37C of the Pension Funds Act obliges the Fund to pay the death benefit in a lump sum. The lawyer pointed out that section 37C overrides “…anything to the contrary contained in any law or in the rules of a registered fund”. In short, the situation is the following:
The introduction of FIMA will not change this challenge. Inland Revenue and NAMFISA must urgently find a solution for this challenge.
Compliment from a Principal Officer Dated 29 April 2021 “Wow, Og J jy bly maar net ‘n Ster, baie dankie vir jou puik diens, waardeer baie. Groete.” Read more comments from our clients, here... Our new, unique member communication platform! The Benchmark Retirement Fund recently introduced an exciting member communication platform. Our staff is busy rolling out this platform to all participating employers. This facility comes at no extra charge to participants, and the Fund offers this as part of the asset levy all participants are paying. The communication platform offers the following features:
FIMA will make extensive member communication obligatory. If you are a member of an employer fund participating in the Benchmark Retirement Fund, follow these steps to register 1. Save Benchmark telephone number +264 61 446 000 on your smartphone; 2. Text ‘Hi’ to the Benchmark number on WhatsApp or per SMS; 3. Submit your identity number and tick box accepting terms and conditions; 4. Answer the security questions you will receive. 5. Have a look at any information of your interest. …and tell us if you like what you see. If you would like to know more about this facility, call your relationship manager or client manager. Don’t wait – register today! Important circulars issued by the Fund RFS issued the following fund administration-related circulars to its clients over the last month.
Christina Linge joins wealth adviser team Christina Linge recently joined our wealth adviser team. She matriculated at Swakopmund's Deutsche Oberschule Senior Secondary School in 1995 and speaks English, Afrikaans, Oshiwambo, and Damara/Nama fluently. Christina completed a diploma in marketing at NUST and is busy with her Higher Certificate in Financial Planning. Christina’s career started as a switchboard operator at FNB. She then entered the insurance industry with Metropolitan in 1999. She gained solid experience as a fund administrator during her four years at Metropolitan. She then spent a few years at Prosperity Health in various positions. From Prosperity Health, she moved to Old Mutual to build her career as a wealth adviser and gained extensive experience in this field over the past eight years. Christina won several awards and achievements at Old Mutual and is well-positioned to add a lot of value to our retail team. We extend a sincere welcome to Christina and look forward to her making her mark amongst RFS clients! We invite prospective clients of Christina to contact her at 061 446 073 or 081 323 1645 for advice and assistance. RFS sponsors Okanti Foundation RFS became one of the most consistent sponsors of the Okanti Foundation over the past fourteen years. Through our director Günter Pfeifer’s involvement in the foundation over many years, he decided to allocate his corporate social responsibility budget to the foundation for purchasing an oxygen concentrator. Here is the report in The Allgemeine Zeitung:  Long service awards complement our business philosophy RFS’ business is primarily about people and only secondarily about technology. Every time a fund changes its administrator, a substantial amount of information and knowledge is lost. Similarly, every time the administrator loses a staff member, it loses information and knowledge, also referred to as corporate memory. As a small Namibia-based organisation, we cannot compete with large multinationals technology-wise because of the economies of scale that global IT systems offer. To differentiate ourselves, we focus on personal service and on the persons delivering that service to foster customer acceptance and service satisfaction. This philosophy has proven itself in the market, and we place great emphasis on staff and corporate memory retention through long service. The following staff member celebrated her fifteenth work anniversary at RFS! We express our sincere gratitude for her loyalty and support over the past 14 years to
Industry meeting of 16 July 2021 If you missed the industry meeting of 24 March 2021, download the presentation here... Following is a brief overview of the content of the presentation:
Update on status of bills
The tribunal ordered the Fund to pay the Employee within two weeks of the determination, the amount due less permissible deductions, and to provide the Employer with a breakdown of the payment. Read the determination, here.... Diversification key in future-proofing investment portfolios “…If you look at the historic data over the last 50 years or so, we can obviously see that interest rates are at record-level lows, both locally and abroad – and with this yield curves have also fallen, which is typically good for bonds. But at this stage interest rates have only one way to go and that’s up, and obviously the bond yield curves will adjust for that, so yields should move higher. The implications are quite profound... if you look at US equities, and the S&P 500 in particular, it’s really not much better, to be honest. We are seeing many valuation metrics at this point in time signalling that the market is overheated. So, if you compare some of the valuation metrics relative to their 25-year averages, they do signal that the market is significantly overpriced. We expect a tougher time. If you were to look at price/earnings (PE) ratios, for example, they already are at roughly that 22 level on forward PE, which is already quite generous in terms of earnings forecasts that still look to improve quite a bit. If those earnings don’t materialise, you sit with a problem and PEs in themselves are also quite high. The same can be said for dividend yields as a valuation measure, priced-to-book, priced-to-cashflow yields and so forth. It does look quite lofty. If you learn from history and see what equity portfolios in particular have done, from these valuation levels over a one-year period you can maybe expect single-digit returns… If you consider some of the key drivers behind emerging markets (EMs), they all seem intact. If you look at relative valuations, for example, as I mentioned, some of the developed markets do look quite pricey, whereas on the other end you’ve got emerging markets that have been downrated in the previous cycle and are actually now rebounding. That could persist. Earnings revisions – we currently see more momentum in the emerging-market side to sustain positive upward revisions taking place, where a lot of that’s priced in the offshore space…” Read the full article by Ciaran Ryan in Moneyweb of 14 July 2021, here… Retrenched before retirement age? Keep the following in mind “…let’s discuss some of the main considerations when planning for retirement after you have been retrenched: Tax The tax saving you earn from contributing to your retirement savings is perhaps your biggest friend. You not only grow your savings immediately with the amount that you save in tax, but you also decrease your entire earnings for the tax year through your pension fund contribution, which means that you pay less tax overall. If you decide to withdraw some of your pension fund savings because you have been retrenched, there is a very real risk that you will pay a lot of additional tax… Preservation and pension funds …If your retirement savings were saved in a retirement fund, you can draw a third of the money in your fund in cash and you should invest the remaining two thirds in an income annuity. In contrast, you used to be able to withdraw everything at once from your preservation fund… [Under FIMA you can in future only withdraw 75% of your accumulated retirement capital before retirement. Keep it where it is While you may have specific feelings about your employer if you have been retrenched before retirement age, it may be the best option to sit on your hands and leave your retirement funds untouched. While you may not be able to leave your funds in your old employer’s pension fund, you may be able to move it into a preservation fund, a new company’s fund (should you be reemployed) or into a retirement annuity fund. While you might incur some costs by moving your retirement funds, it its best not to access it until you have some clarity on your future and your cost of living….” Note: Although this article is based on SA law, the principles also apply to Namibian retirement fund members. Read the article by Wouter Fourie of Ascor Independent Wealth Managers in Moneyweb of 7 July 2021, here… The hazards of a “nice” company culture “In far too many companies, there is the appearance of harmony and alignment but in reality, there’s often dysfunction simmering beneath the surface. The intention behind cultivating a nice culture is often genuine. Leaders believe they’re doing a good thing that will motivate people and create inclusion. But often it has the opposite effect and the result a lack of honest communication, intellectual bravery, innovation, and accountability. To combat a culture marked by toxic niceness, the author suggests leaders use four tactics: Clarify expectations and performance standards. Publicly challenge the status quo, even if you helped create it. Provide air cover for people who speak up. Confront performance problems immediately…” There are many reasons why leaders pursue niceness. Based on my experience working with hundreds of organizations and thousands of leaders over the past 20 years, here are the top four
Read the full article by Timothy Clark, in Harvard Business Review of 25 June 2021, here… Generational wealth planning: A family affair “The success of generational wealth planning is dependent on honest and transparent communication across generations, while at the same time ensuring that family relations are protected, respected, and nurtured. Such communication can be challenging, particularly where families are separated around the world. Further, having members of the same family living in various parts of the world can give rise to jurisdictional issues which, if not attended to by an expert in the field, can give rise to delays in winding up an estate, unintentional tax consequences, and unforeseen costs…Naturally, a valid and well-drafted will is key to ensuring that your intended legacy has a voice, although this is often more complicated than it seems….” The article raises important considerations a testator must bear in mind –
Read the full interview of Craig Torr in Moneyweb of 29 June 2021, here... |
|||||||||||||||||||||||||||||||||||||||||
2021-06
| In this newsletter: Benchtest 05.2021, rapidly rising inflation, which FIMA was approved, and more... |
|||||||||||||||||||||||||||||||
|
In light of the unfolding COVID-19 situation, our offices will be closed for any visitors until further notice. We have a skeleton staff complement in the office while other staff members are working from home. We appeal to our clients and the general public -
We apologise for the inconvenience caused and appeal for the indulgence of our clients and the public. NAMFISA industry meeting scheduled for 16 July The next industry meeting will be held virtually and face-to-face at NIPAM conference hall on 16 July from 8h30 to 10h30. Attendance must be confirmed by 10 July. All relevant stakeholders are urged to attend, particularly those representing funds that intend to retain their current status as stand-alone funds! Pension fund governance - a toolbox for trustees
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link... In ‘Tilman Friedrich’s industry forum’ we present:
In our Benchmark column, read about
In ‘News from RFS’, read about:
In media snippets, read about:
As always, your comment is welcome, so open a new mail and drop us a note! Regards Tilman Friedrich Monthly Review of Portfolio Performance to 31 May 2021 In May 2021 the average prudential balanced portfolio returned 0.3% (April 2021: 1.5%). Top performer is Hangala Prescient Absolute Balanced Fund with 3.0%, while Ninety One Managed Fund with -0.9% takes the bottom spot. For the 3-month period, Hangala Prescient Absolute Balanced Fund takes the top spot, outperforming the ‘average’ by roughly 3.8%. On the other end of the scale Stanlib Managed Fund underperformed the ‘average’ by 1.5%. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 31 May 2021 provides a full review of portfolio performances and other interesting analyses. Download it here... Understanding Benchmark Retirement Fund Investments In the next few issues of our monthly Performance Review, I will be providing background and guidance on investments to assist Benchmark Retirement Fund members to take charge of their fund investments.
Rapidly rising inflation may seriously affect your retirement nest egg! For the sake of readers who would like to get a view of where global financial markets are likely to move to and to reassess their investments, I believe the article in the below link should open the unexpecting investor’s eyes. It is a view that really resonates with me! Because it is a long letter, I recommend that you at least take the trouble to look at the pointers in the article towards rapidly rising inflation in the US. As the saying goes, when the US sneezes the world catches a cold – being forewarned means being forearmed! With headlines like these, you may think it's time to panic... "U.S. Inflation is Highest in 13 Years as Prices Surge 5%" ~ The Wall Street Journal "Producer Prices climb 6.6% in May on annual basis, Largest 12-month increase on record" ~ CNBC "US Grocery Costs Jump the Most in 46 Years, Led by Rising Prices for Meat and Eggs" ~ CNBC "Higher Prices Leave Consumers Feeling the Pinch" ~ The Wall Street Journal Jared Dillian writes “I called it earlier this year: The Fed will lose control, and we will hit 4% inflation this spring followed by 6% this fall. And that’s exactly what’s happening. We started the year with a rate of 1.4%. In April, we hit 4.2%, and just last month we hit 5%... things are heating up quickly. This is not an environment where “doing the same old thing” will pan out for investors. Only the smart, unconventional investor will survive…” Read the letter from Jared Dillian ‘The Inflation King’s Playbook’, here... FIMA bits and bites – compulsory preservation For a member who withdraws after the FIMA effective date, regulation RF.R.5.10 which requires compulsory preservation of 75% of the minimum individual reserve (or fund credit) applies. The question is whether the 75% compulsory preservation applies -
Scenario 1: 75% applies to member’s fund credit accrued up to the FIMA effective date as well
Scenario 2: 75% applies only on the member’s fund credit accrued from the FIMA effective date until the withdrawal date
Based on an informed opinion we obtained from NAMFISA, scenario 2 will apply. Other legal experts interpret the law differently and conclude that FIMA prescribes scenario 1. Should scenario 2 reflect the correct interpretation, the next complexity that has not been dealt with is whether the value as at FIMA effective date will continue to accumulate interest to the date of payment of a withdrawal benefit, to which scenario 2 will then have to be applied. Confusion reigns on which version of FIMA was approved by parliament When the FIM Bill was tabled in parliament early last year, we were provided with a version by NAMFISA reflecting a footer ‘B13-2018’, styled ‘National Council, Financial Institutions and Markets Bill, as Passed by the National Assembly’. It was then recorded that the FIM Bill was approved by the National Assembly, with amendments to section 15 (principal officer and principal office, insurance chapter), 102 (principal officer and principal office, financial markets chapter), 185 (principal officer and principal office, collective investments chapter), 296 (principal officer and principal office, retirement funds chapter), 339 (principal officer and principal office, medical aid funds chapter) and 372 (principal officer and principal office, fund and society administrators chapter) were amended. It was then sent to the National Council who adopted the Bill with a few typographical changes. It is to be noted, that section 260 of Retirement Funds Chapter 5 of FIMA, dealing with the principal officer and the principal office was not amongst the sections to which the National Assembly required an amendment. NAMFISA now uploaded version B.7-2021 to its website, styled ‘National Assembly, Financial Institutions and Markets Bill, As Read a First Time’. This version can be accessed at this link. We have compared this version to the B.13-2018 version and note that the sections referred to above on ‘principal officer’ and ‘principal office’ were amended in version B.7-2021. However, we also note that section 260 of Retirement Funds Chapter 5 of FIMA, dealing with the principal officer and the principal office was also amended although not so directed by the National Assembly. According to the National Council minutes, only a few typographical changes to the version submitted to it were required, all of which were subsequently adopted by the National Assembly to conclude the parliamentary process. Version B.7-2021 however contains changes that were not raised by the National Council. We have so far not been able to establish which version was sent to the President for signature, but it should then certainly not be version B.7-2021. We also note that version B.7-2021 reflects material differences to version B13-2018, that are not of a typographical nature, but actually change the meaning of some sections. Conclusion We conclude that the FIM Bill version B.7-2021, uploaded on the NAMFISA website on 4 April 2021 is probably and hopefully not the version sent to the President for signature and that one should not spend time on that version until the confusion has been cleared up. We would indeed be very concerned if version B.7-2021 is the version sent to the President for signature as it contains material changes not originating from Parliament. Botswana regulator enforces good governance practices The Botswana Public Officers Pension Fund, the equivalent of our GIPF, recently outsourced its fund administration to a private company jointly owned by the Fund and NMG Botswana. The move is a result of a 2017 decision by Botswana’s Non-Bank Financial Institutions Regulatory Authority (NBFIRA) that all pension funds in Botswana be administered by an independent fund administrator, for the sake of good governance. While the FIMA aims to improve governance in the pensions industry by prohibiting the fund administrator, and other fund service providers, to be represented on the board of trustees for the sake of good governance, it fails to address the deficiency in good governance in self-administered funds in Namibia. Barring the GIPF, all funds in Namibia are administered by a third-party administrator, which in itself manifests strong governance but at a cost to the funds and their members. Now FIMA imposes a huge amount of additional requirements on service providers and funds to improve governance, at a huge additional cost to these funds and their members. Considering that these funds represent less than half the pensions industry and that the most glaring governance deficit is actually presented by the GIPF through it being self-administered, good governance in our industry would take a leap forward if this situation were addressed, ahead of a focus on the balance of the industry.
Compliment from an audit team manager Dated 5 May 2021 “We would like to express our profound gratitude and sincere thanks to the Fund Administrator and Fund Accountant in the persons of Mr … and Mr … respectively. The gentlemen adequately prepared for the audit, being proactive in their delivery of the supporting documentation we would ordinarily need to carry out our audit work. All such schedules and documentation were filed timeously and meticulously. This further demonstrates the calibre of their personalities and the effort, time, and excellence they put into their work. This is what has necessitated us to make special mention of their excellent work. We are aware that Mr … and Mr … work with a team. At this point, we would like to extend our appreciation to each team member for their contribution, time, talent, and effort. Thank you for the excellent filing and documentation of the paperwork. All of this has made the audit pleasurable and enabled us to reach the audit deadline. Thank you for maintaining an open-door policy of open communication. It was very refreshing to work with Mr … and Mr … who not only are knowledgeable in their vocations but were willing and patient to clarify the plethora of queries we had. We would also like to appreciate Ms … who kept the working room clean and tidy. Thank you for your efforts. To the management, we revere you for setting a conducive work environment that enables employees to live out their purpose with excellence, dedication, and passion. This has reflected in the way all employees have carried out their work.” Read more comments from our clients, here... The Benchmark Retirement Fund welcomes new employers We are excited to advise that the following employers have recently moved from their free-standing retirement fund into the Benchmark Retirement Fund as a participating employers:
Our business model is not to dominate the market through a low-cost proposition. We focus on transparency, exceptional reporting, and superior service. This should support and promote sound industrial relations and the employer’s employment philosophy and policy of attracting and retaining the best staff. If these are objectives important to your company and close to your heart, we should be your ideal partner in the provision of retirement benefits to your staff. Benchmark Retirement Fund welcomes new trustee  The Board of Trustees of the Benchmark Retirement Fund recently announced the appointment of Ms. Sabrina Jacobs as a Trustee of the Fund effective 1 May 2021. Ms. Jacobs is a Namibian citizen. She obtained a Bachelor’s Degree in Human Resource Management and a BA Hons Degree in Labour Relations and Human Resources from the Nelson Mandela Metropolitan University. She also completed the Senior Manager’s Development Programme at the University of Stellenbosch Business School. Ms. Jacobs is currently employed as General Manager: Human Resources at Cymot (Pty) Ltd, a participating employer of the Fund. Ms. Jacobs also served in the following positions:
RFS sponsors restoration of a historic school building Retirement Fund Solutions was approached by the board of directors of the Deutsche Privatschule Grootfontein some time ago, to support the school financially. Due to the Covid pandemic, the school, like many other schools, associations, etc., is lacking the urgently needed income to keep the school alive and to maintain the infrastructure. Since Retirement Fund Solutions attaches particular importance to promoting school education and school sports, this naturally fits in well with its social responsibility policy. For this reason, Retirement Fund Solutions agreed to support the school with its project to preserve its 'historic walls' with the sponsorship of N $ 27,500 to the AGDS, which in turn will use this money to renovate the historic veranda of the German private school Grootfontein. Retirement Fund Solutions is pleased to be able to give something back to the community and hopes that with this support, the school will continue to exist for many years and that many children will find a solid educational facility in these 'historic walls'.  Kai Friedrich (r) handing over the sponsorship to Hanjo Böhme, Chairman of the AGDS. Important administrative circulars issued by RFS RFS issued the following fund administration-related circulars to its clients over the last month.
Distribution of death benefit and the ‘bloedige hand’ principle This matter is a determination in the matter MEJ Nel (‘the Complainant’) v NETCARE 1999 Pension Fund (‘the Fund’) and Alexander Forbes Financial Services (‘the Consultant’) Facts of complaint The deceased nominated his wife as the sole beneficiary in 2013. This nomination amended an earlier nomination, reflecting his wife and his mother since his mother had passed away. The deceased and his wife were murdered on the same day, but the wife passed away before her husband. The biological daughter of the wife and her previous husband and her boyfriend were implicated in the murder and were held in custody. The divorce settlement with the wife granted her father sole custody of the daughter. The Complainant pointed out the daughter receives a child grant in respect of her minor child. The trustees ignored affidavits submitted by the deceased siblings and excluded his wife’s daughter because she was involved in his and his wife’s murder. The trustees noted that the daughter and her child were not related to the deceased. The board argued that a beneficiary does not have to be a deceased’s biological child or grandchild to be allocated a death benefit. The board found that the minor child was financially dependent based on the deceased as he provided for the child. Furthermore, the board accepted an affidavit from a friend of the deceased, that the deceased and his wife intended to adopt the minor child. The board argued that it could not solely rely on the beneficiary nomination as this would fetter its discretion. Section 37C serves a social purpose and intends to protect people who were dependent on the deceased. The trustees resolved to allocate the full benefit of R 2,263,973 to the deceased’s wife’s minor grandson and pay the benefit into a trust for the minor child’s benefit. The Complainant is a sister of the deceased. She submitted that the minor child was only part of her brother’s life for two years before he passed away and that the child’s mother will get her hands on the benefit, despite her having a ‘bloedige hand’. She submitted that her brother had no obligation towards the minor child but supported him out of courtesy. Furthermore, the deceased’s late wife did not have custody over her accused daughter. Her brother did not have any children of his own. Matter to be determined by the tribunal The trustees must affect an equitable distribution and give proper consideration to relevant factors but exclude irrelevant factors. They may not unduly fetter their discretion by following a rigid policy but should take into account personal circumstances and the prevailing situation. The question in this matter is - Did the Fund’s board of trustees fail to carry out its duties set out in section 37C of the Act? The tribunal confirmed that ‘de bloedige hand neemt geen erfenis’ is an established legal principle that does apply to pension funds. Pending the outcome of an investigation, Funds must withhold the payment of benefits allocated to an accused person in terms of section 37C, but allocate a benefit to the other beneficiaries. Once the criminal case is concluded, the balance of the benefit must be distributed. The accused may receive a portion of the benefit if he is not guilty; else the other beneficiaries must receive the benefit balance. Consequently, the minor child’s mother may not gain access to the child’s benefit, but the child’s benefit must be paid. The tribunal stated that section 37C imposes two duties on the board of trustees. Firstly, it must investigate the whereabouts, and determine who the dependants and the nominees of the deceased are. Secondly, it must distribute the benefit equitably. The tribunal found that the biological father of the daughter of the deceased’s wife was granted sole custody over the daughter and was therefore responsible for her maintenance. The argument that deceased and his wife intended to adopt the minor child, based on a friend’s affidavit, was considered “…neither here nor there in establishing dependency.” The tribunal did not accept this argument. Although the deceased’s siblings did not claim dependency in their affidavits, the tribunal stated that the trustees of the Fund cannot merely rely on affidavits and needs to conduct a proper investigation in terms of section 37C. “The board should consider the extent of their dependency on the deceased as they qualify as factual dependants based on a reciprocal duty of support between brother and sisters.” Findings of the Tribunal The tribunal concluded that the Fund failed to consider the extent of financial dependency of the minor child and the extent of dependency of the deceased’s three siblings. Order of the Tribunal Reconfirming that it can only review the decision of the board of the Fund in cases where the board has exercised its powers unreasonably and improperly or unduly fettered its discretion, the tribunal set aside the decision by the board of trustees ruled as follows:
Read the full determination here... Secondly, the determination states that adult siblings have a reciprocal duty of supporting each other. In Namibia, the Maintenance Act does not establish such a reciprocal duty between adult siblings. Therefore, unless common law establishes such a duty, the same case should result in a different determination in Namibia.
16. Take time to adjust and process your emotions As I have expressed multiple times in this article; retirement is a process. So you need to build in time for yourself to process your feelings and emotions. Give yourself time to adjust to the new situation and get comfortable again. You can do this by not planning a lot of activities in the first weeks or months. Take a retirement “honeymoon” to feel it out or another way that feels best for you. Many people like to rush into other activities to run from their real feelings. In the long run, this can boomerang back to you. So take it easy on yourself and let the emotions and feelings be. Fighting or running from them will only make them bigger. 17. Start journalling Journaling is an incredible stress management tool. Keeping a journal improves your mental clarity, it helps to solve problems and improves overall focus. With expressive writing, you’re clearing the mental clutter, and you also transform the problem you have from your head to the paper. It helps you to manage change better. Starting a journal is a very healthy habit you can start doing before retirement. With writing your problems, thoughts, and feelings down, it will make you feel better, and have a more organized view on retirement. Here are the five powerful health benefits of journaling:
Be prepared for the good things in life is also being prepared for things that can go wrong. It’s not to get a pessimistic view on things, but it’s more about applying critical thinking and foreseeing the bumps in the road. And deciding ahead of time how you will handle the problems that come your way. When you enter into change with your eyes open and solutions in your back pocket, you’re ensuring that you’re fully prepared for what’s next. Talk to your spouse, family members, and financial advisors and go through different scenarios. Write down family decisions, bumps in the road that might occur and how you’ll approach them on a piece of paper or journal so you can look it up in the future. A reminder can be helpful in tough times. 19. Find a support team When times get tough, you want to rely on a support team that can help you out. And it is possible that in retirement you feel lost and therefore you need a support system to help you out. And there is no shame in reaching out for help because everyone needs people in their lives to guide them in the right direction when you’re overwhelmed. This can be like-minded people, for example, other retirees or call up a close family member or friend. You can even start a retirement club. Just like a book club, you start a retirement club to discuss the possibilities of retirement. This way, you’ll get a broader understanding and learn more about how other people prepare for retirement planning. And be each other’s support system when needed. Research has proven that having a support system has many positive benefits for your health. Such as higher levels of well-being, better coping skills, and living a longer and healthier life. Social support reduces depressive symptoms, anxiety, and decreases stress. And that’s what we all want in life. So reach out to the person you think that can help you the best when you experience the downs in life. 20. Don’t let fear kill your dreams Retirement is the time where you’ve worked hard for, and you owe it to yourself to make the most out of it. And sometimes fear can get away from our dreams. We let the negative inner voices distract us from what we want. Don’t be afraid to dream big and go after what you want in life. It’s your life, so make sure you live it the way you want it. And have no regrets. 21. Celebrate your retirement Retirement is a huge milestone in a person’s life, so that needs to be celebrated to make it even more memorable. Think about what you want to do to celebrate your retirement. This can be an adventurous trip you’ve always wanted to do, organizing a retirement party with friends and family, or giving yourself an (expensive gift).” Read the full article: How To Plan Your Life After Retirement” This was the final part of this interesting guide. Three tips for when you are facing retirement “…if you were one of the many investors who became unsettled and switched to more conservative options, you would have watched your portfolio lose about 15% during March/April last year. Furthermore, you would have locked in your losses and missed out on the subsequent market recovery,” says Moore. It is estimated that South Africans lost R100 million of their savings overall between April and December of 2020 by switching funds. After many investors moved their savings into cash, SA equities delivered a huge 54% return in the 12 months to March 2021, which many missed out on… So, if you are facing retirement, Moore offers some tips to consider: 1. Think about your retirement savings in two pots
Read the full article by Just, in Cover of 12 May 2021, here… Investing is not a sprint but a marathon “Schemes designed to part you and your hard-earned capital have a long and notorious history, perhaps most famously with Charles Ponzi’s original 1920s creation. More recently, in South Africa, we saw the 2007 Fidentia investment scam which resulted in mastermind J Arthur Brown being sentenced to 15 years in prison for fraud in 2014. Both Ponzi and Brown duped investors with guarantees of meteorically high yields. As history tells us, of course, these expectations often come with a catch. This underlines the importance of knowing how to distinguish between a scam and a sound investment option that delivers solid returns. …there are a finite number of asset classes in which you can invest to achieve a return on your money. These range from conservative cash investments in a bank to shares. Every asset class has a risk/return profile. If you want a low-risk investment, you must accept a low return. If, on the other hand, you are willing to take on more risk and invest in the stock market, for example, then you should get a higher rate of return, but you will experience more volatility during the process and will likely need to commit your capital for a seven-year period or longer in order to realise those returns. Then, between the extremes of low-risk cash and high-risk equities lies the asset classes of bonds, property, hedge funds and the like. A direct offshore stock market investment, which is on the risky side of the spectrum, has provided an average return of 13% over the long term. Of course, there will be years of 20% returns or more, and also years of significantly negative returns such as those experienced during the 2008/2009 financial crisis and the first half of 2020 due to the COVID-19 impact. No one knows for certain which shares within the stock market are going to generate the best returns. The safest way to ensure your money generates a return above inflation is to diversify your risk and hold shares in different companies, in different sectors, in different countries and even in different currencies. Getting the mix right between asset classes and ensuring that you have a nuanced understanding of the inner workings of options within such assets takes skill and deep investment knowledge… Read the full article by Pierre Muller, Advisory Partner, Citadel in Cover of 28 April 2021, here… How investors can mitigate prevailing high selection risk “Selecting to invest in the wrong fund at the wrong time is something that happens daily. Industry flows and years of research show that investors habitually chase performance and are notoriously bad at timing the markets which, often have severe consequences…So, investors have plenty of choice but obviously that also comes at the risk of choosing poorly, and that risk we define as selection risk. And we believe the risk is very high at the moment, not only because of the number of funds available, but also because the dispersion of returns…Because when you run into volatility in the market and you don’t have a clearly defined plan to guide you and give you some stability and some peace of mind, you end up making mistakes, you start chasing performance…The key thing is to have a clear plan and stick to it. You can’t invest on a whim, you’re a sitting duck for all the behavioural biases…A second thing to keep in mind is don’t pick an asset class. This is something that we’ve been seeing more lately in the industry, so as I said, investors like going either offshore or into cash. And that’s opened the door for investors looking at asset classes specifically and we actually think it’s a very good time to consider multi-asset funds which in recent years has fallen out of favour…And the offshore component is also something to keep in mind – that these funds that managed to do quite well, it’s vital still having a 30% odd investment offshore, but it has introduced a lot of diversification benefits in a period like last year when we saw the currency lose a lot of value…” Read the full interview of Ciaran Ryan with Adriaan Pask of PSG Wealth, in Moneyweb of 9 June 2021, here… Great quotes have an incredible ability to put things in perspective. "Example is not the main thing in influencing others. It is the only thing.” ~ Albert Schweitzer |
|||||||||||||||||||||||||||||||
2021-05
| In this newsletter: Benchtest 04.2021, FIMA and risk benefits, FIMA and the Income Tax Act and more... |
|||||||||||||
|
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link... In ‘Tilman Friedrich’s industry forum’ we present:
In our Benchmark column, read about new employers who have joined the fund.
In media snippets, read about:
As always, your comment is welcome, so open a new mail and drop us a note! Regards Tilman Friedrich Monthly Review of Portfolio Performance to 30 April 2021 In April 2021 the average prudential balanced portfolio returned 1.5% (March 2021: 0.6%). Top performer is Hangala Prescient Absolute Balanced Fund with 2.4%, while Allan Gray Balanced Fund with 0.7% takes the bottom spot. For the 3-month period, Hangala Prescient Absolute Balanced Fund takes the top spot, outperforming the ‘average’ by roughly 1.8%. On the other end of the scale Investment Solutions Balanced Growth Fund underperformed the ‘average’ by 1.4%. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 30 April 2021 provides a full review of portfolio performances and other interesting analyses. Download it here... Understanding Benchmark Retirement Fund Investments In the next few issues of our monthly Performance Review, I will be providing background and guidance on investments to assist Benchmark Retirement Fund members to take charge of their fund investments.
FIMA bits and bites – what benefits may a retirement fund offer? As we understood a side remark by a senior official of NAMFISA at the instance of a recent meeting, FIMA may actually prohibit retirement funds to offer ancillary benefits like funeral cover, death benefits or disability benefits. If true, this is a shocker! We all know that FIMA is charting new waters and I have repeatedly expressed my concern about the years of legal uncertainty we are facing with these new laws, turning the financial services industry upside down in an unprecedented legal revolution. The problem we are faced with is that NAMFISA may have its own interpretation and a legal expert may have another interpretation, while a court may finally conclude differently and only once a court has pronounced itself will we know where we stand. To interrogate this side remark, let’s start where one should start, namely the definitions. A ‘retirement fund’ “means an association of persons established with the objects of receiving, holding and investing contributions of individuals and their employers for the purpose of providing retirement benefits in accordance with the rules of the fund adopted for such purposes and includes such other funds as the Minister may prescribe by regulation;” A retirement fund in terms of regulation RF.R.5.1 lists as retirement funds: pension fund, provident fund, preservation fund and retirement annuity fund – all creatures of the Income Tax Act. Since the definition of ‘fund’ in chapter 5 of FIMA also includes a beneficiary fund, the definition of ‘beneficiary fund’ is also relevant and reads – [it] “means any association of persons or any business carried on under a scheme or arrangement established with the object of receiving, administering, investing and paying, on behalf of beneficiaries, benefits as contemplated in, or in accordance with, section 276(2)(c), payable on the death of one or more member or members of one or more funds” From the above it does indeed seem as if a retirement fund can only pay the fund credit while a beneficiary fund can only pay benefits received in terms of section 276 upon the death of a member. This begs the question: where do ancillary benefits such as death benefits, disability benefits (lump sum and income benefits) and funeral benefits fit in? The only other possible ‘financial institution’ one now can consider is the ‘friendly society’. The objects of a ‘friendly society’ as set out in section 285 of FIMA are very broad but include “the relief or maintenance during minority, old age or widowhood, or sickness or other infirmity, whether physical or mental, of members or their spouses, widows, widowers, children or other relatives or dependants” (285(1)(a), “the granting of annuities, whether immediate or deferred, to members or their nominees or the endowment of members or their nominees” (285(1)(b), “the payment of a sum of money or other benefit to be paid or provided – (i) on the birth of a child of a member; (ii) on the death of a member or any person referred to in paragraph (a), which may be in the form of an endowment insurance on the life of the member or that person; towards the expenses incurred in connection with the death or funeral of a member or any person referred to in paragraph (a)” (285(1)(c). These are indeed benefits commonly provided by pension funds under the Pension Funds Act. I do not profess to be an expert on FIMA at all and we have therefore approached Andreen Moncur, a pension funds lawyer who spent a lot of time on FIMA. Her opinion is as follows: “When it comes to the demarcation of the types of business that retirement funds, beneficiary funds and friendly societies will be permitted to conduct under FIMA, I draw your attention to the definition of “retirement benefits” that reads as follows: “ ‘retirement benefits’ means benefits payable to individuals on or after their retirement or on their disability, death or termination of employment prior to retirement or on separation from a retirement fund or to their survivors, dependants or nominees.” Reading this definition with the definition of “retirement fund” does not mean that retirement funds can only pay fund credits. Neither “retirement benefits” nor “retirement fund” are prescriptive regarding the nature or type of benefits that may be paid. Within the Income Tax Act parameters and subject to the FIMA prescribed minimum benefits, retirement funds are free to decide what benefits they will offer on death or disablement. In other words, a retirement fund may offer the risk benefits provided for in its rules. Whether a retirement fund is approved as a pension fund, provident fund, preservation fund or retirement annuity fund will determine its benefit structure. The Income Tax Act determines if a retirement fund may pay a funeral benefit at all, a disability income benefit instead of a lump sum, an insured multiple of salary at death or a refund of contributions with interest. The word “investing” includes undertaking all the activities to enable a fund to pay the benefits provided for in the rules. Investing thus includes paying risk premiums to the insurer underwriting the risk benefits. A retirement fund “receives, holds and invests contributions” to provide the benefits promised in the rules, not to return the contributions to the member with interest, net of expenses. If retirement funds are not allowed to provide benefits other than a member’s fund credit, there would be no need for:
FIMA bits and bites – will the Income Tax Act be aligned in time? When NAMFISA invited comments on the FIMA for the first time a number of years ago, we raised the concern that FIMA needs to be aligned with the Income Tax Act, or vise-versa. Since FIMA explicitly overrides all earlier laws, it overrides the Income Tax Act (‘the ITA’). The implication is that Inland Revenue is faced with the daunting task of aligning the ITA with the FIMA. We are certainly not aware that Inland Revenue has started a project to align the ITA with the FIMA and we question whether FIMA can actually be implemented before the ITA has been aligned. To demonstrate our doubts, take the following examples:
NAMFISA currently interprets the PFA to prohibit the deduction of an outstanding housing loan until a benefit becomes payable to the member. Under the FIMA an outstanding housing loan may be deducted from the member’s accumulated capital in the fund should the member default on his housing loan repayments. Regulation RF.R.5.5 makes provision for the granting of loans. It explicitly states that no loan may be granted in respect of a right of occupancy by virtue of the operation of an agreement of lease or 'similar temporary measure'. Furthermore, only one loan may be granted at a time. This is understood as referring to the property in respect of which the loan is granted. A second advance or increase in an existing loan in respect of the same property should be in order, but not loan may be granted in respect of a property if a loan was granted to the member in respect of another property. The loan amount that may be granted may not exceed the lowest benefit in terms of the rules, net of income tax and the fair value of the property. As we pointed out in this column in last month’s newsletter, this effectively reduces the loan to 16% of the member’s fund credit in a pension fund and to 63% in a provident fund as opposed to the current maximum of 33% in a pension fund and 63% in a provident fund. Section 277 provides scope for other loans “…as prescribed by the regulations…” as well. Currently there is only one regulation, RF.R.5.5 that makes reference to loans, being housing loans specifically, as referred to in the aforegoing and to loans that may not be made, namely loans to, or investment in shares in an entity controlled by an officer or member of the fund, or by a member of the board or a director of a participating employer or of any of its subsidiaries. This indicates that further regulation/s will be forthcoming that deal with other loans. Why the prudential balanced portfolio is the answer for pension funds A typical statement made by fund members, in particular when markets are not doing so well, is that the Benchmark Default portfolio has been performing poorly over the past so many years and one should have rather been invested in the money market. Well, when someone makes such a statement, one needs to establish what the commentator’s benchmark is for saying that the portfolio has been doing poorly. One also needs to understand what this portfolio aims to achieve before one can put such a statement into context. This statement is similar to saying ‘my Ferrari’s fuel consumption is horrific’. Really an empty statement when made out of context. The fuel consumption of a Ferrari will certainly be significantly higher than that of a 1.4 litre Golf TSI. Would you not have expected this, when comparing the technical specs of these two cars, particularly in terms of engine output? It’s simply an unreasonable comparison and a matter of ‘horses for courses’! The default portfolio’s technical specs are those of the typical prudential balanced pension fund portfolio, having been a significantly more conservative portfolio to the end of 2010. The portfolio’s technical specs have changed to mirror those of the prudential balanced portfolio only since the beginning of 2011. Due to the fact that the default portfolio comprises of 3 different portfolios, its performance should mimic the performance of the average prudential balanced portfolio. This it does by-and- large. Cumulatively, an investment of N$ 100 in the default portfolio since its restructuring at the end of 2010, would be worth N$ 285 while the same investment in the average prudential balanced portfolio would be worth N$ 268 at the end of January 2021. That out-performance of the default portfolio was not by design, but rather by coincidence. The fact that the portfolio is currently structured more conservatively than the average prudential balance portfolio, with an equity exposure of only around 45% vs the average prudential balance portfolio’s 65%, has benefited it over the past 11 years and is the result of high market volatility and poor performance of equities relative to other asset classes. This more conservative structure is by design in the face of market volatility. Relative to what the default portfolio is designed for, namely mimicking the average prudential balanced portfolio, one clearly cannot say that the portfolio has performed poorly, in fact over the past 11 years it has actually done slightly better that what may be expected. Over the past 10 years to end of January 2021, both the default portfolio (annualised return of 10.8%) as well as the prudential balanced portfolio (annualised return of 10.3%) out-performed the All-bond Index (annualised return of 10.1%), equities (annualised return of 7.1%), money market (annualised return of 6.8%) and listed property (annualised return of minus 2.6%). These returns were as at specific point in time and the picture will change if one looks at different points in time. These two portfolios’ 10-year returns were not far short of the annualised return on gold of 11.4%. There will be other specialist portfolios that have out-performed these portfolios. For example, an investment in the S&P 500 index would have yielded 19.5% in Rand terms, excluding dividends, or about 21.7% including dividends, helped on by an annualised Rand depreciation by 7.7%. Property was hailed as the answer for quite some time, but where property markets are today, we do not even have to take this topic any further! Measuring investment performance on a point in time basis is always extremely misleading as the performance depends on when the period measured starts and when it ends and just one month can make a significant difference. For this reason, I believe it is much more illuminating to look at relative rolling return performance. Graph 6.1 reflects rolling returns over time relative to the average prudential balanced portfolio. It reflects the volatility of the different lines and how they perform relative to each other. Anyone who wants to assess whether or not an investment has performed well, needs to first establish the context within which he/she then can determine whether the performance was good, bad or indifferent and that is what these rolling return performance graphs do. Graph 6.1  This graph establishes the context as being the relative cumulative performance of the average prudential balanced portfolio. This is reflected as the yellow line on 100%. The actual annual performance of this notional portfolio over this period from August 2002 to January 2021 was 13%. Annual inflation over this period was 5.3%. The notional portfolio has thus out-performed the inflation by 7.7% per year! Now, let’s look at the blue line, representing the JSE Allshare index. An investment in this index would have only been ahead of the notional portfolio from February 2006 to August 2008. Before and after that short period of out-performance, the JSE Allshare index never managed to produce a cumulative out-performance of the notional portfolio, ending up 25% below the notional portfolio at the end of January 2021. Neither did any of the other asset classes. In order of cumulative under-performance, the graph shows that the Allbond Index under-performed the notional portfolio by 38% and right at the bottom, money market with an under-performance of 64%, cumulatively to the end of January 2021. For those investors who question from time to time why the Benchmark Default portfolio was not moved to money market instead of being invested in prudential balanced portfolios, mimicking our notional portfolio above, one needs to ask: When would you have moved to money market and when would you have moved back to the prudential balanced portfolio? I believe we are all agreed that the prudential balanced portfolio in the long-run substantially outperforms the money market as also evidenced by graph 6.1 above, be it only over a close to 20-year period. Clearly, with hindsight one can say that only when the red line moves up, the money market out-performed the notional portfolio cumulatively. As the graph shows, these times were only short spells, the longest one having lasted from October 2007 to April 2009. Conclusion From this deliberation, it should be evident that the average prudential balanced portfolio has actually done very well and their managers can only be complimented for managing the balance between the various asset classes very effectively, in the face of highly volatile markets. These portfolios can also be employed by private investors with their discretionary capital. I would recommend that unless the investor has money ‘to play with’ that he can expose to higher risk and he understands the risk and manages the portfolio actively, the prudential balanced portfolio is your best bet. These managers all manage to the good old fashioned investment principle to not put all your eggs in one basket, but diversify your risk by spreading it across assets and asset classes as widely as possible. They also spread their investment globally and they have the mechanisms in place to switch and move swiftly where circumstances require, unlike the individual investor who will first have to establish what all the legal and regulatory requirements are before he/she can implement a decision. Of course, your time horizon is important and our commentary above deals with people who invest with a time horizon of at least 3 years. What is important to realise though, is that the investment portfolios are likely to behave differently after the change in the business model to what it was before, meaning that one cannot apply the same criteria to an evaluation of performance after the change that one has applied before the change.
Compliment from payroll manager of a large company Dated 25 March 2021 “Og!! Jys n AGTERMEKAAR vrou!! Thank you for your service.” Read more comments from our clients, here... The Benchmark Retirement Fund welcomes new participating employers Benchmark Retirement Fund takes further strides on its course to become the biggest retirement fund in Namibia (just joking... it will never get anywhere close to the GIPF). Nevertheless, it could by now be the 4th largest fund in Namibia in terms of assets under management, including the GIPF, thanks also to the latest sign of confidence by Letshego Bank and Unitrans, that have taken the decision to join the Fund. We welcome Letshego Bank and Unitrans and their staff and look forward to a long and smooth journey into the future and to serving you beyond expectation for many years to come!
RFS welcomes new staff RFS welcomes on its permanent staff from 1 May 2021, Kredula Amutenya who joined the company at the beginning of November 2020! Kredula grew-up in Windhoek and matriculated at Concordia College in 2009. She studied at NUST, initially on a full-time basis after school, but later on a part-time basis. She obtained an Honours Degree in Business Management in 2017. As student she did holiday work at Hope Real Estates and also at the National Planning Commission. She started her formal working career at Entrepo Finance as a loan consultant in 2014. She resigned in 2016 from Entrepo to join MMI as a Fund Administrator in the employee benefits department. Kredula assumed a portfolio of clients in the Benchmark division and will apply all her skills and competence to service her clients beyond their expectation! We wish her a long and rewarding stay and career at RFS! Long service awards complement our business philosophy RFS philosophy is that our business is primarily about people and only secondarily about technology. Every time a fund changes its administrator, a substantial amount of information and knowledge is lost. Similarly, every time the administrator loses a staff member, it loses information and knowledge, also referred to as corporate memory. We know that, as a small Namibia based organisation, we cannot compete with large multinationals technology wise because of the economies of scale that global IT systems offer. To differentiate us we need to focus on personal service and on the persons delivering that service to foster customer acceptance and service satisfaction. With this philosophy we have been successful in the market, and to support this philosophy we place great emphasis on staff retention and long service. The following staff member celebrates her 15 years work anniversary at RFS on 1 June 2021! We express our sincere gratitude for her loyalty and support over the past 15 years to:
Some organisations prefer to blow their bugle about the sums of money spent on their social responsibility programmes. Typically, that is the ‘easy way’ – blow the shareholders’ moneys and make yourself look good. This is not RFS philosophy. We support efforts of our staff or their families, who personally engage with their time and resources in projects that benefit their communities. In this manner our Louis Theron, whose wife teaches at Eros Girls’ School, took it upon himself to purchase material and supervise renovation work on a number of classrooms of Eros Girls’ School, with a significant financial contribution by RFS and supported by Neo Paints. And while at it, Louis managed to convince his fellow shareholders to donate a number of intelligent terminals and screens that were decommissioned by RFS.
Important administrative circulars issued by RFS RFS has not issued any fund administration related circulars to its clients over the last month. Fund forms and the Electronic Transactions Act A contribution by Carmen Diehl, senior manager: projects and fund accounting Questions:
Due to the advances in technology and the efficiencies that come with it, there is a general move away from paper documentation and towards online forms or electronic fund forms. In addition, the increased interaction by the fund with its members as required by various FIMA provisions also necessitates a move towards electronic communication in order to keep the resulting cost increases to a minimum. For example, in terms of Standard RF.S.5.9 Compulsory beneficiary nomination forms, “members are entitled to amend their beneficiary nomination forms at any time by completing a new beneficiary nomination form, in which case any and all preceding beneficiary nomination forms will be invalid and of no force and effect” (section 6). Compliance with this requirement will be much more efficient if the member can complete an online electronic beneficiary nomination form that will automatically supersede the previous version. Examples of electronic fund forms include: Beneficiary nomination forms; switching instructions (investments, contribution categories etc); exit/ withdrawal forms; new member application forms; etc. The Electronic Transactions Act, 2019 was promulgated on 29 November 2019 and came into operation on 16 March 2020. The general purpose of this Act is, among others, to provide for a general framework for the promotion of the use of electronic transactions in the Republic of Namibia and to provide for the legal recognition of electronic transactions. This Act was therefore studied in order to reach a conclusion on the questions above. Conclusion: Electronic forms are legally binding and fund forms can be converted to electronic forms, subject to the following: It should be established whether any of the excluded laws (as defined) apply to the fund form. If so, a signed hard copy document might be required instead of/ in addition to the electronic form. The information must remain complete and unaltered from the time when it was first generated in its final form in order to qualify as ‘original’ documentation. The information as entered by the member and confirmed when submitting the document should not be able to be altered afterwards, not by the member or anyone else. Access should be restricted to the member’s account via personalised username and password. In terms of s17(2), persons may by agreement regulate the effect, use and requirements for data messages as it relates to dealings among themselves. This should form part of the new fund/ employer/ member application forms and agreements. Access should be restricted to the member’s account via username and password. The member should acknowledge in writing to the fund that he/she understands that it is the member’s responsibility to not share the username and password. Death of a retired member – how to dispose of remaining capital A number of defined contribution pension funds pay a lump-sum benefit equal to the remaining capital, in the event of the death of a person who retired in the fund and was in receipt of a pension. The rules would describe how this remaining balance is to be calculated. The rationale for this benefit is the principle of the member retaining ownership of his or her retirement capital when he or she passes away after retirement. When the pensioner then passes away, the rules will have to be followed by the trustees in disposing of the remaining capital. Therefore, if the rules say that the remaining capital must be paid as a lump-sum, that is what should happen. However, this is not consistent with NAMFISA opinion and a circular it issued nor is it consistent with the Income Tax Act though. NAMFISA is of the opinion that this capital must also be distributed in accordance with section 37C and that is what the trustees have done. The Income Tax Act states that at least 51% of the benefit must be paid as an annuity of which one-third may be commuted tax-free. The trustees are faced with the dilemma that if the benefit is paid in a lump-sum as prescribed by the rules, the payment will be inconsistent with Income Tax Act and may lead to tax approval of the fund being revoked by Inland Revenue. If the benefit/ at least 34% of the benefit, is paid as an annuity, the trustees are in breach of the fund’s rules and can be challenged by the beneficiary/ies. The trustees are thus in an awkward position. The only way out is to amend the rules so that they are consistent with the NAMFISA circular and the Income Tax Act. Withholding of a withdrawal benefit – trustee must consider all facts of civil litigation This case deals with a complaint by JAE de Beer (the Complainant) versus Iliad Provident Fund (the Fund), Alexander Forbes Financial Services (the Consultant) and Steinhoff Doors and Building Materials (the Employer). De Beer complained that the Fund had withheld his withdrawal benefit in terms of section 37D(1)(b)(ii) of the PFA. While section 37A of the Pension Funds Act offers strong protection of a member’s benefit, it provides for certain exceptions, the relevant provisions in this case are set out in section 37D(1)(b)(ii). Section 37D(1)(b)(ii) provisions Note that this section is verbatim the same as the equivalent section in the Namibian act. A registered fund may-
The complainant was employed as a General Manager of the Employer for 9 years from 23 April 2008 until8 April 2016. In April 2016 he was investigated for authorising the supply of building supplies to a customer in contravention of the rules of the Employer. The employer consequently opened a criminal case against the complainant after it became evident that the company failed to pay its outstanding invoices for good supplied to a customer during August and September 2015. The Employer informed the complainant that it was contemplating disciplinary action against him in April 2016. The disciplinary hearing was scheduled for 14 April 2016, but complainant resigned on 8 April 2016. Complainant admitted to the tribunal that he had indeed supplied goods to the customer in excess of its credit facility and in contravention with the Employer’s rules. He explained that he kept records of all goods supplied in this manner and agreed with the customer to supply goods to the customer in the manner he had been purchasing from the employer for the past 9 years. Complainant further explained that the customer visited the business premises of the Employer at least once a week to make payments for goods supplied, including regular settling of his outstanding account. The Complainant submitted that he had authorised the supply of goods to the customer for about one and a half year and monitored all payments made. These were always made punctually. However, in September 2015, the customer advised the Complainant that his vendor was blocked from providing the goods to certain mines as the result of a contractual dispute and therefore could not settle his outstanding invoice for goods supplied during August and September 2015 by the customer. Complainant submitted that he gave his full cooperation to the Employer in its investigation. Employer ordered two forensic investigations and both reports supported Complainant’s version. The Employer threatened to prosecute complainant for colluding with the customer, alleging that Complainant had an interest in the customer’s business and that he was receiving benefits and hunting trips from the customer. Complainant denied all these allegations but admitted that he had established a good relationship with the customer. He did not derive any benefit from the supply of goods to the customer and submitted that he had not admitted liability for the amounts to be recovered from the customer nor did he sign any acknowledgement of liability and that the Fund thus was not justified to withhold his benefit in terms of Section 37D(1)(b)(ii). He submitted that these developments caused a complete breakdown of the employment relationship and as a result he tendered his resignation w.e.f. 8 April 2016. He stated that there is no basis on which the Employer will succeed in proving any fraud or theft against him as he did not wilfully deceive the Employer regarding the customer’s account. Complainant submitted that the Employer had applied for liquidation of the customer to recover the debt in accordance with its standard practice. Had the Employer intended to recover the debt from him, it should have joined him in civil proceedings against the customer. The Consultant submitted to the tribunal that it had established that the Employer opened a case with SAPS with a view to obtain judgement against the complainant and that the Employer had consequently requested the fund to withhold payment to the Complainant, as provided for in the rules of the Fund. The withdrawal benefit of R 245 907 was substantially less that the amount of N$ 654 000 the Complainant allegedly owed the Employer. The criminal case was later transferred to another police office for investigation by the Hawks, due to the value of the alleged theft. No further submission was made to the tribunal by the Employer. Matter to be determined by the tribunal The tribunal needed to determine whether the withholding Complainant’s benefit by the Fund pending the finalisation of the criminal investigation is permissible and justified in terms of section 37D(1)(b)(ii). In its considerations, the tribunal stated that the board of the Fund may only do what is set forth in the rules of the Fund. Making reference to Tek Corporation Provident Fund and Another v Lorentz and found that the rules of the Fund do make provision for the withholding of a benefit, subject to certain requirements, but of relevance being the requirement that the Employer has instituted legal proceedings in a court of law of laid a criminal charge against the Member concerned for compensation in terms of section 37D. The tribunal confirmed the following principles to be met before a deduction can be made in terms of section 37D(1)(b)
Findings of the Tribunal Citing the submissions by the Complainant and the Consultant the tribunal found as follows:
The Fund was directed to pay the Complainant the withdrawal benefit within two weeks of the date of the determination together with interest at 10.5% p.a. from May 2016 to date of payment and to provide the Complainant with a breakdown of the payment. Read the full determination PFA/GP/00028131/2016/MCM, here... Comment The tribunal does not venture into much discussion concerning the fact that a criminal case was opened by the employer and was still under investigation but concentrates purely on the civil litigation the Employer instituted against the Complainant. Andreen Moncur, B.A. Law, explains as follows: Even if the criminal case against de Beer were to be successfully prosecuted, it does not mean that the employer will be able to recover the money. Steinhoff would only be able to do so if a compensatory order were also to be issued. The prosecutor would have to apply for the compensatory order under the Criminal Procedure Act and the court would have to grant it, in addition to any sentence it hands down for a guilty verdict. Compensatory orders are rare and usually reserved for class actions or cases where the victim does mot have the means to sue for compensation in a civil matter. Criminal matters primarily concern the state punishing offenders for crimes, not compensating victims of those crimes. Mentally prepare for retirement: 21 tips – Part 5 In the previous newsletter, we brought to you the first 11 tips for mentally preparing for retirement. In this newsletter we present the next 4 tips. “Retirement is a major life change, that not everyone is prepared for. The following guide contains excellent tips how to mentally prepare for retirement. As it is a lengthy document, it will be presented in multiple parts over the next few newsletters, so make sure you don’t miss any of these. (Note: the source of this guide in not known.) To Mentally Prepare For retirement, You:
12. Learn to be a positive thinker Everyone reacts differently to major life changes, and you can’t predict how you will respond to things. Many people underestimate the fact that retirement is a drastic life change. Positive thinkers see it as an exciting time in their life and have full faith in the future. And people with a more pessimistic view on life can experience a lot of anxiety and worrying. But the upside is that you change this by training your mind to become more positive. If you start learning to be more of a positive thinker, you immediately will be more mentally prepared for retirement. Positive thinking can transform your life tremendously, and it will only improve your retirement experience for the better. Here are some tips for training positive thinking:
Physical exercise has many benefits. If you exercise regularly, you strengthen your muscles, manage your weight, and reduce the risks for many deathly diseases. It increases your chances to live longer so you can enjoy your retirement longer. But exercising also improves your mental health. According to Harvard Medical School: “Exercise reduces levels of the body’s stress hormones, such as adrenaline and cortisol. It also stimulates the production of endorphins, chemicals in the brain that is the body’s natural painkillers, and mood elevators.” So exercising keeps your body strong and your mind happy. And getting physically fit for your retirement you are also more prepared for the different activities you have planned. If you have a desk job and you have plans to travel or do a lot of physical activities in retirement, its best to get yourself physically ready. It would be unfortunate if your body isn’t prepared for all the fun you have in mind in retirement. 14. Re-evaluate your social circle Maintain social connections is crucial for living a happy retired life. When you stop working, you need to replace the daily social interaction you had at your job with other connections like family, (new) friends, your community. But you want to allocate your time in the way you want it and not by obligation. Re-evaluate your social circle. Who are the people you love the most and want to spend the most time with? And who are people you like to only see once a week or month for coffee or a movie? Spend time with the people you love most first and leave spaces in your agenda for the circle of friends and family that come after them. But make sure you maintain or grow your social circle. Social interaction has an enormous effect on people’s mental and physical health. Multiple studies have shown that socializing has both physical and emotional health benefits. And daily social interaction is a significant part of the lives of the people who live the longest in the Blue Zones. Which is one of the nine lessons we can learn from the people who live the longest, according to National Geographic Explorer Dan Buettner who wrote a book about it. 15. Accept your reality You can do all the preparation in the world, but if you don’t accept your reality, you won’t feel happy in life. You need to accept all your flaws and imperfections to be happy. So don’t be afraid to see yourself for who you really are. And sometimes, life doesn’t always go as we expected or planned. And the only way to find happiness in it is to accept it. And then we can change it and move forward in life. Acceptance: It’s a simple recognition of the truth that this is the way things are at the moment. Maybe you’re not ready for retirement, but you have to retire from your boss. Perhaps you want to retire, but you don’t have enough finances. Or you feel a certain way, and you try to hide it. The best way to find a solution is to accept your reality first. Read more: How To Plan Your Life After Retirement” Further parts of this interesting guide will follow in the coming newsletters. No cheap lunch in cash and money market funds “In South Africa, for the first time in decades, we might be heading to a world where cash and money market funds produce negative returns relative to inflation for a meaningful time period. We all know the only free lunch in financial markets is diversification. Parking investments in cash and money market funds over the past few years, if not free, certainly felt like a cheap lunch as these assets produced steady inflation beating returns while local equity markets produced anemic returns. For the past five years, investors have moved to the ‘safety’ of cash and money market funds at a relatively low opportunity cost. However, the opportunity cost might become much higher, for several reasons. Globally, interest rates have been low for some time, without the expectation of substantial increases for a good few years looking forward. In South Africa, on the back of aggressive policy action by the Monetary Policy Committee (MPC) last year, the benchmark repo rate has almost halved from 6.5% to 3.5%. With no pressure from global rates and a weak economy, low rates are probably here to stay for the next few years, directly impacting the interest rate… Although inflation is currently very low, it should start to pick up from these levels and, in order to assist our economy in its recovery from the current recession, the MPC may not react to rising inflation as quickly as in the past. Consequently, investors seeking inflation beating returns on their local income assets will need to take on a bit more risk and short-term volatility by investing in slightly longer dated government, bank and corporate paper…” Read the full article by Bryn Hatty, CIO Stonehage Fleming SA in Cover of 20 January 2021, here… Be the fire and wish for the wind “In financial markets, we too often see an inherent pessimism about the future, and this is one of the first mistakes that investors make – using a linear approach to problem-solving, which is to assume that events occur in a linear fashion when the truth is that nonlinearity is the prevailing paradigm…In financial markets, we too often see an inherent pessimism about the future, and this is one of the first mistakes that investors make – using a linear approach to problem-solving, which is to assume that events occur in a linear fashion when the truth is that nonlinearity is the prevailing paradigm…In a nonlinear world, investing in the future is an inherently difficult thing to do successfully. Let’s look at an example: If we had only invested in tech stocks over the past 20 years, we would have been enormously successful, and the temptation would be to say, “If it ain’t broke, why fix it?” It’s hard to argue against 20 years of data points. Just as very few would have argued a year or two back to avoid airlines because a time was coming when there would be no flights, it would likewise be very hard to argue that one should avoid all tech stocks because some way down the line a cyberwar or attack will erupt that will close down internet connections for months on end. One cannot though look at future scenarios and then decide to avoid all risk. This almost always points us to three basic principles to embrace in a sound investment portfolio that balance risk and return:
How to prevent [and handle] unethical situation at work “Your boss asks you to adjust some figures on a client's account. You catch your new hire fudging his timesheet. You notice a colleague behaving inappropriately around the new intern at the office. When faced with these kinds of situations in the workplace, it's hard to know how to respond…when you're employed somewhere and you're worried about your employment, you're not inclined to volunteer that you think there's something dodgy going on. The reality is that workplace conflict is likely to emerge. And learning how to prevent problems before they arise, and know how to deal with them once they're here, are skills all workers should master…our day-to-day tolerance for those who cut ethical corners sets the standard for the 'normal' way to get things done. Remaining silent while a boss lies to a client may be only a small step, but it's a step down the wrong road. You are letting yourself be led by your fears instead of choosing to lead with your conscience. Managers can help employees work out their concerns by creating open forums for discussion. Employees need "a safe space for people to share issues they're perceiving," Shell said, "and the leadership should encourage the dialogue…” Read the full article by Hope Reese in CXO of 12 April 2021, here… Great quotes have an incredible ability to put things in perspective. "Magic is believing in yourself, if you can do that, you can make anything happen.” ~ Johann Wolfgang von Goethe |
|||||||||||||
2021-04
| In this newsletter: Benchtest 03.2021, Namibia to learn from changes to SA reg 28, Namibia needs ‘thriving private sector’ and more... |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link... In ‘Tilman Friedrich’s industry forum’ we present:
In ‘News from RFS’ -
In ‘News from NAMFISA, read about’ –
In media snippets, read –
As always, your comment is welcome, so open a new mail and drop us a note! Regards Tilman Friedrich Monthly Review of Portfolio Performance to 31 March 2021 In March 2021 the average prudential balanced portfolio returned 0.6% (February 2021: 2.6%). Top performer is Old Mutual Pinnacle Profile Growth Fund with 1.9%, while Investment Solutions Bal Growth Fund with -0.1% takes the bottom spot. For the 3-month period, NAM Coronation Balanced Plus Fund takes the top spot, outperforming the ‘average’ by roughly 2.6%. On the other end of the scale Stanlib Managed Fund underperformed the ‘average’ by 1.9%. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 31 March 2021 provides a full review of portfolio performances and other interesting analyses. Download it here... Why the prudential balanced portfolio is the answer for pension funds A typical statement made by fund members, in particular when markets are not doing so well, is that the Benchmark Default portfolio has been performing poorly over the past so many years and one should have rather been invested in the money market. Well, when someone makes such a statement, one needs to establish what the commentator’s benchmark is for saying that the portfolio has been doing poorly. One also needs to understand what this portfolio aims to achieve before one can put such a statement into context. This statement is similar to saying ‘my Ferrari’s fuel consumption is horrific’. Really an empty statement when made out of context. The fuel consumption of a Ferrari will certainly be significantly higher than that of a 1.4 litre Golf TSI. Would you not have expected this, when comparing the technical specs of these two cars, particularly in terms of engine output? It’s simply an unreasonable comparison and a matter of ‘horses for courses’! Read part 6 of the Monthly Review of Portfolio Performance to 31 March 2021 to find out what our investment views are. Download it here... Proposed changes to SA regulation 28 – time to learn from SA In SA changes to regulation 28 (the equivalent to Namibia’s regulation 13) are currently under discussion and are likely to be introduced soon. The proposed changes to regulation 28 give the pension fund industry more leeway and the opportunity to increase investment in infrastructure by increasing the proportion of funds they are allowed to invest in asset classes other than the traditional top three, namely shares, bonds and property up to 15%. The proposed changes widen the opportunities to invest in infrastructure by referring to infrastructure as a separate asset class, instead of it currently being lumped together under a group of assets called ‘alternative assets’. Pension funds could choose to do so if they believe in the asset opportunities and would not be forced to invest into infrastructure. Infrastructure shouldn’t only refer to public infrastructure but also private infrastructure such as schools, hospitals, housing, electricity installations, fibre networks, communications, cell phone towers and many other examples of assets that are needed to make economic activity possible…” In Namibia, as in SA, regulation 13 recognises primarily equity, bonds and property, while the category “other assets” that would include infrastructure investments, is capped at 2.5%. Isn’t it time that the Minister of Finance considers making these changes to regulation 13 in order to increase investment in infrastructure and thus investment in the ‘real economy’? At the same time such a move is likely to raise the amount funds will invest in Namibia thereby preserving investment in our local economy instead of being invested outside Namibia. FIMA bits and bites – Preservation option and the risk posed by indirect housing loans We note a trend in the market of bigger funds re-introducing a preservation option to its members. This option is very useful where funds allocate the underlying investment returns directly to their members and where members are thus exposed to market fluctuations. Should the market have turned down at the time a member exits the fund, his/ her benefit will obviously be impacted by the decline and the pay-out of the benefit at that time will realise the loss. Where the member is given an option to preserve his/ her benefit in the fund, the member should be able to ‘ride out’ any temporary market decline in order to avoid realizing the loss. Under FIMA trustees are likely to feel coerced to introduce in-fund preservation due to the fact that they are required to have a default preservation option and that they face risks should the fund offer alternatives that subsequently prove to have been flawed and not in the best interests of the members. Being faced with the fiduciary responsibility for the alternatives offered, in-house preservation will be considered the safer default option as it is under the trustees’ control whereas the alternatives are not. When a member has a housing loan from a bank or from the employer, in respect of which the fund or the employer has issued surety to the bank, the fund is obliged to settle the loan upon the member’s exit from the fund. Since the member will no longer be employed, the amount the fund had to pay to the bank or the employer now needs to be recovered from the member’s fund credit as envisaged in section 37D and, after the introduction of FIMA, as envisaged in section 277. The amount settled represents a cash withdrawal by the member and, if greater than currently N$ 50,000, attracts income tax in accordance with a tax directive to be requested from and issued by Inland Revenue. (If the amount settled is less than N$ 50,000 no directive has to be obtained, but tax at the minimum tax rate per tax table has to be deducted). Inland Revenue will only issue a tax directive for the amount of income tax to be deducted from the member’s fund credit, if the member’s tax returns are up to date and refuses to issue a directive where this is not the case. Where no tax directive is forthcoming from Inland Revenue, and the rules allow the member to opt to preserve his/her benefit, the fund cannot refuse the member to preserve his/ her benefit in the fund. Since the fund has settled the loan, it should be able to offset the amount settled against the member’s fund credit leaving the balance to be preserved. The member however, still needs to pay income tax on the amount settled. In our experience it sometimes takes years for a taxpayer to clear arrears tax returns. The fact that tax in respect of the loan amount settled may still be outstanding at the time the member eventually retires many years later can easily be overlooked at the time, resulting in Inland Revenue turning on the fund to settle the outstanding tax. To avoid a fund ending up in the position where it has to settle the unpaid tax and cannot recover it from the member again, funds offering members to preserve their benefit in-fund and offering housing loans, should consider providing in the rules that in-fund preservation will only be allowed for members without fund guaranteed housing loans. This suggestion should be considered even under the current Pension Funds Act. Should you allow a disabled member to go on early retirement? Many funds offer a disability income benefit to members, insured with an insurance company. When a fund member becomes disabled, the member would be entitled to an income benefit, paid by the insurance company that would effectively replace a certain percentage of the salary the member used to earn from employment prior to disablement; usually between 60% and 100% of his previous salary. The disabled member would remain a member of the fund. The insurance company usually also takes over the employer contribution towards the fund, in respect of the disabled member. The member will remain obliged to contribute to the fund as if he was still employed, but the contribution would normally be deducted from the income benefit payable by the insurance company and be paid over to the fund. As a member of the fund, the disabled person would also remain entitled to the death benefit the fund offers that is also usually insured with an insurance company. The employer of this member would usually terminate the employment of the employee upon his disablement. As pointed out, the employer’s contributions would be taken over by the insurance company so the employer also no longer has any obligation towards the former employee in this regard. Where the rules of the fund (and the Income Tax Act) requires that membership of the fund must be a condition of employment, the termination of employment as the result of disablement, would then imply that the disabled member cannot remain a member of the fund unless the rules specifically provide that a disabled member will remain a member of the fund, notwithstanding the fact that he is no longer an employee of the employer, and most rules do provide for this. The relationship of the disabled member with the employer would thus be severed and the disabled member would now be a member of the fund is his own capacity as provided for in the rules. Usually, rules would link the conditions of the disabled member’s continued membership to the terms and conditions set out in the insurance policy under which the disability income benefit is being paid to the disabled member. Fund rules would normally describe under what circumstances a member becomes entitled to a benefit, typically, termination of employment, death or retirement; all of these reasons being linked to the employee’s employment. For employed members, these would cover all possible reasons for termination of membership, other than disablement elaborated above. The retirement rule would normally provide for early, normal or late retirement where early retirement is normally at the discretion of the employee, normal retirement manifests the obligation of the employee to retire and late retirement is at the discretion of the employer. As pointed out above, the terms and conditions applicable to a disabled member who is no longer employed are usually linked to the terms and conditions of the policy providing the benefit. Clearly in the absence of an employment relationship, there can be no termination of employment due to resignation, dismissal or retrenchment, yet the benefit has to cease at some stage. Rationally this is either death upon or normal retirement and this is usually also what the disability insurance policies provide for. Where the rules of a fund link the disability benefit to the insurance policy, fund membership of the disabled member can only terminate as provided in the disability insurance policy. Where the rules do not explicitly link the disability benefit to the disability insurance policy we would argue that the only reason for termination of fund membership remains the termination of payment of the disability benefit by the insurance company, which would be upon the earlier of recovery, death or reaching normal retirement age. We are regularly confronted with requests by disabled members receiving a disability income benefit, to terminate their fund membership for whatever reason but more often than not the member being after the ‘pot-of-gold’ he has in the pension fund. This would not be in the interests of the disabled fund member or his dependants who will lose the continued contribution by the insurance company, the benefit payable in the event of the death of the disabled member and any investment returns on the money that will continue to be invested on behalf of the disabled member, until the earliest of recovery, death or retirement. Besides the fact that the early retirement of a disabled member will seriously prejudice the disabled member, section 37A of the Pension Funds Act explicitly prohibits the member to sacrifice his benefits in stating that “…no benefit provided for in the rules of a registered fund (including an annuity purchased or to be purchased by the said fund from an insurer for a member), or right to such benefit, or right in respect of contributions made by or on behalf of a member, shall notwithstanding anything to the contrary contained in the rules of such a fund, be capable of being reduced, transferred or otherwise ceded, or of being pledged or hypothecated, or be liable to be attached or subjected to any form of execution under a judgment or order of a court of law, …, and in the event of the member or beneficiary concerned attempting to transfer or otherwise cede, or to pledge or hypothecate such benefit or right, the fund concerned may withhold or suspend payment thereof…” The disabled member thus has a statutory right to the benefits offered by the rules to a disabled member which right cannot be disposed of by the disabled member or even allowed to be disposed of by the fund and these rights can be sued for by the disabled member and/ or his dependants at any time in future. Prescription will never apply to this right. Trustees are advised to ignore any request by a disabled member to be allowed to take an early retirement benefit. Can your employees deduct voluntary contributions to the fund? The contract of employment One principle of the Income Tax Act is that expenses can only be claimed for tax purposes if they were incurred in the production of income (refer section 17(1)(a). In the case of employees, Inland Revenue will not easily accept any claim for expenses incurred by the employee. An employee can only claim expenses that he is required to incur in terms of his employment contract. In other words the salary you earn is dependent on you incurring certain costs so these costs are incurred in the production of income as contemplated in section 17(1)(a). If an employer can formulate the employment contract in such a way that a pension contribution in respect of the employee’s bonus is an obligation, the employee should be able to claim that expense. If the decision is left to each employee, the employer should find that it is not possible to formulate it in the contract as an obligation. This does not mean that every employee has to have the same contract of employment. So certain employee categories or certain employees can have a special provision in their contract of employment that others do not have, to make the contribution obligatory. The fund rules Most fund rules provide for voluntary contributions by members. We caution to use this clause as the heading is problematic, referring to ‘voluntary’. As pointed out above, the word ‘voluntary’ means it cannot be an obligatory contribution by the employee and would thus not be incurred as a condition of employment for the purpose of producing income from employment. It is important that the rules of the fund mirror the employee’s employment contract. Thus, if a contribution calculated on a member’s bonus is a condition of employment, it should not be referred to as ‘voluntary contribution’ in the fund’s rules. The Income Tax Act and fund contributions The definition of ‘pension fund’ in sub-section (b)(i) requires that the rules of a fund provide that ‘…all annual contributions of a recurrent nature of the fund shall be in accordance with specified scales…’. The definition of ‘provident fund’ lays down the same requirement. Typically, this refers to the contribution percentages at which members contribute on a monthly basis. The definitions do not make any reference to any other contributions. Section 17 of the IT Act deals with ‘General deductions allowed in determination of taxable income’. Section 17(1)(n)(i), sets out that the employee may deduct ‘…by way of current contributions [which are required to be in accordance with specified scales per definition of ‘pension fund’ and ‘provident fund’] in the year of assessment and directs that ‘…such contribution is a condition of employment…’ The IT Act contains no other specific provision that allows any deduction for contributions to a pension fund, and here we do not refer to a transfer of accumulated contributions to another fund. Conclusion As set out above, the principle of the IT Act militates against an employee deducting any expense that he was not required to incur in the production of income [and that can only be achieved through the contract of employment]. This sets out the dilemma of employers or funds wanting to allow staff to make additional contributions to their fund and indicates what route the employer and the fund should take to achieve their goal of having employees contribute to the fund in respect of their bonus. We would caution employers and funds though not to create an impression towards employees that voluntary contributions are tax deductible, or worse, to offset voluntary contributions from an employee’s salary in determining the taxable income unless you have obtained comfort that Inland Revenue will allow these as a deduction for tax purposes. The employer runs the risk of these contributions being added back to the employees’ taxable income by the Receiver of Revenue! This could result in penalties and interest being levied against the taxpayer. Namibia needs a thriving private sector While on a recent visit to the Hardap region to engage and discuss matters pertaining to business development in the region and beyond, Lucia Ipumbu, Minister of Industrialisation and Trade expressed her view that a thriving private sector is a prerequisite for economic growth and development (reported in Market Watch of 10/3/2021). Sounds good for us in the private sector, but does government really mean it or is the problem rather that Namibia is lacking coherent national development policies? In the Benchtest 02.2021 newsletter I wrote on ‘Plans afoot to nationalise the pensions industry?’ making mention of plans to set up an umbrella fund for all SOE’s under the auspices of the GIPF, and to establish a National Pension Fund under the auspices of the Social Security Commission, with compulsory participation by all employed persons in Namibia. I cautioned that this may lead to the demise of the pensions industry, estimating that current membership of occupational pension funds is likely to reduce from 135,000 to only around 45,000. This would be barely enough to keep one fund administrator going. This would effectively unhinge the free market mechanism as far as the pensions industry is concerned as there will be no competitors in the market anymore. In this light, the question begs to be asked how these plans can be brought into line with the thinking of Minister Lucia Ipumbu on a thriving private sector? It seems utterances by former minister Shangala and the President himself, who acknowledged that adopting socialism was a mistake, as reported in the media recently, hint in the same direction. Our proclaimed policies do not reflect our actions and are based on flawed thinking. We talk socialism but be act out capitalism. We do not want to be constrained by socialist policies when promoting our own goals in life but we do expect the rest to adhere to socialist principles. And don’t get me wrong. I am not a proponent of capitalism, but rather a proponent of the free market mechanism. It is clear to me that government should formulate clear policies setting out what conditions must prevail for it to involve itself in the economy, and that should really be only as a last resort because the private sector did not get involved. Where these conditions do not prevail, it will refrain from itself engaging in the economy. I do not believe there can be much argument about government being a rather inefficient participant in our economy. Old Mutual Investment Group changes its business model Under ‘News from the marketplace’ below, we report on the announcement by Old Mutual Investment Group of a change in its business model. This is a development to take note of by Namibian funds employing Old Mutual investment portfolios. Any change in the investment process that results from a change in the business model, is likely to impact investment returns, certainly in the short term. The impact can be either positive or negative. Of course, it is going to be very difficult to establish what the impact was, as this may only become evident over the long term. Given that over the long term, portfolios change in many different ways, the long-term impact on returns may not, or not only, have been due to the change in the business model. What is important to realise though, is that the investment portfolios are likely to behave differently after the change in the business model to what it was before, meaning that one cannot apply the same criteria to an evaluation of performance after the change that one has applied before the change.
Compliment from payroll manager of a large company Dated 7 April 2021 “I just want to say a special THANK YOU for the professional and swift manner in which you are handling our Pension fund. Your hard work and efforts are HIGHLY appreciated. Below a little statistic that we can be PROUD of. In October 2020 we introduced the Benefits stream. Period September 20 to November 2020 – It took an average of 61 days for pension to be paid out. Period December 20 – March 2021 – It took an average of 31 days for Pension to be paid out, from Termination date. I am PROUD to be part of this team ?.” Read more comments from our clients, here... Unique comfort factors offered to our clients Retirement Fund Solutions is quite a unique service provider in the pensions industry in Namibia in many respects. Not only are we the only true Namibian, privately owned company that has no dependency on any foreign company, but we have all our expertise, unrivalled in the Namibian pensions industry, within one office and all our expertise is applied to all clients. The company is not managed by professional managers, but rather with heart and soul, personal conviction and dedication, by hands-on specialists in pension fund management. Naturally, this comes at a cost that can easily be quantified, but also with benefits that cannot readily be quantified. But the greatest benefit for our clients is that we offer rock-solid administration that let’s our clients sleep in peace! And, let’s face it - we do also make mistakes, because we are humans but we own up to our mistakes, transparently and sincerely! Our executive committee – offering unrivalled expertise and experience, in pictures:  Our executive committee – offering unrivalled expertise in, facts and figures:
Our total staff complement boasts the following credentials:
Important administrative circulars issued by RFS RFS has not issued any fund administration related circulars to its clients over the last month. Old Mutual Investment Group changes its business model “When Old Mutual Equities and Macro Solutions announced their merger earlier this year, the number of boutiques within the Old Mutual Investment Group (OMIG) fell to three. This is apart from the four other businesses within Old Mutual Investments –Futuregrowth Asset Management, Marriott Investment Managers, Old Mutual Alternative Investments and Old Mutual Specialised Finance. More recently, however, consolidation and rationalisation within the group have made it appear that the boutique model has for all genuine intents and purposes been abandoned. It is even debatable whether the term ‘boutique’, as it is used within OMIG, is truly reflective of the scale of these operations. For new MD, Tebogo Naledi, where the group finds itself now is not, however, a repudiation of the intention behind the boutique model. “It’s been a long journey of learning and refining,” Naledi said. “I view it as an evolution. An evolution which I think perhaps wasn’t designed as such, but its intent was to get to where we are now. “I think that what we have now in terms of our structure and focus is what was actually intended by the boutique model. Each of the three boutiques has it own strong capabilities, and they are each very clear about which market need they are serving.” ~ Moneyweb News from industry meeting of 24 March 2021 If you missed the industry meeting of 24 March 2021, you can download the presentation here... Following is a brief overview of the content of the presentation:
Transacting with foreign vendors Funds often acquire services and products from foreign vendors such as software, consulting services, training etcetera. Such transactions may have VAT and Withholding Tax implications read together with the provisions of any double taxation agreement in force between Namibia and the other tax jurisdiction, that need to be considered. Failure to comply with the VAT Act and the Income Tax Act, with regard to Withholding Tax will expose the fund to penalties and late payment interest. As fund administrators we do not purport to be tax experts. Such expertise can typically be sourced from Namibian audit firms. In instances where invoices are presented to us for payment in respect of goods or services acquired from a foreign vendor, we presume that the fund has considered the potential implication of VAT (import or normal VAT) and of Withholding Tax the fund may be liable for, as well as any relief granted by the double taxation agreement between the two countries concerned. The purchase of software from a foreign vendor in our understanding represents a VATable import and VAT should be paid at the same time payment is affected. The cost of attending training or seminars outside Namibia in our understanding does not represent a VATable import and VAT, if applicable in the foreign country, should be raised by the foreign vendor. Trustee fees and trainer fees payable to a foreign resident attract Withholding Tax unless relief is provided by the double taxation agreement. Payment of pension benefits into jointly held accounts The Pension Funds Act obliges the fund to ascertain that any benefit due to a member is paid to the member for his/her exclusive benefit. Typically, the fund administrator is responsible for making payment on behalf of the fund and is well advised to ascertain that it complies with the Act by verifying the ownership of the bank account into which payment is to be made. Payment directly into a bank account that is not subject to a person’s exclusive authority and control may be regarded as being made in contravention of the Pension Funds Act.The Banks Act does not prohibit the maintenance of joint bank accounts by Namibian banks. It is therefore prudent that pension funds do not allow payment of pension benefits into a joint account as this may be a contravention of section 37A of the Pension Funds Act. An indemnity by a member issued to a fund for making payment into a joint account at the request of the member will, may not protect the fund against a claim by the member and/or a prospective beneficiary and is will be more prudent to deny the member such a request. Death benefits – a few basic facts
Mentally prepare for retirement: 21 tips – Part 4 In the previous newsletter, we brought to you the first 7 tips for mentally preparing for retirement. In this newsletter we present tips 8 to 11. “Retirement is a major life change, that not everyone is prepared for. The following guide contains excellent tips how to mentally prepare for retirement. As it is a lengthy document, it will be presented in multiple parts over the next few newsletters, so make sure you don’t miss any of these. (Note: the source of this guide in not known.) To Mentally Prepare For retirement, You:
8. Discover your new purpose in life Having a job creates a purpose in life. It gives you direction. You need the pay check to pay the bills and save money for retirement, but also achieving goals and successes at work gives you a sense of fulfilment in life. Doing a job well gives you satisfaction and a worthy, useful, and accomplished feeling. And once you retire this, all goes away, and you need to discover a new purpose in life to make it meaningful. Continuing to find fulfilment and satisfaction in retirement is essential to living a happy retired life. So that’s why it’s necessary to think about your new purpose in life before you retire. This way, you can directly start your purposeful life in retirement instead of struggling once you retire. But what is a purpose? Your life purpose consists of the central motivational goals of your life — the reasons why you get up in the morning. Purpose can guide life decisions, influence behaviour, shape goals, offer a sense of direction and create meaning in your life. You can find your purpose by finding your passion that leads to your purpose. What gets you excited and want to get out of bed in the morning? Is it helping others in need? Educating yourself? Being surrounded by family members? What is your heart telling you? Maybe your purpose is evident to you, or you need to do a little exploring to find your purpose. When you know what your purpose in retirement is, it makes your transition much more comfortable. You’ll have a compass that guides you. And you can set goals and create action plans to achieve these goals in retirement. Which ultimately leads to feeling accomplished, satisfied, useful, and worthy. You can draw up a personal mission statement that includes your purpose. This way, you can run all life decisions by your mission statement and see if they are compatible. 9. Replace work routines with new routines Work gives you a purpose, identity, social connections, and a steady routine. The loss of structure and routine can bring up sadness and depression. And a lot of retirees miss the social contact and the stimulation the most in retirement. To be successful in retirement means that you find fulfilling replacements for your work routines. You need to find happiness in (new) interests, relationships, and activities by creating new routines. The enormous amount of freedom with retirement can feel a little bewildering at first, and you can feel lost. And by creating routines, it will help you:
10. Create a plan & set goals Once you thought about how your retirement needs to look like, you can start creating a plan and set a goal(s) to set it into motion. But before you can create your plan, you need to set a goal first. Make sure you write down your goal in the SMART way (Specific, Measurable, Attainable, Relevant, and Time-Bound) to make it more tangible. Work backward from your goal to set milestones in your plan and put your actions into a schedule. Create a timeline and break large tasks into smaller and more manageable chunks. This way, you plan to do small daily tasks that will ultimately lead to the accomplishment of your goal. And dividing your goal into small tasks will helps you not to get overwhelmed. And also makes the goal more mentally achievable. According to a study writing your goal down on paper, you’ll have a better chance of achieving that goal then if you don’t. And creating a plan helps you to organize your retirement plans and gets you more prepared. You can adjust this plan along the way because your life is a constant’ work in progress,’ which continues to evolve in often unexpected ways. 11. Be open to get out of your comfort zone The only way to grow as a person is to get out of your comfort zone. And transitioning into retirement is automatically going out of your comfort zone. Because the situation you’re going to be in is new for you and you’re in unknown territory. Getting mentally prepared for retirement is knowing that you need to get out of your comfort zone. And there is no need to be afraid of this. See it as a learning experience and an opportunity to grow. It creates enough good stress to ramp up your focus, creativity, pace, and drive, and it helps you respond to life stress better when unexpected things happen…” Further parts of this interesting guide will follow in the coming newsletters. How to ensure that you don’t outlive your savings “Did you know that it’s possible that you could live for another 30 years after you retire? How do you ensure that you will live out your golden years without having to worry about finances? The earlier you start planning for your retirement, the better. These are the five steps that will help you plan towards a safe, secure retirement.
Want to start investing: Here is what to consider “Venturing into investments can be intimidating. Elke Brink of PSG Wealth discusses what to consider, outlines various investment vehicles, and shares some advice on how to build a share portfolio.
Basic tax principles will apply to cryptocurrencies Although this article deals with the SA tax regime, readers need to be aware that the Namibian tax regime is very similar and the outcome for Namibian investors is the same as it is for SA investors in cryptocurrencies. Whether or not your profits are taxable in Namibia will depend on your intentions for buying and/ selling cryptocurrencies and if your intention was to make a profit, then such profit will be taxable. “…A basic doctrine of the Income Tax Act is that the net amount (the taxable income) of the gross income received or accrued (excluding receipts or accruals of a capital nature) by any resident, in cash or otherwise, for any tax year, less any expenditure that is deductible for tax, less any specific exclusion, is taxable. A non-resident will be taxed on any taxable income from a South African source, unless there is a specific exclusion… SARS has the right to tax any profit, from any business venture, from the sale of any asset, tangible or intangible, provided it isn’t of a capital nature, and there isn’t a specific exclusion in the income tax act. Any undeclared taxable income will not prescribe. In other words, SARS is not restricted by any time frame, and can go after any taxpayer for any undeclared income, many years later. A cryptocurrency has a calculable value, which differs from time to time… The distinction between what is a capital profit, which is subject to capital gains tax, and what is a revenue profit, has been developed by case law. A loose distinction is that of whether a taxpayer is carrying on a trade, and whether the profit resulted from a scheme of profit-making. The taxability of the proceeds on the sale of cryptocurrency depends on the facts, and each matter will be decided on its own merits. The taxpayer should retain evidence of intention at the time of purchasing the cryptocurrency, and the reasons for selling. Holding an asset, whether a share or bitcoin, for an extended period, will not necessarily absolve the taxpayer from taxation if such share or bitcoin was sold in a scheme of profit making…” Read the full article by Barbara Curson in Moneyweb of 17 March 2021, here... Great quotes have an incredible ability to put things in perspective. "If money is your hope for independence, you will never have it. The only real security that a man can have in this world is a reserve of knowledge, experience and ability.” ~ Henry Ford |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2021-03
| In this newsletter: Benchtest 02.2021, the demise of fund backed housing loans, survivor benefits from other funds and more... |
||||||
|
– 24 March 2021 Take note that the next industry meeting for fund trustees, principal officers and other fund agents will take place from 8h30 to 11h00 at a venue still to be confirmed. The meeting will be held face-to-face but provisions have been made for virtual attendance. Click here to join the meeting from your mobile or PC. Pension fund governance - a toolbox for trustees
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In keeping with the company’s strict governance code of conduct, we invite stakeholders to report any misconduct by completing the form on our website at this link, that will be sent to the following contact.
In ‘News from RFS, read about’ -
In ‘News from NAMFISA, read about’ –
In ‘Legal snippets’ read -
In media snippets, read –
As always, your comment is welcome, so open a new mail and drop us a note! Regards Tilman Friedrich Monthly Review of Portfolio Performance to 28 February 2021 In February 2021 the average prudential balanced portfolio returned 2.6% (January 2021: 2.3%). Top performer is Nam Coronation Balanced Plus Fund with 4.3%, while Stanlib Managed Fund with 1.5% takes the bottom spot. For the 3-month period, NAM Coronation Balanced Plus Fund takes the top spot, outperforming the ‘average’ by roughly 3.5%. On the other end of the scale Stanlib Managed Fund underperformed the ‘average’ by 1.9%. Note that these returns are before (gross of) asset management fees. Read part 6 of the Monthly Review of Portfolio Performance to 28 February 2021 to find out what our investment views are. Download it here... Why the prudential balanced portfolio is the answer for pension funds A typical statement made by fund members, in particular when markets are not doing so well, is that the Benchmark Default portfolio has been performing poorly over the past so many years and should have rather been invested in the money market. Well, when someone makes such a statement, one needs to establish what the commentator’s benchmark is for saying that the portfolio has been doing poorly. One also needs to understand what this portfolio aims to achieve before one can put such a statement into context. This statement is similar to saying ‘my Ferrari’s fuel consumption is horrific’. Really an empty statement when made out of context. The fuel consumption of a Ferrari will certainly be significantly higher than that of a 1.4 litre Golf TSI. Would you not have expected this, when comparing the technical specs of these two cars, particularly in terms of engine output? It’s simply an unreasonable comparison and a matter of ‘horses for courses’! FIMA bits and bites – SME’s to be hit by demise of fund backed housing loans FIMA regulation RF.R.5.10 provides that 75% of a member’s ‘minimum individual reserve’ must be preserved until the member’s normal retirement age in terms of the rules of the fund whose moneys were preserved. The Act itself states in section 277(1): “The board of a registered fund may deduct from a benefit to which a member or a beneficiary becomes entitled under the rules of the fund any amount” Amongst all the deductions, FIMA lists housing loans. The legal environment under FIMA, with regard to housing loans, will thus change quite a bit from what it was under the PFA. This is despite a similar provision in the PFA, section 19(5)(c)(ii), that restricts the maximum loan to “…the amount of the benefit which the member would receive if he were to terminate his membership of the fund voluntarily or the market value of the immovable property concerned, whichever is the lesser amount;” Under the PFA, the maximum amount that can be borrowed from a pension fund is restricted to one-third of the member’s fund credit whereas in the case of a provident fund it can be equal to the member’s fund credit. This is the maximum benefit the member can take in cash, namely, when the member retires in each case respectively. Under the FIMA, regulation RF.R.5.10 now places an even lower limit on the maximum amount a fund may lend for housing purposes, by restricting the amount a member may take in cash upon termination of membership to 25% of the member’s minimum individual reserve. Regulation RF.5.10 does not distinguish between a pension fund and a provident fund, so the restriction of 25% applies to both types of fund. In practice, the limit set by the PFA and the FIMA is further reduced by income tax, as the fund that grants a loan would want to ascertain that it will be able to fully recover the outstanding housing loan balance when membership terminates. If it fails to achieve this the fund would have to take further steps to recover the loan such as legal action against the member and possibly even realising the outstanding balance through a sale in execution. Considering that for any member in a tax paying bracket, the income tax deductible on his or her benefits could be anything between 18% and 37%. Under the FIMA dispensation, depending on the member’s marginal tax rate, making provision for income tax in calculating the maximum loan a fund will be prepared to lend, means that the amount available will be reduced by between 4.5% and 9.5% to between 21.5% and 15.5% of the member’s minimum individual reserve. For all intents and purposes, funds would use a maximum of 15.5% to provide for all eventualities! Under the PFA dispensation the maximum loan a pension fund can grant is restricted by the on-third than may be paid in cash, at retirement. However, that one-third is tax free and hence the loan can amount to one-third of the fund credit without running any risk. In the case of a provident fund, the maximum loan needs to be reduced by between by between 4.5% and 9.5% to between 91.5% and 85.5% of fund credit, depending on the member’s fund credit. I foresee that funds will no longer grant loans under FIMA due to the severe restriction to effectively only 15.5% of a member’s minimum individual reserve. This will be a pity considering that there has been a lot of private building and renovation activity going on all over residential areas across Namibia, much of which funded with pension backed housing loans! FIMA bits and bites – can benefits for survivors be provided from another retirement fund? Currently it is common practice for funds to transfer the capital allocated, by the trustees in terms of section 37C, to dependants of a deceased member (or retirement/ resignation benefit, for that matter) to another fund to purchase a pension from that fund (or to preserve the resignation benefit, for that matter). The reason for this transaction is mostly that the fund the member belonged to at the time of his/ her death (or just before retirement), does not offer the payment of pensions due to lacking economies of scale for administering an own pensioners’ pool. Furthermore, the market nowadays offers so many different types of pensions, funds practically cannot offer in their own capacity. More recently, insurance companies have devised another channel allowing a fund to purchase a pension directly from an insurance company that then issues an annuity policy to the pensioner. When assessing whether or not such a transaction is lawful, one has to firstly consider the provisions of FIMA, and currently of the Pension Funds Act (PFA), secondly one has to consider the provisions of the Income Tax Act (ITA) and lastly, one has to consider the provisions of the rules of the fund. Assuming the rules of the fund allow or require the beneficiary of a death benefit to purchase a pension from another fund or from an insurer, one needs to consider the provisions of FIMA (or currently still of the PFA). Section 276(2) of FIMA states as follows:
The FIMA phrase ‘payment for the benefit of’ from the outset provides that payment does not have to be made to the beneficiary exclusively, as then confirmed by the alternatives it provides for. The PFA, in the first instance, only provides for payment to the beneficiary but then deems a payment to a trust to also be a payment to the beneficiary. In short, both sections say exactly the same barring the fact that FIMA in addition to payment to a trust, also provides for payment to the guardian (natural or legal guardian). Both laws provide for specific alternatives to payment to the beneficiary which in my view then implies that no payments may be affected to any other person or entity. Having said this, rationally, this would mean that all payments should be made in cash to the beneficiary. As we know, this does not happen ever though. Instead, payment is typically made to the beneficiary’s bank account. This is generally accepted to be payment to the beneficiary. Similarly, one can draw the circles wider. Is payment into the beneficiary’s fixed deposit or housing loan account with the same bank, or another bank, or payment into his unit trust account not also payment to the beneficiary? And further even – is payment into his account with an attorney or payment to his hardware store account payment to the beneficiary? ‘Closer to home’ then – is payment to another fund for the benefit of the beneficiary payment to the beneficiary? I am sure there will be legal precedent on some or even most of these questions. Rationally, I would argue that payment to any registered financial institution for the account of the beneficiary will pass the test of any court. Payment to an attorney’s trust account for the benefit of the beneficiary will probably also pass the test whereas payment to the hardware shop will probably not pass the test. All lawful payments to an entity other than physical payment to the beneficiary, have one requirement and that is, the beneficiary (or legal guardian on behalf of a beneficiary) must direct to which lawful person payment must be made for the benefit or account of the beneficiary. This corroborates the legal precent I refer to above. Having concluded that payment of a death benefit (and other pension benefits) can be paid to registered financial institutions and attorneys, as argued above, one now needs to determine whether the payment to be made for the benefit of a beneficiary may be made in terms of the ITA. Any payment in contravention of the ITA exposes the payor fund to it being deregistered for income tax purpose and thus no longer enjoying all the tax benefits the ITA offers to tax approved funds only. The ITA, in section 16(1)(z), provides for the transfer of a benefit that has accrued to the beneficiary and is taxable on its taxable portion, from one approved fund to certain other approved funds, tax free. Where these conditions are not met, the taxable portion must be taxed before affecting payment, in other words, payment to any person other than another approved fund attracts income tax on the taxable portion of the benefit. Insurance companies sell annuities to persons who are due a benefit from an approved fund. These policies are not approved funds as contemplated in section 16(1)(z) of the ITA. Obviously, this will require the fund to pay over (transfer) the benefit to the insurance policy, which it not an approved fund and would thus mean that any taxable portion of the benefit should be taxed. I have fought a battle over many years against such transfers with the insurance companies, drawing in both Inland Revenue and NAMFISA. The insurance companies argued that if the rules require the beneficiary to arrange ultimate payment of the benefit to the beneficiary, from an insurance company, no benefit accrues to the beneficiary There is thus no issue about a potentially taxable benefit and despite money being moved (transferred physically) to the insurance company, this is not a transfer as contemplated in section 16(1)(z). Both NAMFISA and Inland Revenue have gone with the argument of the insurance companies, and have condoned such transactions between approved funds and insurance products. I still believe both NAMFISA and Inland Revenue were wrong in condoning such transactions on the basis of 3 arguments. Firstly, no registered financial institution has the same level of protection of pension fund moneys as the Pension Funds Act and such transactions raise the risk to the beneficiary way beyond what it would have been had the money remained in a pension fund. Secondly, every registered financial institution, other than a pension fund, is subject to taxation on moneys other than moneys derived from business carried on with any tax approved fund. Benefits of a beneficiary transferred by an approved fund to an insurance product in the name of the beneficiary, in my interpretation does not meet the aforesaid exclusion and should thus be taxable business. It may at best be said to have been derived from an approved pension fund at the date of the transfer, but thereafter it is no longer business with the transferor fund. Thirdly, investments in an insurance policy are not subject to investment regulation 13 at fund level, which is aimed at minimising potential investment losses for the investor, who may end up becoming a burden to the state! I will advise funds to ascertain that their rules do provide for the beneficiary of a death benefit (or retirement benefit) to direct the fund to transfer the benefit to an insurance product, or to another approved fund, or as provided for in section 37C of the PFA (or section 276 (2) of FIMA), if funds want to offer alternatives not specifically referred to in these laws. What to expect of global investment markets in 2021? Review of investment markets The inauguration of a new president of the United States has brough about quite a change to the outlook for global financial markets, particularly since he can speak with authority knowing that the Democrats now have a majority in both houses of parliament. President Biden intends to spend another US$ 1.9 trn to stimulate the US economy, and that is nearly 10% of US GDP. As the result global equity markets have responded positively to the new outlook. The SA Allshare index increased by 9.5% over the last 2 months, the SP&500 increased by 33.3%, the Dax increased by 5.2%, the Nikkei increased by 38.3% leaving only the FTSE that actually declined by nearly 25%. Similarly, the US 10-year bond yield increased by 27.1%, which for an investor unfortunately presented a severe capital depreciation. I expect that the US moves will force the hand of other developed countries to employ similar measures, not only to stimulate their economies but also to protect their currencies. The day of reckoning therefore seems to have been pushed forward by at least another year and the reversion to an equilibrium between the various asset classes is nowhere in sight. While the economies of most developing countries are still reeling under the consequences of COVID-19, the Chinese economy seems to be picking up speed and as the result global commodity prices are also on an upward trend. This of course is good news for commodity-based economies such as SA and also Namibia. As I pointed out in last month’s column, the easy money floating around, that is currently stimulating global bourses and other asset classes, but particularly in specific large cap technology shares. So while it might appear that some bourses linger at dwindling hights, this tremendous growth was not across the board and there are still lots of opportunities to be found elsewhere. Monetary stimulus so far has failed to get the global economies going though, more lately exacerbated by the COVID induced slump in the global economy. Fiscal stimulus may now be a more effective way of achieving this goal and that seems to be the route President Biden intends to go and other developed countries are likely to go as well. Following the media closely, one will have noticed how the talk about economic metrics such as the fiscal deficit of 3% and a cap on debt to GDP of around 60% is nowhere referred to anymore. In any event there are only few countries in the world that still meets these metrics. While the global debt to GDP ratio increased by only about 3% from 310% to 320% following the global financial crisis, it then shot up by 11% following the COVID-19 pandemic. In this column in an earlier Performance Review journal, I also showed that Namibia is sailing very close to the wind with its debt situation already. Namibia of course cannot print money while the US in particular, and to a lesser extent the other developed countries have the means to manage excessive debt by determining the interest rate they have to pay on borrowed money. At this point it is likely that new fiscal stimulus in the US, likely to be followed by other developing countries, will provide an underpin to global equity markets as the result of which equities should do well for this year, at least in line with the expected uptick in the economies. The expectation is that the gradual opening up of developed economies will stimulate consumption and get their economies going again, which is envisaged towards the end of this year. I believe the hope is that inflation will then pick up and will help in reducing the real value of government debt that has now been built up since the global financial crisis. This will then provide the room for a gradual return to an equilibrium between the different asset classes and a return to normality in asset valuations and risk adjusted investment returns. I expect this to be a long, drawn-out process though that will put a cap on investor over-exuberance for a number of years to come. As interest rates will then start to increase central banks will need to reduce their balance sheets by reducing excessive liquidity in the financial markets. Investors will no longer be able to bloat equity valuations by borrowing at near zero interest rates and generating a net return from the appreciation of their investments. This will be the time for a correction of valuations and return to normality, which as we know, drove up the values of specific shares only but not the market across the board. Conclusion So, what has changed since last month? Firstly, equity markets recovered nicely. Secondly the Rand recovered nicely as well. The general outlook has improved as the result of a new economic policy inaugurated by the new US president that is positive for equities. Europe is still locked down and its economy is in the doldrum but China is starting to move ahead. With this, global commodity prices are moving ahead as well and this will be positive for the Namibian and SA economies that are commodity based. Form an investors point of view, we are probably about where we were before Corona struck but now our economies are due to arise out of an even deeper trough than they had been in after the global financial crisis. This also makes for a positive outlook. The joker in this game is: what measures will be taken by fiscal and monetary authorities to return economic metrics back to normality? No one knows yet what this joker entails and when it will be pulled out of the pack of cards, but it is unlikely that this will happen soon. Consequently, I also do not expect a material uptick in inflation this year or in interest rates, but certainly also not any further decline in either of these rates. Under these circumstances I remain optimistic about the prospects of equities, being a mirror of the real economy, and believing that there is not much scope for a further decline in global economies. We have already seen interest rates ticking up and I will therefore be dovish on fixed interest investments. The Rand has regained its pre-Corona posture, following its severe depreciation last year, opening up an opportunity to now revert to full global diversification. The prevailing severe investor bias towards a handful of ‘in vogue’ shares and a whole number of other shares that followed their ‘slip stream’, requires stock picking skills rather than the shot gun approach of index management and the focus should be on good quality, fairly valued or cheap companies with high dividend yields.
Compliment from the principal officer of a large fund Dated 18 February 2021 “Morning J.., Kindly please find attached. I’m very pleased to have you on our [..] team, I call myself privileged to work with you, you are just on another level. J.. thank you very much for your service, much appreciated. Regards.” Read more comments from our clients, here... RFS receives broker award Metropolitan Retail awarded RFS and Ms Annemarie Nel, Manager: Retail, a certificate of recognition for dedication, commitment and performance in the Corporate Brokerages Category and Individual Brokers Category. We extend our appreciation to Annemarie and thank Metropolitan for this gesture!  Annemarie Nel accepting the broker award from Metropolitan Namibia Broker Manager Theo Gurirab on the left and Martin Negombe from Metropolitan Namibia, on the right. Staff movements Resignations It’s been quiet over the past year with regard to staff movements and more so with regard to resignations. We regret to advise that Benchmark Product Manager and Principal Officer of the Fund, Paul-Gordon /Guidao-‡Oab, tendered his resignation for the end of May. Paul-Gordon will be joining Old Mutual in its business development office. We thank Paul-Gordon for the role he played in the company and the Benchmark Retirement Fund during the 4 years of his tenure at RFS, and wish him well in his future career. 10-year company anniversaries RFS philosophy is that our business is primarily about people and only secondarily about technology. Every time a fund changes its administrator, a substantial amount of information and knowledge is lost. Similarly, every time the administrator loses a staff member, it loses information and knowledge, also referred to as corporate memory. We know that, as a small Namibia based organisation, we cannot compete with large multinationals technology wise because of the economies of scale that global IT systems offer. To differentiate us we need to focus on personal service and on the persons delivering that service to foster customer acceptance and service satisfaction. With this philosophy we have been successful in the market, and to support this philosophy we place great emphasis on staff retention and long service. The following staff member celebrated her work anniversary of 10 years at RFS! We express our sincere gratitude for her loyalty and support over the past 10 years to:
Important administrative circulars issued by RFS RFS has not issued any fund administration related circulars to its clients over the last month. Pension funds industry meeting held 26 November 2020 NAMFISA held a face-to-face industry meeting on Wednesday 26 November. It is to be noted that the meeting was very poorly attended by only 14 funds. Here are a few notes on key matters discussed, as per draft minutes distributed by NAMFISA:
Can a survivor’s annuity be redistributed? Most readers will be quite familiar with the process of distributing a fund member’s death benefit. Currently section 37C directs how a death benefit is to be disposed of. In the process of deciding how to dispose of a fund member’s death benefit, the trustees must establish whether the member has nominated any person to receive a portion or the full death benefit, in writing, to the fund. Although the fund member’s beneficiary nomination form may be used by the trustees as guidance, the nomination form is not prescriptive, unless there were no dependants of the fund member at the time of his or her death. The nomination form and the member’s designated proportional allocation to nominees is only prescriptive if there were no dependants, but the member nominated persons who were not dependent on the member. Importantly, the trustees must establish whether the member had any dependants at the time of his or her death. This requirement is unrelated to the member’s beneficiary nomination form. The beneficiary nomination form will assist the trustees but it cannot be relied on solely. In terms of the definition of ‘dependant’ in the Pension Funds Act, there are three categories of ‘dependant’. A legal dependant, a factual dependant and a prospective dependant. Legal dependency is clearly an objective assessment, factual dependency is a subjective assessment and prospective dependency can be either or. A person can of course also be both, a legal and a factual dependant. Dependants typically rank higher in order of priority than nominees. As between these persons, the trustees must apply their discretion how the benefit will be distributed and in what proportions. Once the trustees have resolved how to distribute the fund member’s death benefit the allocated benefit vests in the relevant person/s and once paid, it will be extremely difficult and even impossible depending on how it was paid, for the trustees to correct an error they may have made in the original allocation. The fact that circumstances relating to a beneficiary of the whole or a portion of the benefit may change subsequently to the allocation of the benefit by the trustees will not affect that beneficiary’s entitlement to the benefit allocation. For example, if the trustees’ assessed a dependant’s financial needs to be linked to his age and the time to him or her reaching majority and this person subsequently passes away, the trustees are expected to revisit their decision provided the benefit had not been paid already. Once the benefit has been paid any change in circumstances will have no impact. If the trustees’ allocation to a beneficiary was not linked to his or her needs but simply on the basis of fairness between the beneficiaries in terms of capital exceeding the amount required to meet all dependant’s needs, or an allocation in accordance with the beneficiary nomination, the subsequent death of the designated beneficiary cannot affect the trustees’ decision. Where trustees have resolved that the benefit is to be paid to the designated beneficiary in the form of an annuity, or where the beneficiary has requested that it be paid in the form of an annuity and the trustees had acceded to the request, the subsequent death of the beneficiary creates an interesting situation. As set out in the aforegoing, the benefit vested in the beneficiary and his or her subsequent death does not change this fact. According to a legal opinion I had sight of, the beneficiary of a death benefit was not a member of the fund in terms of the definition of ‘member’ in the Pension Funds Act and hence the provisions of section 37C do not apply. Presumably this legal opinion refers to paragraph a. of the definition of ‘pension fund organisation’, that refers to ‘member’ as being “…any member or former member of the association…”. In contrast paragraph b. of same definition, casts the net wider referring to a member being “… a person who belongs or belonged to a class of persons for whose benefit that fund has been established…” Although I am not convinced the legal opinion is correct in this regard, I believe that since the source of the capital was a death benefit from the fund that is being paid in the form of an annuity instead of a lump sum, all future payments vest in the beneficiary, in as much as the original capital vested in the beneficiary, meaning that in the event of his or her death, it must devolve upon his or her estate. It cannot be distributed again in terms of section 37C by the trustees. Interestingly FIMA appears to be less ambiguous. Section 276 provides for the disposition of benefits upon the death of a ‘member’. In FIMA, a member is defined as “an individual with a right to future benefits payable from the fund, and includes an active member and a retired member”. Beneficiaries of deceased members that receive an annuity from the fund would have a right to future benefits payable from the fund at the time of death and therefore would be classified as a member under FIMA. Consequently, section 276 of FIMA would apply to benefits payable by the fund on the death of the beneficiary of the deceased member as well. Mentally prepare for retirement: 21 tips – Part 3 In previous newsletters, we brought to you 5 tips for mentally preparing for retirement. In this newsletter we present the next 2 tips. “Retirement is a major life change, that not everyone is prepared for. The following guide contains excellent tips how to mentally prepare for retirement. As it is a lengthy document, it will be presented in multiple parts over the next few newsletters, so make sure you don’t miss any of these. (Note: the source of this guide in not known.)
“6. Be aware of the retirement transition process Retiring is a mental process. And to be mindful of this process and the stages of retirement makes you more mentally prepared. Going from 40+hours working life to having all the time and freedom in the world is a transition that doesn’t go overnight. It takes time to adjust and be comfortable again. How long that will take is different for everyone. But there are five common phases to the retirement transition process. And being aware makes you more mentally prepared for retirement. It gives you landmarks to help judge where you are and what lies ahead of you. Five stages into retirement: Phase 1: Pre-Retirement – This phase is a couple of years before retirement. You are probably in this phase right now where you come to the realization that retirement is coming soon. And that it’s not something far away anymore. In this phase, you have the opportunity to prepare for your retirement financially and emotionally, the best way possible. The better you’re prepared mentally, the better chance of transitioning into retirement more smoothly. Phase 2: Honeymoon – This is the phase where you just retired. The first couple of weeks or months where you really feel the sense of freedom. You celebrate your retirement with co-workers, friends, and family. You can expect mixed emotions in this phase: excitement, fear, anxiety. In general, every life change comes with feelings of discomfort. So, it’s very normal to have all different types of emotions. In the honeymoon phase, you want to enjoy your new life, but also have a long-term plan ready for how you want to spend your time in retirement. And start healthy new routines that will make your retirement happier, longer, and healthier. Read about what to do in the first week of retirement here. Phase 3: Disappointment – For some retirees, the honeymoon phase is followed by a period of disappointment. The reality of retirement hits in. And the dreams they had before about retirement, aren’t the reality of their retirement right now. For them, retirement can feel disappointing and an anti-climax. These feelings can sometimes lead to depression. Most of the time, depression happens to retirees who didn’t prepare for retirement enough and didn’t fully know what retired life looked like. So that’s why it’s good that you’re taking the time for your retirement preparation. Phase 4: Reorientation – This phase is where retirees are actively developing ideas and move towards a more balanced life. You’re orientating, thinking, and exploring new routes. You take action to the life you want to live, and you plan fulfilling activities that align with your dreams, identity, and your purpose in life. To live a happy retired life is staying active with a combination of mentally, physically, and social activities and routines. And to get inspiration on how to stay active in retirement you can read my article here. Phase 5: Stability - This is the stage of “retirement.” You’re not planning, preparing, and moving towards retirement; you’re living it and enjoying it. You’re satisfied and happy with who you are as a person, where you’re at in life, and you’re content with all the activities you’re doing in retirement. You’re feeling self-fulfilment. It’s essential in any phase to be pro-active and take charge instead of waiting for a situation to unfold. 7. Discover your new identity In western society, what you do is more important or gives you more status compared to who you are as a person. And working for 30+ years or more within a specific field or job position gives you an identity. Your job likely has become a big part of you, and you feel a sense of loss of your identity once you retire. So to be more mentally prepared for retirement is knowing or discovering your identity. For people who have put all their time and energy into their job, can have a hard time in retirement figuring themselves out again. And other people who know their qualities, values, and personal characteristics outside of work will have less of a struggle with it. Getting to know yourself again is:
5 strategies to help you avoid running out of money in retirement Please note: While this article is written for a US audience, the principles are universally applicable.
Goldman staff wanted in the office Goldman Sachs CEO David Solomon has told thousands of employees currently working remotely that he expects a return to the office by summer. The firm employs more than 40,000 people globally. Solomon recently said remote working was an "aberration" rather than a new normal and doesn't suit the bank's culture. The finance sector globally appears more eager than others for a return to workspaces, with JPMorgan Chase and Barclays voicing similar hopes. ? Here's what people are saying. Will ‘copycat economics’ in emerging markets have to end? “How do policymakers in emerging economies decide how to run their countries? The answer has a lot to do with how policymakers in advanced economies do things. There is a copycat tendency or, put more politely, a “demonstration effect”: the policy choices of governments in developed countries create a menu of options from which governments in emerging economies make choices. That fact makes for an uncomfortable prognosis these days. Developed countries are loosening policy to an extent that, if echoed by emerging economies, could end badly for some. For most of the past few decades, the tendency among EM policymakers to take ideas from advanced economies has been remarkably helpful. One example of this is the history of trade liberalisation. In the 1960s and 1970s, the US and western European countries were busy cutting tariffs and reducing non-tariff barriers to trade. Seeing the fruits of this, developing countries followed suit in the 1980s and 1990s to boost growth rates… What characterises policymaking in advanced economies these days is, on the one hand, a bias towards apparently unrestrained fiscal expansion; and, on the other, central banks that are cooperatively keeping the cost of that debt down through bond purchases. This subordination of the central bank to the finance ministry has a name: “fiscal dominance”. The reason these countries can get away with this is they have something that emerging economies generally lack, namely monetary credibility. And that’s painful for countries such as Brazil and South Africa. These two have exceptionally high public debt burdens: Citi estimates Brazil’s is nearly 95 per cent of gross domestic product, and South Africa’s is 75 per cent. Debt burdens this big are particularly worrying because in each of these countries the long-term inflation-adjusted interest rate is considerably higher than the rate at which these economies are likely to grow in the foreseeable future. That gap between the real interest rate and the real growth rate will cause problems over time. So why can’t Brazil or South Africa just implement copycat economics and get their central banks to buy bonds, reduce the long-term interest rate to tolerable levels, and keep on spending? The reason is that, because these countries’ lack of growth potential inhibits the credibility of their money, investors want compensation for the risk of owning Brazilian or South African debt. If yields get pushed down too low through intervention by central banks, investors will begin to feel unrewarded, and the result will be capital outflows and endlessly weakening currencies. In the end, the only response to this might have to be stopping money leaving the country by imposing capital controls…” Read the full by David Lubin, in Financial Times, here… The habit loop – your key to change “There it is again - that annoying habit that just won’t go away! Believe it or not, there is method to the habit madness. It’s called the Habit Loop. Often when we think about our behaviours or habits, we just see the action itself (eg. Waking up to Facebook posts - first thing in the morning). The habit loop, however, splits every single habit or behaviour into 3 different parts. This helps you and me to not only understand our habits better but helps us unlearn them and even grow them. Here are the 3 parts to the Habit Loop:
Tip: When you wish to rearrange or unlearn that annoying habit that just won’t go away, begin by breaking it down into its 3 parts. Take your time with this. Once that is done, consider how you might either 1. remove or quieten the cue or 2. introduce a new behaviour to respond to the cue, or even 3. consider removing or replacing the reward. Excited to try this out? Shoot us an email to arrange a quick call in the coming weeks. Zanele is happy to explore ideas with you on how your team can use the habit loop to build empowering rituals.” Great quotes have an incredible ability to put things in perspective. "If the freedom of speech is taken away, then dumb and silent we may be led, like sheep to the slaughter” ~ George Washington |
||||||
2021-02
| In this newsletter: Benchtest 01.2021, Fiscus will forego N$ 640 million p.a., plans to nationalise pensions industry and more... |
|||||||
|
ICAN recently informed its members that the Ministry of Finance has approved an extension of the filing deadline for 2020 individual tax returns from 1 March 2021 to 31 March 2021. In addition, the submission of 2020 provisional tax returns that were due 30 September 2020 was also extended to 31 March 2021. The extension does not apply to payments of tax due but only to the filing of the returns. ICAN has not received an official press release from the IRD but have confirmed this extension with the Commissioner and other officials. In addition, the new deadline of 31 March 2021 reflects as such on the ITAS eService website. In terms of the Tax Relief programme, registration is required and the following information is available on ITAS under “Other services” - > “Tax relief registration”:  Pension fund governance - a toolbox for trustees
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In a Benchmark note, Benchmark Retirement Fund principal officer welcomes Sperrgebiet Mining.
In ‘Legal snippets’ read -
In media snippets, read –
As always, your comment is welcome, so open a new mail and drop us a note! Regards Tilman Friedrich Monthly Review of Portfolio Performance to 31 January 2021 In January 2021 the average prudential balanced portfolio returned 2.3% (December 2020: 1.9%). Top performer is Allan Gray Balanced Fund with 3.1%, while Old Mutual Pinnacle Profile Growth Fund with 1.3% takes the bottom spot. For the 3-month period, NAM Coronation Balanced Plus Fund takes the top spot, outperforming the ‘average’ by roughly 4.2%. On the other end of the scale Stanlib Managed Fund underperformed the ‘average’ by 2.8%. Note that these returns are before (gross of) asset management fees. Read part 6 of the Monthly Review of Portfolio Performance to 31 January 2021 to find out what our investment views are. Download it here... What to expect of global investment markets in 2021? The inauguration of a new president of the United States has brough about quite a change to the outlook for global financial markets, particularly since he can speak with authority knowing that the Democrats now have a majority in both houses of parliament. President Biden intends to spend another US$ 1.9 trn to stimulate the US economy, and that is nearly 10% of US GDP. As the result global equity markets have responded positively to the new outlook. The SA Allshare index increased by 9.5% over the last 2 months, the SP&500 increased by 33.3%, the Dax increased by 5.2%, the Nikkei increased by 38.3% leaving only the FTSE that actually declined by nearly 25%. Similarly, the US 10-year bond yield increased by 27.1%, which for an investor unfortunately presented a severe capital depreciation. I expect that the US moves will force the hand of other developed countries to employ similar measures, not only to stimulate their economies but also to protect their currencies. The day of reckoning therefore seems to have been pushed forward by at least another year and the reversion to an equilibrium between the various asset classes is nowhere in sight. While the economies of most developing countries are still reeling under the consequences of COVID-19, the Chinese economy seems to be picking up speed and as the result global commodity prices are also on an upward trend. This of course is good news for commodity-based economies such as SA and also Namibia. Read part 6 of the Monthly Review of Portfolio Performance to 31 January 2021 to find out what our investment views are. Download it here... FIMA bits and bites – the fiscus will forego N$ 640 million per annum Once FIMA becomes effective, regulation RF.R.5.10 provides that 75% of a member’s ‘minimum individual reserve’ must be preserved until the member’s normal retirement age in terms of the rules of the fund whose moneys were preserved. I wonder whether anyone at the Ministry of Finance or NAMFISA, as adviser to the Ministry of Finance, in all matters relating to pension funds, has taken the trouble to try and assess the prospective impact on the fiscus of this regulation, as all moneys preserved will now no longer be taxed at the date of termination of the member’s membership prior to preserving the capital. I have tried to obtain relevant information from NAMFISA’s website to get a grip on the impact on the fiscus but unfortunately not useful information could be gathered, other than the total gross capital that exited the industry in 2016 which amounted to N$ 6.3 billion at the time. From our client data base I was able to extract all relevant information relating to our clients for 2020. This information can then be extrapolated to the pensions industry as a whole. If one escalates the 2016 figure by assumed growth in members benefits through investment earnings and contributions, I arrive at a figure of roughly N$ 8 billion in 2020. From our data base I established that of total gross termination benefits, roughly 34% related to termination benefits and only 2% of all termination benefits were actually preserved. Applying a cash pay-out ratio of 32% of all capital that exited the industry, I arrive a total cash pay-out of roughly N$ 2.5 billion per year. Assuming a low average tax rate of say 25% on this capital, the fiscus would forego about N$ 640 million per year as the result of compulsory preservation under FIMA. Private sector leads SOE’s on gender equality and trails on member compensation The below graph extracted from the data base of fund members administered by RFS reveals some interesting differences in the demographics of members of funds maintained by the private sector and members of funds maintained by state owned enterprises and utilities. This graph focuses specifically on the difference between male and female fund membership. The data base covers close to 35,000 active members, split roughly equally between private sector and public sector funds. The interested reader will note the following facts:
More concerning is the indication that employees in the public sector appear to be 50% better remunerated on average than employees in the private sector! Lastly the RFS data base indicates that the private sector is about the same size as the public sector in terms of number of fund members. Measuring in terms of total assets though, the private sector represents only 20% of total industry assets, compared to the 80% of the public sector industry assets, partially due to higher remuneration in the public sector.  Plans afoot to nationalise the pensions industry? As I pointed out elsewhere. Currently, private sector pension membership represents roughly 50% of total fund membership. In terms of fund assets though, the private sector only owns 20% of funds assets while the public sector owns 80% of fund assets. We also know that government is intent on setting up a National Pension Fund and that this fund is to be compulsory for all employees, as second pillar of the social security net, the first one being the stage old age grant. Years ago, when this idea was flouted, the proposed framework envisaged a salary cap of N$ 10,000 per month and a contribution rate of 12% of salary. The Thinking was, and by all indications still is, that every employee has to contribute at 12% of salary up to a monthly salary of N$ 10,000. The third voluntary pillar of social security provision would then be provided by the private sector in respect of employees earning more than N$ 10,000 per month who want to make additional provision. Going by our data base and extrapolating our statistics to the total occupational pension fund membership, at least 50% of its current membership will exit private sector arrangements. Those are the members earning up to N$ 10,000 per month. Those earning more than N$ 10,000 per month, will also consider whether to remain a member of their occupational arrangement or whether to move to an individual, private arrangement as the result of their scheme having reduced in membership to such an extent that it is no longer viable to maintain the scheme. Current membership of occupational funds will reduce from 135,000 to about 65,000 and probably quite a bit less. Now the industry is faced with another initiative that intends to establish an umbrella fund for all state-owned-enterprises. These entities currently have a membership of 20,000. If successful in attracting sufficient political clout, this initiative may lead to the membership of private sector pension funds to shrink further to only 45,000 members. Considering that we currently administer 35,000 members, there is no room for more one administrator, which could effectively result in the demise of the industry as we know it, in the absence of any healthy competition. The GIPF together with Kuleni will then effectively be a monopoly. It is highly doubtful that this desired outcome will satisfy pension fund members, or their employers and will thus unlikely be in the interests of the pensions industry! We understand that this initiative is driven very aggressively with tight timelines, probably aimed to pre-empt FIMA. The thinking is that this umbrella fund will be administered by GIPF subsidiary Kuleni, and will be advised by the promoters of this idea. This initiative carries the characteristics of a ‘hard sale’, as it seems to exclusively focus on the pros of umbrella funds. Pension funds have a very long life and trustees should rather be placed in the position where they can objectively assess the pros and the cons. Having been involved in the pension fund industry for over 40 years, I have witnessed the move from umbrella funds to free-standing funds and will share some of this history. Looking back over the past 40 years of the pensions industry in Namibia, all pension funds serving the private sector in Namibia used to be umbrella funds administered by one of the South African insurance companies active in Namibia. The pension fund for government employees and predecessor of today’s GIPF was established under its own law for government employees. Similarly, the predecessor of today’s pension fund for employees of local authorities was established under its own law. Commencing shortly before Namibia’s independence, a snowball was kicked off with the first employers moving out of an insurer’s umbrella fund into its employer sponsored free-standing fund. On the private sector side, it was the Ohlthaver & List group and on the public sector side it was Nampower’s predecessor, Swawek, if my memory serves me right. This snowball literally became an avalanche resulting in virtually all employers with around 200+ employees establishing their own free-standing pension fund. This avalanche also captured most state-owned-enterprises. Given that umbrella funds certainly offer economies of scale, this tidal wave into free-standing funds, happened despite the overt annual management costs having increased substantially following the exit from umbrella funds. Clearly there will have been reasons for top management of all these entities having nevertheless decided to move into their own free-standing fund. Since the move occurred 30 years ago, today’s trustees in very few instances will have been involved in the decision to move into a free-standing fund or will remember the reasons for this decision. Furthermore, the environment has changed over the past 30 years, if only to a limited extent as far as the pensions industry is concerned. Pre-independence, we had 4 or 5 insurance companies who managed pension fund assets in their prudential balanced portfolios, assisted by a few insurance brokers serving as intermediary between the employer and the insurance company. Virtually all fund administration was carried out in SA; actuaries were all based in SA; Namibian audit firms did not know what a pension fund was; all assets were moved straight into SA; Namibia did not have a stock exchange and very little business for local stock brokers. As we know, this has all changed substantially. Given that the knowledge of boards of trustees relating to the pre-independence pension fund dispensation has faded over the years, in my 30-year experience, I have never heard trustees complaining that they preferred the pre-independence dispensation! I have also never seen a free-standing pension fund moving back into an umbrella fund, other than more recently, in anticipation of what FIMA will bring with it. But the major changes lie ahead with the looming introduction of FIMA. Given this background it is probably a good time now for trustees to consider whether their fund should be retained as a free-standing fund, particularly in view of what FIMA will bring with it- and that will be a lot! In this endeavour trustees need to be cognisant of the fact that each coin has two sides. Both sides need to be put under the spotlight properly, to assess whether to maintain the status quo or to move into a new era. There are enough good sales people out there who will try to convince trustees of their solution, more often than not, a solution packed with own interests. The trustees’ fiduciary duties, however, demand that they look after the interests of their fund and its stakeholders, to ignore the noise around them and to be wary and cognisant of the possible motives for such noises. Trustees must know what the needs of their stakeholders are and how best these needs can be met, i.e., in an umbrella fund or in the free-standing fund? Costs are obviously one factor to consider. The problem however is, that those costs that can be quantified at any point in time are typically only valid for 1 year and may change significantly from year to year. This problem is compounded where the service/ product provider has locked-in his client. Costs would typically be discounted initially in return for having the client locked-in. The other problem is, that cost is one side of a coin, the other side being benefits and that benefits are very often unquantifiable in advance. When one has foregone a benefit, one will then be able to quantify the loss with hindsight. In our industry, the most important benefits that one has to pay for, are clean member records; transparent and timely reporting; expeditious payment of benefits; technical expertise; superior, risk-adjusted investment returns; fund management skills transfer to trustees, principal officer and administrator on an ongoing basis; no cost cross subsidisation between high-risk and low-risk employers; and last but not least, customised fund structure and member communication. In my experience the, unfortunately, unquantifiable benefits that one can either buy or forego, by war outweigh those costs that can initially be quantified. Take a relatively high difference in annual salary-based costs of 1% of payroll for a person whose total net retirement funding rate is a typical 15% of salary or say N$ 15 000 per annum, over a membership period of 40 years and earning a real investment return of 5% per annum. The end value of the person would be N$ 1,907,525. If the annual payroll linked management cost were now 1% of salary higher, resulting in only 14% of salary accumulating for retirement, this person’s end value would now only be N$ 1,780,356 (7% lower). Now let’s assume the real investment return was 1% higher, or 6% per annum, while the payroll linked costs were also 1% of salary higher, this person’s end value would now be N$ 2,323,406, 22% higher despite the 1% higher payroll-linked costs. To put this into a slightly different perspective. If the real investment return of 6% was achieved throughout, the annual payroll linked costs could actually be 3.5% of salary higher, to still get to the same end value. And this example just looks at 2 factors, quantifiable annual payroll linked costs vs the potential benefit of higher, but unquantifiable, investment returns. As I pointed out above, there are other unquantifiable potential benefits of initial quantifiable costs. A typical example is labour unrest resulting from poor fund administration, and I have seen this in the past. Let there be a labour outage of just one working day and calculate the potential loss that your business could prospectively incur by losing one work day. That will probably represent near 0.5% of the business’ annual turnover, and this will go straight to its bottom line as there will be no concomitant cost savings! The trustees are clearly faced with a dilemma. They need to take a rational decision based on a small quantifiable factor and a whole number of unquantifiable factors. It’s a bit like driving a car looking in the rear mirror! The one hard fact is: being locked in will dispossess the trustees of the opportunity to change anything when they think the time is right and will thus have lost an opportunity to improve the fate of their fund members. Of course, the trustees will never know whether their decision would have delivered the desired improvement, but for one they can never be comfortable for having had to forego that opportunity and, with expert advice, chances are that they should be able to achieve an improvement! The alternative is, put all your trust and faith into the hands of a single party, your umbrella fund management. Will any court condone this argument? At this stage and before FIMA, it is still a fairly simple process for a fund to transfer into an umbrella fund. With FIMA in place, it will be much more difficult and cumbersome to move into or out of any umbrella fund. The 2020s are going to be about rifle shots, not the shotgun approach of index funds! In his newsletter ‘Thoughts from the Frontline’ of 23 January 2021, John Mauldin presents a number of US market metrics that should make an investor think. Consider the so-called ‘Buffet Indicator’ as per graph 6.1 (Source: Adviser Perspectives), that measures US equities as a percentage of nominal US GDP. It is at an all-time high and about as far above the ‘Exponential Regression’ line as it was at the end of 2000 when the S&P 500 dropped from its peak of 1,518 at the end of July 2000 to 815 by end of August 2002. That was a drop of 87%! It took the S&P 500 5 years to get back to the July 2000 level, i.e. by 2007, only to drop back to 735 at the end of January 2009 through the global financial crisis. That was a drop of 108% from the peak it reached at the end of April 2007. As we speak, the S&P 500 is testing the 4,000 level, evidently driven by quantitative easing that we have referred to repeatedly in earlier newsletters. Graph 6.1  Similarly graph 6.2 (Source: Doug Kass) reflects a list of 15 S&P 500 metrics that are at historical highs of somewhere in the 90th to 100th percentile. Graph 6.2  The message clearly is that the US market is in extreme territory, or as John Mauldin put it ‘valuations are at nosebleed levels’ in the US. In last month’s column, we had a table that presented a few key metrics of Europe, the UK, Japan and emerging markets (also covering the SA market), many of which similarly lead to the conclusion that all these markets are also not exactly cheap in historic context. Equities thus present a significant investment risk Looking at other asset classes, treasury bills currently yield only around 4% which is not even 2% above inflation. Namibian government bonds in contrast, yield between just over 5% (GC21) and just over 13% (GC50). That may sound like a wonderful return on long-term bonds. The problem with bonds is that these yields can only be realised if one holds the bond to maturity and ignores the risk of capital loss in the event of a forced sale before maturity, should interest rates increase, as they should do, considering their extremely low levels currently. Just looking at current yields to maturity is about the same as saying, don’t worry about the share price, let’s just look at the dividend yield of a share. Very few investors, if any, can afford to hold an asset to maturity. There are always situations, e.g. retirement, unemployment or death of an individual, or the dissolution or liquidation of a fund or the employer, when one may be forced to sell the asset and the yield to maturity was then only a pie in the sky. When we look at share indices, we need to realise that we are looking at a wood consisting of many different trees, some of which grow faster, others slower, some producing an exceptional crop, others a poor crop and some never make it at all. Last year the S&P 500 was up 18.4%, and an equally weighted portfolio of FAAAM (Facebook, Alphabet, Amazon, Apple, Microsoft) plus Netflix was up 55%! The contribution of that latter group to the S&P 500’s growth was 14.35%. The “S&P 494”, i.e. excluding these 6 out-performers, gained only 4.05%. By far the biggest investment risk is thus posed by those 6 shares while the balance of the index is probably at fair valuations. Currently 60 of the S&P 500 shares trade at over 10 times there annual sales compared to just under 50 just before the bubble burst in the early 2000’s. Take Tesla that currently trades at 30 times annual sales. While the average tree in the wood grew nicely, there were a handful that delivered stellar growth, the rest delivering rather mediocre growth. But even in a market that is generally expensive, there are always shares that are cheap, that are solid businesses generating great profits and paying high dividends. As John Mauldin put it in his ‘Thoughts from the Frontline’ newsletter of 23 January 2021: “The 2020s are going to be about rifle shots, not the shotgun approach of index funds.” If one does not overpay for a good company, the company and its share price should grow in line with its sector in the economy and in addition, it will pay dividends. If you need to sell it, you should be able to sell it without having to incur a loss, having bought it at a fair or cheap price. Contrast this with property as another potential asset for investment. When the economy is in the doldrums, so the property market is and it will not matter what property you hold. The difference here is that shares are highly liquid and can be traded easily, making it much easier to realise the true value of the share, as opposed to owning property and being forced to sell it when the market is in the doldrums. Conclusion Considering the state of the global economy and financial markets, it is difficult to achieve the investment returns that are implicit in typical pension fund structures, of around 6% in real terms. This is the result of the disruption of financial markets by the intervention of reserve banks after the global financial crisis and now again in response to the COVID crisis. However, there is an end to what reserve banks can do and they are at this stage left with very little ‘fire power’ to stimulate the economy. Once inflation sets in with all the easy money floating around, interest rates will start increasing while equities as an asset class will start declining. Hiding your money under your mattress bears its own risks as does speculation with investments and the investment in less common assets where it is difficult to determine a price because of the absence of an active market. The good old fashioned investment principle still applies. Do not put all your eggs in one basket but diversify your risk by spreading it across assets and asset classes as widely as possible. Equities are a mirror of the real economy and remain the asset class that should generate superior returns in the long run. Economic fundamentals should improve as the COVID-19 hysteria subsides going forward. The time we find ourselves in, however, requires stock picking skills rather than the shot gun approach of index management and the focus should be on good quality, fairly valued or cheap companies with high dividend yields. The investor should thus be able to expect a real dividend yield in excess of 3%. This may be low in relation to what we have seen in years gone by, however it is still a respectable return on any equity investment. The investor should thus be able to expect a real dividend yield in excess of 3%. This may be low in relation to what we have seen in years gone by, however it is still a respectable return on any equity investment and an investment in a typical balanced portfolio should be able to generate a real return of around 5%, or around 7% in the prevailing inflationary environment. Offshore diversification is essential and the strengthening of the Rand once again creates the opportunity for doing so. It is this principle one needs to focus on more than the timing though, as the Rand tends to rise when offshore markets also rise, and vise-versa, often negating the effect of its strengthening or weakening.
Compliment from from the principal officer of a large fund Dated 26 November 2020 “Ek is nog steeds verstom oor hoeveel hulp julle aan ons verleen. Baie dankie vir die puik diens en dat julle sonder enige huiwering uit julle pad gaan vir ons.” Read more comments from our clients, here...  We are proud to advise that Sperrgebiet Diamond Mining (Pty) Ltd just informed us it will be joining the Benchmark Retirement Fund as a participating employer. We sincerely appreciate this gesture of confidence and trust in RFS, as fund administrator, and the Benchmark Retirement Fund and extend a hearty welcome to the company and its employees to the fold of the Benchmark Retirement Fund. Our business model is not to dominate the market through a low-cost proposition. We focus on transparency, exceptional reporting and superior service. This should support and promote sound industrial relations and the employer’s employment philosophy and policy of attracting and retaining the best staff. If these objectives are important to your company and close to your heart, we should be your ideal partner in the provision of retirement benefits to your staff.
Staff improving their competencies Learning should never stop and “education is the greatest equaliser” – Nelson Mandela. We congratulate the following colleagues for having advanced their competence in serving our clients:
RFS engages marketing manager RFS recently engaged the services of Mrs Nadja Dobberstein as marketing manager on a part time basis. Nadja is a highly experienced and qualified marketing specialist. She has a Diploma in Advertising Management from Varsity College, Cape Town, a Managerial Development Program from USB, an Advanced Programme in Marketing Management from UNISA and a Mini MBA Workshop Certification. She started her professional career with Radio Wave 96.7 FM as an Account Manager in 2007. She then moved to FNB in 2010 as a Marketing Officer where she gained valuable experience over a period of 5 years. In 2015 she moved to Weathermen & Co, a subsidiary of the O&L group as Account Director responsible for all marketing efforts of the O&L group as well as for a number of other companies. She was appointed as Managing Director of Weathermen & Co in 2018. In 2020 Nadja decided to move out of the corporate world, opening the door for RFS to engage her expert services. Nadja’s experience and expertise will undoubtedly benefit RFS. We welcome Nadja heartily and look forward to a long and mutually satisfying road together in the pursuit of RFS’ interest! RFS to carry out brand audit Having engaged Nadja Dobberstein as our marketing manager, as one of her first projects, Nadja will engage with RFS clients and other industry stakeholders for the purpose of carrying out a brand audit. Understanding our position and perception of and in our industry, is a precondition for purposefully advising us on our journey with her into the future. We are thus calling on all who may be contacted by Nadja for this purpose, to assist Nadja and RFS in better defining ourselves and in that manner being put into the position of improving our services to our clients and better meeting their needs and expectations. RFS invites the public to report inappropriate conduct Retirement Fund Solutions (RFS) Namibia is founded on uncompromising values which all Directors, management and staff promise to uphold at all times. As a valued stakeholder, we request you to report unethical behaviour, any misconduct, involving any officer or employee of RFS. Our reporting is outsourced to an independent investigator to ensure your anonymity and preserve confidentiality. We request that you please report any of the following:
Independent Chairperson: Audit-, Risk and Compliance Committee Important administrative circulars issued by RFS RFS has not issued any fund administration related circulars to its clients over the last month. NAMFISA issues circular on the status of rules NAMFISA on 16 February 2021, issued circular PF/Cir/01/2021 that addresses certain wrong doings in the pensions industry. The purpose of this Circular is to provide the Registrar’s position in respect of the practice whereby umbrella funds collect purported pension contributions and provide pension benefits to employees of a prospective employer (“participating employer”) prior to the registration of rules. Rule amendments in respect of a participating employer under an umbrella fund have no binding effect before approval and registration under section 12 of the Act. Therefore, the practice of collecting purported pension contributions from and providing pension benefits to employees of a prospective participating employer prior to the approval and registration of applicable rules under an umbrella fund is unlawful. Umbrella funds may admit into fund membership, collect pension contributions and provide the attendant pension benefits only after the approval and registration of applicable rules. Accordingly, umbrella funds are urged to desist from the above practice May an employer-appointed trustee, suspended from duty as employee, still attend trustee meetings? By Andreen Moncur B.A. (Law) Where an employer-appointed retirement fund trustee is on suspension from work, is it wrong for the trustee to continue attending trustee meetings? In short, the answer is no. On the contrary, it would be wrong for the trustee not to attend trustee meetings during their suspension. The trustee will breach their fiduciary duties if they don’t.. The objective of any retirement fund is to provide:
So, irrespective of who appoints or elects the board members and whether the trustees are employees of a participating employer or independent trustees, each trustee owes the same fiduciary duty to the fund members. This fiduciary duty requires the board of trustees to act independently. In particular, a trustee may not submit to any party's influence, whether the trustee’s employer, the fund members or the fund’s service providers nor be under the control of another party. As a fiduciary, a trustee is accountable for the fund’s sound governance. Sound governance requires a trustee to attend all board meetings and actively participate in all board activities. A trustee cannot allow personal circumstances nor another party to prevent them from discharging their fiduciary duties. The employer cannot prevent a suspended employee who is also a retirement fund trustee from attending a trustee meeting because the Employer has no say over fund management. The fund is not an extension of the employer's business operations but is a separate legal entity. While an employer may suspend a trustee from their duties as an employee, the employer cannot suspend a trustee from office as a trustee. However, the employer can deny a suspended employee access to the employer’s premises during the suspension period. Thus, the employer can effectively hamper the trustee in carrying out their fiduciary duties since the board usually meets on the employer’s premises, often during working hours. This obstacle is easily overcome by merely moving the trustee meeting off-site or meeting online. Practically-speaking, the suspension of an employer-appointed trustee may be awkward to navigate. But legally speaking, it’s relatively straightforward. Suspension from their post does not release a trustee from their obligations towards the fund and its members. A trustee’s ability to manage the fund, including their contractual power (legal capacity to enter into contracts on behalf of the fund) is not suspended. Can the employer’s claim for refund of a bonus be deducted from a benefit? This case deals with a complaint by SS Ratlala (the Complainant) versus Bokamoso Retirement Fund (the Fund) and Akani Retirement Fund Administrators (the Employer). Ratlala complained that the Fund had deducted an amount from his termination benefit claimed to have been refundable by the Complainant to his Employer in respect of a performance bonus. While section 37A of the Pension Funds Act offers strong protection of a member’s benefit, it provides for certain exceptions, the relevant provisions in this case set out in section 37D(1)(b)(ii). Section 37D(1)(b)(ii) provisions Note that this section is verbatim the same as the equivalent section in the Namibian act. A registered fund may- deduct any amount due by a member to his employer on the date of his retirement or on which he ceases to be a member of the fund, in respect of-Facts of complaintcompensation (including any legal costs recoverable from the member in a matter contemplated in subparagraph (bb)) in respect of any damage caused to the employer by reason of any theft, dishonesty, fraud or misconduct by the member, and in respect of which-(aa) the member has in writing admitted liability to the employer; or The complainant owed the Employer an amount in respect of a performance bonus he received but should not have received. Both the Fund and the Employer informed the Complainant that he needed to authorise this deduction from his pension benefit. Although the Complainant was aware that such a deduction was not permissible in terms of the Pension Funds Act. The Complainant provided this authorisation in writing to the Fund, in order to receive the balance of his benefit. On the strength of this authority, the Fund paid over the refund of the performance bonus to the employer and concluded that no further benefit was due to the Complainant. Matter to be determined by the Tribunal The tribunal needed to determine whether the deduction in respect of the performance bonus from the Complainant’s benefit was consistent with section 37D(1)(b)(ii). In its considerations, the tribunal made reference to Rowan v Standard Bank Staff Retirement Fund and Another, which formulated the following requirements that need to be met for deducting an amount from a benefit:
Findings of the Tribunal The tribunal found as follows:
The Fund was directed to pay the Complainant the withdrawal benefit with interest from date of the benefit was paid to date of payment within 2 weeks and to provide the Complainant with a full exposition. Read the full determination PFA/GP/00030663/2017/MD, here... Mentally prepare for retirement: 21 tips – Part 2 In the previous newsletter, we brought to you the first 2 tips for mentally preparing for retirement. In this newsletter we present the next 3 tips. “Retirement is a major life change, that not everyone is prepared for. The following guide contains excellent tips how to mentally prepare for retirement. As it is a lengthy document, it will be presented in multiple parts over the next few newsletters, so make sure you don’t miss any of these. (Note: the source of this guide in not known.) To Mentally Prepare For retirement, You:
3. Communicate with your spouse & family about retirement plans The biggest mistake for couples is not communicating properly what they want out of retirement. Many couples assume they share the same vision about life in retirement without talking about it. And this can lead to disappointment, conflicts, and friction and sometimes even lead to divorce because you’re not on the same page anymore. It’s vital to discuss your hopes, dreams, and plans you have for retirement with each other. Maybe your partner doesn’t want to retire at the same time because she/ he loves their job. Or perhaps you want to move closer to your grandchildren, and you have another plan in mind. Keep each other in the loop about your desires so you both can plan for activities in retirement together. Another thing you should discuss with your spouse is how you’re handling matters at home. The transition can be rough, and roles are changing once you retire. So, you need to talk about how to handle alone time, together time, and household activities. If you’re the only one retiring than maybe your spouse needs to get used to the fact you’re home more often. And feels like you’re invading her/ his space. Or expects you to do more household activities than you anticipated. Go out to dinner and share your vision of what retirement would be like: what makes you happy or concerned and what you need to feel comfortable. Negotiate with each other and find ways to make compromises. And also discuss if you want to retire at the same time. There can be significant emotional and financial consequences of retiring at the same time that you need to be aware of. Also, communicate your retirement plans and ideas with your family. Perhaps your children expect you to babysit your grandchildren fixed days in the week to reduce costs on childcare, but you don’t want to be tied up. You’ve worked very hard to enjoy this freedom, so make sure you set boundaries and don’t commit to activities that keep you from following your dreams. Some couples take a 2 or 3-month honeymoon to fully enjoy their first weeks of retirement before they commit to anything else. This can be a great way to ease into retirement together and also have enough time to think and plan about what you want to do next. 4. Check your finances A stress-free retirement is a retirement where finances are in check. Make sure your financial plan for retirement is up-to-date, and you’re on the right track. And that includes having a budget plan for the dreams and projects you have in retirement. If you’ve figured out how you want to spend time in retirement, you also need to check if your financial plan backs up your fun plan. You don’t want to retire with a head full of dreams and not being able to afford it. You can come to a conclusion to post-pone your retirement with a couple of months or years to afford your dream. Think about if that dream is worth the extra working years or find other dreams that are less expensive if you really don’t want to work any longer 5. Try out retirement before retiring You can tiptoe into retirement by slowly reducing your working hours or take a sabbatical a couple of months or years before your actual retirement date to try things out. This way, you can find out if the dream in your head is achievable and feel it out. Some retirees make a drastic life change in retirement before testing it out and come to the conclusion that it’s not what they expected it to be. And sometimes there is no turning back due to financial reasons. So testing the waters beforehand can give you a good feeling and realistic view on your retirement plans. And you can intercept and tackle problems beforehand that makes you more prepared for what’s coming and make the actual transition more smoothly. If you don’t want to retire fully yet, you can start working part-time to ease into retirement. You avoid burning bridges at work too soon, but also have extra free time to start some retirement projects. Or if you want to continue working but differently, you can think about working as a freelancer, consultant, or another type of job. Where you still have a paycheck and purpose in life but are in charge of your own working hours…” Further parts of this interesting guide will follow in the coming newsletters. ‘Game over’ for hedge fund “Oh, how the mighty have lost fortunes. Several hedge funds like Melvin Capital and Citron Research thought they were onto something when they started to ‘short’ shares in GameStop, a brick and mortar gaming store that supposedly had an obsolete business model. The thinking was that they could make money from the expected slide. But they made a big miscalculation. Instead of seeing the value of GameStop shares fall, over the past few months the share price rose and in the past few weeks it skyrocketed. GameStop, which was trading at $4.21 a year ago, had risen to $18.81 by the end of 2020 and shot up to $472 on Thursday. So how did the likes of Melvin Capital, which had to be bailed out to the tune of $2.75 billion (R41.5 billion), and Citron Research get it so wrong? On the surface, they had a solid investment thesis … A business that sold games through stores (think Musica) would soon be upended by digital distribution rivals. They reasoned that by ‘borrowing’ shares and then selling them at the current price, they would make money by later buying shares at a cheaper price than they had been priced at when they initially sold them. These shares would then be returned to whoever they borrowed them from. In effect, the short seller sold something it did not own and planned to make money by buying shares at a lower price than they had sold them for in the future. But two things happened that they didn’t count on…” Read the full article by Larry Claasen in Moneyweb of 29 January 2021, here… Regulator takes position with regard to CBI claims The Financial Sector Conduct Authority in South Africa (FSCA) has now taken a position with regard to CBI claims as set out underneath. The question is: Will NAMFISA render the same support to affected parties in Namibia?“ Purpose This Communication sets out the FSCA’s current position on certain aspects of CBI insurance cover as well as its expectations of non-life insurers and policyholders in respect of CBI claims, in order to ensure that the processing of these claims is not unduly delayed and in line with the legal certainty that has been obtained in recent judgments. Position regarding legal certainty Following recent discussions with the non-life insurers with CBI cover exposure, it was confirmed that they hold the view that legal certainty has been obtained. Insurers have proceeded to review previous and current claims to make sure that claims decisions are in line with the recent court judgments. Time processes and claims requirements The FSCA received some complaints from policyholders regarding the ‘burden of proof’ requirements for CBI claims. Insurers are reminded to consider the guidance that the FSCA issued in this regard in FSCA COMMUNICATION 34 OF 2020 (INS) and to finalise these claims as expeditiously as possible. Most importantly, insurers must ensure that policyholders do not face unreasonable post-sale barriers to submit CBI claims. In order to assist policyholders with the information to be submitted to insurers for the claim assessment process, the FSCA considers it advisable for insurers to develop a set of ‘Frequently Asked Questions’ (FAQ’s) related to CBI claims and host these questions with responses that are clear and visible on their websites where it is easy for policyholders to access it. The FSCA will be engaging further with insurers on such a measure. Several insurers indicated that some policyholders have only sent claims notifications to them and have not provided the necessary supporting documentation to enable them to assess the claims. Policyholders are urged to liaise with their brokers and contact their insurers urgently with the necessary information. Likewise, it is expected that insurers provide detailed guidance to policyholders in this regard as CBI claims are of a technical nature.” Read the full communication of the FSCA, in Cover of 11 February 2021, here... Three key drivers for markets in 2021 “2020 was a defining and historic year, characterised by an unprecedented global health crisis and peacetime policy response. The contrast between the current economic freeze and future optimism suggests it’s darkest before the dawn, with a realistic prospect of the pandemic improving over the coming months as the global vaccination roll-out accelerates. Against the backdrop of a meaningful moderation in the pandemic and reduced geopolitical risk, three key drivers for markets and investment strategy in 2021 are evident.
Great quotes have an incredible ability to put things in perspective. "Life is not a matter of holding good cards, but sometimes, playing a poor hand well.” ~ Jack London |
|||||||
2021-01
| In this newsletter: Benchtest 12.2020, the purpose of a pension fund, FIMA and hybrid funds and more... |
|||||||
|
FIMA was due to be published in the government gazette before the end of the year but this did not happen. It means that the President may not have signed the Act yet, after all. In accordance with the implementation schedule envisaged by NAMFISA, all necessary standards and regulations will now be finalised within 12 months of the proclamation of the Act, where after funds have another 12 months to get ready and to have their rules approved, i.e. at this stage, by early 2023. Register now for FIMA training
Following her successful collaboration with RFS in presenting the first FIMA webinar training series, Andreen Moncur, the presenter of this series, will offer further weekly training sessions on specific topics early 2021.
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In ‘Tilman Friedrich’s industry forum’ we present:
In ‘News from RFS’ -
In ‘Legal snippets’ read -
In media snippets, read –
...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!
Monthly Review of Portfolio Performance to 31 December 2020 In December 2020 the average prudential balanced portfolio returned 1.9% (November 2020: 5.7%). Top performer is Hangala Prescient Absolute Balanced Fund with 3.6%, while Allan Gray Balanced Fund with 0.6% takes the bottom spot. For the 3-month period, NAM Coronation Balanced Plus Fund takes the top spot, outperforming the ‘average’ by roughly 3.4%. On the other end of the scale Stanlib Managed Fund underperformed the ‘average’ by 2.0%. Note that these returns are before (gross of) asset management fees. Read part 6 of the Monthly Review of Portfolio Performance to 31 December 2020 to find out what our investment views are. Download it here... The 2020s are going to be about rifle shots, not the shotgun approach of index funds! In his newsletter ‘Thoughts from the Frontline’ of 23 January 2021, John Mauldin presents a number of US market metrics that should make an investor think. Consider the so-called ‘Buffet Indicator’ as per graph 6.1 (Source: Adviser Perspectives), that measures US equities as a percentage of nominal US GDP. It is at an all-time high and about as far above the ‘Exponential Regression’ line as it was at the end of 2000 when the S&P 500 dropped from its peak of 1,518 at the end of July 2000 to 815 by end of August 2002. That was a drop of 87%! It took the S&P 500 5 years to get back to the July 2000 level, i.e. by 2007, only to drop back to 735 at the end of January 2009 through the global financial crisis. That was a drop of 108% from the peak it reached at the end of April 2007. As we speak, the S&P 500 is testing the 4,000 level, evidently driven by quantitative easing that we have referred to repeatedly in earlier newsletters. Graph 6.1  Read part 6 of the Monthly Review of Portfolio Performance to 31 December 2020 to find out what our investment views are. Download it here... FIMA bits and bites – does this Act make provision for ‘hybrid’ funds? FIMA will present the pensions industry and other stakeholders with lots of challenges over many years to come. Besides the fact that it is difficult to read and to understand because it is so vast, and the fact that it is not only the relevant financial institution chapter (law) one has to consider, but a number of other chapters too that impact every financial institution chapter (law). At the outset, every fund faces the challenge of having its rules approved by NAMFISA. The ‘old’ rules approved under the Pension Funds Act may not comply with provisions of FIMA, which is in many respects quite different to the Pension Funds Act despite a lot of similarities. Before submitting the rules of an existing fund, one needs to make sure that they do comply to the best of one’s understanding. In this endeavour it may be purposeful to obtain the opinion of relevant NAMFISA officials on any grey areas as early as possible, in order to stand a better chance of crossing the first important hurdle of obtaining approval of the rules by NAMFISA. Any opinion that may have been expressed by a NAMFISA official though, is no guarantee, and when it comes to the official approval of the rules, NAMFISA may have concluded differently and therefore does not approve the rules. Even if the rules are then approved, NAMFISA can still change its view with regard to any specific matter later and a court may yet conclude differently, should such matter be challenged in court. Pooled pensioners in a DC fund? Whether a defined contribution (DC) fund may continue to offer ‘pooled pensions’ is one such area that was clear in my understanding of FIMA, but NAMFISA has a different view. Such funds are sometimes referred to as ‘hybrid’ funds. A number of defined contribution funds currently still offer ‘pooled pensions, or defined benefit (DB) type pensions where the employer stands in for any shortfall between the actuarial value of the liabilities of these pensions and their underlying investment value. For some employers, it is important to look after their retirees in retirement and to maintain a relationship with them throughout their years in retirement. Contented pensioners are great promoters of their fund and it’s sponsoring employer. This in turn should assist the employer to attract and retain staff in a competitive labour market, two of the main reasons an employer usually has for sponsoring its fund. For the purpose of regulation and supervision by NAMFISA, such hybrid funds are considered to be DC funds that have a DB component, which means such DC funds are required to keep reserves and therefor they must be subjected to tri-annual valuation. These funds must report separately their DB component and their DC component under the various standards that apply to DB funds and to DC funds. Investment smoothing reserve in a DC fund? Some funds use investment smoothing, meaning that members are awarded annually an investment return that approximates the returns earned by the underlying investments, over time. In times when investment returns are high, members earn a lower return in order to allow the fund to allocate higher returns to members than what the investments actually earned, in times of poor investment returns. Another reason for maintaining an investment reserve is that fund member records are normally updated once a month as at month end, reflecting the fact that contributions are payable monthly, at the end of every month. In contrast, benefit payments cannot normally be timed to occur once a month at the end of the month, for various reasons, such as income tax and time lags upon withdrawing of funds from the investment, and the physical payment to the beneficiary. These timing ‘differences’ result in the fund having to award investment returns to a member it has not earned, or the fund earning investment returns it will not award to the member. Consequently, there will always be differences between what the fund’s investments earned and what the fund allocated to members and these need to be retained in a reserve account. Should a fund be operated on this basis, the fund is a ‘hybrid’ fund. A pure DC fund may only maintain an expense reserve for the difference between the employer’s payroll-based funding for expenses and the incidence of non-payroll-based ad-hoc expenses to which a standard applies prescribing the manner in which this reserve is to be managed. Again, I would have thought FIMA is very clear in requiring a fund being one or the other type fund, but it seems I may be wrong based on feedback we obtained. For the purpose of regulation and supervision by NAMFISA, such hybrid funds that are required to keep reserves must be subjected to tri-annual valuation. Typical balanced pension fund portfolios should offer peace of mind! Just recently I came across interesting information in John Mauldin’s Thoughts from the Frontline newsletter, as reflected in figure 1 below. It depicts the stimulus as a percentage of GDP injected by a selected number of countries into their economies, where the blue circles represent the 2008 financial crisis stimulus and the red circles the COVID-19 stimulus. Figure 1  Take Germany whose 2008 financial crisis stimulus was a mere 3.5% of GDP and in line with that of the US. This time around the stimulus represents 33% of GDP, nearly 3 times the stimulus given by the US at 12.1% of GDP. With an economy of only US$ 3.8 trn representing only about 18% to the US economy’s US 21.4 trn, the German COVID stimulus of US$ 1.3 trn, amounts to half the US stimulus of US$ 2.6 trn. These figures are based on World Bank GDP data of 2019, before the decimation of global economies by COIVD-19. According to John Mauldin’s newsletter global debt will be US$ 300 trn by the end of the first quarter of 2021, that represents 340% of 2019 global GPD, estimated at US$ 87.8 trn by the World Bank! If you want to put this into the context of a household, that is the equivalent of a household having borrowed around 11 times its annual household income. If your household income is your salary and that is N$ 1 million, your debt is just over N$ 11 million. If you had to repay this debt at the bank’s mortgage rate of currently 8.5% over say 20 years, you would be in deep trouble as the loan repayment of N$ 1.18 million per annum would already exceed your salary and you have not paid your bills yet. Of course, we know that some governments nowadays actually pay zero % interest on the money they borrow. Even at 0%, the repayments over 20 years still represent 57% of total government revenue, before government has spent any money on infrastructure, health, housing, education, government and social services. This is telling us, firstly, that governments across the world have built up a huge debt burden. Secondly it tells us that governments across the world cannot afford to pay interest on its debt for the next 20 years. If the debt is borrowed from its citizens, it means that citizens will earn no interest on money lent to their government. Countries that are less fortunate as to be able to tap into the local capital markets, do not have the lever in their hands to determine how much interest they can afford and will pay to their lenders. Such countries with such debt burdens will simply not be able repay their debt. If we look at Namibia, its debt is expected to amount to 70% of GDP with an increasing trend, currently at the rate of around 12% of GDP per annum. Namibia has thus currently borrowed 2.3 times its annual household income. If we take the Namibian IJG Allbond index as proxy for our funding rate, government is paying around 13% to its lenders, the annual repayment over 20 years would exceed 30% of our annual household income. It all indicates that the Namibian government is currently really sailing very close to the wind! Given that the world is hugely over-indebted, that many governments across the world will find it very difficult to just repay the capital, let alone interest and given that as the result only accelerating inflation or a very, very long time of very low interest rates can resolve this challenge, the huge stimulus extended to markets means that lots and lots of money is floating around looking for investment opportunities. We are seeing a lot of this happening and we see many youthful investors piling into a few in vogue shares, gold crypto currencies and other assets, in rather unqualified fashion. When one looks at equity indices, it appears that they are flourishing yet when one looks at the underlying shares, it becomes evident that they are actually driven by a handful large cap shares while the rest of the shares are actually not performing at all. The following table recently presented in Cover magazine of 5 November provides an illuminating overview of cheap (out of favour) and expensive (in favour) stock markets in terms of a number of different criteria. The figures in brackets represent the 15-year median. Evidently none of these markets are considered cheap on all criteria. This is the result of earnings having collapsed after the COVID-19 hysteria struck.  It will be noted that even emerging markets are rated expensive on price: earnings and dividend yield, both of which are a result of the collapse of earnings due to COVID-19. We do not have the same information about South African stocks, however graph 6.1 below depicts 1 year trailing price: earnings and dividend yield of the JSE Allshare index. It shows that the SA price: earnings index has also increased sharply to 22, not far off its 30+ year high of just over 26 in October 2015, and far above its median over 30+ years of 13.6, despite a decline in the Allshare index, meaning that earnings have declined sharply since March of this year. Similarly, the dividend yield declined sharply to 3.25% and close to its 30+ year median of 3%. This of course is consistent with the conclusions depicted in the table above with regard to these two criteria. Graph 6.1  Conclusion The thrust financial markets have been experiencing as the result of the stimulus measures, since COVID-19 struck markets, should fizzle out by the time the stimulus measures have run their course, which will likely be in 2021. From that point onwards the value of shares will be determined on the basis of the relevant company’s performance rather than re-ratings due to the hype in the market that we are currently experiencing with regard to only a small number of favoured technology shares and favoured markets. One will therefor see a readjustment in equity markets between the small spectrum of favoured tech shares and favoured markets and the broad spectrum of those currently out of favour. Principally, economic fundamentals should improve as the COVID-19 hysteria subsides going forward. As the global economies start to recover, company earnings should start to recover and dividend yields should improve. Some commentators believe that it could take up to 5 years for the global economy to reach its pre-COVID levels. With the stimulus thrust fizzling out share prices are likely to move sideways for quite some time. In the mean-time the investor will have to rely on dividends to generate his investment yield. Coming off a low, one can expect earnings growth to outpace inflation and dividend growth to track earnings growth. The investor should thus be able to expect a real dividend yield in excess of 3%. This may be low in relation to what we have seen in years gone by, however it is still a respectable return on any equity investment. As we know local cash currently generates a real yield of around 3% with a declining trend. The local IJG Allbond index generates a superior real return of around 11%. The downside of a fixed interest investment and cash is that their fortunes are likely to turn swiftly once inflation starts picking up, which it should do in view of excessive liquidity in financial markets, and interest rates start moving up in line with inflation. On that basis, an investment in a typical balanced portfolio should be able to generate a real return of around 5%, or around 7% in the prevailing inflationary environment. Once again this is not what we got used to in the years gone by, but it is pretty consistent with the long-term return expectation of the typical balanced pension fund portfolio. In last month’s column, I suggested that offshore diversification is an imperative and this is what balanced pension fund portfolios do. Members of pension funds should thus be comfortable that their investment should deliver returns in line with their long-term expectation. For a highly qualified corroborating and more detailed view on specific asset, read Jared Dillian in Mauldin Economics on the top consensus trade of 2021 here...
Compliment from a municipal payroll officer Dated 18 December 2020 “...Let me use this opportunity to thank you for the pleasant working relationship with your office and in particular with you. It was indeed great and enriching working with you, and the skills acquired during the encounters will remain useful in a long time. A blessed festive season and new year. One of our African proverbs says only mountains don’t meet.” Read more comments from our clients, here... Important administrative circulars issued by RFS RFS issued the following fund administration related circular to its clients over the last month. Should any client have missed this circular, please get in touch with your client manager:
Old Mutual merges 2007 and 2020 AGP series Old Mutual informed its clients as follows: “...Given that the BSR levels of the 2007 and 2020 series of Absolute Smooth Growth (AGP 50) and Absolute Stable Growth (AGP 80) have converged, these portfolios will be merged as follows:
The two series will be merged effective 1 March 2021 and will each have their individual bonus declaration up until the end of February 2021. After 1 March there will remain only the merged 2007 series and all contributions after 1 March will be made into the respective 2007 series portfolio. These changes will be carried out by Old Mutual and do not require any action by the investor. Read the full announcement, here... For how long may a fund withhold payment of a benefit? This case deals with HT Mashaba (Employee) who submitted a complaint to the Pension Funds Adjudicator (PFA) against ABSA Pension Fund (the Fund), ABSA Consultants and Actuaries (the Administrator) and ABSA Bank Ltd (the Employer), for the fund withholding payment of her benefit in terms of section 37D (1)(b)(ii). Section 37D (1)(b)(ii) deals with the deduction from a benefit of an amount due to the employer in compensation for damage caused to the employer through dishonesty, theft, fraud or misconduct. The Employee’s service with the Employer was terminated on 2 December 2015 on the basis of the Employer suspecting her of having committed fraud that cause damage to the Employer. The Employer instituted a criminal case in January 2016. Section 37D(1)(b)(ii) provisions: A registered fund may- (1)(b) deduct any amount due by a member to his employer on the date of his retirement or on which he ceases to be a member of the fund, in respect of-Facts of complaint(ii) compensation (including any legal costs recoverable from the member in a matter contemplated in subparagraph (bb)) in respect of any damage caused to the employer by reason of any theft, dishonesty, fraud or misconduct by the member, and in respect of which-(aa) the member has in writing admitted liability to the employer; or The Employee informed the Employer that a syndicate had tried to transfer a customer’s moneys into her bank account but that she was not involved in this crime. When the Employee followed up on the payment due to her, she was informed that SARS had issued a tax directive and that the benefit was to be paid out on 9 January 2o17. The Employee was subsequently informed that her benefit would be withheld until her criminal case was finalised in court. The Employee stated in her complaint that the police tried to arrest her but did not do so because of a lack of evidence, as the misappropriated moneys were not paid into her account and that she was then reinstated. She also stated that she complained to the CEO of the Employer about the treatment she had received during the investigation. She stated that the police reported to the Employer that the Employee was in communication with the syndicate, that she was subjected to a disciplinary hearing in January 2017 and dismissed on the basis of this report from the police. The Employee denied these allegations against her and requested the Tribunal to order the Fund to pay her withdrawal benefit to her. The Administrator stated that the Employee of the Employer was dismissed and that it was advised by the Employer that the Employee was alleged to be linked to a syndicate that defrauded the Employer who instituted a criminal case in 2016. Due to the ongoing investigation, it had withheld the benefit in terms of section 37D of the Act. Matter to be determined by the Tribunal The tribunal had to determine whether the withholding of the Employee’s withdrawal benefit was lawful, with reference to section 37D (1)(b)(ii). (Note: This section is verbatim the same as that of the Namibian Pension Funds Act.) The determination by the Tribunal The tribunal found as follows:
As the result of the above considerations, the relief sought by the Employee cannot be granted. Only if the police finds there is no case to answer by the Employee and no civil proceedings have been instituted, the benefit must be released. The order by the Tribunal The complaint did not succeed and was dismissed. Note This case is of particular interest as NAMFISA some years ago insisted that a benefit must be paid upon termination of service by a member where the provisions of section 37D(1)(b)(ii) (aa) or (bb) as set out above, have not been met at the time the employee’s service terminated. We have not seen any recent communications from NAMFISA relating to this section and do not know what its current position is. We shall appreciate feedback from any fund that has faced such directive by NAMFISA recently. Read the full determination PFA/GP/00031125/2017/MD, here… Mentally prepare for retirement: 21 tips – Part 1 Mentally prepare for retirement: 21 tips – Part 1 “Retirement is a major life change, that not everyone is prepared for. The following guide contains excellent tips how to mentally prepare for retirement. As it is a lengthy document, it will be presented in multiple parts over the next few newsletters, so make sure you don’t miss any of these. (Note: the source of this guide in not known.) To Mentally Prepare For retirement, You:
1. Start preparing in advance A lot of retirees only prepare for retirement financially and are not aware of the emotional impact retirement can have on your life. Every life change, whether it is positive or negative, comes with emotional discomfort. It can produce negative mental states that you’re maybe not aware of beforehand and come as an unsuspected surprise. And preparing a major life change for most people can’t be done within the turn of a day, week, or month. So, it’s best to start preparing yourself mentally 1-5 years before retirement. This timeframe is different per person and circumstances, but be aware that it takes more time than you think to get used to the idea of retirement. Figure out what it entails for you. What you want to do in retired life and how you can prepare together with your spouse and family. So, preparing well in advance will make your transition into retirement less stressful. When you’re planning on continuing your life without any other major life changes, then preparation of 1 year or less can be enough for you. But if you’re planning to do a 180 lifestyle change in retirement, for example, moving, selling the house or emigrate to another country. Then it can take up more time than 1 year of preparation. In these years before your retirement date, you can try things out and get prepared for what’s coming after you’re retired. And as you read the following tips, you will understand why 1 year sounds long but is sometimes not even enough. You want to make the most out of your well-deserved retirement, and for that preparation and planning is the key to success. 2. Visualize your life in retirement You’d be surprised at how many people are so focused on the financial part of their retirement, without thinking about what to do with their time once they retire. They are not mentally prepared for retirement and can fall prey to loneliness, depression, or waste their days with unfulfilling activities. Or be occupied by other things that keep them from following their dreams. Did you know that the chances of getting a depression increase by about 40% after retiring? It’s a shocking number but unfortunately true according to multiple studies. And most retirees who suffer from depression in retirement struggle because the transition from working life to a life filled with leisure is more difficult than anticipated. Or they didn’t think thoroughly about how they want to spend their time in retirement. That’s why it’s important to think about what you want to do in retirement. So you can make the most out of it. Visualize what the things you’ve always dreamed about doing are. You can visualize being on your deathbed and ask yourself the question: what would I regret not doing in life? If you’ve found your answer then congratulations, you have your goal in life or dream to strive after. Or visualize together with your spouse of all the possibilities in retirement. You can create a vision/ mood board for your retirement to make it more visible and shareable. Get creative with arts and crafts at home or make a digital board on Pinterest. Also creating a bucket list helps you to focus on what you want to do in life...” Further parts of this interesting guide will follow in the coming newsletters. Short-term insurers are another step closer to legal certainty on Covid related business interruption claims “Short-term insurers now have a “tsunami of the legal certainty” around business interruption insurance claims linked to the Covid-19 pandemic and need to pay up. That’s the word from the Federated Hospitality Association of South Africa (Fedhasa), an umbrella body that represents hotels, restaurants and other hospitality businesses. Rosemary Anderson, Fedhasa’s national chairperson, has called on insurers to “do the right thing” and settle such claims in full, following yet another loss for insurers – this time in the UK Supreme Court. The court on Friday ruled in favour of claimants in a precedent-setting test case that was brought by that country’s Financial Conduct Authority (FCA)...” Read the full article by Suren Naidoo in Moneyweb of 19 November, here… Refusing to come into work during lockdown “...employers and employees find themselves caught in the balance of what is ‘reasonable’ in unprecedented circumstances. This was highlighted in the recent CCMA case of Botha v TVR Distribution which showed that Covid-19 does not excuse a refusal to obey a lawful and reasonable instruction, said law firm Cliffe Dekker Hofmeyr. In this case Botha, a sales executive, was dismissed for gross insubordination and insolence after refusing to attend work during the Covid-19 lockdown. The commissioner found that the dismissal was substantively fair but procedurally unfair. “During the level 5 lockdown, Botha was informed that the company had applied for a certificate from the Companies and Intellectual Property Commission (CIPC) to allow it to operate as an essential service during the lockdown and that he was required to work and present himself at the office to do so. “Mr Botha refused and provided a laundry list of excuses as to why he could not attend work, these being, among other things, that he hadn’t been provided personal protective equipment, that he had not been given a permit, and that the level 5 lockdown regulations did not permit him to work and he would not break the law.” Findings These allegations were shown to be false, said Cliffe Dekker Hofmeyr. The commissioner found that the company had taken safety precautions, had the necessary personal protective equipment and that the CIPC certificate was sufficient to allow Botha to travel. Ultimately, Botha simply had no intention to attend work. In coming to the decision, the commissioner considered the evidence and stated with reference to various authors and the Labour Relations Act that:
Read the full article by Staff Writer in Businesstech of 23 January 2021, here… How can I buy Netflix and Amazon Shares in SA “There are some investment platforms in South Africa through which you can set up an offshore investment brokerage account for the purpose of buying US-based stocks. You currently have R1 million allocation per annum to move offshore without South African Revenue Service (Sars) clearance, and up to R10 million per year by getting a tax clearance from Sars. Many platforms require fairly high minimums. Investec’s, for example, is $300 000 (around R4.6 million), while PSG has an option for £5 000 (around R103 440). FNB recently launched exchange-traded notes (ETNs) for as little as R10 where you can have fractional shares that track the likes of Netflix and Amazon. There are also other options, like the Sygnia FAANG fund; it is rand-domiciled but gives you access to stocks such as Netflix and Amazon with a monthly debit order of R500 per month. The art of investing is getting out the crystal ball and giving yourself the headspace to really think about the future and the trends that will shape the world we live in tomorrow...” Read the full article by Trent Hodges in Moneyweb of 19 January 2021, here… Can Namibia learn from Mauritius? “Mauritius has long been valued as a jurisdiction with an efficient and effective regulatory framework and a diversified economy focused on the industrial, financial, and tourism sectors. Annual growth has averaged 5-6% over the past 10 years. The country is ranked first in Africa and 13th worldwide on the World Bank Ease of Doing Business Report 2020 (up from 20th in 2019). Following the national budget delivered in June 2020, Mauritius has introduced a range of changes to make it easier for individuals to obtain residency in Mauritius. Two notable developments are a more flexible investment regime and an extended duration of residency permits. All changes have been implemented and are currently effective...” Read the full article by Jaco van Zyl in Moneyweb of 15 January 2021, here… Great quotes have an incredible ability to put things in perspective. "When you come to a fork in the road, take it.” ~ Yogi Berra |
|||||||
2020-12
| In this newsletter: Benchtest 11.2020 notification, MD’s year-end message, the future of stand-alone funds and more... |
||||||||||||||||||||||||
|
FIMA is due to be published in the government gazette before the end of the year. It means that the President has signed the Act. In accordance with the implementation schedule envisaged by NAMFISA, all necessary standards and regulations will now be finalised in the course of 2021 where after funds have another 12 months to get ready and to have their rules approved, i.e. by the end of 2022, latest. Further FIMA training scheduled for early 2021 Following her successful collaboration with RFS in presenting the first FIMA webinar training series, Andreen Moncur, the presenter of this series, will offer further weekly training sessions on specific topics early 2021. For a ‘sneak peek’ of what she is planning, use the Mimecast download link here… Pension fund governance - a toolbox for trustees
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In ‘Tilman Friedrich’s industry forum’ we present:
In ‘News from RFS’ -
In ‘News from NAMFISA’ read about:
In ‘Legal snippets’ read -
...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!
Monthly Review of Portfolio Performance to 30 November 2020 In November 2020 the average prudential balanced portfolio returned 5.7% (October 2020: -2.0%). Top performer is NAM Coronation Balanced Plus Fund with 8.0%, while Stanlib Managed Fund with 3.8% takes the bottom spot. For the 3-month period, NAM Coronation Balanced Plus Fund takes the top spot, outperforming the ‘average’ by roughly 2.3%. On the other end of the scale Stanlib Managed Fund underperformed the ‘average’ by 2.1%. Note that these returns are before (gross of) asset management fees. Read part 6 of the Monthly Review of Portfolio Performance to 30 November 2020 to find out what our investment views are. Download it here... Typical balanced pension fund portfolios should offer peace of mind! Just recently I came across interesting information in John Mauldin’s Thoughts from the Frontline newsletter. A graph he presents, depicts the stimulus as percentage of GDP injected by a selected number of countries into their economies, namely the stimulus after the 2008 financial crisis and the stimulus in the face of the COVID-19 pandemic. Take Germany whose 2008 financial crisis stimulus was a mere 3.5% of GDP and in line with that of the US. This time around the stimulus represents 33% of GDP, nearly 3 times the stimulus given by the US at 12.1% of GDP. With an economy of only US$ 3.8 trn representing only about 18% to the US economy’s US 21.4 trn, the German COVID stimulus of US$ 1.3 trn, amounts to half the US stimulus of US$ 2.6 trn. These figures are based on World Bank GDP data of 2019, before the decimation of global economies by COIVD-19. According to John Mauldin’s newsletter global debt will be US$ 300 trn by the end of the first quarter of 2021, that represents 340% of 2019 global GPD, estimated at US$ 87.8 trn by the World Bank! If you want to put this into the context of a household, that is the equivalent of a household having borrowed around 11 times its annual household income. If your household income is your salary and that is N$ 1 million, your debt is just over N$ 11 million. If you had to repay this debt at the bank’s mortgage rate of currently 8.5% over say 20 years, you would be in deep trouble as the loan repayment of N$ 1.18 million per annum would already exceed your salary and you have not paid your bills yet. Of course, we know that some governments nowadays actually pay zero % interest on the money they borrow. Even at 0%, the repayments over 20 years still represent 57% of total government revenue, before government has spent any money on infrastructure, health, housing, education, government and social services. Read part 6 of the Monthly Review of Portfolio Performance to 30 November 2020 to find out what our investment views are. Download it here... FIMA bits and bites – fines the regulator may impose on anyone Question: May NAMFISA institute an action for damages for loss caused to a person by the actions of an individual or entity regulated by FIMA or to whom FIMA applies, irrespective of whether the loss was caused by a breach of FIMA or a failure to comply with FIMA. Answer: Where a claimant suffers loss as a result of an offender’s contravention of or failure to comply with FIMA, section 437 empowers NAMFISA to institute legal action to recover the loss on behalf of a claimant or group of claimants in a court, if NAMFISA believes it is appropriate to do so. Similarly, under section 438, NAMFISA can ask the High Court to make any order considered appropriate for the purposes of enforcing FIMA or protecting the interests of clients in those instances where a person has contravened or failed to comply with any provision FIMA. Under section 439, NAMFISA may impose an administrative sanction on any financial institution, financial intermediary or other person to whom FIMA applies when satisfied that the financial institution, financial intermediary or person has failed to comply with:
FIMA and the future of stand-alone funds
Increase in size of stand-alone funds
Size and composition of boards of trustees
Remuneration of trustees and principal officers
Remuneration of specialist funds:
When the Covid 19 crisis struck at the end of March panic hit financial markets. As the result, investors sold out of riskier investments and weak currencies, to move their money into cash in strong currencies. As gold is considered a safe haven in times of panic, gold actually increased in value over the Covid 19 crisis in US Dollar terms. Local investors benefited from this increase in value and the depreciation of the Rand at the same time had they already been invested in gold before the crisis. Since then, panic started to fade and rationality started to return to markets. As the result, the Rand has started to gain in value as investors are returning to riskier currencies and assets in the developing world.
Impressions from RFS 2020 year-end function
Staff improving their competencies Learning should never stop and “education is the greatest equaliser” – Nelson Mandela. RFS actively encourages and supports staff wishing to advance their qualifications in various ways and we are very proud of everyone successfully walking this arduous road! Rudigar van Wyk just received the good news that he successfully completed an NQA Level 6 Diploma in Transformational Leadership conferred by the African Leadership Institute. We congratulated Rudigar wholeheartedly and have no doubt this will add to his already great leadership qualities and to his and the Benchmark team’s client servicing competence! Julien Oosthuizen completed her studies and was awarded a Bachelors Degree in Business Management by NUST. We also congratulate Julien wholeheartedly on this wonderful achievement and know that she will apply her newly acquired skills for the benefit of our clients! Important administrative circulars issued by RFS RFS issued the following fund administration related circular to its clients over the last month. Should any client have missed this circular, please get in touch with your client manager:
NAMFISA issues housing loan circular NAMFISA issued PF/PI/Circ/03/2020 on housing loans on 9 December, which revokes PI/PF/3/2003 on the same topic, that was issued on 13 June 2003. The previous circular allowed the offsetting of an amount due in respect of a loan from a member’s fund credit. The new circular considers such practice inconsistent with sections 37A and 37D of the PFA. The new circular refers to unlawful current practices in the industry and provides clarity and guidance regarding housing loans granted by Funds or housing loan guarantees furnished by funds, as follows:
Editor’s comment: With all due respect I do not agree with the latest position of NAMFISA, and interestingly, both, the previous circular and FIMA actually makes provision for the offsetting. Interestingly too, the new circular does not provide for the situation regarding housing loan amounts due in case of a section 14 transfer, whereas, both the previous circular and FIMA allow the offsetting in such a situation.
Preventing financial disaster in retirement “...Under normal circumstances, your retirement should remain secure if you have basic financial safeguards in place. But every so often, families find themselves in abnormal circumstances that threaten to undo their years of hard work and diligent saving. Here are eight material risks to your retirement capital which, if you avoid them, will help you circumvent eroding wealth to a point where you can no longer achieve your retirement goals.
Short-term insurers contesting Covid related business interruption judgements Santam plans to appeal a high court judgement last week that ordered it to settle business interruption claims resulting from the Covid-19 lockdown. The Western Cape High Court was ruling on a case brought against the insurer by Ma-Afrika Hotels and Stellenbosch Kitchen over the Contingent Business Interruption (CBI) cover they had through the short-term insurer. It ordered Santam to pay Ma-Afrika's Covid-19-related claims for 18 months, the entire policy period. The decision followed an earlier judgement against Momentum Metropolitan Holdings' subsidiary Guardrisk, which was taken to court by Cape Town restaurant Café Chameleon after turning down its CBI claims. Guardrisk has now turned to the Supreme Court of Appeal. ~ InceConnect NAMFISA probed on its position concerning Covid related claims The Namibia Financial Institutions Supervisory Authority (NAMFISA) has for more than two months refused to provide any information on insurance claims of businesses devastated by the impact of Covid-19. Following several complaints by businesses that their business interruption claims weren’t settled by local short-term insurance companies, Market Watch on 7 September sent a list of questions to NAMFISA. Market Watch asked the regulator whether it was aware of complaints that short-term insurers providing business interruption cover were dragging their feet to pay out claims and if NAMFISA was actively monitoring the situation, given the urgency of the businesses’ financial predicament. ~ Namibian Sun Novel sentencing of broker for defrauding clients “...Over the period between 1 January 2012 – 31 July 2018, Mr Coetzee induced members of the public to deposit money into his personal trading accounts with PSG Wealth Securities Ltd and SBG Securities (Pty) Ltd, and into his personal investment account at the Stanlib Money Market Fund. The misappropriated funds were used to pay [his own] home loans, personal loans, insurance and vehicle financing. Mr Coetzee was sentenced to 10 years imprisonment, of which three were suspended, subject to the following:
Synthetic biology revolution is coming “There is a ton of liquidity coming into the stock market, Fed easing, low interest rates and the expectations vaccines will perform a miracle. The stock market is currently addicted to sentiment speculation plays on the future of electric vehicles, or cannabis, or Bitcoin, or the monopoly FAANG stocks (GAFMA). But as an investor, you always want to invest before sentiment overvalues stocks, based on tangible and total addressable markets that could be more worthwhile in the big picture of the decades ahead. The biotechnology economy is one sector you want to invest in. Synthetic biology is a bit like the EV and Cannabis sectors, it's part of the boom after the pandemic. Except these stocks are well under the radar. Synthetic biology encompasses not just biotech as we think of it but future applications to other industries, some of them quite surprising. Synthetic biology is a field of science that involves redesigning organisms for useful purposes by engineering them to have new abilities. Synthetic biology researchers and companies around the world are harnessing the power of nature to solve problems in medicine, manufacturing and agriculture. Synthetic biology is taking off in large part because of the exponentially falling price of reading and writing DNA...” Read the full article by Michael Spence in Linkedin of 30 November 2020, here... There are many ways to celebrate life The motivation to 'have a merry time' might be lacking as the dust of a dramatic year settles. But at My Pocket Coach we believe in inspiration. We believe in a mindful approach to staying motivated. Celebrate life by delighting in the things that you can control and release that which you cannot. Celebrate by becoming consciously aware of how you approach life. Realistically reflect on your current position and take action to end this year in celebration!
“Malicious WhatsApp hacks are making news again this week, with more users tricked into surrendering their accounts to attackers who then target their contacts with malware and financial scams. WhatsApp is not as secure as you might think—but it does offer safeguards to stop your account being hijacked this way. You need to change your settings, and you should do that today...” Pick up the simple guidelines how to change these 3 settings by Zak Doffman, expert on cybersecurity, in Forbes journal of 29 November 2020, here... Great quotes have an incredible ability to put things in perspective. "Be yourself; everybody else is already taken.” ~ Oscar Wilde |
||||||||||||||||||||||||
2020-11
| In this newsletter: Benchtest 10.2020, pension funds industry in sorry state, the future of stand-alone funds and more... |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Pension fund governance - a toolbox for trustees
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In ‘News from RFS’ -
In ‘News from NAMFISA’ read about:
In ‘Legal snippets’ read -
As always, your comment is welcome, so open a new mail and drop us a note! Regards Tilman Friedrich Monthly Review of Portfolio Performance to 31 October 2020 In September 2020 the average prudential balanced portfolio returned -1.5% (August 2020: 0.9%). Top performer is Old Mutual Pinnacle Profile Growth Fund with -0.3%, while NinetyOne Managed Fund with -2.2% takes the bottom spot. For the 3-month period, NAM Coronation Balanced Plus Fund takes the top spot, outperforming the ‘average’ by roughly 1.8%. On the other end of the scale Allan Gray Balanced Fund underperformed the ‘average’ by 2.2%. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 31 October 2020 provides a full review of portfolio performances and other interesting analyses. Download it here... Offshore diversification – an imperative for pensioners! It’s tough times for any investor, particularly someone planning to retire within the next 5 years or having retired already. Conventional investment wisdom as implicit in the management of investments in prudential balanced portfolios, will find it hard to deliver positive real returns. Many an investor may feel enticed to take bigger risks in their investment decisions and invest more speculatively in the hope of these investments yielding the desired returns. Few will factor in the true risk properly, if at all. In the past, wars proved to provide an escape from a desperate situation. Who is prepared to speculate on a war once again solving our prevailing problems and presenting a global economic and financial reset? Investment managers of these portfolios should rather cast their nets further and find more ‘unconventional’ investment opportunities without venturing into highly risky and speculative investments. This requires some lateral thinking but it offers a significant opportunity to ‘win the race’ if one is first out of the blocks. Read part 6 of the Monthly Review of Portfolio Performance to 31 October 2020 to find out what our investment views are. Download it here... NAMFISA sees pension funds industry in a sorry state!
Undermining the purpose of your own retirement fund? The purpose of a retirement fund is revealed by its name – ‘retirement funding’. Nothing new, I guess, to any reader. But what does retirement funding aim to achieve? Clearly, if I have been living on a remuneration package of say N$ 100,000 per month just before retirement, receiving a pension after retirement of less than N$ 50,000 per month becomes increasingly meaningless, if this is the only source of income I am dependent upon. I will not be able to survive on this unless I drastically reduce my standard of living and that will be very hard for any pensioner to achieve. It will mean poverty in retirement! Ideally one would want to retire without being forced to reduce one’s standard of living, meaning one would want to retire with a pension that is equal to one’s pre-retirement remuneration package. One may argue that one should be able to get along on a lower monthly income as a number of costs will reduce after retirement, such as the cost of housing as the result of the repayment of the housing loan, travelling to and from work, dressing up for work etc. In reality, the cost of living often increases as the retiree spends more on his leisure and, in particular, as the result of medical inflation typically running way ahead of the overall inflation rate. The problem the retiree will face is, that once he reaches retirement, there is nothing he can do to redress an inferior income in retirement. Another problem is that most fund members firstly, do not know whether their retirement provision while in employment is inferior, average or superior and secondly, they typically only develop an interest in the consequence of their level of retirement funding shortly before their retirement. In other words, it is really left to the employer to think further than what his employees tend to think and plan. The employer, who is concerned about the wellbeing of his staff, needs to ascertain that his employees will be able to retire in comfort, having spent their whole working life with the employer. As stated above, this implies that the employee should definitely have an income in retirement that exceeds 50% of his pre-retirement remuneration package and ideally this should be 100%. Globally the aim is to secure an income in retirement of 2% of the pre-retirement remuneration package, per year of service so that 100% would be attained after 50 years of service, 80% after 40 years of service and so on. The reader will have noticed that I keep referring above to ‘remuneration package’ for a specific reason. In the case of most employers, remuneration package is more than ‘pensionable salary’, latter being the basis for determining the rate of retirement funding set by the employer. The relevance is that if the pensionable salary is only 70% of remuneration package, the desired income in retirement of 2% of remuneration package is already diluted to only 1.4% (70% of 2%) of remuneration package and this will thus mean that the retiree has to reduce his standard of living by 30%. Now, this rate of 2% per year of service pre-supposes a total retirement funding rate of 10% of remuneration package and a net investment return of 5% above inflation. As administrator of a number of retirement funds, we are only dealing with ‘pensionable salary’ and do not know what the remuneration package of the fund members is. If one looks at the average pensionable salary, however, one can identify outliers. Our industry data base covers 54 contributory retirement funds. The average annual pensionable salary of the total database was N$ 222,000, the lowest being N$ 28,000 per member (retail business), the highest being N$ 581,000 per member (SOE). In general, the experience is that for members on the lower end of the income spectrum, there is no difference between total remuneration package and pensionable salary as they do not get any benefits. The opposite applies to members on the higher end of the income spectrum. Employers need to be cognisant of the impact of remuneration structuring on the employee’s retirement income so as not to undermine the purpose and the credibility of their retirement fund. Offering a remuneration package to an employee that disappoints at the end of the employee’s working life is tantamount to wasting resources. FIMA bits and bites - fines FIMA defines 4 categories of criminal offences by funds and their officers, in terms of the sanction:
FIMA and the future of stand-alone funds – part 1 To many trustees who have attended the FIMA webinar series during September and October, it will have become evident that the new onerous requirements of the FIMA will present significant challenges to funds and their boards of trustees. As we pointed out in Benchtest 07.2020, pension funds currently under the Pension Funds Act, need to comply with 29 legal and supervisory requirements. Pension fund administrators need not be registered at all and are therefore not subject to any direct compliance requirements. Under the FIMA, pension fund administrators now have to register, will be regulated and are subject to a separate law that was devised for pension fund and certain other administrators and forms part of the barrage of laws incorporated in the FIMA. Between pension funds and pension fund administrators, by our count there are now already over 600 compliance requirements, and this is not the end of it, as a number of standards still need to be issued by NAMFISA. Currently the highest penalty/ fine that can be imposed between our courts and NAMFISA is an amount of N$ 1,000 per day for non-compliance with the investment prescriptions. All other fines and penalties under the current regime, are ‘paltry’ in relation to this fine. Under the current regime the Pension Fund Act only once refers to imprisonment of a maximum of 12 months. Under the FIMA fines and penalties can be as high as N$ 10 million, and 10 years imprisonment, and such sanctions are multitude in each law of the FIMA. Governance of retirement funds under the FIMA will be materially more onerous than it’s been under the Pension Funds Act. Serving as a trustee as a ‘side-line’ over and above occupying a full-time position at the sponsoring employer will become extremely challenging and will present significant risks to such a trustee and to his employer. Typically, employer appointed trustees are senior staff members. If such a trustee is found to have failed in his or her governance duties under FIMA, the array of penalties that can be meted out and include imprisonment, could disqualify such a trustee from serving on the employer’s board of directors or even in another position vested with governance responsibilities. Being a trustee will become a highly paid professional job to be executed on a full-time basis. Due to these challenges, responsibilities and risks, many boards of trustees are starting to interrogate the continued existence of their fund as a stand-alone fund under the FIMA and a number have pre-emptively already decided to move into an umbrella fund to evade the above consequences. The trend of stand-alone funds moving into umbrella funds is unfortunate as there were very good reasons for the reverse trend that occurred in Namibia (and in SA) in the 1980’s and 1990’s. In those days all Namibian funds were participants in one or other insurer’s underwritten umbrella arrangement. Considerations such as transparency, flexibility and control over ‘one’s own destiny’ swayed most employers’ decision to establish their own private fund based on their very specific needs, preferences and requirements. Trustees operating at arms-length and are unrelated to a participating employer cannot possibly address any labour related issues, that may arise out of the employer’s retirement funding arrangement, as effectively as the trustees of the employer’s own stand-alone fund can. Typically, failure to properly address any labour related issue can seriously impact the operations of an employer, as we have witnessed in many instances in the past. Although most umbrella funds nowadays are no longer underwritten funds and can therefor offer a bit more flexibility and transparency, very often costs are hidden in the way investment returns are passed on to members and participating schemes are still coerced, if not required outright, to use the sponsor’s house products and intermediaries and do not offer a participating schemes any control over their own destiny. Declaring our interests in the Benchmark Retirement Fund as RFS’ house product, we can state without fear of contradiction, that this fund offers total transparency to participating schemes, total flexibility in every respect except the administrator and the auditor, and extensive control over one’s own destiny, just short of being held accountable for the fund governance. The fund offers participating schemes the retention of their own identity, as if they were still the stand-alone fund, without the need to establish their own board of trustees and all that goes with it. It’s tough times for any investor! Last month I suggested in this column that this is not the time to increase your investment risk. This statement is immediately vindicated by looking at the 1-month performance of portfolios monitored by us per Graph 1 below. It will be noted that equity (green bar), the highest risk conventional asset class produced a negative 2.2% return for the month. Only portfolios holding no equities or very little in equities (no colour bars) have managed to produce just slightly positive returns while the special mandate portfolios with lower equity exposure (grey bars) in general produced better returns than the typical prudential balanced portfolios (blue bars) with a high equity exposure. Graph 1  Looking at graph 2 below, it will be noted that the SA Allshare index in nominal terms (blue line) turned down since the beginning of 2018 while, adjusted by the change in the CPI index (red line), the peak was reached in April 2015 and since then the line trends downwards noticeably. Graph 2  Drilling down into the main sectors within equity as per graph 3 below, it will be noted that since the beginning of 2020 all sectors, except ‘Technology’, produced zero or negative returns for the year to end September. The stellar performance of technology is to be expected in the light of the COVID pandemic. Graph 3  ‘Turning the clock back’ exactly 12 months though, graph 4 shows that for the year to end September 2019, only one sector, ‘Consumer Goods’, produced a decent return, while the other sectors, such as technology, produced hardly any return or negative returns. Last year September, no-one would have increased his exposure to the technology sector. This experience emphasises the role timing plays and the futility of speculating as one is most likely to miss the bus when making a call. Graph 4  Evidently equity overall, as the mainstay asset class of retirement fund portfolios, failed to produce a positive real return since April 2015. This is clearly a problem for the investor, more specifically for someone trying to build up enough capital to enable his retirement in comfort. One may be forgiven for thinking that perhaps foreign equities may have been the place to be while SA equities are failing us. Looking at graph 5, however, we see that all main foreign share market indices produced zero return, except the US S&P 500 that produced a meagre 5% return for the year to the end of September. Graph 5  To complete the picture, let’s look at graph 6 below. It depicts the cumulative out – or underperformance of the main asset classes in typical retirement fund portfolios relative to the average prudential balance portfolio (yellow line) since 2002. We see that bonds (green line) and cash (red line) initially out-performed equity (blue line) and the average portfolio for about 3 years to 2005. The table then turned in favour of equity against cash and bonds that started to seriously under-perform equity and the average portfolio up until 2008. Interestingly the under-performance of bonds and cash relative to the average portfolio was severe while the out-performance of equity relative to the average portfolio was muted. Since then the performance of all asset classes has been below that of the average portfolio on a cumulative to date basis. However, one can detect a slight improvement of fortunes of cash and bonds relative to the average portfolio while equity, the mainstay asset class, continued to weaken its relative position ever since 2014. Graph 6  While the average prudential balanced portfolio achieved its implicit return objective of inflation plus 5% over a period of 10 years or longer, the return on an investment in that portfolio has fallen significantly short of the long-term return expectation, and the shorter the period the bigger the shortfall. While we have not looked at property, it is common knowledge that property is in the doldrums in Namibia, in South Africa and in many other countries of the world as the result of the knock global economies took from COVID measures. It is also common knowledge that interest rates are negative or zero in many parts of the world, particularly in the developed world. As COVID continues and most countries in the world are severely over-indebted and cannot afford any increase in interest rates, there is simply no silver lining on the horizon for the foreseeable future. Interestingly it was reported in the media recently that US value investment fund AJO Partners is closing down its fund after more than 35 years and is returning US$ 10 billion to its investors. CEO Aronson explained “Our relative performance has suffered because our investment edge, our ‘secret sauce’, is at odds with many forces driving the market.” Conclusion It’s tough times for any investor, particularly someone planning to retire within the next 5 years or having retired already. Conventional investment wisdom as implicit in the management of investments in prudential balanced portfolios, will find it hard to deliver positive real returns. Many an investor may feel enticed to take bigger risks in their investment decisions and invest more speculatively in the hope of these investments yielding the desired returns. Few will factor in the true risk properly, if at all. In the past, wars proved to provide an escape from a desperate situation. Who is prepared to speculate on a war once again solving our prevailing problems and presenting a global economic and financial reset? Investment managers of these portfolios should rather cast their nets further and find more ‘unconventional’ investment opportunities without venturing into highly risky and speculative investments. This requires some lateral thinking but it offers a significant opportunity to ‘win the race’ if one is first out of the blocks. In this endeavour, the investment manager must bring the investment closer to the investor. Do I need any return on investment, as commonly understood, if my money can be invested to build my foundation off which I can generate an income at some time in future? If my investment earns no return, investments with a social and/ or environmental objective should find it much easier to compete with conventional investments. I do have some thoughts in this regard that may be worth being explored further by investment managers. Anyone interested to venture onto this road with us is welcome to contact us.
Compliment from a spouse of a deceased fund member Dated 13 November 2019 “I would like to express my utmost gratitude towards RETIREMENT FUND SOLUTIONS and Ms J for being with me since my husband passed away. Thank you for your compassion and dedication and tireless effort to process this claim for my son and me. May the Almighty bless you.” Read more comments from our clients, here... Status of ITAS project RFS concluded the project of correcting the category for uploading pension payments and once again uploading all monthly returns for the period 1 March 2019 to 29 February 2020 on ITAS in respect of all funds it administers. Taxpayers should not experience any trouble submitting their return for the year ended 29 February 2020 and there should be no ITAS queries relating to information we have uploaded on ITAS for the past tax year. Long service awards complement our business philosophy RFS philosophy is that our business is primarily about people and only secondarily about technology. Every time a fund changes its administrator, a substantial amount of information and knowledge is lost. Similarly, every time the administrator loses a staff member, it loses information and knowledge, also referred to as corporate memory. We know that, as a small Namibia based organisation, we cannot compete with large multinationals technology wise because of the economies of scale that global IT systems offer. To differentiate us we need to focus on personal service and on the persons delivering that service to foster customer acceptance and service satisfaction. With this philosophy we have been successful in the market, and to support this philosophy we place great emphasis on staff retention and long service. The following staff member celebrated her work anniversary of 5 years at RFS, having previously been employed for close-on 9 years! We express our sincere gratitude for her loyalty and support over the past 14 years to:
Important administrative circulars issued by RFS RFS issued the following fund administration related circular to its clients over the last month. Should any client have missed this circular, please get in touch with your client manager:
Industry meeting set for 26 November NAMFISA recently sent out an invite to trustees, principal officers and other officers of pension funds to the last industry meeting this year. The meeting will be held on 26 November at NIPAM conference hall, ground floor starting 8h30 until 10h30. All are invited to submit annotated agenda items to Ms Martha Mavulu, This email address is being protected from spambots. You need JavaScript enabled to view it. NAMFISA raises red flags about non-compliance amongst pension funds This is according to an alarmist report in The Namibian of 9 November on the 2020 NAMFISA annual report. The message in this report may have come across as rather disturbing to many readers. The most problematic findings were with pension funds, which are trusted with managing and growing people's retirement money.” The following are some of the areas of non-compliance highlighted with regard to pension funds:
What makes a valid will? Any person aged 16 and older can make a will. For the will to be valid it needs to meet the following conditions:
Ensuring an equitable distribution of lump sum death benefits Retirement fund trusteees have a duty in terms of section 37C of the Pension Funds Act, to distribute a deceased member’s death benefit equitably among beneficiaries which have been identified. To do this, trustees need to consider a number of relevant factors:
Read the full article in Pensions World for a more detailed exposition…
These questions are expertly answered by Richus Nel in this Moneyweb article of 10 November 2020 here… Investment lessons from a terrible, horrible, no good, very bad year “…2020 has reset the bar, with the world hammered by a deadly pandemic, communities ripped by police brutality, plunging global growth, the loss of hundreds of millions of jobs, protests and corporate collapses. However, this year has not been awful by all measures. The S&P 500 is 5% higher in November than it was in January and the gold price is up almost $500/oz, making for a bonanza for gold miners... Others have experienced the full force of the annus horribilis, with the magnitude of bankruptcies ranked by assets in 2020 towering over 2008. Collapsed companies include car-rental company Hertz …But overall, the signs point to recovery, and with this in the frame, the experiences of the annus horribilis offer at least three valuable investment lessons for building future-proof portfolios:
Structured investments let you grow your money with certainty “In times like these, many investors turn to the perceived safety of cash – missing out on growth opportunities in the process. Structured investments, on the other hand, provide access to growth assets to help beat inflation while still giving investors the comfort of knowing that their initial investment amount is safe… Typical features of structured investments:
Great quotes have an incredible ability to put things in perspective. "Our greatest glory is not in never falling, but in rising every time we fall.” ~ Confucius |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2020-10
| In this newsletter: Benchtest 09.2020, COVID to save the world, circumventing Reg. 13 and more... |
||||||||
|
Pension fund governance - a toolbox for trustees
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In Kai Friedrich’s administration forum read about:
In 'On fund governance' –
In ‘News from RFS’ -
In news from the market place read about –
In ‘News from NAMFISA’ read about:
In ‘Legal snippets’ read -
As always, your comment is welcome, so open a new mail and drop us a note! Regards Tilman Friedrich Monthly Review of Portfolio Performance to 31 September 2020 In September 2020 the average prudential balanced portfolio returned -1.5% (August 2020: 0.9%). Top performer is Old Mutual Pinnacle Profile Growth Fund with -0.3%, while NinetyOne Managed Fund with -2.2% takes the bottom spot. For the 3-month period, NAM Coronation Balanced Plus Fund takes the top spot, outperforming the ‘average’ by roughly 1.8%. On the other end of the scale Allan Gray Balanced Fund underperformed the ‘average’ by 2.2%. Note that these returns are before (gross of) asset management fees. Take note that we have added a new graph 3.5.3 which reflects the returns of low risk special mandate funds, being the Capricorn Stable Fund, the Sanlam Absolute Return Fund and the Sanlam Active Plus Fund. The Monthly Review of Portfolio Performance to 30 September 2020 provides a full review of portfolio performances and other interesting analyses. Download it here... It’s tough times for any investor! It’s tough times for any investor, particularly someone planning to retire within the next 5 years or having retired already. Conventional investment wisdom as implicit in the management of investments in prudential balanced portfolios, will find it hard to deliver positive real returns. Many an investor may feel enticed to take bigger risks in their investment decisions and invest more speculatively in the hope of these investments yielding the desired returns. Few will factor in the true risk properly, if at all. In the past, wars proved to provide an escape from a desperate situation. Who is prepared to speculate on a war once again solving our prevailing problems and presenting a global economic and financial reset? Investment managers of these portfolios should rather cast their nets further and find more ‘unconventional’ investment opportunities without venturing into highly risky and speculative investments. This requires some lateral thinking but it offers a significant opportunity to ‘win the race’ if one is first out of the blocks. Read part 6 of the Monthly Review of Portfolio Performance to 30 September 2020 to find out what our investment views are. Download it here... FIMA bits and bites
Last but not least, as a pensioner, you will lose confidence in taking your own decisions as you grow older. In a retail product you will then increase your dependence on your broker ever more, while many institutional products offer default options that the managers manage in the best interests of the member/ pensioner and that can relieve the member/ pensioner of the responsibility to take decisions when he no longer has the confidence or knowledge to do so. As a pensioner you must ascertain that you are at peace with the party/ies in whose custody your retirement capital is. You cannot afford and do not want to lose sleep over this.
 New CoA guidelines issued by NAMFISA NAMFISA has provided some clarity around classification of investments in accordance with Regulation 13. It also provided clarity on some line items on the Balance Sheet and Income Statement. In addition, NAMFISA has introduced a few new validation rules in the CoA return, which will prevent the user from submitting the return if the validations are not true:
Take the simple example of Asset Manager A that only allocates interest earned on their investment statements on the first day of the next month. RFS as administrators accrues for the interest in the current month, where it was earned. The investment consultant however receives the investment information directly from the Asset Manager A, which excludes such interest for the month. Accordingly, the investment information inserted by the investment consultant will differ from the amount recorded in the fund’s Trial Balance and accordingly the Balance Sheet will not balance. Principal Officers and fund service providers need to work together closely to ensure that all these potential problems are identified upfront and resolved amicable to ensure that the return can be submitted timeously.
 Successful FIMA webinar series concluded The last 2-hour webinar of a series of 6 was presented to participants on 13 October. Enrolment exceeded all expectations which indicates that stakeholders are now starting to realise that FIMA will soon be upon us and that one needs to know what is coming. Once FIMA is in place it will be much harder to make changes to funds and their structures but there is still a window of opportunity right now. On average over 100 individuals participated in these 6 webinars. Insightful feedback was obtained from 37 participants upon conclusion of these webinars that overwhelmingly rated the feedback questions on the webinars either 4 (= good) or 5 (= excellent) out of 5. Only 3 out of 148 ratings were a 3 (= satisfactory). From this one can only reach one conclusion and that is participants were overwhelmingly impressed by these webinars. The organisation of the webinars, their content and the presenter were of high standard. The feedback from an official gives testimony to the general assessment of participants where it states: “…I just thought I would then by e-mail thank all involved in bringing this webinar to the Namibian pension funds industry. It was a good effort and well executed. The expertise of the presenter shone through. It was a very valuable experience for the team to experience first-hand how the Bill is perceived and understood. Once again thank you and well done.” …and just to make the point that the successful execution of such occasion is not ‘a piece of cake’ as the saying goes. Here is feedback on a conference recently held in SA “…I was kicked out at 11 am, in spite of phoning FPI Office and put through to someone, I am still locked out. The entire system seems to have crashed. Kind Regards…” Will provident funds survive the FIMA Current situation under the Pension Fund Act The Pension Funds Act does not include a definition of ‘provident fund’. The Pension Funds Act defines a ‘pension fund organisation’ as any association of persons established with the object of providing annuities or lump sum payments for members or former members of such association upon their reaching retirement dates, or for the dependants of such members or former members upon the death of such members or former members. A provident fund is however defined in the Income Tax Act, which states that a provident fund means any fund (other than a pension fund, benefit fund or retirement annuity fund as defined in the Income Tax Act) which is approved by the Minister in respect of the year of assessment in question. The Income Tax Act then further stipulates how the benefits under a provident fund should be taxed, which will not be further elaborated on in this document since this would be the same under the Pension Funds Act and the FIM Bill. Provident funds under the FIM Bill A provident fund is specifically included in the definition of ‘fund’ in the FIM Bill: ‘Fund’ is defined in section 249 of the Bill as ‘a retirement fund or a beneficiary fund, and includes any other fund or class of funds prescribed by regulation’. Regulation RF.R.5.1 ‘Funds and classes of funds for inclusion in the definition of “fund” in section 249’ stipulates in section 2: The following funds and classes of funds shall be included in the definition of “fund” in section 249 of the Act- (a) pension funds; (b) preservation funds; (c) provident funds; and (d) retirement annuity funds. Section 1(3) of Regulation RF.R.5.1 states that a provident fund has the meaning ascribed thereto by the Income Tax Act, 1981 (Act No. 24 of 1981)’. The FIM Bill allows payment of lump sums on retirement Existing provident funds will be registered under FIMA as defined contribution retirement funds. The definition of defined contribution fund in section 249(b) of the FIM Bill states that ‘any benefit payable on retirement must be fully secured through an annuity policy owned by the fund or purchased in the name of the member or paid to the member in accordance with such other form of payment that is permitted under the standards’; RF.S.5.11 ‘Alternative forms for the payment of pensions of defined contribution funds’ in section 2 (d) states that ‘this standard applies to the balance of a member’s individual account or retirement income account that is available for conversion into a retirement income after the payment of such portion thereof as a lump sum, provided that such amount as may have been paid as a lump sum was paid according to the rules of the defined contribution fund and, further, subject to the payment of such lump sum being limited to any maximum amounts specified in any applicable legislation, regulation or subordinate legislation’. Therefore section 2 (d) does allow the payment of lump sums. This is provided that the rules of the fund allow it. Other applicable legislation such as the Income Tax Act did not change. At a meeting with NAMFISA on 16 July 2020, NAMFISA confirmed that no changes are envisaged to the status quo of provident funds currently. Compulsory preservation is introduced via Regulation RF.R.5.10, but this applies up to date of retirement and does not affect the payment of lumpsums of provident funds at retirement. As per NAMFISA, at retirement, under the FIM Bill and current other applicable legislation (e.g. Income Tax Act), provident funds can pay out 100% lumpsum on retirement. It therefore does not seem that NAMFISA has any intention to remove provident funds (but they mentioned that they cannot say how the Minister views this who can also manage this via the ITA). Conclusion A provident fund can offer the same benefits and payment of benefits under the FIM Bill compared with the Pension Funds Act provided that the benefits and payment of benefits are set out in the rules of the fund and provided that there are no changes affecting benefits and payment of benefits in other applicable legislation such as the Income Tax Act.
Compliment from an HR officer of a Benchmark client Dated 19 December 2019 “Môre G en J Van my kant af net 'n groot dankie vir die jaar se saamwerk, dit was 'n plesier om sulke diens en standaarde te sien.” Read more comments from our clients, here... Status of ITAS project RFS concluded the project of uploading all monthly returns for the period 1 March 2019 to 29 February 2020 on ITAS in respect of all funds it administers. Unfortunately, after we uploaded all tax files it was revealed that Inland Revenue will question the allocation of pensions received under ‘income from employment’. This is the section in the ITAS upload file that provides for pensions paid. It was now revealed though that it should be reflected under ‘annuities’ in the upload file as the pensions end up as ‘income from employment’. This miscommunication means that ITAS has to delete all files we have uploaded already and that we will have to upload all files once again. While the deletion and uploading will happen in the background between Inland Revenue and RFS, taxpayers should not be affected and should be able to submit their returns for the 2020 year of assessment. After submission of the return during the time of deleting all files and RFS uploading them again, taxpayers may get a notification that their return is incomplete, until RFS has uploaded its files again. We envisage that this process should be complete within a week of Inland Revenue having deleted all files. The period during which such messages may be generated should thus not be for much longer than a week. Long service awards complement our business philosophy RFS philosophy is that our business is primarily about people and only secondarily about technology. Every time a fund changes its administrator, a substantial amount of information and knowledge is lost. Similarly, every time the administrator loses a staff member, it loses information and knowledge, also referred to as corporate memory. We know that, as a small Namibia based organisation, we cannot compete with large multinationals technology wise because of the economies of scale that global IT systems offer. To differentiate us we need to focus on personal service and on the persons delivering that service to foster customer acceptance and service satisfaction. With this philosophy we have been successful in the market, and to support this philosophy we place great emphasis on staff retention and long service. The following staff member celebrated her 20-year work anniversary at RFS! We express our sincere gratitude for her loyalty and support over the past 20 years to:
 Old Mutual acquires PwC Research Services (Pty) Ltd Old Mutual Life Assurance Company (South Africa) Ltd announced on 13 October that it had acquired PwC Research Services (Pty) Ltd. The more familiar name to many employers of this PwC enterprise will probably be its Remchannel remuneration survey and the company is due to be renamed Remchannel (Pty) Ltd under the Old Mutual auspices. In the announcement, Old Mutual assures clients of Remchannel that strict data privacy will be observed. Download the announcement here… !Kharos Benefit Solutions welcomes new payroll client !Kharos Benefit Solutions welcomes Aucor as new payroll client with effect from 1 October. !Kharos Benefit Solutions (Pty) Ltd is a joint venture between Logos Holdings (Pty) Ltd and Retirement Fund Solutions Namibia (Pty) Ltd. The company offers payroll and HR administration solutions. !Kharos brought ‘Symplexity’, a web- and cloud-based payroll and HR management and administration platform to Namibia. If you are interested to hear more about the service offering of !Kharos Benefit Solutions, please contact Harold Mbuende at 061 -446 024 or send a mail to This email address is being protected from spambots. You need JavaScript enabled to view it.. New COA guidelines NAMFISA recently issues a new COA guidelines with validation rules that were incorporated since the previous version. These guidelines downloaded here… Reporting of late payment and non-payment of contributions In accordance with the directive PI/PF/DIR/02/2014 issued by the Registrar, Principal Officers are required to submit information as pertains to the non-payment or late payment of pension contributions in contravention of section 13A of the Pension Funds Act to the Registrar within 1 month, from the date of contravention. In order to ensure consistent, adequate and efficient transmission of S13A data, the Registrar has created a standardized form to be utilized by Funds (who are reporting non-compliance) when submitting the said information. The said report should be made via ERS by completing the form below, within 1 month from the date of contravention of the section 13A. (a) CoA: PF Section 13 A
Can Inland Revenue recover outstanding tax debts from your bank account?
The adjudicator elaborated that while BM was successfully convicted by a criminal court it must be determined whether or not his conviction amounted to a judgment as envisaged in section 37D(1)(b)(ii). The criminal conviction, which was based on the requirements of criminal law did not amount to a judgment in respect of compensation. Section 37D(1)(b)(ii) requires a judgment that, firstly determines liability, and secondly, determines the monetary value of the liability. A criminal conviction without compensatory order does not amount to a judgment as envisaged in section 37D(1)(b)(ii), despite the fact that extensive investigation may have been carried out that may have lead to the court accepting the accusations against a person, such conviction only finds the person concerned guilty as charged. It does not say whether the person is liable to compensate the employer and if so how much he is liable to pay. Only where a compensatory order was sought and granted in terms of the Criminal Procedures Act, would the employee become liabile to compensate the employer. Only in such instance may the fund deduct the amount of the liability towards the employer from the persons pension fund withdrawal benefit.
Although this article is referring to retirement in the US, it does contain universal retirement wisdom that should be heeded by anyone about to retire. Read the full article by Michelle Fox in CNBC of 28 September here... One rare leadership trait for success “Warren Buffett says success will come after you learn this 1 rare leadership trait. To entrepreneurs and working professionals everywhere, this may be your secret weapon. …One of his best pieces of advice is rather counterintuitive. It relies on Father Time as the "friend of the wonderful business." Plainly stated, it is having the faith to believe that good things will happen to those who wait. Here's Buffett: “No matter how great the talent or efforts, some things just take time. You can't produce a baby in one month by getting nine women pregnant….” To entrepreneurs getting a business off the ground, instant gratification is a mere pipe dream. That speaks to Buffett's point; he's a firm believer in the important lesson of thinking long term. The long and hard journey and trials of 14-hour days and sleepless nights will eventually yield results and pave the way to success, making the journey that much sweeter. The operative word to make that happen boils down to one rare trait: patience. Other research also found that patient people tend to experience less depression and fewer negative emotions and can cope better with stressful situations. Additionally, they feel more gratitude, more connection to others, and experience a greater sense of abundance. That goes a long way when you're building a business….” Read the full article by Marcel Schwantes in Inc.com of 15 October 2020 here… Incarceration is not an excuse for not timeously dealing with tax matters “The court judgment in the case of Joseph Nyalunga versus Sars (South African Revenue Service) had to consider whether being in jail is a good enough excuse for someone not to have fulfilled their tax obligations, such as objecting to an assessment or furnishing Sars with information. On the other hand, it raises the problem that those with access to funds, even criminals, can delay justice for a very long time… In 2013, while Nyalunga was incarcerated, Sars sent him an ‘intention to audit letter’ regarding “possible under-declaration of taxable income”. Later that year, Sars issued an ‘audit findings letter’. Nyalunga was provided with the opportunity to provide further information. Nyalunga did not respond, and Sars issued the ‘finalisation of audit letter’. Nyalunga responded to that, informing Sars that he was still in prison and couldn’t provide any documents. The assessment Sars raised an assessment in late 2013 for the years 2006 to 2013, and Nyalunga was given 30 days from the date of his release (April 8, 2014) to object to the assessment. Briefly, Sars obtained a tax judgment in the amount of R15.2 million on June 23, 2014. During 2016, the sheriff unsuccessfully attempted to execute the warrant against Nyalunga. In 2018 the sheriff managed to attach goods, and Nyalunga then brought an urgent court action… Nyalunga said he could not participate as a normal taxpayer as he was incarcerated, also arguing that Sars’s procedures and processes were unfair. The court found that incarceration is not a good enough reason for the delay in Nyalunga’s review application, and that it would not be in the interests of justice to overlook the delay… The applicant was required by the Tax Administration Act to first exhaust all internal processes before he made the application to review. The applicant did not raise any objection to the assessment. The court found that on the basis that Nyalunga had not submitted any tax returns, and that he had failed to raise an objection to the estimated assessments raised by Sars, and that three years had lapsed since the assessment (in fact, four years), the assessment has prescribed. The review application failed and the assessment stands…” Read the full article by Barbara Curson in Moneyweb Select of 6 October 2020, here… Great quotes have an incredible ability to put things in perspective. "He who has a why to live for can bear almost any how.” ~ Friedrich Nietzsche |
||||||||
2020-09
| In this newsletter: Benchtest 08.2020, Digital Webinars on FIMA, Digital Benchmark AGM and more... |
||||||||
|
Based on a meeting that the ICAN Tax Committee had with the IRD in the middle of September, ICAN recently circulated the following updates:
Pension fund governance - a toolbox for trustees
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In ‘Tilman Friedrich’s industry forum’ we present:
In our column 'On fund governance' we present:
In ‘News from RFS’:
In news from the market place read about:
In ‘Legal snippets’ read
As always, your comment is welcome, so open a new mail and drop us a note! Regards Tilman Friedrich Monthly Review of Portfolio Performance to 31 August 2020 In August 2020 the average prudential balanced portfolio returned 0.9% (July 2020: 1.7%). Top performer is Stanlib Managed Fund with 2.1%, while Allan Gray Balanced Fund with 0.1% takes the bottom spot. For the 3-month period, NAM Coronation Balanced Plus Fund takes the top spot, outperforming the ‘average’ by roughly 2.2%. On the other end of the scale Allan Gray Balanced Fund underperformed the ‘average’ by 2.7%. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 31 August 2020 provides a full review of portfolio performances and other interesting analyses. Download it here... Pensioners beware - this is not the time to raise your investment risk! ...When one has been used to the longer-term achievements of the prudential balanced portfolio managers, one can understand that pension fund members and pensioners will be disappointed with the shorter term returns their pension investment will have produced. Tragically, shrewd brokers out in the market have seen this state of affairs as an opportunity to discredit proven prudential balanced portfolios and to coerce pensioners to transfer their retirement capital into high risk portfolios, using shorter-term investment returns some of these managed to produce, as the result of the distortions that occurred in the markets since the global financial crisis... I strongly advise pensioners, in particular, to be cognisant of the following before taking a decision concerning the investment of their retirement capital:
Read part 6 of the Monthly Review of Portfolio Performance to 31 July 2020 to find out what our investment views are. Download it here... COVID 19 still has us in its grips!
 FIMA webinar series off to a successful start The webinar training series hosted by RFS in collaboration with Mrs Andreen Moncur (BA Law) series over a period of 6 weeks, kicked off to a successful start on 8 September and will last until 13 October. The webinars are conducted every Tuesday from 14h30 to 16h00. These virtual sessions are covering the standards and regulations, governance, outsourcing, benefit structures, employer liability and cost implications, amongst others. Participants should understand what is needed for retirement funds to be open for business under the FIM Act. Comments from the presenter after the first webinar “Dear Marthinuz, Thanks so much! I really appreciate your support. To the amazing, talented, passionate RFS team, a huge thumbs up and thank you from the bottom of my heart! This was truly a team effort and I am so proud to be associated with the brightest and best in Namibia.”
Compliment from a former fund member Dated 18 September 2020 “Super!!!! As I said, I could poach you to work for us only one thing – your excellent service!!! Please tell your managers that they are very lucky to have you!!! Thanks once again!” Read more comments from our clients, here...  One benefit of investing via Benchmark rather than a ‘platform’ When you consider whether to invest in a retirement product via one of the investment platforms typically offered by insurance companies or in the Benchmark Retirement Fund, take note that the Benchmark Retirement Fund passes on the institutional investment management fees that it pays to its investment managers whereas you would bear retail asset management fees if you invest via a platform. The trustees of the Benchmark Retirement Fund took a decision to move the assets in the Allan Gray unit trust to a segregated portfolio with Allan Gray. This transfer was effected at the beginning of quarter 3 of 2017. The fund now attracts a substantially lower investment management fee in the segregated portfolio of approximately 0.6% compared to the institutional fee of 0.75% that applies to the Allan Gray unit trust. This fee differential of 0.15% p.a. improves the capital that will have accumulated over a contribution period of 40 years by 4% - nothing to be ‘sneezed at’! As an investor via a platform, the retail fee Allan Gray charges is 1.1% as opposed to the 0.6% borne by the Benchmark Retirement Fund. This fee differential of 0.5% p.a. now improves the capital that will have accumulated over a contribution period of 40 years by 15%! First virtual annual member meeting held Due to COVID, the Benchmark Retirement Fund held its first virtual annual member meeting via live stream on 10 September. Whereas past face-to-face member meeting that were held in Windhoek, usually reached only up to 90 people, around 160 people were reached through this live stream event. Presenters were from as far away as France, Cape Town, Johannesburg and Windhoek. While there are limitations with virtual events there are also huge opportunities to reach many more members (also members outside of Windhoek), while at the same time being able to access good speakers from all over the world at relatively low costs.
If you would like to drop us a note about how you experienced this event, please send it to This email address is being protected from spambots. You need JavaScript enabled to view it.. We are very keen to hear from you! Feedback from annual member meeting participant “Well done everyone! A huge shout out and thumbs up to the Benchmark Board and the RFS staff on a fantastic effort at the AGM today. So proud to be associated with this winning team. You guys are the undisputed market leaders in all areas!”
Important administrative circulars issued by RFS RFS issued the following fund administration related circular to its clients over the last month. Should any client have missed this circular, please get in touch with your client manager:
Sanlam offers conversion of cover to any group scheme member Sanlam Namibia Ltd is offering a conversion option to all group scheme employees of all employers in Namibia. This offering will allow all group scheme members to convert to a Sanlam Namibia individual life policy upon termination of employment with the particular employer, even if their group scheme is not with Sanlam and/ or does not have the conversion option. This offer will initially run for a period of 3 months starting 1 September 2020 and ending 30 November 2020 and is subject to certain terms and conditions. For further information about this offer, click here... The declaration of health Sanlam requires from a person wishing to take up this offer can be downloaded here... Private Sector Development Survey 2019/ 2010 – results released MIT and GIZ decided to conduct the Private Sector Development Survey 2019/20 to gauge business sentiments across a wide range of topics. The survey was conducted between 16 January 2020 and first week of March 2020, and hence before the State of Emergency was declared in Namibia. A total of 920 businesses were selected randomly from a database of more than 3,900 companies. The sample as slightly adjusted to ensure that regions and sectors are fairly represented. The online survey was supported by telephonic interviews in order to achieve sufficient responses. A total of 383 responses are included in the analysis, but the analysis could not include all regions and sectors due to low response rates. Responding businesses were grouped into micro, small, medium and large enterprises based on the definition provided in MIT’s SME Policy. The full report can be requested from This email address is being protected from spambots. You need JavaScript enabled to view it. Annual financial statements and actuarial reports to be submitted electronically NAMFISA recently advised that, presumably with immediate effect, - “As communicated at the last industry meeting held on 29 July 2020, the submission of Annual Financial Statements (AFS) and Actuarial Valuation Reports (ARV) should be made via ERS by completing the forms below.
Industry meeting of 16 September postponed NAMFISA on 10 September advised as follows: “Kindly be informed that the industry meeting which was scheduled for 16 September 2020 has been postponed to the fourth quarter, which will be held on 25 November 2020, as no substantial or pressing matters have been identified for discussion at this meeting. However, should any industry player have a pressing matter for discussion, kindly submit via email to Mrs. Martha Mavulu at This email address is being protected from spambots. You need JavaScript enabled to view it., we will consider and advise on the way forward. We will highly appreciate your submissions before close of business on Monday, 14 September 2020.”
Credit Agreements Act amended
If you are interested in what this entails and would like to study the summary of the draft bill, click here...
Tshombe found that Venter failed to act honestly, fairly, with due skill, care and diligence; contravened the general code of conduct for financial services providers; and failed to act in the interests of his client... Why banks want a return to offices JPMorgan Chase's decision to call traders back to its New York-area offices has a backstory, per Bloomberg: declining productivity among workers at home. Since the pandemic forced companies to temporarily close their offices, output has suffered at the biggest U.S. bank — especially on Mondays and Fridays, a KBW analyst said following an interview with CEO Jamie Dimon. The analyst said that the dip, along with a loss of "creative combustion" found onsite, was hurting young employees in particular. Less than a week after its workers returned to the office, JPMorgan sent some Manhattan employees home after one tested positive for COVID-19, reported Bloomberg. 3 tips to manage your money and stay sane during the pandemic “Staying on top of your finances and credit can be stressful as is, but when you add a global pandemic and an economic recession to the mix you may find yourself feeling particularly weighed down... The pandemic] raises a lot of difficult questions about how to manage our money, what’s the best use of it,” Nicole Iacovoni, a Pennsylvania-based financial therapist, tells CNBC Select. “Everything is so unpredictable; we no longer have that job security and guaranteed, stable income. It’s certainly making people question, ‘How can I be prepared to weather a financial storm?.. We asked Iacovoni her advice on how people can stay on track of their finances while also having peace of mind. Here are her three tips.
Retirement: To those still in employment
Let's plan today! Author unknown. Great quotes have an incredible ability to put things in perspective. "I have been impressed with the urgency of doing. Knowing is not enough; we must apply. Being willing is not enough; we must do.” ~ Leonardo da Vinci |
||||||||
2020-08
| In this newsletter: Benchtest 07.2020, RFS celebrates, penalties and fines under FIM Act and more... |
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
RFS in collaboration with Mrs Andreen Moncur (BA Law) will be hosting a webinar training series over a period of 6 weeks, commencing 8 September until 13 October. The webinars will be conducted every Tuesday from 14h30 to 16h00. These virtual sessions will cover the standards and regulations, governance, outsourcing, benefit structures, employer liability and cost implications, amongst others. You will understand what is needed for retirement funds to be open for business under the FIM Act. Find more information and the registration link here... The training is aimed at trustees and principal officers, sponsoring employers (non-fund management who are interested or interact with the fund administrators), brokers, consultants, academics, NAMFISA, GIPF, industry bodies and government. Andreen is veteran pensions lawyer with over 30 years’ experience in employee benefits law in South Africa and Namibia, having lived in Namibia for a number of years and still rendering services to Namibian funds and their service providers. She has a proven track record in the financial services sector, as a legal and communications consultant and trustee. Andreen is uniquely qualified to assist all stakeholders in navigating the long-awaited Financial Institutions and Markets Act. If you have not yet registered, you are welcome to contact Leande de Bruyn for further information using This email address is being protected from spambots. You need JavaScript enabled to view it.. Registrations close on 4 September 2020. VAT refunds and ITAS issues ICAN and NIPA addressed two letters to the Acting Commissioner of Inland Revenue dealing with challenges taxpayers are experiencing with VAT refunds and with the ITAS system insinuating that the extended due date for submission of 2020 income tax returns of 30 September may no be reasonable given the challenges being experienced. If you are interested in reading these letters click
Pension fund governance - a toolbox for trustees
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In ‘Tilman Friedrich’s industry forum’ we present:
In ‘Legal snippets’ read about pension fund rules and the Income Tax Act. ...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  RFS celebrates! On 19 August 2020, Retirement Fund Solutions (RFS) Namibia turned 21 years, the day the company was incorporated and opened for business.
Those of you who managed to join us for the company’s 20th anniversary which we celebrated at the Windhoek Golf and Country Club on 3rd October 2019, may still hold some fond memories of the event. The 20th anniversary event was dedicated to all our clients, with special mention of our early clients who joined us in the first make or break 24-month period. We also dedicated the anniversary to the founders of Retirement Fund Solutions, especially our Board Chairperson Tilman Friedrich, whom I had the great privilege of succeeding as the company’s Managing Director, 2 years ago. Today, Tilman as founder, together with the company’s first employee, Charlotte Drayer, both celebrate 21 years together with the company. I congratulate them and pay homage to their outstanding dedication and commitment to Retirement Fund Solutions! On the occasion of the company’s 21st anniversary, I recall some of the salient promises of the company in the early days, amongst these:
Today, as ever before we cherish and continue to promote these business philosophies of the first days that delivered the success that RFS has experienced over the past 21 years!
Monthly Review of Portfolio Performance to 31 July 2020 In July 2020 the average prudential balanced portfolio returned 1.7% (June 2020: 2.3%). Top performer is NAM Coronation Balanced Plus Fund with 2.5%, while Allan Gray Balanced Fund with 0.1% takes the bottom spot. For the 3-month period, NAM Coronation Balanced Plus Fund takes the top spot, outperforming the ‘average’ by roughly 2.2%. On the other end of the scale Allan Gray Balanced Fund underperformed the ‘average’ by 3.1%. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 31 July 2020 provides a full review of portfolio performances and other interesting analyses. Download it here... When can we expect to see double digit returns again? In this newsletter, we present two articles that effectively address the same subject. Firstly ‘Governments must beware of the lure of free money’ that appeared in the Economist of 23 July wherein it is pointed out that we are currently dealing with a profound shift in economics as the result of policy decisions taken by governments across the developed world in response to the COVID pandemic. It talks of 4 defining features of the ‘new epoch’ induced by COVID. Firstly, the extent of government borrowing, secondly, the extent of money printing by central banks, thirdly the governments’ increasing roles as capital allocators in their economies and fourthly, a persistently low inflation rate. These ‘epochal features’ lay the foundation for how economies and consequently the financial markets will evolve for many years to come. The second article ‘Portfolios need to be more active and flexible to ensure returns’, international asset manager Schroders believes that both, equity and bond returns, are likely to be lower in the future than during the past 10 years. Equities are facing economic headwinds and record valuations, while interest rates are at record lows and likely to remain low for years, affecting both the income and price appreciation potential for bonds... Read part 6 of the Monthly Review of Portfolio Performance to 31 July 2020 to find out what our investment views are. Download it here... Assessing the impact of penalties and fines under the FIM Act How do you benchmark the cost of fund administration?
Should you now buy, sell or stay put? ‘Factset’ journal recently published some rather disturbing statistics on the S&P 500 share index as depicted in graph 1 below. It shows record high cuts to earnings per share estimates for the second quarter of 2020. The Q2 bottom-up EPS estimate (which is an aggregation of the median Q2 EPS estimates for all the companies in the index) declined by 37.0% (to $23.25 from $36.93) during this period. This is the largest decline since a 34.3% decline which occurred in quarter 4 of 2008, when the global financial crisis struck global economies. This is evidently the result of COVID-19 and the lockdown imposed on the US economy. Graph 1  S&P 500 Change in Bottom Up EPS What is further worrying is the fact that the S&P 500 index continued to increase despite the collapse in earnings estimates for this index as depicted in graph 2. Where the S&P 500 index represented about 68 times earnings per share estimates at the end of March, this multiple has now doubled to 136 times at the end of June. Graph 2  S&P 500 Change in Q220 EPS vs change in price In the July 2020 column in this newsletter, we pointed out that the 4 largest reserve banks globally have grown their balance sheets by 300% from US$ 6 trn to US$ 21 trn after the global financial crisis in 2007/ 2008 in order to prop up the economy and that between the Federal Reserve and the ECB alone, their balance sheets are set to increase by yet another roughly US$ 3 trn in response to the COVID-19 crisis this year. What these measures seem to have achieved is to prop up investor sentiment while they do not seem to have impacted company profits so far. Although the market stress that was experienced in February and March has largely dissipated, it has not disappeared though, as the trajectory of COVID-19 and its economic consequences are still largely unknown. Volatility will persist and stresses will re-appear and will lead to market corrections. In these circumstances, the investor is faced with three alternatives:
If selling out of the market is risky, how would one describe the opposite - buying into the depressed market? After all, isn’t this the all too popular notion of buying low? While this is true, the decision should be based on the risk profile and the change in risk profile that occurs as a result of the decline in market values. It is also important to note that the huge decline in market prices comes with a huge increase in market volatility. The huge drop in the FTSE/JSE All Share Index also saw a huge increase in the SA volatility. The SA volatility index was at one of its the highest points, only second to its previous 2008 peak. Understanding the inherent market risk at a time when prices appear very cheap, is very important when making the decision to buy into the market. If risk capacity is significantly above neutral, it means one is not reliant on one’s investments to fund one’s lifestyle. A significant market decline means investible assets are now an even smaller component of total net wealth. This means the investor can afford to take more risk with those investible assets. It is important however to take cognisance of the extreme amount of risk inherent in the market at such points and the possibility of further massive declines in market values as well as the possibility of a drawn-out recovery. It is impossible to predict exactly at which level the market will bottom out, it is also impossible to forecast the length of time for recovery. Ultimately, it is the risk capacity that will determine whether an investor should buy into the market to take advantage of depressed prices. If the investor chooses to do nothing, paper losses are not converted to realised losses. There is no point getting out of the market now when prices have declined heavily. If one gets out hoping to buy in at a lower price, one won’t. One will most likely wait for the new bull market to be confirmed and surpass the price at which one sold! If an investor holds an adequately diversified portfolio, it is possible to weather the storm without selling out of the market to meet expenses. The investor will also not miss the recoveries that eventually follow huge market declines. Doing nothing also means the investor is not taking on extremely high risks to benefit from highly depressed prices. For most investors doing nothing is the most prudent strategy. It is also the approach with the least risk. Conclusion Equity markets and other asset classes are evidently once again in a bubble as the result of the global flooding of markets by reserve banks. The question is whether this bubble is going to burst or whether it will be allowed to gradually deflate. Following the same measures taken by reserve banks after the global financial crisis in 2007/ 2008, asset markets experienced a similar bubble all over the world until the Fed first mooted the possibility of reducing its policy rate in the middle of 2014. From that point on the SA equity market first dipped and then moved largely sideways, a trend not followed by the S&P 500 though, as capital was withdrawn from developing economies into ‘safe haven’ economies. Based on this experience, it is likely that the re-inflated bubble of late is unlikely to burst, everything else remaining equal, but will rather be allowed to slowly deflate. This bubble is purely based on sentiment rather than fundamentals as graph 2 above depicts. It may be expected that any larger military conflict or another unexpected global event such as we had with COVID-19 may cause sentiment to collapse again. However, at present there are no apparent dark clouds on the horizon and there is no immediate reason for getting out of the market, if one had not sold out already. If one had sold out already and one had not re-entered the market, one will have lost out on the 27% recovery of the SA Allshare index since the March month-end low. In the face of prevailing volatility and the uncertainty of how the COIV-19 crisis will pan out, one should now best stay out of the market at least until the end of the year to use any opportunity a market correction will offer. Economic performance is not supporting any meaningful growth in equity markets. Investing offshore is a great risk diversifier and must be part of one’s investment strategy. As the SA Allshare index dropped by 22% since the beginning of the year to its March month-end low, the Rand fell by a similar percentage, effectively placing the investor in a neutral position. Since then the Allshare has grown by 27%. The Rand in turn strengthened by 11% since its April month-end low, indicating that it still has scope to make up some lost ground relative to the recovery in the SA Allshare index. This indicates that it is not a good time to expatriate investments at this stage and the suggestion to hold on to the end of the year may also bring with it a further strengthening of the Rand, presenting an opportunity to re-enter offshore equities.
FIMA - the way forward The FIM Bill was passed by Parliament on 7 July 2020. The Bill is expected to be published in the Government Gazette soon and thereby become law. In terms of Section 468(1&2) of the FIM Bill, the Minister of Finance reserves the power to determine which provisions or Chapters will commence. As per a circular issued by NAMFISA in June 2020 setting out the NAMFISA FIM Bill implementation plan (‘Project New Dawn’), the implementation of the FIM Act may follow one of two routes:
Of the total 115 critical standards and regulations to the FIM Bill listed in the NAMFISA circular, a total of 40 standards and regulations are applicable to the retirement funds industry (11 General Standards, 21 Retirement Funds Standards and 8 Retirement Funds Regulations). This is of course in addition to the relevant Chapters that are applicable to the retirement funds industry in the FIM Act itself (Chapter 1, 5, 8, 10 and 11). RFS implementation plan: A comprehensive consolidated checklist containing the applicable chapters of the FIM Bill as well as the 40 standards and regulations has been compiled. This checklist contains 660 line items, so you can imagine that there are quite a number of compliance requirements. Not all will result in changes to the way things are done currently and some are not directly applicable to RFS. The next step is to assess the requirements of the relevant sections in the FIM Bill, standards and regulations in order to identify what needs to be done so that RFS is able to comply with the requirements. To achieve this, workshops will be held to go through the requirements and identify action plans, responsible persons and due dates. During these workshops, the required changes to systems and procedures will also be identified. Some of you will be required to attend the workshops. In addition, RFS will provide comments on draft regulations and standards to NAMFISA. Also, RFS will consult with NAMFISA on items that are not clear etc. Our implementation plan currently provides that should the FIM Act be promulgated now, that we will have until 30 June 2021 to finalise the above. Should the FIM Act become effective on 30 June 2021, the FIM Act provides for 6 – 12 months to finalise the Rules of the Fund. Therefore, at this stage, funds are expected to be fully FIM Act – compliance by 30 June 2022. It should be noted that these timelines are dependent on the manner that the FIM Act is promulgated in the Government Gazette and might therefore change.
Compliment from a pension fund consultant Dated 17 June 2020 “Thank you so much for your quick response T, keep it up. It’s really a pleasure working with you, you never disappoint me.” Read more comments from our clients, here... RFS welcomes new staff We are pleased to advise that Thomas Kesslau will join our permanent staff complement on 1 September. We extend a hearty welcome to Thomas and look forward to his contribution towards the progress of the company and the well-being of our clients! Thomas grew-up on a farm in the Kunene region and matriculated at Outjo Secondary School in 1993. He joined Sanlam in 1994 as a Benefit Administrator and was promoted to a number of other positions in the Employee Benefits and Risk Services departments of Sanlam. His last position at Sanlam was that of Unit Manager: Namflex Schemes. Thomas resigned from Sanlam in 2013 and was employed at Solitaire Lodge for 2 years before he joined the Bible Association of Namibia as Financial Manager in 2016. Thomas obtained a B.Compt Degree through part-time studies at UNISA in 2014. He is serving in our private fund administration team where he took over the portfolio of Esmé Mouton following her departure earlier this year. RFS turns 21... and still going strong Retirement Fund Solutions Namibia (Pty) Ltd was registered on 19 August 1999. The company was established on the initiative of Tilman Friedrich and Mark Gustafsson to offer the retirement funds in Namibia an ‘indigenous’ alternative to a market served then only by South African fund administrators. Marthinuz Fabianus is giving a fair account of the philosophy of the company in the Managing Director’s column above. We can say many things about ourselves but there can be no better testimony to who we are than that of a client who we have been serving for close on 20 years now: “Dear Marthinuz and the RFS team On 3 October 2019 guests could drop their thoughts about RFS into a box, and I thought by myself that evening – a full year (if not mistaken) for Management to wait before they can read all those little papers inside the box. Would that not be a surprising and inspiring gift to be opened today? My sincere congratulations to RFS’s 21 years of existence, and to Tilman and Charlotte with their 21 years of commitment and severe hard work to maintain RFS as a moving force within the pension fund industry – not only for themselves, but also for their loyal staff and clients. Wishing you all the best you deserve under current difficult circumstances but by only upholding integrity, hard work, and above all – your passion for the pension fund and retirement industry. Happy Birthday RFS! With best wishes Tessa Kok Principal Officer: NHE Retirement Fund” “Congrats to you two – a true achievement & with promises kept!!! To the whole of RFS – I have been privileged to be involved with you from the start and from all aspects of life and it has been only a pleasure, and obviously a journey. “Doet so voort” Kind regards Reinhard Voigt Strategic Actuarial Partners Namibia (Pty) Ltd” Fund administrators – a market overview The following table provides an interesting overview of the retirement funds market in Namibia and RFS’ position in the market.  Important administrative circulars issued by RFS RFS issued the following fund administration related circular to its clients over the last month. Should any client have missed this circular, please get in touch with your client manager:
Pension funds industry meeting held 29 July NAMFISA held a remote industry meeting on Wednesday 29 July. Here are a few notes on key matters discussed:
Ladder of Supervisory Interventions NAMFISA recently circulated a revised ‘ladder of supervisory interventions’ setting out 5 different stages of intervention and increasingly extensive intervention measures for each:
Pension fund rules and the Income Tax Act In this article we present a technical discussion between the editor and Andreen Moncur on the income tax law and Inland Revenue practice concerning fund rules and rule amendments and the implications of proceeding without having rules or rule amendments approved by Inland Revenue. Celebrating the phenomenal woman Women often take on multiple roles and stretch themselves in so many different directions. They are used to multi-tasking, and often excel at this and make it look easy. From being a daughter, sister and friend, to being a wife, mother and homemaker. Add in a full-time job and financial pressures and life becomes interesting.
Words of encouragement by Caryn Edwards, accounts manager, ‘TomorrowToday’. SARS gets blown in Lesotho number plate case “The floodgates have opened for thousands of people whose foreign-registered vehicles have been impounded over the decades... When Sars refused to return the vehicle, Alves took it and the SA Police Service to the high court in Bloemfontein and won his case. Sars hung on to the vehicle while appealing the case... Last week Sars’s appeal was blown out of court and it was ordered to pay the legal costs... What this means is that anyone with a vehicle registered in any Southern African Customs Union [Sacu] country is free to drive that vehicle in SA without hinderance,” says Mkhosi Radebe of MC Radebe Attorneys in Pretoria, which is representing Alves in this case... Most people just meekly pay the penalties to get their impounded cars back again. In my case, I decided to take Sars and the police on in court to prove a point. And I am prepared to take it to the top court in the land,” says Alves. This is a matter begging for a constitutional hearing, and it’s perhaps surprising that it hasn’t happened yet... Sars argued that the seized vehicle was “imported” and could not be driven in SA without an import permit. If so, thousands of cheap imported vehicles driving around SA sporting number plates from Lesotho, Botswana, Namibia and eSwatini – all Sacu member nations – are prone to seizure in the same way. Radebe says to classify these foreign-registered vehicles from Sacu countries as “imports” when driven on SA roads makes a mockery of the Sacu agreement. We have a common customs union and once goods are cleared through Durban and any excise paid, they can no longer be deemed ‘imports’. These goods can move freely through the entire customs union area...” Read the full article by Ciaran Ryan in Moneyweb of 4 August 2020, here... Is the financial services industry missing something? “...It’s becoming extremely apparent that the pandemic will change the way Financial Advisors operate indefinitely”, says Derek. “COVID-19 has hit everyone very hard, and not only in their pockets. Clients are looking to invest with real purpose and need compassionate, honest, practical guidance about their financial futures. It’s not an afterthought anymore.” Derek continues, “Therein lies an opportunity. COVID-19 has become the catalyst for Advisors to have far more meaningful interactions with their clients. We’re going to see the advent of a new style of advising that will be more personal, cultivating longer-term relationships between client and Advisor, that are ultimately more successful financially. “Isolation has increased the need for human interaction. And collective fears about the future have made bonds of trust more valuable as we all navigate this strange time together. Up until this point, the focus of the South African Financial Services industry and the media has largely been on financial planning during the accumulation phase. But now, more than ever, it’s time for Advisors to highlight the decumulation phases of life for their clients – because that future everyone is worrying about is closer than they might think. “In these trying times, we should be focusing on how to guide clients and their families on their journey towards and beyond retirement. For us, as Advisors, this is a unique opportunity to upskill ourselves through a wide range of educational and knowledge enhancement programmes...” Read the full article by CWDi in Cover of 3 August here... Great quotes have an incredible ability to put things in perspective. "Women are like teabags, you never know how strong they are until they're in hot water." ~ Eleanor Roosevelt |
||||||||||||||||||||||||||||||||||||||||||||||||||||
2020-07
| In this newsletter: Benchtest 06.2020, reassurance on Covid-19, S14 transfers and more... |
||||||||||||||||||||||||||||||||||||||||||||||||
|
After being passed by the National Council with changes, the FIM Bill was returned to the Ministry of Finance to examine the proposed changes. These amendments accepted by Parliament. The Bill is now with the President who has the discretion to either assent to the Bill or withhold his assent. Once the President has signed the Act it will be published in the government gazette. It is not known when this will take place. The Minister of Finance can take one of two routes as also elaborated on in the NAMFISA Circular FIM 06/2020 with NAMFISA preferring the route whereby up to 12 months will be granted in which the Standards and Regulations are finalised and issued. If the Minister agrees, it will be 12 months after promulgation that the FIM Act is effective and then a further 12 months for registration of Funds, i.e. up to 24 months (from promulgation) until a fund, financial intermediaries and other financial institutions have to be FIM Act compliant. Pension fund governance - a toolbox for trustees
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In ‘Tilman Friedrich’s industry forum’ we present:
In ‘News from NAMFISA’ read about:
In ‘Legal snippets’ read about:
As always, your comment is welcome, so open a new mail and drop us a note! Regards Tilman Friedrich  Pension fund member seeking assurance concerning COVID-19 The Namibian had a WhatsApp post where the person writes “Will the GIPF and other pension fund managers please provide assurances to their members that COVID-19 will not be detrimental to future pension pay-outs and the principal amounts invested? Is it worth having a pension fund for the young?”
This is indeed a profound concern this young pension fund member raises. As far as Retirement Fund Solutions is concerned, as the biggest wholly Namibian owned pension fund management company, administering pension funds for majority of the country’s SOE’s, large private sector groups where we are dominant manager of pension funds for employees of the majority of banks in Namibia, but also other private sector entities, I would like to assure this member that it is still worth having a pension fund, particularly as a young person who still has many years to retirement and on the basis of the following considerations:
Given these considerations, I have no doubt that it remains worth having a pension fund in particular for younger members who still have a long time to work until they reach retirement.
Monthly Review of Portfolio Performance to 30 June 2020 In June 2020 the average prudential balanced portfolio returned 2.3% (May 2020: 0.7%). Top performer is Hangala Prescient Absolute Balanced Fund with 3.2%, while NinetyOne Managed Fund with 1.4% takes the bottom spot. For the 3-month period, Prudential Managed Fund takes the top spot, outperforming the ‘average’ by roughly 2.3%. On the other end of the scale, Allan Gray Balanced Fund underperformed the ‘average’ by 2.0%. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 30 June 2020 provides a full review of portfolio performances and other interesting analyses. Download it here... Should you now buy, sell or stay put? ‘Factset’ journal recently published some rather disturbing statistics on the S&P 500 share index as depicted in graph 1 below. It shows record high cuts to earnings per share estimates for the second quarter of 2020. The Q2 bottom-up EPS estimate (which is an aggregation of the median Q2 EPS estimates for all the companies in the index) declined by 37.0% (to $23.25 from $36.93) during this period. This is the largest decline since a 34.3% decline which occurred in quarter 4 of 2008, when the global financial crisis struck global economies. This is evidently the result of COVID-19 and the lockdown imposed on the US economy. Graph 1  Read part 6 of the Monthly Review of Portfolio Performance to 30 June 2020 to find out what our investment views are. Download it here... S 14 transfer to another fund – it’s now or never! Since Namibia is about 4% of the SA economy it is not far-fetched to surmise that there will be not much more scope than about 40 stand-alone funds of currently about 70. I do not believe it will be viable to operate a stand-alone fund with less than 1,000 members as it will simply become too expensive to manage with the onerous and extensive requirements with which trustees will be burdened under the FIM Act. In Namibia there are currently 27 funds with more 1,000 members. Of these 11 funds are umbrella funds which leaves 16 employer sponsored stand-alone funds, of which quite a few are already earmarked for a steep decline in membership. I do not expect more than 10 to 15 employer sponsored funds left in the next 5 years. For those funds that are unlikely to survive, there is currently a last window of opportunity to move into an umbrella fund before extensive and onerous requirements under the FIM Act will make trustees’ lives a misery and a transfer to another fund a challenge. To give trustees a taste of what will be require before any business can be transferred from a fund to another fund, consider RF.S.5.22. This is a standard issued under Chapter 5 (the retirement funds chapter) of the FIM Act. Bear in mind that all Standards and Regulations under the FIM Act can still undergo some changes and bear in mind that there are currently 23 standards already issued in draft format under chapter 5, another 11 ‘general’ standards issued in draft format under chapter 10 and 7 draft regulations issued under chapter 5 that should not be overlooked in anything done that effects a retirement fund. So here is what RF.S.5.22 prescribes: RF.S.5.22
In addition to the requirements of RF.S.5.22, Chapter 10 of the FIM Act contains the following requirements: Section 449
Section 451 Where an amalgamation or transfer has been approved, the amalgamating financial institutions or financial intermediaries and any other party to the amalgamation, or the transferor and transferee financial institutions or financial intermediaries, as the case may be, must within 10 days from the date of the amalgamation or transfer, deposit with NAMFISA -
Will equity markets take Corona in their stride?
Read more comments from our clients, here...
Death benefits and divorce settlements In a settlement agreement between husband and wife that was made an order of the court in the final divorce order, the couple agreed on the following few key terms:
The former husband later got married again. The son of the couple proceeded to university. The husband passed away some 7 years after the divorce order was granted. At that time their son was in his last year of studies and had turned 21 in that year.
Dependency of son (section 37C of Pension Funds Act) Whether or not the son was a financial dependant at the time of death of his father will depend on the factual assessment whether deceased father in fact continued to fund his son’s studies at the time he passed away. If the father still supported the son’s studies up to the date of his death, the son would have a claim for financial dependency against his father’s pension fund death benefit. The quantum of the claim would be based on the factual support given by his father for the remainder of the son’s studies, i.e. either the year in which the father passed away or any extended period the son might require to complete the course for which he was enrolled when his father passed away. If the father no longer supported his son at the time of his death, his son would have no claim for financial dependency against his father’s pension fund death benefit either and would not be entitled to be considered for an allocation from the father’s pension fund death benefit by the trustees of the fund. Dependency of divorced wife (section 37C of Pension Funds Act) In this regard, section 28(5) of the maintenance Act No 9 of 2003 stipulates “Notwithstanding anything to the contrary contained in any law, any pension, annuity or compassionate allowance or other similar benefit is liable to be attached or subjected to execution under a warrant of execution or an order issued or made under this Part in order to satisfy a maintenance order.” Any person claiming compensation to satisfy a maintenance order must therefore obtain an attachment order or execution warrant under section 28(5) of the Maintenance Act. The deed of settlement dissolving the marriage of deceased Plaintiff and Defendant spouse does not constitute an attachment order or execution warrant as contemplated by section 28(5). The deed of settlement does not contain any maintenance obligations of deceased towards his divorced spouse but only an obligation of deceased to pay his spouse certain amounts in respect of her revocation of a donation claim against deceased. Deceased’s spouse has no maintenance claim against deceased that meets the requirements of section 37A of the Pension Funds Act read together with section 28(5) of the Maintenance Act. In our opinion, there are therefore no grounds for providing for her either as a dependant of deceased or for any maintenance claim against the death lump sum as envisaged in section 37C of the Pension Funds Act. Section 14 transfers – some legal intricaciesThere is a common misconception that the appointment of another administrator to a fund impacts the corporate identity of a fund. This of course is not the case. It is simply a change of service provider, that currently is not subject to any particular legal requirements. When a board of trustees decides to terminate its stand-alone fund and to join another fund, or when the participating employer/ its fund management committee decides to terminate participation in a fund and to start participating in another fund it creates a totally different and quite a tricky scenario. The decision to terminate participation in a fund is always ultimately a decision by the employer. There is no legal requirement for a company to offer a pension arrangement and a decision to do so is purely that of the employer. In the same way the decision to discontinue participation in any of the manners set out above is an employer decision. Any decision by an employer to change conditions of employment, is of course subject to the employer observing the requirements of the Labour Act. The introduction of a pension arrangement clearly implies a change of conditions of employment. The decision to end participation in one fund and start participation in another fund does not necessarily imply a change of conditions of employment if all benefits and the contribution structure remains unchanged. The employer decision to end its participation in a stand-alone fund does not impact the legal identity of the fund in the first instance and the board of trustees can in theory decide to continue operating the fund for the benefit of the existing members. In practice however, it will be very difficult to do so if the employer and its employees no longer contribute to the fund. It will be a ‘closed fund’ with a diminishing membership. Once a decision has been taken by an employer to discontinue participation in a stand-alone fund and to start participating in another fund instead, the trustees of the stand-alone fund thus need to decide whether they will continue operating the fund or whether the fund is to terminate. If the trustees decide to terminate the fund, they now need to decide whether the fund is to be dissolved in terms of section 28 of the Pension Funds Act (voluntary dissolution) or whether the fund’s assets and its liabilities are to be transferred to the other fund in terms of s14 of the PFA. In a voluntary dissolution of a fund in terms of section 28 of the PFA the fund needs to appoint a liquidator and will go through a liquidation process. Liquidation is typically a long drawn-out and costly process as it has to comply with extensive legal requirements and the liquidator will typically have to be compensated in terms of statutory remuneration scales. While the fund is in liquidation, members would normally not receive any pay-out until the liquidation has received statutory approval. (Note that a fund can also be wound up by the Court in terms of section 29 of the PFA.) In practice, a fund would only be dissolved voluntarily in a case where the employer is liquidated or dissolved and there will no longer be an employer: employee relationship after the fund was dissolved. Where the employer continues operating, the trustees of a stand-alone fund need to resolve whether all members will be paid out their benefit and where after the fund will be dissolved voluntarily, or whether members will be given an option how to dispose of their benefit including the option to transfer to the employer’s new fund and where after the existing fund will also be dissolved voluntarily, or whether all members and all assets will be transferred to the employer’s new fund. The last alternative has to be executed in terms of section 14 of the PFA. This process is subject to some formal requirements of, and approval by NAMFISA. Once these requirements have been met, as confirmed by NAMFISA approval, all assets and liabilities of the ‘old’ fund will devolve upon the ‘new’ fund. The ‘old’ fund now needs to be deregistered by NAMFISA and its legal existence will have terminated upon deregistration. Where an employer participated in a fund also comprising of other employers and then resolves to end its participation to start participating in another fund comprising of other employers and the employer takes the decision not to give members any option but to transfer all assets and liabilities to the new fund, such transfer is also subject to the provisions of section 14 of the PFA. The difference here is that the former fund will continue to operate for the benefit of the remaining employers. Transfers of assets and liabilities in terms of section 14 of the PFA are always subject to an agreement between the two funds and this agreement must meet the requirements of both funds before it can be approved by NAMFISA. A ‘section 14 process’ typically takes anything between 6 months and longer, sometimes substantially longer. In the course of the process, the employees would have already been enrolled in the employer’s new fund and the employer and its employees would have started to contribute to the new fund. As one can read out of the next topic ‘Matrix for implementation of amendments’, unless the fund’s generic registered rules will apply to the employees of the employer, the employer needs to submit its own rules to NAMFISA for approval. This approval process typically takes between 1 month and longer. Until such time that the rules are registered by NAMFISA. This could mean that the rules may have to be amended to meet any specific requirements of NAMFISA, in which event the amended part of the rules, as eventually registered, has no applicability. Since the process usually takes some time, members may have exited the fund in the meantime and may have received a pay-out based on rules that subsequently had to be amended to meet NAMFISA requirements. Members may have been overpaid during this time and this may have consequences for the fund. During the period between the termination of participation in the old fund and the registration of the employer rules of the new fund, the old rules no longer have any relevance to any benefit entitlement of the members where the decision was to transfer all assets and liabilities in terms of section 14 of the PFA the moment the transfer has been approved by NAMFISA. Paying out in terms of the old rules poses the risk that the benefit actually due to the member upon exit from the new fund is calculated in a different manner for the period from date of termination of participation in the old fund until date of payment of the benefit. This could once again mean that the member was overpaid with consequent repercussions for the old fund. To be certain that neither the old nor the new fund overpay a member during the period of ‘uncertainty’ it may be advisable that no benefit is paid out to a member who exits. In practice, both funds often make a provisional payment that is less than what the member should eventually receive under the rules of the new fund. Unfortunately, this is not without risk to both funds. Matrix for implementation of rule amendments
Raising liquidity: “Selling the crown jewels.” “…The build-up of wealth is closely linked to the accumulation of lifestyle assets such as homes and holiday homes, as well as items such as cars, art, jewellery, gold coins, and other collectables. Once, however, the wealth creation cycle is completed (usually at retirement age), we turn from being accumulators to consumers, and the need for income and liquidity becomes a priority. So just how does a portfolio generate enough cash, and what kind of investment strategies do we need to implement to make sure we can always pay our monthly bills?... selling assets requires careful planning and market expertise to ensure you are selling the right assets, for the right reasons, and for the best returns. It is important to understand exactly why you are selling, and what you hope to achieve. Here are some points to consider before deciding which assets to liquidate:
Are RSA retail bonds an option for a pensioner requiring monthly income? “RSA Retail Savings Bonds are available as either Fixed-Rate Retail Savings Bonds (available over terms of two, three or five years) or Inflation-Linked Retail Savings Bonds (which mature after three, five or 10 years). These bonds are effectively loans to the South African government, with a promise to pay back the capital after the term in question, along with interest, payable as described below. The minimum amount that can be invested is R1 000 and the maximum R5 million. Fixed-rate retail savings bonds Different [market related] interest rates apply to each of the maturities in the series as per the table below. Investors in these bonds can choose to reinvest their interest, have it paid out twice a year on the interest payment dates (March 31 and September 30 each year), or in your case, as you are over 60 years old, receive their interest payments monthly. These fixed-rate bonds also have a ‘restart’ option. This enables the investor to restart the term of the bond at a new prevailing (possibly higher) interest rate after 12 months, or to change the investment term. The Inflation-Linked Retail Savings Bond These series consist of bonds with a three-, five- or 10-year maturity. Capital amounts invested in these bonds are inflation-adjusted over the term. A floating interest rate is payable every six months on the interest payment dates.
Source: https://secure.rsaretailbonds.gov.za/ In this article the author provides an exposition of the risks (inflation risk, income risk, default risk), which one needs to be aware of when contemplating to invest in any of these bonds. Read the full article by Trevor Lee in Moneyweb of 30 June 2020, here… 12 Traits of emotional intelligence “What makes someone great at their job? Having knowledge, smarts and vision, to be sure. But what really distinguishes the world’s most successful leaders is emotional intelligence — or the ability to identify and monitor emotions (of their own and of others).
Read the full article by Daniel Goleman in ‘make it’ of 9 June 2020, here... Great quotes have an incredible ability to put things in perspective. "Everything that irritates us about others can lead us to an understanding of ourselves." ~ Carl Jung |
||||||||||||||||||||||||||||||||||||||||||||||||
2020-06
 |
||||||
| In this newsletter: Benchtest 05.2020, chairperson affidavit impractical and more... |
||||||
|
Unsuspension of operation of laws suspended during lockdown If you have missed Proclamation no. 16 issued under the State of Emergency that suspends the operation of certain provisions in a number of laws, such as prescribed periods for certain legal processes, and provisions of the Labour Act relating to dismissal of employees, reduction of salary and forced leave, find the gazette here... Find the proclamation in terms of which the operation of certain clauses of a number of laws were suspended here... Find the proclamation revoking the suspension of the operation of certain clauses of a number of laws were suspended here... NEF challenges the suspension of the Labour Act The NEF sent out a circular on 3 June, wherein it informed its members “...about the current situation with regard to the litigation against the relaxation of the Labour Act as per the labour directives that were applicable to Stage 2 of the National State of Emergency and published in the Government Gazette (refer to preceding topic ‘Unsuspension of operation of laws suspended during lockdown’). The legal team spent the entire day on Friday, 29 May at the High Court, presenting the case on behalf of NEF, as first applicant, and an additional five applicants representing businesses in the Tourism, Construction, Aviation, Transport and Printing sectors. The judges reserved judgement for 23 June 2020. This still leaves employers who took labour decisions in contravention of the Stage 2 directives in an unsure position until judgement is known. I also attach Proclamation 22, published 1 June 2020. The interpretation is that the Labour Act (Act 11 of 2007) as amended, is again fully applicable with effect from today. The litigation came at great cost. Although some members have already contributed and in spite of us being in the process of lobbying to individual business owners for contributions, any further contributions towards the trust fund for legal expenses will be greatly appreciated...” FIM Bill passes National Council After its 3rd reading in the National Council, the FIM Bill was passed with amendments on 18 June. These amendments will now have to be considered by Parliament and may or may not be adopted by it. The amendments relate to typographical corrections only. Pension fund governance - a toolbox for trustees
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link... Check out our retirement calculator
In ‘Tilman Friedrich’s industry forum’ we present:
In ‘News from RFS’ we draw attention to ‘Important administrative circulars issued by RFS’ since the previous newsletter.
In ‘News from NAMFISA’ read about:
In ‘Legal snippets’ read about –
...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! Chairperson affidavit is impractical and inappropriate
RFS issued the following fund administration related circulars to its clients over the last four months. Should any client have missed any of these circulars, please get in touch with your client manager:
!Kharos Benefit Solutions - a new HR and payroll company launched A new payroll company, !Kharos Benefit Solutions (Pty) Ltd, recently opened its doors for business, offering payroll and HR management solutions to small and medium-size employers for whom the maintenance of an in-house function is not cost-effective or viable. The backbone of the range of services offered by the company is the Symplexity software, a modular, web-based human resources and payroll software solution originating in South Africa. The name is the Damara/Nama word for our own Welwitschia or Tweebladkanniedood. The company is jointly owned by RFS and Logos Consulting and is headed up by Harold Mbuende. Harold started his career at PWC in 2001, serving in various positions in tax and payroll administration and consulting. While with PWC, he obtained certificates in Value Added Tax and Income Tax from Unisa. He established its immigration department as manager of that department and was also involved in the establishment of its human resources department, progressing to the position of Manager: Human Resource Services, Immigration Services and Expatriate Services. He left PWC in 2013 to join Air Namibia in the position of Manager: Human Capital Administration and was later assigned additional responsibilities as Acting General Manager: Human Capital Management and Corporate Services. Harold is supported in the back-office by Mrs Lizette Fourie, who was seconded to !Kharos from Retirement Fund Solutions. The board of directors of the company comprises of
Not only do we boast a dynamic team of industry experts with extensive experience but our offering is complimented by a cutting edge 21st Century futuristic Payroll & HR business software solution for the sole purpose of propelling your business beyond the current generation...” !Kharos Benefit Solutions welcomes its first clients !Kharos Benefit Solutions (Pty) Ltd is proud to announce its first appointments and extends a hearty welcome to these two new clients with the sincere with that this may be the beginning of a long mutually satisfying and beneficial relationship:
Consumer Credit Policy out for comment NAMFISA circulated a new Consumer Credit Policy for comments on or before 31 July. The ‘Executive Summary’ of the policy explains the purpose of the envisaged consolidated consumer credit legislation as follows “The regulatory and supervisory framework on contracts covering credit in Namibia is characterized by lack of a robust legislation that is effective in protecting consumers of credit against unfair market conduct. This is because the only credit extension subjected to market conduct supervision, although not with broad-based consumer protection principles is one extended by the banking and microlending institutions. Moreover, credit extended by these institutions is regulated through separate Acts, namely the Credit Agreements Act, 1980 (Act No.75 of 1980), the Usury Act, 1968 (Act No.73 of 1968), the Banking Institutions Act, 1998 (Act No. 2 of 1998) and Microlending Act, 2018 (Act No. 7 of 2018). On the contrary, credit extended by retailers, for example, is not supervised against unfair market conduct, although it is also a financial service instrument, resulting in fragmented regulation and supervision of consumer credit. In recent years, a shallow and narrow scope of consumer protection on market conduct in the financial sector has stimulated a debate among public policy makers. The debate focused on a need for a broad-based financial consumer protection drive in the country. In this respect, the Minister of Finance under whom the Policy and subsequent Act will fall tasked the two financial sector regulators, (NAMFISA and Bank of Namibia) to enhance supervisory and regulatory oversight functions on credit agreements with natural and juristic persons. The gravity of the problem is amplified by the already high and increasing levels of household debt averaging above 85 percent of disposable income between 2013 and 2018, caused amongst others, by the poor business market conduct such as inadequate due diligence on affordability assessments...” Suspension of requirement for chairperson affidavit NAMFISA issued PF/PI/DIR/01/2020 “Suspension of Part of Paragraph 5.1 of Directive PI/PF/DIR/05/2015” on 4 June 2020. The requirement that the principal officer of a fund must submit a signed affidavit by the chairperson of the board together with an application for registration of a rule amendment that may negatively affect members’ benefits (e.g. reduction of contributions) as per PI/PF/DIR/05/2015 is temporarily suspended. Instead, the board may by written resolution delegate the authority to attest such affidavit to the principal officer or any member of the board as per amended prescribed form. Pension funds industry meeting postponed The industry meeting set for 15 July has been postponed and the new date and time will be communicated accordingly. Retirement funds and Covid-19: legal perspective on tricky questions – Part 1 Summary notes by Andreen Moncur, BA (Law) SA based Pension Lawyers’ Association (PLA) held a webinar that illuminated a few interesting legal questions the answers to which were provided by prominent SA legal experts and have some relevance to Namibia.
Retirement funds: other interesting questions and answers – Part 2 By Andreen Moncur BA (Law) In our dealings with NAMFISA we are regularly facing challenges posed by NAMFISA. Some of these we have put to Andreen Moncur. The questions and Andreen’s considered opinion on these are set out below.
Can a death benefit be paid in instalments? Since the quantum of the benefit due to the dependant in urgent need can only be determined upon expiry of the 12 month period following date of death of the member, in my opinion the only manner in which the trustees can reasonably meet their obligation is to make one or more interim payments to the dependants of a portion of the full benefit that would be allocated to him or her in the event of no other dependants being identified subsequently and up to expiry of the 12 month period. There are advantages and disadvantages to both. We have let our children and grandchildren down...” |
||||||
2020-05
| In this newsletter: Benchtest 04.2020, provident funds – a time to change and more... |
||||||
|
If you have missed proclamation no 16 issued under the State of Emergency that suspends the operation of certain provisions in a number of laws, such as prescribed periods for certain legal processes, and provisions of the Labour Act relating to dismissal of employees, reduction of salary and forced leaved, download the gazette here... Note that the effective date of this proclamation is deemed to be 28 March 2020, i.e. it is backdated by 1 month. Update on economic stimulus and relief measures For an overview of all economic stimulus and relief measures government has introduced to mitigate the impact of COVID 19, read PWC’s May 2020 Tax Alert here... Extension for submission of tax returns ICAN/ NIPA will not approach Inland Revenue for a general extension of submission of income tax returns. Taxpayers are rather advised to submit as many returns of income and payments within the time permitted and request an extension of time, on a case by case basis, for all those taxpayers where the necessary work cannot be completed in time. Download the communication from the Institute of Chartered Accountants of Namibia here... Pensioners and fund members urged to provide TIN number to RFS RFS is deemed to be the employer of pension fund members for the purpose of deducting PAYE from any benefits payable, and paying this over to the Receiver of Revenue. On a monthly basis RFS is required to load comprehensive information on the person to whom a taxable benefit was paid and tax was deducted. However, the ITAS prevents RFS from meeting its legal obligation to load this information unless the beneficiary’s TIN (tax identification number) is reflected. RFS will not be able to pay any benefit if it does not have the TIN of the person due to be paid a benefit. We are therefore urging all pensioners and members who are due to be paid a benefit from their pension fund to provide us with their TIN urgently. To pre-empt the delay of the payment of a benefit, all employees who are due to receive a benefit from their fund are similarly urged to ascertain that RFS is provided with their TIN. Please mail or arrange to have your ITAS registration certificate delivered to RFS, for attention your fund’s administrator. Pension fund governance - a toolbox for trustees
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In ‘News from RFS’, read about:
In ‘News from the market place’ read about “Old Mutual introduces new AGP seriest”.
In ‘News from NAMFISA’, catch up with the latest circular on the temporary suspension or reduction of contributions of employers participating in umbrella funds.
As always, your comment is welcome, so open a new mail and drop us a note! Regards Tilman Friedrich Monthly Review of Portfolio Performance to 30 April 2020 In April 2020 the average prudential balanced portfolio returned 8.3% (March 2020: -8.2%). Top performer is Prudential Namibia Balanced Fund with 9.6%, while Momentum Namibia Growth Balanced Fund with 7.4% takes the bottom spot. For the 3-month period, Investec Namibia Managed Balanced Fund takes the top spot, outperforming the ‘average’ by roughly 4.4%. On the other end of the scale Momentum Namibia Growth Balanced Fund underperformed the ‘average’ by 4.8%. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 30 April 2020 provides a full review of portfolio performances and other interesting analyses. Download it here... After Corona the world will never be the same again Every politician, every news medium, and of course Bill Gates, are all heralding that the world we knew before will never be the same again, after Corona. The abbreviations A.C. and B.C. have been given a new meaning – After Corona and Before Corona. Have you noticed like I, that this message is driven in particular by ITC companies and others, clearly wanting to capitalise on IT to promote their business? In the 20 years or so B.C. we experienced a huge tidal wave of human movement across the world. One may probably differentiate between business movement and leisure movement. I believe these two will respond differently in the years A.C. Maybe me, as a ‘baby boomer’, am still of the old school. I believe human beings are social animals. They like to socialise, meet face to face and interact on a personal level and have that feel-, smell-, taste experience, simply being a human being. We do not want to be prescribed to the n’th degree what we may do, what we may not do, where we may and may not be, how and when we may move around – like an animal in a zoo. We may live being shackled for a while, but we will not, as a species accept shackles for any extended period and the longer we are shackled down, the more violent the breaking of these shackles will eventually be. This is what history tells us. The virtual world may add a facet to our lives but it will not change our human genes. I am convinced that the new reality A.C. is a huge hype blown up by people with a vested interest and opportunists joining the band wagon. Read part 6 of the Monthly Review of Portfolio Performance to 30 April 2020 to find out what our investment views are. Download it here... Provident funds – a time to change!
Compliment from an HR practitioner of a village council “...I trust this email finds you well. This email serves to convey my compliments on the way you really answer your business phone. “Highly professional”, your calls never ring more than 3 times. It is being pick up on time. Keep up your excellent telephone etiquette, something one can learn from and emulate...” Read more comments from our clients, here... Long service awards complement our business philosophy RFS philosophy is that our business is primarily about people and only secondarily about technology. Every time a fund changes its administrator, a substantial amount of information and knowledge is lost. Similarly, every time the administrator loses a staff member, it loses information and knowledge. We know that as a small Namibia based organisation, we cannot compete with large multinationals technology wise because of the economies of scale that global IT systems offer. To differentiate us we need to focus on personal service and on the persons delivering that service to get customer acceptance and service satisfaction. With this philosophy we have been successful in the market and to support this philosophy we place great emphasis on staff retention and long service. The following staff member celebrated her 5-year work anniversary at RFS! We express our sincere gratitude for her loyalty and support over the past 5 years to:
Important administrative circulars issued by RFS RFS issued the following fund administration related circulars to its clients over the last four months. Should any client have missed any of these circulars, please get in touch with your client manager:
Old Mutual introduces new AGP portfolio series In last month’s newsletter, we reported on a circular issued by Old Mutual informing its investors of the introduction of the 2020 series of AGP portfolios resulting from the steep market decline that produced a negative reserve of 20%+ in the in the current AGP series. All new cash flow was to have been transferred to the 2020 series portfolios with effect from end March. Old Mutual has now issued a new circular offering three options to investors. These are:
Find the circular here...  Thoughts on Benchtest 03.2020 newsletter As usual I have my thoughts on your publications and I want to comment in totality with the hope that it makes some sense and something can be of use to people retiring in the near future. Covid-19 I have started to wonder why Covid-19 has taken all the attention over the last few months. Is it really that different from Covid-18 and 17 and many other Covid viruses from recent years. I do not want to dwell on any conspiracy theories, because it is what it is and governments have reacted as they have seen fit and we the people have to do the best we can. I agree with your statement that more people die of hunger than from viral infections. I think what has played an important role in lock down in South Africa, Namibia and Zimbabwe is the fact that there has not been sufficient investment in public health care. The Actuarial Society of South Africa has published an internal model on the spread of the virus in South Africa based on worldwide data available until about 10 days ago. I suspect the trend will be similar in Namibia and Zimbabwe. The best estimate on current data is that the virus will peak in South Africa by mid August. By then SA will require 80 000 hospital beds and the expected number of deaths could be in the order of 48 000. The worse case projection is a peak in September with a requirement of 120 000 hospital beds and about 100 000 deaths. In SA we do not have 80 000 hospital beds! The Cape Town convention centre is going to take only 800 emergency beds! This I think is the real reason for the lock down. I would think that a similar train of thought would have been followed in Windhoek. Treatment of Covid-19 and other matters This in itself is a dilemma. The protective gear and testing kits used are all(mostly) imported. There is not enough to go around. For the sake of the argument, let us say 60% of the protective gear worn and 70% of the test kits used to identify the virus in humans are imported. With lock down, closed borders and minimal air transport available the supply of these items become a problem for countries at the southern tip of Africa. Many countries where these items are produced have banned the export of these items, because they need it themselves! This adds to the argument for a required lock down. National finances It is worth just to re-emphasise the strain the lock down has on the finances of government in lost tax receipts. The question is then how is the increased government budget deficit going to be financed. In Namibia's case the main budget has not been presented, but still, the deficit is no doubt going to be bigger than initially thought. National Health Insurance or National Pension Fund I am afraid my vote is for neither. Unfortunately, both institutions will open doors for the misappropriation of very scarce resources. The UK is still trying to make its National Health System to work. Such a grand centrally planned system is too complicated to organise and run efficiently. Pension Funds This brings me to where my real concern is - although I do not work in this field! Many people about to retire has just seen their retirement pot just disappear. I am sad to admit that I think the actuarial profession has not provided good service to the general public with the demise of defined benefit funds. All the profession has done was to allow the employer discharge investment risk and to let the pension fund member take all the investment risk. Most pension fund members do not care about invest risk. Then there are Pension Fund Regulators who insist on balanced portfolios. And then there is the issue of fund managers' fees. Where to begin. Here are just a few thoughts. 1. Fund manager fees. When total return was about 13% and a fund manager took 1%, then his return as a percentage of total return is 7.7%, but when returns are about 7.2% then the fund manager takes 13.9% of the return. Surely this is highly questionable and fund managers should also take a reduction in fees? There is a lady at Alexander Forbes who does research on this matter and she has interesting thoughts on the matter. I forget her name for the moment. 2. Inflation You might recall I ended my previous email with the next possible risk being inflation. Here this the thought. Oil is currently in over production and price is very low. Shale producers are forced to close, wells are closed. The problem is when a well is closed it takes a fairly big investment to open again, so the oil price could rise in about 18/24 months time when some form of normality returns and demand for oil increases. This could ignite inflation. With the lock down of transport, supply chains have been disrupted and this can also lead to an increase in inflation. 3. Investment returns There are commentators who are surprised at the returns as shown by indices. The truth of the matter is that an index like the S&P 500 suffers the same problem as the Top 40 index in South Africa. In the S&P 500 the top 6 constituents make up just under 17% of the index and all but one (JP Morgan) are tech companies. The tech companies are increasing in value and they draw the index with them. The actual return of a fund's equity exposure could well be very different to what an index is showing, not withstanding the effect of expenses. 4. Where to hide Could a hiding place for those retiring over the next 12/15 months perhaps be Namibian very long dated government bonds. If there is sufficient protection against a further downgrade and unexpected inflation - which I do not think will materialise in the next 12 months. I have left you with my thoughts and nothing else. Best wishes from Cape Town. Regards Phillip Barnard Editor’s note: Letter shortened slightly Response from the editor: Dear Phillip Thank you for your interesting thoughts. We are living in challenging times. I am personally very hesitant to commit any funds to any type of investment ‘until the dust has settled’. We have no idea what the economy will be like after Corona, and like you say, probably up to 2 years after lockdown has ended. There will be many surprises of companies folding who one would have never expected to fold. It will start with smaller companies and their demise will spread like the virus to every bigger companies. Just to think that Lufthansa is in trouble and has indicated that it will not make it without government support! How many other airlines will go down and who will they draw down with them? Kind regards Our comments on the oil crisis Dear RFS, ... I really enjoy reading your articles. Academic knowledge is being applied in Financial markets. Would you point me to your latest article regarding the Oil crisis. Kind Regards Jens Heiser Note: The opinion of our readers does not necessarily reflect the opinion of RFS. We reserve the right to shorten and to edit letters received from our readers. Temporary suspension or reduction of contributions NAMFISA issued circular PF/Cir/02/2020 that allows trustees of umbrella funds to submit ‘master rules’ amendments to alter fund contribution rates, that empower the trustees to permit temporary contribution reductions or suspensions to a participating employer. This circular was issued in response to the financial distress many employers are currently experiencing as the result of COVID 19. The circular sets a number of stringent requirements for funds submitting such an application. The following requirements need to be met as a minimum:
Death benefits and S 37C - when do you have to pay? In a technical guide on the distribution of death benefits, the author, Liz del la Harpe makes a few important points that are overlooked too easily, regarding the time frames for the payment of death benefits in case of each of the 5 different scenarios envisaged in section 37C:
A debt becomes due when the duty to pay arises. Where a debtor’s liability is dependent upon the performance of certain conditions, the debtor will not be in mora until a duty to pay arises, e.g. all dependants of a deceased needed to be and then have been determined. Mora can arise where the debtor’s need is urgent and the creditor’s delay is unreasonable. The common belief that a fund’s duty to pay is contingent upon the expiry of the 12 month period referred to in Section 37c is not correct. The duty to pay is not dependent on this but rather whether the trustees are satisfied that they have investigated and considered with due diligence and are in a position to make a decision. Other questions addressed are :
How to handle changes to living annuity draw downs The SA Minister of Finance is in the process of changing the draw down regime for living annuities. Proposals are that pensioners be able to draw anything between 0.5% and 20% of their savings instead of anything between 2.5% and 17.5% of their savings. This will address both the need of a pensioner to reduce his draw down to compensate for the sharp market decline as well as the need to increase the draw down where a person is in dire need to generate additional income during the lockdown. Although similar proposals were made in Namibia, unfortunately nothing has come of this yet. In Namibia, a living annuity pensioner may draw down up to 20% but cannot draw down less than 5%. “When the proposed changes are gazetted [in SA] it is expected that annuitants will be able to change their drawdown rate immediately instead of waiting until the anniversary date of their policy. This will mitigate the risk that comes with regular withdrawals when the capital value is down — as it will be now after large falls in global and local financial markets. If you continue to draw high percentages on your depleted capital, the percentage drawn can quickly escalate until it reaches the maximum you are allowed to draw. At that point — known as the point of ruin — you can no longer increase your pension each year to keep up with inflation, resulting in your income declining in real (after-inflation) terms...” Pensioners considering to change their draw downs, particularly those that contemplate to draw down the maximum of 20%, are well advised to read the article by Laura du Preez in the Money section of Business Live of 12 May here... A guide to COVID-19 pandemic’s impact on retirement funds
Seven executive remuneration trends in 2020 “What then are the executive remuneration trends for 2020 that will drive the desired outcome of ensuring that business is sustainable in the changing world?
Should I invest or pay off debt? “I currently have R25 000 available to either invest into an FNB share-builder type account or reduce my credit card debt which is close to R50 000. What would be the better choice given the current state of affairs? I feel shares are depressed and could produce real returns in the future, but I know credit card debt carries a high interest rate. Any advice would be appreciated...” Read the response to this important question by Thulisile Nkomo in Moneyweb of 7 May 2020 here... 10 Tips to financially survive retrenchment
Read the full article by Sherwin Govender, Business Development Manager at Glacier by Sanlam, in Cover of 9 April 2020 here... Great quotes have an incredible ability to put things in perspective. "Correction does much but encouragement does more." ~ Johan Wolfgang von Goethe |
||||||
2020-04
|
|||||||||||||||||||||||||||||||
| In this newsletter: Benchtest 03.2020, Corona relief measures, TIN numbers for pensioners and more... |
|||||||||||||||||||||||||||||||
|
The Minister of Finance recently established a committee of experts from various industries, to advise him on measures government should take to relieve the pressure on employers, employees and the economy. This committee invited various industry bodies to compile reports from contributions by members of their industry. Recommendations from RFIN In response to the invitation by the committee RFIN invited its members to submit recommendations. Interestingly, it seems RFS was the only member to submit recommendations. Here are some of the more noteworthy recommendations that RFS submitted to RFIN:
Recommendations by ICAN The Institute of Chartered Accountants of Namibia similarly submitted a report to the ministerial committee. Here are some of the more noteworthy recommendations:
...and for completeness, ICAN advised its members “Following the letters issued by ICAN and NIPA to the Minister of Finance and the Commissioner of the IRD requesting a blanket extension of tax payment and tax return submission deadlines due to the practical difficulties caused by the lockdown, we received a response today which stated that a blanket extension will NOT be issued either for payments or return submissions. It appears that a response to the 11 suggestions made above is still outstanding. SSC introduces Corona relief measures The Social Security Commission has sprung into action and is offering a N$ 320 million package of relief measures. Here are a few key measures:
Pensioners and fund members urged to provide TIN number to RFS As representative tax payer for pensioners and pension fund members, RFS is obliged to submit monthly returns to Inland Revenue in electronic format. The prescribed information in respect of the taxpayer and the PAYE 5 certificate issued, must be submitted in a specified manner. One of the pieces of information required is the pensioner’s or the fund member’s TIN (tax identification number) for the benefit is has paid to the pensioner or member in the course of the month and the tax RFS has deducted from the benefit. The ITAS (income tax administration system) does not allow RFS to submit the monthly return unless it reflects the TIN number for every person who received a benefit from a fund. PAYE 5 certificates must reflect the TIN of the taxpayer as its information is to reflect in the monthly return. The obligation to submit monthly returns was back-dated to 1 March 2019. RFS has to date not been able to submit the monthly returns as it is not in possession of the TIN of a large number of pensioners and other former fund members who were paid a benefit in the course of the year from 1 March 2019 to 29 February 2020. As the result RFS cannot issue PAYE 5 certificates to pensioners. This may delay pensioners submitting their annual tax return. We are therefore urging all pensioners to provide us with their TIN urgently. Please mail or arrange to have your ITAS registration certificate delivered to RFS, for attention your fund’s administrator. Pension fund governance - a toolbox for trustees
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In ‘Tilman Friedrich’s industry forum’ we present:
In ‘News from RFS’, read about staff being recognised for long service. As always, your comment is welcome, so open a new mail and drop us a note! Regards Tilman Friedrich  Covid 19 precautions by RFS and Benchmark Retirement Fund This topic is dominating all discussions and actions. RFS saw it necessary to send out a special newsletter on the precautions it has and is taking in an effort to protect its staff and clients. If you are interested to establish what we are doing , refer to the article, here...
Monthly Review of Portfolio Performance to 31 March 2020 In March 2020 the average prudential balanced portfolio returned -8.2% (February 2020: -3.7%). Top performer is Stanlib Balanced Fund with -4.3%, while Momentum Namibia Growth Balance Fund with -11.2% takes the bottom spot. For the 3-month period, Stanlib Balanced Fund takes the top spot, outperforming the ‘average’ by roughly 4.7%. On the other end of the scale Momentum Namibia Growth Fund underperformed the ‘average’ by 4.9%. The Monthly Review of Portfolio Performance to 31 March 2020 provides a full review of portfolio performances and other interesting analyses. Download it here... It's not a good time to invest while the volcano is still active! At this stage, the huge uncertainties and the unknown consequences linked to the prevailing lockdown, markets will remain jittery and volatile. A significant part of the economy will disappear over the lockdown with many companies closing down. Governments will focus on rebuilding their economies. They will make every effort to convince their citizens to travel within their countries and to spend their discretionary moneys within, rather than outside. Tourism for one will not anytime soon return to what it has been before the lockdown. A large number of people will be poorer so their spending capacity will have declined and they will spend less on travelling, hospitality entertainment and other discretionary expenses. Some industries will change their face for an extended period, others forever. We now have to live with the economic and financial consequences of the COVID 19 measures taken across the world. The global economy was already in the doldrums even before COVID 19, and it’s now in much worse shape. The problem is that we cannot really reliably say how things are going to evolve after we are all out of this disaster nor how long it will take until global economies and global financial markets have found their bottom and will turn around. It is also pretty certain that some industries will be negatively impacted and others will be positively impacted. Read part 6 of the Monthly Review of Portfolio Performance to 31 March 2020 to find out what our investment views are. Download it here... Old Mutual introduces new AGP series
Compliment from a long-standing member of the Benchmark Retirement Fund “...Also as I am extremely satisfied with your performance and service over the years, ...” Read more comments from our clients, here... Long service awards complement our business philosophy RFS philosophy is that our business is primarily about people and only secondarily about technology. Every time a fund changes its administrator, a substantial amount of information and knowledge is lost. Similarly, every time the administrator loses a staff member, it loses information and knowledge. We know that as a small Namibia based organisation, we cannot compete with large multinationals technology wise because of the economies of scale that global IT systems offer. To differentiate us we need to focus on personal service and on the persons delivering that service to get customer acceptance and service satisfaction. With this philosophy we have been successful in the market and to support this philosophy we place great emphasis on staff retention and long service. The following staff members celebrates their 5-year work anniversary at RFS! We express our sincere gratitude for their loyalty and support over the past 5 years to:
We look forward to Elbie and Faith continuing their value-addition to our clients! Old Mutual introduces new AGP portfolio series Old Mutual in March informed its AGP investors that “The spread of COVID-19 has led to the JSE All Share Index dropping by more than 33% in the month leading up to 18 March 2020. As a result, the value of the assets underlying AGP has fallen, but none of the negative market returns have been reflected in bonuses – which have remained positive to date. The Bonus Smoothing Reserve (BSR) has absorbed these negative market returns and, in the process, fallen into a significant negative position. As a result of the unprecedented impact on financial markets, a decision has been made to close the current AGP 2007 series to new investments with immediate effect. This will protect investors from investing new money in an underfunded portfolio that will negatively impact them in the short term. The aim of the closure is to allow the BSR to recover to a level that allows reasonable future bonuses to be declared before accepting new investments.” A new 2020 AGP portfolio series was launched and all new cash flows since date of the notification will be invested in the new series. Find the circular here... RFS newsletters are too technical for the layman Dear RFS I think I have emailed this before, but would it not be better, instead of publishing a large number of figures and acronyms, totally unfamiliar to non funds managers, to publish a plain language summary, which someone like me can actually understand? I for one would like know if now is the time to buy or if the funds to buy will still go down, but gain no information at all from this, in fact I tune out after a few lines, because of the jargon. I would appreciate if you could bring this to the attention of management. RFS response Dear reader We produce quite a bit of information on retirement fund investments, the retirement funds environment and views on the market on a monthly basis. All of these serve a particular purpose and address a particular need of our stakeholders. One may say it is a bit of ‘horses for courses’. One of these is the monthly Earlybird newsletter that really only provides an early overview of the market and market indices, that you are referring to. The latest one, the Earlybird 2020-03 can be accessed at this link... We also produce a more detailed and more descriptive overview and analyses of financial markets and market indices (the monthly Benchmark Performance Review). In paragraph 6 of that newsletter we normally provide our views of the current state of affairs and what we expect of the future. The latest is the February 2020 newsletter that can be accessed by following this link... Perhaps our views in paragraph 6 of the newsletter is closer to what you are looking for? In addition we produce monthly Benchtest newsletter with topical articles of interest and developments in the pensions industry, the latest of which is the 2020-03 newsletter that can be accessed by following this link. I would also like to draw your attention to important information on fund investments under the ‘Benchmark’/‘Investments’ tab on our website at this link (‘Investment portfolios’, ‘Fund fact sheets’ and ‘Investment policy’). These are all important documents that should assist members with their investment decisions. We would not go as far as giving advice on investments and investment markets, given that pension fund investments are constrained by regulation. Investment decisions depend very much on the individual’s personal circumstances, personal preferences and personal objectives and ‘one size certainly does not fit all’. Our financial advisers, Mrs. Annemarie Nel (081 217 9549) or Mr. Kristof Lerch (081 127 8055), however are geared to use the information we provide to assist you in taking investment decisions. As you know face-to-face meetings can currently unfortunately not be arranged. You are however welcome to contact them telephonically. You are of course also welcome to give me a call. I hope that this will give you some cues and that you will find information that will be of some use to you from the sources referred to above. Note: The opinion of our readers does not necessarily reflect the opinion of RFS. We reserve the right to shorten and to edit letters received from our readers. NAMFISA’s COVID 19 relief concessions NAMFISA issued circular PF/CI/01/2020 announcing the following concession to industry in the wake of the lockdown:
Nominated beneficiary predeceasing policy holder What happens if a policy holder nominated a beneficiary to receive the policy proceeds in the event of the death of the policy holder? Can the executor of the deceased beneficiary claim the benefit from the insurer after the death of the policy holder, or will the insurer pay the benefit into the estate of the deceased policy holder? This is an interesting question that no doubt also occupies financial planners and their clients in Namibia regularly. This subject is discussed in an article that was published the De Rebus journal of the SA Law Society. The case discussed in this article is that of PPS Insurance Company Ltd and Others v Mkhabela (SCA). In this case Ms Sebata had a life policy issued by PPS. She nominated her mother as beneficiary of the policy proceeds in the event of her death. Her mother passed away on 26 May 2007. Her daughter, the life insured passed away on 12 August 2007, without having nominated another beneficiary. The mother’s executor claimed the policy proceeds in the High Court. The full bench held that once the mother accepted her nomination as beneficiary and PPS recorded this, a binding agreement between her and PPS came into effect and that her executor was entitled to accept the benefit of the policy on deceased’s mother’s behalf. PPS appealed this judgement. PPS succeeded in its appeal as the appeal court found that because the mother died before her daughter her expectation of benefiting expired at the death of the nominee (the mother). Read the full article by Dwight Buys, in De Rebus journal of 1 March 2012, here... Markets are not going to slow down! The speed of market movements over the last month has been almost unprecedented. Statistics from S&P Dow Jones Indices show that in the space of just two weeks in March the S&P 500 experienced two of its ten largest daily drops ever as well as two of its ten biggest daily gains ever. As the tables below indicate, all four of these significant movements happened between March 12 and 24 – a period of just 12 days.
Read: Global markets lost nearly $8 trillion in value in March The only time something like this has happened before was at the start of the Great Depression in 1929. Read the full article by Patrick Cairns in Moneyweb of 8 April here... Expect wild swings in asset prices “As countries globally continue to count COVID-19 infection rates and mortality figures attributable to the pandemic, the elevated level of risk being experienced in financial markets may be sustained for periods longer that initially envisaged – leaving investors vulnerable to volatility and implying that decisions to enter or exit markets might be postponed until more stable conditions return. Benedict Mongalo, Chief Investment Officer at leading independent fund manager, Novare Investments, commented: “Investors in South Africa and globally have over recent months faced a daunting array of risks that are impacting asset prices in different ways, complicating investment decisions and raising the chances of financial losses.” He added that, while predictable risks like the possibility of Moody’s Investors Service downgrading South Africa to “junk” tend to some extent to be reflected in asset prices in advance, unknown and unpredictable risks like the coronavirus are inclined to cause short-term shocks in capital markets. These events are taking place against the background of one of the longest equity market bull runs ever. Some analysts argued that one reason the coronavirus initially had such a huge impact on markets was because nervous investors saw it as an opportunity to reduce their exposure to asset prices that had run too far in the global equities rally... Investors should stick to their investment objectives, avoiding short-term knee-jerk reactions to perceived market risks, whether expected or unannounced. For investors in stocks especially, withstanding short-term price fluctuations often generates superior long-term returns.” Read the full article by Novare Investments in Cover Magazine of 8 April here... Should pensioners do something about their investments? “...It’s a very difficult position partly because of where we find ourselves today. There’s no real historical benchmark that we can use to try and project what markets are going to do. So let’s just look at the basics. My kind of high-level suggestion to pensioners would be first of all to assess whether your annuity was healthy to start off with. So what do I mean by ‘Was it healthy?’ What I mean by that is: if you’re younger than age 70 where you’re drawing a responsible income of something like 5% or maybe 6% or less; and if you’re older than 70, what was your income – 8% or less? – then at least it’s a responsible income. Did you have adequate exposure to equities, 50-60% minimum, and did you have at least 20-30% offshore exposure? If the answers to those questions are generally yes, for that category of pensioners, I would say you should actually not be doing anything to your annuity. And the reason quite simply is that because we don’t know what markets are going to do from this kind of wildly volatile point on forward, anything that you do to your annuity is as likely to be detrimental as beneficial. So it becomes a bit of a gambling situation and therefore if you have a responsible annuity, I would say you would be best served doing nothing to the portfolio. However, a lot of people might not be in the position where their annuities are in line with the benchmarks I’ve given at the start. And those are the people who, I think, the question is much more pertinent [to]. So let’s start with people where the income draw is too high. If your income draw was too high, I think that should get attention immediately...” Read this interesting interview with Ryk van Niekerk and Jaco van Tonder of NinetyOne (formerly Investec) in Moneyweb of 2020, here... Corona virus I – Why it is vital to keep asking if we are wrong about the pandemic “Lord Sumption, retired justice of the supreme court of the UK, insists that the measures taken by the UK government in response to the threat posed by the Covid-19 pandemic represent a “hysterical slide into a police state” and an “irrational overreaction driven by fear”. Moreover, he told the BBC, the public, consumed with panic, have abandoned their critical faculties, failing to ask:
A non-essential business? There is no such thing! In a recent webcast, Jerry Gundlach, founder and chair of US investment firm DoubleLine Capital, posed exactly this question. “There is no such thing as a non-essential business,” Gundlach argued. “They are all essential to their owners, and those businesses are interconnected to one another.” This is something South Africa is going to have to grapple with in a very real sense when the lockdown is over. It is a reality that will be recognised in two ways. The first is that every business exists because it is supplying something to somebody...here companies and individuals are able to respond to a pent-up demand, could well be a good news story post-lockdown. However, there will be others that are far less positive. Many businesses that are supplying parts or services within larger supply chains are going to struggle to survive. Even if they do, they may start operating at reduced capacity after the lockdown. This will have knock-on effects. Any supply chain only runs as well as its least efficient component, and this could mean major disruptions to many parts of the economy as capacity is re-established. This could take years. Put another way, every business in a supply chain is ‘essential’ to keeping it functioning in a productive manner. Unfortunately, the lockdown is going to prove how true this is. Read the full article by Patrick Cairns in Moneyweb of 7 April 2020, here... Lockdown: poking the bear? “There is no doubt – poverty kills more people than all the other nasties put together. And there is no doubt that the current lockdown will lead to more poverty – which, accordingly, will kill more people. So will the lockdown save more lives than the number that will be taken as a result of poverty? Wealth is good and poverty is bad. Everything that most people regard as good correlates with wealth: good education, good health systems, low crime, long lives and so on. Correspondingly, everything perceived as bad relates back to poverty, from unemployment and low life expectancy to corruption and, as the saying goes, much, much more... A healthy economy shelters healthy citizens. The health of a country equates to the wealth of a national economy. The current lockdown is intentionally undermining the economy – obviously in the belief that it will lower or limit the number of lives lost to Covid-19 as opposed to the number of lives lost as a result of increased poverty... The options are grim: to lock down the economy and kill 300 000 people over time due to the rise in the poverty rate, or not to lock down and potentially kill a maximum of 600 000 people if all South Africans get the virus in a short period of time, at a morality rate of 1% (mentioned above, far too ugly an estimate). Unfortunately, it’s not an either/or choice; people will die of the virus whether we lock down or not. In fact, some analysts reckon that everybody will eventually get the virus, and some will die. The sum of these statistics and projections are not encouraging. The total number of South Africans that will die over the next 10 years could be more than 300 000 killed by poverty, plus the number that will die from the virus despite all efforts to limit or contain the spread. That many people will die from the virus is a given. Locking down the economy will simply serve to increase the number of poverty-related deaths. Read the full article by Dawie Roodt in Moneyweb of 17 April 2020 here... Great quotes have an incredible ability to put things in perspective. I rebel therefore I exist. ~ Albert Camus |
|||||||||||||||||||||||||||||||
2020-03
|
|||||||||||||
| In this newsletter: Benchtest 02.2020, Corona alias Covid 19, FIM Bill passed through parliament and more... |
|||||||||||||
|
FIM Bill approved by parliament with amendments to section 15 (principal officer and principal office, insurance chapter), 102 (principal officer and principal office, financial markets chapter), 185 (principal officer and principal office, collective investments chapter), 296 (principal officer and principal office, retirement funds chapter), 339 (principal officer and principal office, medical aid funds chapter) and 372 (principal officer and principal office, funds and society administrators chapter) were amended and is now en route to the National Council. ITAS update and other useful information The Institute of Chartered Accountants of Namibia (ICAN) meets with the ITAS team on a regular basis and provides feedback from these meetings to its members. Here are questions to which you will find an answer in ICAN’s ITAS update #14, as well as useful contact names and their telephone numbers, here...
Q: If such a taxpayer hasn't submitted the 2020 return by 30 June, how sure can one be that the penalties/interest will be waived by 30 June? Can one rely on the fact that the due date is after 30 June? Could one arrange for a formal confirmation by ITAS Revenue? A: Very sure. If the system does not show any outstanding returns (meaning the due date has passed and the return is not yet submitted) and the taxpayer is registered as an online portal user on ITAS, the penalties and interest will be waived. It doesn’t take into account returns that are not due yet on the date that penalties and interest is waived. Remember that a taxpayer will only get the incentive once. If they have no outstanding returns on ITAS or penalties and interest as of today, then they have already received the incentive. Penalties and interest that accrue thereafter will not be waived. Q: Has ITAS found a solution how to record/upload 3 or more top-up provisional returns/payments? As you know, the system only provides for 2 provisional returns. I remember we discussed this one already. A : No additional return is needed for the top up payments as confirmed by Sirkka (ITAS team leader) on 25 Sept 2019. You just make a payment with the period reference part of the payment reference being 201900 or 202000 (whichever the year is with 00 afterwards) and it will allocate correctly. It’s not an account payment, it’s a top up payment. Only if you make a cash payment must you complete that “return of final payment of income tax” because you will pay it at the IRD offices and they still require that form to correctly allocate your payment online. The all new Electronic Transactions Act Nowadays most of business communication is in digital format. Business probably generally save all digital communication and documentation in digital format and probably on top of that also file hard copy versions of the digital documents. This obviously requires quite an effort in terms of retention and archive management. Up to now business really had no choice but to maintain a costly dual system for digital and physical retention of all business communication as technological progress in digital communication had left behind the law that still requires physical documentary evidence should any matter be heard in court. Reprieve however is in sight now since the promulgation of the Electronic Transactions Act, Act no 4 of 2019 in government gazette 7068 of 29 November 2019 that hardly received any attention in the media although it will bring about major changes to the creation, capturing, processing and retention of business documentation and communication. If you missed the previous newsletter and would like to obtain an overview of the provisions of the new Electronic Transactions Act, access the newsletter here... Download the Government Gazette in which this Act was promulgated, here... Note that the Act still needs to be made effective by the relevant minister by notice in the government gazette. Pension fund governance - a toolbox for trustees
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In ‘Tilman Friedrich’s industry forum’ we present:
In our Benchmark column, the Fund’s principal officer advises “Do not panic and do not lock in losses caused by Corona”.
In ‘News from the market place’ read about “The National Pension Fund is imminent”.
As always, your comment is welcome, so open a new mail and drop us a note! Regards Tilman Friedrich Covid 19 precautions by RFS and Benchmark Retirement Fund This topic is dominating all discussions and actions. RFS saw it necessary to sent out a special newsletter on the precautions it has and is taking in an effort to protect its staff and clients. If you are interested to establish what we are doing , refer to the article, here...
Monthly Review of Portfolio Performance to 29 February 2020 In February 2020 the average prudential balanced portfolio returned -3.7% (January 2020: 1.1%). Top performer is Investment Solutions Balanced Fund with -2.1%, while Hangala Prescient Balance Fund with -5.4% takes the bottom spot. For the 3-month period, Allan Gray Balanced Fund takes the top spot, outperforming the ‘average’ by roughly 2.0%. On the other end of the scale Momentum Namibia Growth Fund underperformed the ‘average’ by 2.8%. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 29 February 2020 provides a full review of portfolio performances and other interesting analyses. Download it here... Will there be life after Corona? By now we are all acutely aware of the sharp decline in global financial markets. The JSE Allshare Index declined by 33% from 57,084 at the end of December to 38,267 at the time of writing the column. Earnings of the index were 6.34% at the end of December while the dividend yield was 3.9%. If the underlying companies were able to maintain earnings at that level, earning should currently amount to 9.5% and dividend yield should amount to 5.8%. To put this into a more common context, if you let your house of N$ 2 million generating a return of 6.34% or a rent of N$ 10,600 per month. If you were to continue earning the same rent but your property agent tells you that the value of your house has dropped to N$ 1,3 million, why should you be concerned about this drop in value. Supply and demand should result in the market adjusting upward again in time to come. Now let’s look at an investor who invests offshore. The S&P 500 index declined by 29% from 3,217 at the end of December to 2,284 at the time of writing. However, the Rand: US$ exchange rate at the same time weakened from 13.98 to 17.7. The value of the index at the end of December for a local investor would have amounted to N$ 44,974 while it now amounts to N$ 42,196, representing a decline in value of ‘only’ 6%. Something one can live with, I suppose. This once again shows the value of diversifying one’s investment across the globe. As readers will know, pension funds typically have invested around 30% offshore as the result of which one can expect the decline in value of pension fund investments to be ‘only’ in the region of 25% to the end of March. Read part 6 of the Monthly Review of Portfolio Performance to 29 February 2020 to find out what our investment views are. Download it here... FIM Bill sails through parliament
Going by the FIM bill experience it would seem that the Namibian legislative structure is severely hamstrung where we do not really have a functioning regulator who is appropriately equipped to exercise its responsibility of regulating. Instead, the ministry of finance is utterly dependant on, not to say at the mercy of the supervisor, which is NAMFISA. In its attempts to have its concerns heard at regulatory level, industry found that every attempt to be heard merely ended up with the supervisor. So, there is and never was, any channel for having industry’s concerns heard objectively and without bias. Since the performance of the global economy is the underpin of the performance of global equities, our hopes for an improvement of our retirement outlook is pinned to an improvement in the global economy. We have all been incensed by the negative impact of president Trump’s trade war with China in 2018, primarily on equities. Some glimmer of hope of the dispute being resolved reared its head in 2019 and lead to a pleasing recovery in global equities. In 2018, our average prudential balanced portfolio returned a mere 0.5% against the backdrop of an inflation rate of 5.1% - thus a negative real return of 4.6% for the year! In 2019 fortunes turned much to every pension member’s satisfaction. For the year 2019, our average prudential balanced portfolio returned 9.9% against the backdrop of an inflation rate of now only 2.1% - thus a positive real return 7.8% for the year! Many a fund member may not appreciate the fact that funds returned ‘only’ a single digit return having been spoilt in the 20 years or so up to the financial crisis in 2008. However, considering that the expected long-term real return on a typical prudential balanced investment portfolio is around 6%, the real return on our average prudential balanced fund for 2019 actually exceeded the expected long-term real return by around 2% - nothing to be dissatisfied with at all! This has been quite an unexpected turn of fortunes for pension funds.
Compliment from the manager (finance and administration) of a Benchmark employer “Dear RFS Team Mooi dag en dankie vir julle pragtige gesindheid en uitstekende diens!” Heinz Ahrens, broker from Swakopmund comments on Facebook “Best company in the financial services sector.” Read more comments from our clients, here... Do not panic and do not lock in losses caused by Corona The Coronavirus pandemic will have a very negative social and economic impact – immediately, but probably also for some time to come. Investment markets and asset prices have experienced new record-lows over the past few weeks. This will also impact your investments in the Benchmark Retirement Fund, managed by various asset managers. We expect significant losses when we receive investment values at the end of March. Stick to your investment objectives Now is the time to remain focused on your long-term investment objectives and not to make poor short-term investment decisions. The balanced portfolios you are invested in will not have the same negative experience as the stock markets – firstly, since some 45% of assets are invested in Namibia where the down-turn has not yet been so severe; secondly, since the portfolios are diversified across various asset classes other than just equities; and thirdly, because the asset managers managing your funds apply their skill and expertise to minimize such losses. Do not lock-in losses Under these circumstances, emotions may over-ride sound financial principles. We strongly advise against switching from balanced funds to money market funds, for example, or to switch asset managers in this phase of high uncertainty. Any such action will mean that unrealized investment losses will become realized. It also means that when stock markets recover – and they will, albeit that we do not know when and how quickly – you may not participate in that recovery. For the typical member of a retirement fund with a horizon of 5 years or more until retirement, no immediate changes should be made to the investments held – remain invested, as hard as it may be! Be clever about retirement You may be in a position where you want to retire in the next couple of months. The choice of retirement product at this point becomes critical. Some retirement products will allow you to participate in a market recovery alluded to. Talk to your employer, perhaps they may be in a position to defer your retirement date to get beyond this phase of uncertainty and losses. If you have access to other means of income, consider deferring your retirement date. Alternatively consider preserving your full retirement capital if you do not need an income immediately to allow markets to recover. Consult Please contact your financial intermediary and discuss any course of action before you hastily implement changes. We hope that you will find the courage to seriously consider the few suggestions we made. We cannot guarantee any outcomes and we cannot establish whether things will first get much worse before they improve, but sticking to a clear investment strategy is now more important than ever. Email Günter Pfeifer or This email address is being protected from spambots. You need JavaScript enabled to view it. or call either on tel 061 446 000 if this is a matter you are currently grappling with.
 By when must contributions be paid? The Pension Funds Act does not define “day” and therefor the word should be interpreted in terms of the Interpretation Proclamation No 37 of 1920. Contributions received up to the seventh working day of a month, Saturdays excluded, are accordingly not late.
RFS sponsors RFS/SKW youth soccer tournament THE SKW Youth Football Tournament will be held for the 13th successive year at the SKW fields from 3 to 5 April. [At least that was the plan but ‘lady Corona’ has called early school holidays and the tournament will now be rescheduled.] Retirement Fund Solutions which has sponsored the event since its inception will once again be the main sponsor, with an award of N$53 000 for this year's tournament which will see more than 900 children competing in age groups from u7 to u17. Established clubs such as SKW, Ramblers, Athletico Football Club, DTS and Swakopmund are expected to enter as well as various other schools. The Namibian reported on this tournament recently. Click here for more... RFS sponsors RFS/K5 indoor hockey league
RFS sponsored the RFS/ K5 annual indoor hockey league for the 5th year running. In the photos below, Louis Theron, associate director of RFS, poses with some of the teams that participated in this tournament played over a number of weekends at the Windhoek show grounds. The National Pension Fund is imminent At the Elojta Investment Forum that was staged at NIPAM on 10 March, Ms Milka Mungunda, CEO of the Social Security Commission, mentioned that the National Pension Fund is very much in the pipeline. She expects the fund to be implemented in 2 years’ time. It is understood that ILO consultants are currently assisting SSC to draft the new legal framework. The contribution rate and exemption criteria for existing funds, if any, have not been defined yet. Ms Mungunda mentioned that consultations with stakeholders will commence soon. If you want to delve into more detail, find the presentation here... If I were a pension fund member and read NAMFISA’S 2019 annual report... part 2 In September 2019 NAMFISA released its annual report on its supervision of non-bank financial institutions (NBFI’s) for the year ended 31 December 2018 (AR 2019), including its financial statements for the financial year ended 31 March 2019. In my opinion any pension fund member who reads AR 2019 will find much to take issue with. Assuming I was such a member, I share my “Top Ten Pet Peeves” in a two-part series. (The first part appeared in Benchtest 01.2020.) 1. One cannot compare “apples with apples” The asset allocations reported on in AR 2018 are grouped in broad asset categories, while AR 2019 drills down to specific assets within a broader category. How can one compare apples with apples when the composition of the basket differs? 2. What does Risk-based Supervision mean? Does NAMFISA regard risk-based supervision as just a series of inspections? What did NAMFISA do in 2018 about the structures that pose risks or drive risky behaviour by pension funds? Inspection findings are listed but not adequately explained and no reasons are given for why these are cause for concern. For example, AR 2019 lists the following as key finding following off-site inspections: - “significant increases or a lack of movement in unclaimed benefits”. Since NAMFISA levies for pension funds are based on a percentage of such funds’ assets, how keen is NAMFISA to resolve the issue of unclaimed benefits? Is the increase in unclaimed benefits due to investment returns thereon, increasing numbers of beneficiaries failing to claim benefits, a decline in the number of active members or a reduction in other fund assets? What is NAMFISA doing to remedy the situation? - Non-compliance with domestic asset requirements. No explanation has been given for the possible reasons for this non-compliance. Is this due to poor pension fund management, blatant disregard for the law or other extraneous factors? Pension fund experts may well understand why certain inspection findings are cause for concern, but does the average pension fund member? I would argue that NAMFISA’s Leadership Creed makes member education NAMFISA’s business too. While it may be easy to spot problems, it’s not always easy to remedy them as evidenced by the same inspection findings over the last two reporting periods and no explanation or indication of remedial action by NAMFISA. Can NAMFISA identify the structural drivers of such non-compliance and remedy the problem? How will NAMFISA address issues like inaccurate reporting of fund investments and composition of boards of trustees not in accordance with fund rules? 3. Who is to blame for pension funds’ failure to meet domestic asset requirements? No reasons are furnished for the probable causes of pension funds’ collective failure to meet the domestic asset requirements. While the causes of this failure may be obvious to NAMFISA, misperceptions may arise among those not in the know. To ascribe the failure solely to the devaluation of domestic assets relative to those denominated in foreign currency prevents the real question being asked; is non-compliance with domestic asset prescriptions really “failure” when the goal is unattainable? Will the average member realise that the demand by pension funds for domestic investment opportunities outstrips local supply or that the due to their size, quality, liquidity and spread of asset classes, domestic capital markets are not entirely appropriate for pension fund investments? If I were a pension fund member, I would be inclined to lay the blame for this so-called failure to meet the domestic asset requirements squarely on the shoulders of the trustees in the absence of any other explanation. Just about every pension fund in Namibia is a defined contribution fund. This means that members’ end benefit (merely an accumulation of savings plus any investment growth thereon) are utterly dependent on pension funds consistently earning real returns for their members who bear the full investment risk. A member of a defined contribution fund does not have the safety net of a guarantee by the employer to make good any shortfall if the member’s actual pension pay-out is lower than his/her projected pay-out. If I were a member, I would be relieved to see that despite the continued contraction of the Namibian economy in 2018, volatile financial markets and pension funds’ failure to meet domestic asset requirements, pension funds have managed to grow their assets through investment returns as well as the addition of new contributions. 4. AR 2019’s focus is in the wrong place The report shows that the non-banking financial sector has remained financially sound, with no inherent vulnerabilities in the system. This is mentioned almost in passing and much lip service is paid to the size of the regulated markets. As a pension fund member, I would derive much comfort from knowing that my retirement nest egg is as safe as can be. 5. Who is sending whom a message? In the light of the increased prescribed domestic asset requirements introduced 2 years ago, the amendments and proposed further amendments to the Administration of Estates Act and the imminent promulgation of the FIM Bill, I cannot but question why NAMFISA chooses to emphasise the size of the asset base of the pension industry and its composition while virtually no mention is made of the owners of these assets. Who is sending whom a message? Knowledge is power, but when statistics are presented without explanation and divorced from the welfare and livelihoods of the members served by the pension industry, then we can expect to see pension fund monies come under increasing pressure from government and by those not currently served by the industry. We are talking about citizens’ hard-earned savings here, not discussing the market capitalisation of profit-driven entities seeking to garner wealth for their own selfish ends. We are talking about accumulated assets that will ensure that the owners thereof will not be a burden on the state one day if the pension industry continues to do its job well. (As an aside, there are huge economic and income disparities in Namibia and these must be addressed, but an eye for an eye simply leaves a nation of blind people. Any redistributive mechanism that simply exchanges one group of citizens for another will have achieved nothing at the end of the day. The poor will still be with us, but the danger is that their ranks will have swelled.) Against the backdrop of political uncertainty and economic volatility, the last thing any member of a pension fund needs is information for the sake of information. What NAMFISA reports on and the way it does so is as important as the regulation that it performs. Members want to know that their pension funds are well managed, well-regulated and that their retirement savings are secure against all comers, whether unscrupulous or incompetent service providers, overreaching regulators or cash-strapped governments. If the pension industry charged with helping members attain financial security in their old age is not discharging its mandate, members surely want to know this, just as surely as they want to know that the regulator that they fund is holding up its end of the deal and the government that their taxes support is indeed serving the best interests of all citizens. If any of these parties is found wanting, then members want to know that the rot has been stopped and that remedial action has been implemented. At least, that is what this member would want to know. As international experience has shown, if pension funds and their members “lose”, society at large also loses. Note: The opinion of our readers does not necessarily reflect the opinion of RFS. We reserve the right to shorten and to edit letters received from our readers. Industry Meeting held on 3 December 2019 In Benchtest 11.2019 we provided bullet point feedback by RFS representatives who attended the industry meeting. NAMFISA recently circulated its minutes of this meeting. A common trend appears to further manifest itself in that the meeting was by our count attended by 19 retirement funds (just less than 20% of the industry) of which 13 are administered by RFS. Whilst RFS regularly has its differences with the supervisor, it is evident from the attendance of these industry meetings that funds administered by RFS appear to be the more active industry participants. Is this because of or despite the role RFS plays in the lives of funds administered by RFS? Here are key matters addressed in the industry meeting in bullet point format:
Joburg adviser on the hook after client email hacked Global & Local Investment Advisors paid out R804 000 of Nickolaus Ludick Fouché’s funds to three third-party accounts after receiving emails requesting it to do so. It all started in November 2015, when Fouché, a mining consultant, gave a written mandate to Global & Local to act as his agent and invest money with Investec Bank on his behalf. In the written agreement, it was stipulated that: “All instructions must be sent by fax or by email with Fouché’s signature.” Fouché realised that his Gmail account had been hacked by fraudsters who used his email address to send three emails to Global & Local – on August 15, 18 and 24 – requesting that the funds be transferred into the accounts of named third parties at First National Bank (FNB). Two of the three emails ended with the words: ‘Regards, Nick’ while the third ended with ‘Thanks, Nick’. Responding to the instructions as per the three emails sent – which had no attachments – the financial services provider based in Johannesburg paid out R 804 000 from Fouché’s account over three days in August 2016. According to the Supreme Court of Appeal: “Fouché claimed payment of the amounts transferred to third party accounts on the basis that Global had paid out contrary to the written mandate.” In its defence Global & Local said it had acted within the terms of the mandate on instructions that originated from Fouché’s legitimate email address and that the typewritten name ‘Nick’ at the foot of the emails satisfied the signature requirement. It said this is in consideration of 13(3) of the Electronic Communications and Transactions (ECT) Act 25 of 2002. The act says that when an electronic signature is required by the parties to an electronic transaction and the parties have not agreed on the type of electronic signature to be used, that requirement is met in relation to a data message if:
The High Court stated that this is not a case where the parties agreed to accept an electronic signature as envisaged by the act. It had elaborated by saying that this was “a case where the parties required a signature. No more and no less”. “A simple mechanism to achieve that requirement would simply be to reduce the request to writing, to sign it and to forward it by email or fax to the defendant as the recipient.” The High Court said the agreed mechanism is in line with a purpose and practical interpretation of the provisions of the mandate in line with the probable common intention of the parties and was aimed at avoiding precisely the unlawful activity that caused the damage to Fouché. “It is common cause that no signed instruction has been given to the defendant [Global & Local] empowering it to transfer the amounts totalling R804 000 from the plaintiff’s [Fouchés] CCM account,” the High Court noted. It found that the transfer was made unlawfully, conflicting with the terms of the mandate that required an instruction bearing Fouché’s signature. On Wednesday, the Supreme Court of Appeal dismissed Global & Local’s appeal with costs, saying “in the commercial and legal world signatures serve established purposes”. “Signatures are used as a basis to determine authority and can be checked for authenticity. When money is paid out on a cheque it is done on the basis of an authorised signatory whose signature can be verified.” Read the full article by Melitta Ngalonkulu in Moneyweb of 19 March 2020 here... PFA jurisdiction under the spotlight – What applies when group life cover is involved? A recent Financial Services Tribunal case highlights the jurisdiction of the Pension Funds Adjudicator (PFA) in so far as group life insurance scheme falls under the Pension Funds Act are concerned. Case background
ABSA claimed that the rules of the Scheme governing the distribution of benefits offered under the Scheme, and how the Scheme is administered with regard to death benefits, is aligned with the principles of section 37C of the Act even through the scheme is not governed by the principles of the Pension Funds Act. The Employee Benefit Insurer therefore took cognisance of the fact that:
It was demonstrated that the Scheme in this case was not registered and therefore the PFA did not have jurisdiction in the matter. As a result, the order was dismissed. Read the full article by Janine Geldenhuys, in Moonstone journal of 4 February 2020, here... Here’s Your Best 5-Point plan for Covid-19 disruption “1. Know where to go for reliable, up-to-date information: ...We should not be gathering information from Facebook, from “friends of friends” WhatsApp messages, or from any news sources known to be sensationalist... If you are a leader in a school, a public building, or a leader in the community, or at a business, make a decision about who will be the spokesperson for your organisation and let everyone know 2. Ensure you understand – and prepare for – the implications of a worst-case scenario (it is not as bad as you think, but worse than you can imagine, if you haven’t thought about it): It is very unlikely that we will be able to contain it. It will spread to every country and region in the world. For most people, this will just mean mild flu-like symptoms for a few days... 3. Inform your people about the procedures they must follow, and how they will be supported: ...We should then think about our clients, staff, family and friends. What will we do if someone in our circle contracts COVID-19? What is our response plan?... Businesses need to be thinking about staff policies, leave implications and setting up for remote working where possible, amongst many other issues. 4. Look after the vulnerable: ...If we ourselves or our loved ones are in a vulnerable group, we need to take extra precautions and consider carefully how we will respond if anyone in our circle gets COVID-19... 5. Remember to “never waste a crisis”: ...There are honestly two important considerations in the midst of this crisis. The first is the opportunities that will arise. There will be opportunities for entrepreneurial minded people to take hold of... Secondly, this crisis is the first crisis of the 2020’s. It is not going to be the last. Our team at TomorrowToday has been predicting that the 2020’s is going to be the most disruptive decade any of us has experienced...” Read the full article Graeme Codrington in TomorrowToday Tuesday tips of 11 March 2020, here... Coronavirus market sell-off “...We would caution investors not to panic and sell their assets in the downturn, since they could lock in short-term losses. Rather, stepping back and taking a long-term view will help to weather the volatile conditions. It’s worth remembering that this is only one of many “epidemics” that the world has experienced since the SARS outbreak in February 2003. Among others, we have also had the Avian flu (H5N1) in 2006, the new strain of Swine flu (H1N1) in 2009, the Ebola outbreaks of 2014 and 2018 and the Zika virus in 2016... The real world impacts of the Coronavirus are tragic and profound, and today’s investment mood has changed dramatically from the relative comfort of only a month ago. Ultimately, however, the greatest opportunities occur when investors (including ourselves) are at our most fearful, and in that respect this is an episode that is still developing.” Read the full article by Pieter Hugo Chief Client and Distribution Officer at Prudential SA of March 2020 here... Financial fraud lubricates the banking system "The traditional argument for central banking, of course, was that a little bit of financial fraud (3% per year balance sheet expansion per Uncle Milton Friedman, for example) could help lubricate the banking system and nudge gross domestic product (GDP) to steadier performance over time. What we have now is epic-scale counterfeiting. There are now upward of $5 trillion of fiat money liabilities at the Fed and $25 trillion at all the world’s central banks, compared to just $500 billion and $2 trillion, respectively, at the turn of the century. And the latter figures were achieved only after decades, in some cases centuries... Indeed, they’ve turned the entire global financial system into a cesspool of false prices and destructive gambling rackets. They’ve stripped it of the honest money and legitimate capital formation its needs to function and thrive. What lies ahead is a no man’s land of statist demolition. You don’t need to be a cynic to see why the Eccles Building has launched its limp baby bazookas this week. The Federal Reserve now, and for many years past, has been the abject handmaid of the Wall Street gamblers, bullies and crybabies. Fedheads are deathly afraid of honest stock market prices – i.e., a crash – because they know it will make a mockery of their risible claims that the U.S. economy is in a “good place,” that the consumer is “strong,” that they’ve delivered the hallowed state of price stability and full employment, world without end... In truth, decades of monetary central planning have sucked the lifeblood out of Main Street. It’s destroyed savers; addicted households to debt-based hand-to-mouth living; eviscerated the purchasing power of wages via its 2.00% inflation obsession; and turned the C-suites of Corporate America into stock trading rooms and financial engineering joints in the service of Wall Street, not the construction of resilient, value-creating enterprises. But the mask is being ripped off the phony narrative about the strength of the Main Street economy – especially the purported Energizer Bunny of household consumption." Liston Meintjes’ excerpt from David Stockman’s e-mail of 18 March. Great quotes have an incredible ability to put things in perspective. Don’t handicap your children by making their lives easy. ~ Robert A. Heinlein |
|||||||||||||
2020-02
|
||||||||||||
| In this newsletter: Benchtest 01.2020, Electronic Transactions Act summarised and more... |
||||||||||||
|
Employers were originally required to submit their monthly PAYE 5 returns on ITAS by 20 September. Due to difficulties experienced by many employers to adapt their payroll systems in time, the due date was postponed to 20 March with a clear message that any further extension will not be granted. Read the relevant PWC alert here... RFS once again scoops top PMR award
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In ‘News from RFS’, read about:
...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 FIM Bill – a fait accompli I“If the facts are against you, argue the law. If the law is against you, argue the facts. If the law and the facts are against you, pound the table and yell like hell”. These popular words by Carl Sandburg were my opening remarks at a panel discussion on the FIM Bill organised and held at Namibia University of Science and Technology in association with Harold Pupkewitz Graduate School of Business. The event drew huge interest from the media, industry players, business representatives and even from some ordinary pension fund members. The FIM Bill as it has become popularly known, has been a heated topic of discussion in pension fund industry gatherings, in boardrooms and training rooms and in corridors of institutions that will be regulated. It is also a subject matter on which a lot has been written about by the early readers of the Bill. As you may be aware, the FIM Bill was tabled in Parliament in its last sessions of 2019 and it was postponed without much discussion. The Bill will likely be discussed during last sitting of Parliament which will end 19 March, before new lawmakers are sworn in after the country’s 30th independence celebrations. I thought NUST and the Harold Pupkewitz Business School should be applauded for recognising the need to organise a discussion and create awareness about this very significant law amongst the student community, academia and the public at large. Those of us operating in the pension funds industry have for some time been calling for a more robust engagement on this Bill amongst stakeholders. As was clear from the presentations, discussions amongst panellists and questions from the floor, there is clearly a need for an intensified and broad stakeholder discussion on critical issues of concern that need to be addressed before the Bill is passed into law. I established from the organisers of the panel discussion, who confirmed that they have sent invitations to the Speaker of the National Assembly (NA), the Chairperson of the National Council (NC), the Executive Director, the Deputy Minister and the Minister of Finance respectively. The organisers further confirmed that they also requested the Secretaries to the NC and the NA respectively to forward an invitation to all MPs. Unfortunately, all these central parties to this extremely complex law were conspicuous in their absence. The lawmakers have lost a tremendous opportunity to become aware and understand first hand, the issues they could have followed up and to prepare themselves accordingly for the discussions needed to make this law. The FIM Bill once passed into law, will not only affect practitioners who have to ensure that they are adequately versed and resourced to implement the law to the letter. It will no doubt, also impact on the expected benefit of and payment to the common member from their retirement savings fund. This is because the practitioners and custodians of pension funds first need to be clear in no uncertain terms how to interpret the law with all its regulations and standards before being able to apply and comply with it. Similarly, the supervisory regulator (NAMFISA) needs to be adequately equipped to enforce the law, NAMFISA appeal board needs to be capacitated to deal swiftly and justly with all cases brought before it and our courts need to be properly resourced and prepared to establish new case law. A wise man once said, “it is better to debate a question without settling it, than to settle a question without debating it”. It is therefore my sincere hope that the panel discussion held stirred and awoke something in all who were present, and my message: - To the lawmakers – my hope is that they will seek opportunities to inform themselves on all issues of possible concern in the Bill with the view to have these addressed before passing it. A heavy responsibility rests on their shoulders to ascertain that this law is fair, reasonable, relevant and appropriate for Namibia before they lift their hands in approval of this law. To the trustees and members of retirement funds – my hope is that they will insist on their needs to be educated about the law and its consequential impact on their duties as trustees and retirement savings respectively. To the practitioner – my hope is that we can earnestly embrace the positive aspects of the Bill and propose practical solutions to areas of concern with the Bill. To the Regulator – my sincere hope is that NAMFISA will prudently consider the aspects pointed out as being of serious concern and purposefully engage all stakeholders with the view to find just solutions.
Monthly Review of Portfolio Performance to 31 January 2020 In January 2020 the average prudential balanced portfolio returned 1.1% (December 2019: 1.0%). Top performer is Investec Namibia Managed Fund with 2.0%, while Momentum Namibia Growth Fund with -0.3% takes the bottom spot. For the 3-month period, Namibia Coronation takes the top spot, outperforming the ‘average’ by roughly 1.3%. On the other end of the scale Momentum Namibia Growth Fund underperformed the ‘average’ by 2.3%. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 31 January 2020 provides a full review of portfolio performances and other interesting analyses. Download it here... Does the global economy show any signs of recovery? Since the performance of the global economy is the underpin of the performance of global equities, our hopes for an improvement of our retirement outlook is pinned to an improvement in the global economy. We have all been incensed by the negative impact of president Trump’s trade war with China in 2018, primarily on equities. Some glimmer of hope of the dispute being resolved reared its head in 2019 and lead to a pleasing recovery in global equities. In 2018, our average prudential balanced portfolio returned a mere 0.5% against the backdrop of an inflation rate of 5.1% - thus a negative real return of 4.6% for the year! In 2019 fortunes turned much to every pension member’s satisfaction. For the year 2019, our average prudential balanced portfolio returned 9.9% against the backdrop of an inflation rate of now only 2.1% - thus a positive real return 7.8% for the year! Many a fund member may not appreciate the fact that funds returned ‘only’ a single digit return having been spoilt in the 20 years or so up to the financial crisis in 2008. However, considering that the expected long-term real return on a typical prudential balanced investment portfolio is around 6%, the real return on our average prudential balanced fund for 2019 actually exceeded the expected long-term real return by around 2% - nothing to be dissatisfied with at all! This has been quite an unexpected turn of fortunes for pension funds. I acknowledge that I did not expect this and I venture to say that very few people if anyone, expected this turn of fortunes. Certainly, going by the exposure of our prudential balanced portfolio to equities, a slight decrease of total equity exposure from 67% in September 2018 to 66% in September 2019 does not exactly reflect a mass piling into equities by the managers of these portfolios. Not a single manager increased its total equity allocation by more than 1%. Digressing briefly into the no-risk cash vs ‘high risk’ equity debate, the adamant cash proponent’s investment would have underperformed the average equity proponent’s investment by 2.2% for 2019, ranging between as little as no difference to the worst performing portfolio and as much as 5% difference to the best performing portfolio, at the expense of the cash proponent. Will we see another great year for equities in 2020? Well in the previous two columns of this journal I concluded that it is unlikely. This month I take another perspective to try and form an opinion on this question. Oil is a bell-weather commodity for the global economy, so understanding which direction oil consumption is going in 2020 will give a fair indication for the direction the global economy is likely to take. Read part 6 of the Monthly Review of Portfolio Performance to 31 January 2020 to find out what our investment views are. Download it here... Promulgation of the Electronic Transactions Act Nowadays most of business communication is in digital format. Business probably generally save all digital communication and documentation in digital format and probably on top of that also file hard copy versions of the digital documents. This obviously requires quite an effort in terms of retention and archive management. Up to now business really had no choice but to maintain a costly dual system for digital and physical retention of all business communication as technological progress in digital communication had left behind the law that still requires physical documentary evidence should any matter be heard in court. Reprieve however is in sight now since the promulgation of the Electronic Transactions Act, Act no 4 of 2019 in government gazette 7068 of 29 November 2019 that hardly received any attention in the media although it will bring about major changes to the creation, capturing, processing and retention of business documentation and communication. Another perspective to this new law is that it provides for public electronic information systems such as ITAS to now become a legal obligation for the tax payer. Here are a few key matters from Act: General purpose of Act -
S 1 Definitions –
S 16 Legal recognition and effect of data messages and electronic transactions
S 17 Legal recognition of data messages
S 34 Information to be provided: S 35 Cooling-off period:
S 36 Unsolicited goods, services and communications:
S 37 Performance
S 40 Complaints
S 41 to 48 – Accreditation of data security services or products. Download the Government Gazette in which this Act was promulgated, here... How to invest in 2020?
Interest rates In last month’s newsletter we expressed our view that global consumer and investor sentiment should stand a fair chance of improving rather than declining further taking into account good early rains, a possible settlement of the US/ China trade war and the fact that the SA economy is about as low as it can go. We also expressed our expectation that the trend in interest rates to be downward. We would ascribe this primarily to the fact that the US will be holding presidential elections this year and that president Trump considers the US stock market as a measure of his success. Low interest rates are good for equities. At least for 2020, we are unlikely to see an increase in the Fed rate. Whatever the US does will be mirrored in other economies. Graph 6.1 substantiates this, showing a very close correlation between the SA repo rate and the Fed rate over this 30 year plus period. Interestingly, this graph indicates that the risk premium attaching to SA interest rates is around 5% as represented by the differential in the scale on the left, and the right hand axis. As we know, SA Reserve Bank just lowered the repo rate by 0.25% as from 16 January 2020, after the Fed had lowered its policy rate by 0.25% at the end of October last year. Graph 6.1
Graph 6.2 shows a real SA repo rate of 3.9% at the end of December. The cut of 0.25% effective 16 January will result in a slight reduction of the real repo. On average the SA Reserve Bank maintained a real repo of around 3.5% until the global financial crisis and around 1% since then. At its current level, there is probably not much scope for a further reduction unless SA inflation was to decline further relative to US inflation or the Fed was to reduce its repo rate further. Graph 6.2
Exchange rates In graph 6.3 we see that the differential between the real repo rate and the real US Fed rate (red line) was varying widely up until about 1999 to become more confined to a narrower band between minus 6% and 4%. We also see that since 1999 the graph displays a high correlation between the R: US$ exchange rate (blue line) and the differential in real interest rates up until the end of 2012. Up to then a decline in the red line (SA real interest rate increases relative to the US Fed rate) went along with a strengthening of the Rand and vise-versa. As from the end of about 2012 we see a disconnection between these two lines. SA real interest rate relative to US real interest rate increased consistently while the Rand weakened consistently against the US$. Graph 5.1 above indicates by the measures applied that the Rand is undervalued and that the exchange rate should rather be 11.68 then 13.98 at the end of December. Graph 6.2 thus corroborates this conclusion. The red line of course does not recognise the cumulative effect of an inflation differential as the blue line does. A continuously higher inflation rate in SA relative to the US should lead to a continuous depreciation of the Rand, as graph 5.1 above does portray better. Graph 6.3
The stock exchange Graph 6.4 shows a very similar trend of the blue line (the inflation adjusted R: US$ exchange rate) and the red line (JSE ALSI, inflation adjusted). Over the first 14 years to the beginning of 2001, the ALSI basically moved sideways while the inflation adjusted exchange rate played catch-up. Since then the ALSI initially ‘went ballistic’ to early 2007, just to revert back to normal by early 2009 as the result of the global financial crisis. It then turned sharply up again until early 2014, to move onto a downward slide where it is currently not far off the blue line that can probably be considered ‘ground zero’. Graph 6.4
Graph 6.5 shows a correlation of SA and US CPI adjusted earnings over the 30 plus year period. From the end of 2016 however, SA CPI adjusted earnings moved sideways while US CPI adjusted earnings continued to increase. Both lines show a decline in CPI adjusted earnings over the past 3 months. Average US CPI adjust historic earnings over this 30 year plus period were 75 whereas at the current level of around 150, they are now about twice their historic average. Average SA CPI adjust historic earnings over the same period were 2,500 whereas at the current level of around 3,600, they are now about 45% higher than their historic average. This could at least partially be due to a change in the economies and consequent the make-up of the earnings. Graph 6.5
Conclusion Based on our above analysis, we see no increase in interest rates for 2020 in the US or in SA, everything being equal, perhaps still another reduction. We also believe there is not much scope for further reductions in the SA repo rate except if SA inflation dropped relative to US inflation or if the US reduced the Fed rate further. The Rand is currently noticeably undervalued. This is probably due to the poor shape of the SA economy which of course is unlikely to improve much over the medium term, particularly in the absence of another commodity run. That also does not seem to be on the horizon. We rather see a slow improvement on the back of a slow improvement in global economies and the settling of the US: China trade dispute. The Rand is thus likely to remain under valued in the medium term. We certainly do not see a rapid correction. Company earnings being as high as they are both in SA and much more so in the US, there is little support of equities deriving from improving company earnings but to some extent by declining interest rates.
Compliment from the principal officer of a large financial institution “Dear RFS Team Thank you for all your kind assistance during this year – you really made a difference to our Members, and the ... Fund as a whole, with your exceedingly professional service...” Read more comments from our clients, here... The obligation to report suspicious transactions under FIA RFS is obliged to report suspicious transactions to the Financial Intelligence Centre (FIC) in terms of the Financial Intelligence Act (FIA). This obligation arises from section 33 of the Financial Intelligence Act 13 of 2012 which reads as follows: 33 Suspicious transactions and suspicious activities (1) A person who- (a) carries on any business or the business of an accountable [e.g. pension fund] or reporting institution, or is in charge of, or manages a business undertaking [i.e. any business], or a business undertaking of an accountable [e.g. pension funds] or reporting institution; or (b) is a director of, secretary to the board of, employed or contracted by any business, or the business of an accountable [e.g. pension fund] or reporting institution [e.g. fund administrator], and who knows or reasonably ought to have known or suspect that, as a result of a transaction concluded by it, or a suspicious activity observed by it, it has received or is about to receive the proceeds of unlawful activities or has been used or is about to be used in any other way for money laundering or financing of terrorism purposes, must, within the prescribed period after the suspicion or belief arose, as the case may be, report to the Centre- (i) the grounds for the suspicion or belief; and (ii) the prescribed particulars concerning the transaction or suspicious activity. RFS Anti-Money Laundering policy defines suspicious transactions as unusual transactions such as the following:any cash transactions of more than N$500 per transaction (physical form of currency or cash deposits)
Evidently, in the case of any pension fund administered by RFS the obligation to report any suspicious transaction, rests both on the fund (more specifically its principal officer as executive officer of the fund) and on RFS. Since RFS only administers the transactions on behalf of the Fund and does not deal directly with the members, RFS will inform the principal officer (PO) of the fund about any suspicious transactions and request the PO to confirm and authorise the transaction. RFS procedures requires the PO to return a declaration and supporting documentation in the event that the PO has been able to satisfy himself that the source of the funds in question is legitimate. Should the source not be considered legitimate by the PO or should this declaration not be returned, RFS will report the relevant transaction as a suspicious transaction without further reference to the PO, as this may be considered ‘whistle blowing’ that would constitute a punishable contravention of the FIA. Evidently, if the PO is not satisfied that the relevant transaction is legitimate, he is also under obligation to report the transaction to the FIC. Suspicious transactions must be reported within 15 working days after the suspicion or belief of suspicion concerning the transaction arose that gave rise to the requirement to report. The process of communicating with the PO, who in turn needs to communicate with the relevant member, must therefore be concluded expeditiously.
RFS sponsors panel discussion on FIM Bill In collaboration with the international affairs department of NUST, RFS co-sponsored a panel discussion on the FIM Bill that was held at NUST lower Campus auditorium on 6 February. The panel comprised of Günter Pfeifer, director of RFS, Mary Ashikoto, legal and compliance officer at GIPF, Lovisa Indongo-Namandje, general manager pension funds and friendly societies at NAMFISA and Markus Hübscher, chief executive officer of Swiss Pension Fund SBB. Günter Pfeifer of RFS raised a number of key concerns RFS foresees for funds, their sponsoring employers, trustees and service providers. Download the slides outlining these key concerns here... Some of Günter’s concerns were echoed by Ms Ashikoto of GIPF who also pointed out that elsewhere public funds like the GIPF operate under their own legislation while the GIPF currently operates under the Pension Funds Act established for private funds. Mr Hübscher spoke about the 3-pillar pension system in Switzerland. Ms Indongo-Namadje explained the rationale for and benefits of the FIM Bill and expressed her conviction that NAMFISA is ‘ready to take-off’ with the FIM Act having done everything a good pilot would to before take-off. Lazarus Amukeshe provided some background to this occasion in Business News of the Namibian. Click here for more... RFS Tigers representing RFS at volleyball-for-all for 21 years running Since the company was established in 1999, it has never failed a year of supporting the annual volleyball-for-all tournament hosted by DTS on its sport fields. Here are some action photos from the 2020 tournament that should give you a feel for the team spirit amongst our staff!
If I were a pension fund member and read NAMFISA’S 2019 annual report... part 1 In September 2019 NAMFISA released its annual report on its supervision of non-bank financial institutions (NBFI’s) for the year ended 31 December 2018 (AR 2019), including its financial statements for the financial year ended 31 March 2019. In my opinion any pension fund member who reads AR 2019 will find much to take issue with. Assuming I was such a member, I share my “Top Ten Pet Peeves” in a two-part series. Purpose of AR 2019 Is AR 2019 intended to serve as a comprehensive report to NBFI stakeholders on NAMFISA’s activities during the preceding year, i.e. to promote NAMFISA, highlight its financial performance and strategic goals and meet its statutory reporting requirements under the NAMFISA Act 3 of 2001 and the Pension Funds Act 24 of 1956? Is AR 2019 meant instead to provide an in-depth, evidence-based overview of NBFI’s? Given that AR 2019 is “grey literature” (material that organisations produce in-house and publish and distribute outside commercial publishing channels), it should provide stakeholders (NBFI’s) and other interested parties with information about NAMFISA’s activities and financial performance. More importantly, AR 2019 should also provide these parties with pertinent statistical data on NBFI’s and detailed high-level analysis thereof that provide a clear picture of the state of NBFI’s and meaningfully assist informed decision-making, even down to the level of the end-user of NBFI’s. As a pension fund member, I would not want to have to look much further than a NAMFISA annual report to get a true picture of the state of pension funds and what how this impacts the continued security of my retirement savings. NAMFISA derives part of its funding from pension fund members. A member would thus want insight into NAMFISA’s finances and its operations in 2018, but I would also want to know the risks facing pension funds and what is being done to mitigate them. To my mind, AR 2019 is simply a summary of NAMFISA’s “to do list”; a ticking of the boxes showing what happened without any interpretation of why it happened or the context in which it happened. Depersonalised reporting on pension funds AR 2019’s pension fund reporting focuses almost exclusively on the assets held by pension funds. There are no membership statistics! I would want to know about matters such as membership movements. What does the human face of the single biggest investor in capital markets look like? Who are the beneficiaries that retirement funds exist to serve? Are pension funds simply cash repositories or are they representative custodians of the savings of ordinary working people and their families? When pension funds are divorced from the beneficiaries that they exist to serve, there is a danger that pension funds may be perceived as mega-wealthy, independent NBFI’s with lots of cash to splash. Pension funds do not hold their assets for their own account but in trust for the thousands of beneficiaries belonging to them. Often these assets represent the life savings and primary means of support of such beneficiaries. The disconnect between AR 2018 and AR 2019 The disconnect between the reporting topics in AR 2018 and AR 2019 makes it nigh impossible to track pension funds year-on-year. One needs only look at the stated key focus areas for evidence hereof. AR 2018 lists NAMFISA’s key focus areas for pension funds supervision in FY18/19 as implementation of the new legislation and Risk-Based Supervision (RBS), including enhancing the risk assessment framework, providing support on macro-prudential supervision and engaging stakeholders through industry forums. AR 2019 does not report on these at all, but instead lists ensuring that pension funds remained financially sound, that members’ interests were protected and contributing to the review and development of pertinent legislative instruments as key activities undertaken in FY18/19. NAMFISA focused attention on the various on- and off-site inspections that it conducted. Are we to assume that the FY18/19 key focus areas of AR 2018 are no longer relevant? Surely RBS and stakeholder engagement ought to remain key focus areas? While one could argue that the key activities undertaken during FY18/19 form part of RBS, management expert Peter Drucker has taught us that where clearly-defined, measurable goals are stated, performance in relation thereto should be tracked so that it can be managed and the necessary adjustments made. Improved performance requires reported measurement. Looking ahead to the key focus areas for FY19/20, it appears that financial stability remains a key focus area, but the emphasis will shift from pension funds to the external environment in which they operate (the financial markets and the regulatory regime). Isn’t the financial stability of each fund (and the unique internal factors affecting this) just as important as creating the right market conditions and regulatory controls for ensuring the overall financial stability of the pension industry? Shouldn’t the internal and external aspects simultaneously enjoy equal attention from NAMFISA? One cannot obtain an informed overview of the Industry AR 2018 provided a comprehensive review of the industry, covering, amongst others, asset allocations, investment performance, funding levels, contributions, membership, benefits paid, liquidity and expenses. AR 2019, on the other hand, focuses on the increase in the asset base, asset allocations and market risk. With no continuity of reporting, one cannot obtain an updated overview of the industry. In AR 2019, Table 1 shows 138 active pension funds as at 31 December 2018, while the Market size review records 134 active pension funds as at 31 December 2018. Which figure is correct? The term “active pension funds” is a misnomer since it denotes only domestic pension funds. Are the foreign funds registered by NAMFISA also active funds as opposed to dormant funds? One cannot make year-on-year comparisons The statistics provided in AR 2019 relate to investment holdings, complaints received and complaints resolved. AR 2018’s statistics comprise an income statement, balance sheet and complaints received and resolved. How does one track the industry year-on-year in terms of say the proportion of the employer contributions allocated towards costs compared with that allocated to retirement funding? AR 2018 provides a detailed overview of pension funds’ expense ratios and cost experience from 2013 to 2017; AR 2019 does not reflect these statistics for 2018. I would like to know what any contribution not allocated toward my retirement benefits is paying for. While pension fund-related complaints received by NAMFISA in 2018 dropped compared with 2017, the nature of the top five complaints received by NAMFISA and the drivers thereof remain unchanged. It would concern me that much of the consumer complaint section of AR 2019 appears to have been copied verbatim from AR 2018. At least three of these “repeat offenders” point to systemic weaknesses in the pension fund industry. How much longer will this continue? How will it be remedied? Has remediation started? AR 2019 does not state the size of the total membership base of pension funds nor the number of benefit claims submitted to pension funds for the period under review. Without this information, how can a pension fund member assess if the 178 complaints received from pension fund beneficiaries are excessive or cause for concern? Part 2 in this series looks at, among others, the meaning of risk-based supervision and the inherent dangers in statistics divorced form context. Note: The opinion of our readers does not necessarily reflect the opinion of RFS. We reserve the right to shorten and to edit letters received from our readers. Prescription of death benefit claim of minor beneficiary This matter deals with a determination of SA adjudicator in the case MA Hlatshwayo as complainant v Iscor Employees Umbrella Provident Fund as first respondent and another as second respondent. The facts of this case are –
As complainant was unable to cooperation from first respondent’s officials, the family decided to wait until the deceased’s son reached age of majority before claiming the death benefit. First respondent submitted that the tribunal does not have jurisdiction to investigate the complaint at it had prescribed. In arguing its case first respondent tried to convince the tribunal that it had used well established guiding factors as derived from case law and applied by the adjudicator, being -
In its determination, the tribunal pointed out the following with reference to the possible time barring of the complaint due to prescription –
Download the determination here... Trustees who adopt a “business as usual” approach to arrear retirement fund contributions are reckless and can be held liable By Andreen Moncur BA (Law) While there is no legal precedent in Namibia or South Africa for holding pension fund Trustees liable for actions akin to “reckless trading” as envisaged in the Companies Act 28 of 2004, or for regarding Trustees as “delinquent directors” when it comes to contribution default by an employer, Trustees do face risks when employers default on payment. The employer is contractually bound by the fund rules and owes a debt of contributions in terms of the Pension Funds Act 24 of 1956 (the PFA). The PFA imposes a statutory duty to pay on the employer or other party responsible for payment, without imposing a corresponding duty on the fund or the trustees to collect the contributions due. The Act also does not provide any mechanism for funds to collect arrears. In the last ten years or so, the trajectory of South African pension fund legislation on the subject of arrear employer contributions has been one that seeks to hold the employer criminally liable for contribution arrears and potentially liable in a civil action for any losses suffered by the fund and its members in consequence of the employer’s default. Not, so in Namibia, where Namibian Trustees run the risk of being held liable for failure to deal with employer contribution default in a timely manner and in the best interests of the pension fund and its member. Let’s first examine the South African legal landscape. The South African courts and Pension Funds Adjudicator have firmly entrenched the view that a pension fund cannot be held liable to pay benefits if it has not received contributions. Instead the defaulting employer has been ordered to settle its arrears with the fund so that the fund can pay the correct benefit due to the member as per the rules. While attachment orders have been issued against employer assets, these have never been issued against pension fund assets (recognising that a pension fund has no assets but is the custodian of member assets) nor against the personal assets of pension fund Trustees. While South African pension legislation requires the Principal Officer or other monitoring person to be vigilant and report late payment, non-payment and under payment of contributions to the Financial Sector Conduct Authority and to inform the fund members thereof, neither the fund’s Principal Officer nor its Trustees must actively pursue defaulting employers or collect arrears. Non-payment of pension fund contributions is a criminal offence in South Africa that employer officials/directors and not pension fund Trustees can be convicted of. The argument has been made in SA that Trustees can be held liable for breach of fiduciary duties (both statutory and common law) for failing to manage contribution arrears, but the courts and the Pension Funds Adjudicator have been silent on this matter; presumably because they know that most pension funds are not in a position to actively pursue arrears collection. Turning to the Namibian landscape, it appears that NAMFISA holds a very different view, effectively expecting the Fund (Trustees) to sue for arrears. While the PFA does not require this, NAMFISA Directive PI/PF/06/2015 requires the fund’s Board of Trustees to take all reasonable steps to ensure the payment of all contributions on time and the full recovery of all outstanding contributions. The Board must also notify all affected members of any late or non-payment of contributions within one month of the last date that a contribution was due. Therein lies the rub; the expression “all reasonable steps” could well be interpreted to mean that the Trustees must sue the employer for the arrears or at the very least obtain a default judgment and cost order against the employer. But this must also be seen in the light of the fund’s prospect for successful recovery. Legal action with little or no prospect of success would be reckless. This is a key consideration in a defined contribution fund, where the members would effectively bear the cost of recovery of arrears until and unless they can be recouped from the employer. Attempts by the fund to recover arrears that result in additional costs for the fund will prejudice the members even further when these attempts prove fruitless. While the Trustees have a fiduciary duty to administer the fund in the best interests of the members, they are under no statutory obligation to collect contributions. In a defined contribution fund, an attempt to sue for contributions could be seen as application of fund assets for a purpose other than that for which they are intended. This might potentially prejudice all members or at least those members for whom contributions are up to date. It is also not in the best interests of members to risk their vested benefits (it’s illegal). While it is not fair that members or a group of members are prejudiced by the employer’s default, it is also not fair to penalise other members whose employer is not in default (say in an umbrella find or where subsidiaries of the principal employer also participate) or to further risk the shares of all members unless one knows that the employer can and will pay if sued. Is it reasonable to erode members' retirement benefits further, given that the member is bearing the investment risk? In a defined contribution fund, the Trustees must manage the assets to ensure that members' benefits are not at undue risk. There is no fairy godmother who will magically restore members’ shares once these are gone. The best way for the Trustees to help the members where contribution arrears start mounting may well be to apply to court for its liquidation or to make the fund paid-up or partially paid-up. Trustees will have to weigh up what will best serve the best interests of the members of their fund. The reckless trading principles of s430 of the Companies Act 28 of 2004 could be extrapolated and applied to fund Trustees because company directors and fund trustees are similar creatures and because of the broad reach of the NamCode. Although the NamCode is non-binding (adherence is voluntary), I believe the Namibian judiciary would in all likelihood rule that Trustees who fail to do everything in their power to address any contribution arrears have failed to identify, manage and mitigate risk as required by the NamCode and would hold the Trustees personally liable if the employer cannot pay or has ceased to exist. Of course, this does not preclude members from suing the Trustees for breach of the Trustees’ common law fiduciary duties. While the Trustees may be able to successfully defend such legal action, they are still at risk. Having said all of this, my overarching concern (and probably the motivation for the 2015 NAMFISA Circular) is that members will be prejudiced if the pension fund Trustees fail to address employer contribution arrears. In the case of a defined benefit fund, there is a perception that the employer will always pick up the bill, whether on the front end by settling contribution arrears or on the back end by making good any actuarial shortfall. But what happens when the employer cannot pay or has ceased to exist? In a defined contribution fund this is not the case, particularly with regard to those members who are the last to exit the fund. Even if a defined contribution fund has a substantial employer reserve account that can be applied towards settling employer contribution debt, what happens when these reserves run out and the fund must be liquidated. The members will bear the costs of terminating the fund. If the fund is wound-up voluntarily or by court order, the members will be deferred creditors and may receive very little after all liquidation expenses and other creditors have been paid. When the prospects of recovering employer contribution debt are slim, it behoves the Trustees of the fund to consider a voluntary dissolution of the fund or to approach the courts if necessary under s 29 of the PFA while there are still sufficient funds to pay for termination of the fund without compromising members’ benefit entitlements. Bear in mind that if the employer does not pay the costs of dissolving the fund, members’ benefit entitlements will be applied first towards termination costs, then towards other creditors and then only towards member pay-outs. Let’s look at an example. A fund has long outstanding employer contribution debt. A member of the fund with a share of N$2 million would receive nothing less than that if the fund were to be terminated while its assets are equal to or exceed its liabilities, including termination liabilities. If the fund’s liabilities exceed its assets at the time that the fund is terminated, the member might only receive N$1.8 million for argument’s sake. In such a case, if the member cannot recover the shortfall in his benefit from the employer, I believe he/she will sue the Trustees for breach of the fiduciary duty of care and succeed! What is the best low-risk income generating investment for a retiree? Structuring a retirement income product is one of the most important investment decisions we need to make in our lives. When retiring at 65, for example, this is only the start of another 20- to 30-year investment term. At retirement there are a few important decisions that will need to be made: Selecting the appropriate investment product. As there are different tax implications with different products, as well as differences in accessibility, finding a suitable product for your individual needs is imperative. I advise speaking to a financial advisor to make an informed decision.Determining the monthly financial need and income drawing percentage.Choosing an investment strategy and underlying funds. Firstly, the type of investment product will need to be selected. To make this decision, the source and the fund value of the investment need to be taken into account, as well as the tax table that is used at retirement... An annual income of 2.5% to 17.5% of the fund value needs to be selected – and this income can only be amended annually on the anniversary date. The income received will still be taxable, and you are allowed to nominate beneficiaries on this investment should something happen to you... Lastly, selecting an appropriate, well-diversified investment strategy will be very important. With any income-generating investment, it is important to find the correct balance between low-risk short-term structured funds, and longer-term growth assets that will ensure the capital is still earning an above-inflation return. Read the full article by Elke Brink, in Moneyweb of 14 February 2019, here... Pensions and politics are in an uneasy mix the world over “I recently participated in a panel discussion of the International Pension & Employee Benefit Lawyers Association in Prague under the topic: “Pensions Crises: Many jurisdictions report that significant percentages of their populations are unable to retire with the level of dignity they would have liked and that future prospects for many fund members appear to be weakening.” High-level participants agreed on certain conclusions: The jurisdiction with the best results have:
Financial mistakes to avoid in your 50’s For those who are planning to retire in their 60s, your 50s is the decade where your retirement picture starts to look a little clearer. Having spent thirty or so years accumulating your wealth, this decade is an important one when it comes to fleshing out the details of what retirement looks like for you. With only a few years left before retirement, now is not the time to make financial errors of judgement. Here are some financial mistakes to avoid in this all-important decade: Thinking it’s too late to build wealth... nothing could be further from the truth – especially as one’s 50s are typically the highest income-earning decade. Quantifying your retirement funding deficit is a good place to start as this will help you understand what you are working towards... Not having a Will... it makes sense to formally document how you want your assets distributed when you pass on. At the same time, consider signing a Living Will or Advance Healthcare Directive... Not drafting an estate plan... Through effective estate planning, you can ensure liquidity in your estate, reduce tax... Making bad money decisions... financial mistakes made early in your career can be rectified – but the same is not necessarily true for those made in the years preceding retirement... Not developing a retirement plan... well-constructed retirement plan should take into consideration factors such as where you want to live, what retirement looks like for you, what type of support system you will have... Being too conservative with your investments... Prematurely moving your invested assets into a more conservative portfolio could result in your investments not keeping pace with inflation which in turn will decrease the purchasing power of your capital over time... Not reviewing your life insurance... In general, the need for life cover reduces at this life stage and a review of your life insurance will determine whether you are over-insured and/or paying unnecessary premiums... Dipping into your retirement funds... Besides the tax consequences of withdrawing from your fund, taking out your money will interrupt the power of compounding... Upgrading your lifestyle too much... channel some of your extra cash towards extra retirement savings. Healthcare costs in retirement, specifically frail care and home nursing, can never be underestimated... Retiring too soon... many early retirees attest to suffering from boredom, depression, lack of purpose, disengagement and unfulfillment... Planning to retire to your favourite holiday destination... before buying a retirement home in your favourite holiday town, spend time there during the week in the off-season. Without family, friends and holiday cheer... Lending money to adult children... ensure that you have a documented loan agreement in place and that lending them the money won’t compromise your financial future... Not eliminating debt... ensure that all debt is paid off before you retire and your 50s are an excellent time to aggressively attack your debt... Under-estimating your living expenses in retirement... While your fixed expenses such as bond and vehicle repayments are likely to fall away, other expenses such as retirement home levies, higher medical aid premiums, home nursing... Keeping too much money in compulsory funds... It is always advisable to have a nest egg held in a discretionary fund, such as a unit trust portfolio, which can be used as an emergency fund and to pay for larger capital expenditure in retirement ... Do not be tempted to seek out investment opportunities that promise unrealistic market returns... Falling for get-rich-quick scams... Do not be tempted to seek out investment opportunities that promise unrealistic market returns... The ultimate low-risk, high-return investment “...the FTSE/JSE All Share Index (Alsi) delivered an annualised return of 13.6% between January 1996 and November 2019. At an average inflation rate of 5.8%, this means that investors have earned real returns of 7.7% per year... From peak to trough in 1998, the Alsi fell 43.8%; between March 2002 and April 2003 it dropped 36.8%; and in 2008, it took just six months for the index to lose 46.4%... The scale of these crashes would have scared many investors out of the market... PSG looked at what would have happened to the value of an investor’s money if they had withdrawn it after each of the three market crashes since 1996, and only re-entered the market a year or two later... An investor who stayed out of the market for one year after each crash before putting their money back in would have seen a real return of only 2.7% over the full period. In nominal terms, they would have a little more than a third of the money they would have had if they had stayed invested throughout... Historically, over any rolling five-year period, the JSE has never delivered a negative return. Over any rolling 10-year period, it has failed to deliver an above-inflation return only 5% of the time... This shows that the risk of losing money for a long-term investor in equities is low. The potential gains from staying invested, on the other hand, are high. Over the last 90 years, the market has produced an annualised return of 13.8% per year... “ Read the full article by Patrick Cairns in Moneyweb of 31 January 2020 here... Great quotes have an incredible ability to put things in perspective. And this, our life, exempt from public haunt, finds tongues in trees, books in the running brooks, sermons in stones, and good in everything. ~ William Shakespeare |
||||||||||||
2020-01
| In this newsletter: Benchtest 12.2019, the back door in the FIM Bill and more... |
|||||||||||||||||||||||||
|
Employers were originally required to submit their monthly PAYE 5 returns on ITAS by 20 September. Due to difficulties experienced by many employers to adapt their payroll systems in time, the due date was postponed to 20 February with a clear message that any further extension will not be granted. Read the relevant PWC alert here... Pension fund governance - a toolbox for trustees
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In ‘Legal snippets’ read about –
...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 Monthly Review of Portfolio Performance to 31 December 2019 In November 2019 the average prudential balanced portfolio returned -0.7% (October 2019: 1.6%). Top performer is Old Mutual Pinnacle Profile Growth with 0.0%, while Investment Solutions with -1.0% takes the bottom spot. For the 3-month period, Namibia Asset Managers takes top spot, outperforming the ‘average’ by roughly 1.2%. On the other end of the scale Stanlib Managed Fund underperformed the ‘average’ by 1.4%. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 31 December 2019 provides a full review of portfolio performances and other interesting analyses. Download it here... How to invest in 2020 Based on our above analysis, we do not foresee a return to a normal interest rate environment in 2020 but rather expect real interest rates to decline further some into more negative territory. Global consumer and investor sentiment should stand a fair chance of improving rather than declining further. We believe locally consumer and investor sentiment is probably as low as it can get with a fair chance of also improving in 2020, just thinking of the early rains we thankfully experienced in parts of the region and a faint hope that the new Escom management may be able to make some progress. We would thus expect global equity markets to show some real growth in 2020. We expect the trend in interest rates to continue downward which in turn will impact positively on the performance of bonds. Bonds should also be able to produce a real return in 2020. Money market rates are consequently likely to decline globally. As the result, the typical prudential balanced portfolio should outperform the money market portfolio and we would expect it to achieve its long-term objective of inflation plus 5%. Read part 6 of the Monthly Review of Portfolio Performance to 31 December 2019 to find out what our investment views are. Download it here... The FIM Bill – are we scared of our own courage, or is it even more sinister? I believe anybody who claims to be ready for the implementation of the FIM Bill is either vastly overestimating his capabilities or vastly underestimating what is coming! The expanse and complexity of this law really puts it out of the reach of the mental capacity of any individual, certainly mine I do acknowledge, unlike its predecessor law, the Pension Funds Act that is still digestible. In trying to get a full grasp on any question one has to roam between various ‘chapters’ (or laws), getting lost in between most of the time. One cannot just focus on the ‘chapter’ (law) relating to the industry one is doing business in. As the result, I concluded that the pension funds chapter made no provision for transitional arrangements, which it does not. But when one then turns to ‘chapter’ 11, there are transitional provisions that apply to all financial services institutions covered by this new Bill. In addition there is absolutely no precedent one can rely on for finding an answer where no answer was found despite focused roaming. NAMFISA is confident that it is ready for the FIM Bill and what this requires of it, and so is the Minister of Finance. In the light of this confidence it is interesting to note though that the FIM Bill keeps a back door open for both the Minister and NAMFISA to make law very informally and un-procedurally where it provides in clause 7 of schedule 3, of section 4, of chapter 11 “On the effective date, and for a period of 60 days after the effective date, the Minister and NAMFISA may make any subordinate measure of a legislative nature contemplated in the Act without meeting the procedural requirements set out in this Act, provided the Minister and NAMFISA have published such proposed subordinate measure in the Gazette, allowing a period of at least 30 days for comment.” So the Minister and NAMFISA have a carte blanche to change the law within the first 60 days after its effective date, without this having to go through parliament. There is not even any requirement that any comment, for which merely 30 days are afforded, has to be considered properly! The rationale for this back door is not self-evident. Either the Minister and NAMFISA are indeed scared of their own courage in introducing this statutory revolution (by NAMFISA’S own words) or one or both of these parties already have certain changes in mind that would evidently not have passed parliament, or both. The first consideration is unlikely as 60 days is too short a period to fix any serious problems the Bill may cause. I shudder to think it may be the second consideration? Planning your retirement Typically, most people approaching retirement do not know where to start planning for retirement. Planning for retirement probably requires the retiree to take some of the most frightening decisions in his life. What is worse, some of the decisions that need to be taken cannot be ‘rolled back again’ and the pensioner will have to live with the decision for the rest of his life.
Here are a few practical guidelines for your retirement:
The above exposition should indicate what information is required before you can consider how you should deal with your pension or provident fund retirement capital. Where you are allowed to switch to another investment portfolio in anticipation of your retirement, mostly for the sake of protecting your retirement capital, your decision should be based on the following considerations:
Going into the New Year hurt by poor returns on pension fund investments, this is a relevant question when thinking of our stakeholders, the pension fund member and more specifically his investment. Graph 6.1 below shows the 5 year rolling returns rolled forward by one month at a time from December 2008 to November 2019. Why 5 years? Well that is a period more relevant to a long-term fund member as opposed to any shorter period. So it should reflect a more appropriate picture. Why ‘rolling’ returns? Well ‘rolling returns’ give a much better insight than point in time returns, reflected as bar charts in performance reviews. The point in time returns are those as at the end of every month, sometimes showing the peak, sometimes the trough, hiding what happened in between and as graph 6.1 shows, the returns vary widely from one month to the next. Turning to the story revealed by graph 6.1, the fairly stable black line represents the returns on the Benchmark money market portfolio, which is usually the benchmark for fund members when their typical prudential balanced pension fund portfolio does not do well. The also fairly stable yellow line represents the return one would expect to earn on your pension fund investment over the long-term and what is required to secure a comfortable pension after retirement, offering an income replacement ratio of 2% per year of membership, assuming the contributions towards retirement have been in the region of 14% of pensionable remuneration throughout. If we now consider the rolling 5 year returns of the Benchmark money market portfolio (stable black line), it has constantly been below the yellow line (CPI plus 5%), the shortfall in expected long-term return being anything between 2% and close to 5% per annum! This is not where a pension fund member can afford to be unless it is for a specific purpose and with a short-term horizon only. Turning to the red line, reflecting the rolling 5 year returns of the average prudential balanced portfolio, we see that the fund member would have done well until the end of 2010, some disappointment then setting in to the middle of 2013, then a long stretch of outperforming until the end of 2017 and since then more disappointment. While the current underperformance is very much in line with that of the Benchmark money market performance and about 2% short of where one would want to be, it is also evident that the outperformance is generally much more pronounced than the underperformance. Anecdotally graph 6.1 also reflects the returns of an all share investment as the blue line and of an all bond investment as the green line. I venture to say that the most satisfactory line is indeed the red line, i.e. the performance of the average prudential balanced portfolio. Graph 6.1  We know that the situation we are in for the past nearly 10 years is the result of ‘ultra-loose’ monetary policy by central banks across the world, including Namibia. After the financial crisis, central banks poured money into the financial markets in order to encourage the consumer to pick up spending levels again after these had fallen flat in the aftermath of the financial crisis. Artificially low interest rates, designed to encourage spending, were great for the borrower, but bad news for the depositor, pensioners to a significant extent. In many instances depositors would earn negative real interest rates. To avoid this they would have been looking around for any asset class that offered any real returns. This is what we have seen, where all assets other than fixed interest investments experienced significant inflows resulting in their artificial and unsustainable growth, here reflected in the sharp up-turn of the blue (all share portfolio) and the red line (average prudential balanced portfolio) from the end of 2012 to April 2014. Since then the US started to phase out it easy money policy with a consequent, continuous decline in the 5 year rolling returns of these two indices in particular. What can we expect of 2020 in terms of investment returns though? We just had a very long cycle of initially high, but consistently declining out-performance of the red line over a 7 year period and of underperformance only over the past 2 years in terms of rolling 5 year returns. A reversion to ‘normal’ investment returns, where risk is rewarded through higher returns, i.e. where an equity investment should yield the highest returns, followed by bonds and cash, restricting things to the main asset classes found in a typical pension fund portfolio, is dependent on central banks exiting their mode of manipulating the interest rate environment. The US Fed rate of 1.75% currently represents a negative real return of 0.25% over prevailing inflation in the US of around 2%. Going by its long-term average the real rate should be around 1.7% in a normal interest rate environment. This is thus around 2% off the long-term average real rate. The expectation is that the US Fed’s next move will be a further reduction of its policy rate. Unless US inflation were to increase, of which there is little evidence at the moment, the situation will worsen and we would currently not expect the interest rate environment to revert to ‘normal’ in 2020. In this regard we would expect SA interest rates to follow their global ‘superiors’. Equity of course comprises the largest asset class in the typical prudential balanced portfolio. The performance of equity is firstly driven by company profits which are driven by the economy, which is driven by consumer sentiment and the interest rate environment. Secondly equity performance is driven by investor sentiment. If company profits go up, the price of shares should go up, unless the investor sentiment turns more negative, and vice-versa. Low interest rates benefit companies with high debt and they benefit consumers who are generally indebted. But will company profits increase, will investor sentiment improve and will consumer sentiment improve from where it has been over the past 10 years and what will make the sentiment improve? If we consider graph 6.2, we see that the JSE Allshare index (the red line) shows a clear declining trend. This could be due either to investor sentiment declining and the investor not being prepared to pay as much for a share as he was earlier on, or it could be due to company profits declining. The SA P: E ratio (the green line) shows a pretty synchronized decline which indicates that the missing factor here, the company earnings have largely been moving sideways. With what we know of the SA economy and the Eskom predicament in particular, it cannot be foreseen that there will be a turnaround in SA over the next 12 months and local equities are thus likely to move sideways. Graph 6.2  If we look at the same indicators as far as the US is concerned, we see that the US S&P 500 index (the red line) has shown a strong growth over the last number of years. In contrast to SA the US P: E ratio (the green line is moving sideways and slightly below its long-term average as shown in this graph. US companies have thus been able to increase their earnings pretty consistently over the past number of years. Investor sentiment has certainly not been exuberant, probably in the light of the trade wars the US is involved in, so it is probably depressed with a prospect of it improving in the next 12 months if the trade war with China is settled amicably. Over this 30 year plus period the US S&P 500 index has grown by 5.1% inflation adjusted. That is not overly ambitious over this period. On that basis the US equity market should have some upward potential in 2020 and this should assist in propping up global equity markets that are not subject to their home made challenges. Graph 6.3  Conclusion Based on our above analysis, we do not foresee a return to a normal interest rate environment in 2020 but rather expect real interest rates to decline further, some into more negative territory. Global consumer and investor sentiment should stand a fair chance of improving rather than declining further. We believe locally consumer and investor sentiment is probably as low as it can get with a fair chance of also improving in 2020, just thinking of the early rains we thankfully experienced in parts of the region and a faint hope that the new Eskom management may be able to make some progress. We would thus expect global equity markets to show some real growth in 2020. We expect the trend in interest rates to continue downward which in turn will impact positively on the performance of bonds. Bonds should also be able to produce a real return in 2020. Money market rates are consequently likely to decline globally. As the result, the typical prudential balanced portfolio should outperform the money market portfolio and we would expect it to achieve its long-term objective of inflation plus 5%.
Reflection on RFS processes by an actuary “Dear R Please find the REVISED returns for October 2019 and November 2019 attached... Background: E (Fund Accountant from RFS) queried our returns as he could not reconcile to our market linked portfolio return. We compared our workings and it became obvious that the Investec market value as at 31 Oct 2019 differed. The Investec statement we received reflected a market value of … whereas RFS received a statement which showed... This was taken up with Investec and they confirmed the … [RFS value] to be correct. This caused the October return to be overstated and the November return to be understated… This situation shows the merits of having independent service providers that keep an eye on each other. Thank you E for highlighting this. Kind regards” Read more comments from our clients, here... Cash deposits present a high risk to trustees and RFS alike The Financial Intelligence Act (FIA) aims to prevent money laundering and financing of terrorism. It places an obligation on any person who carries on business to report suspicious transactions to the Financial Intelligence Centre that was established under FIA, if he knows or ought to have known or suspects that the suspicious transaction or unlawful activity is the result of money laundering or terrorism activity. Failure to comply exposes the person to a fine not exceeding N$ 100 million or to imprisonment not exceeding 30 years or to both. Cash deposits are always high risk since cash transactions are often used to avoid declaring taxable income, which is of course unlawful. The cash proceeds received by a fund could therefore be ‘proceeds of unlawful activities’ which need to be reported as a suspicious transaction. It is however very difficult for us as administrator to determine whether or not this is the case. Most of the time we are also not aware in advance that the client intends to make a cash deposit as opposed to an EFT. To avoid RFS stepping into a trap, we have agreed with banks serving our pension fund clients not to accept any cash deposits.
Benchmark umbrella fund - a way out of the conundrum? In previous newsletters you will have read a lot about the statutory, regulatory and reporting revolution that pension funds are facing once the FIM Bill becomes law with all its subordinate legislation. We sincerely believe that only a handful funds will survive this onslaught. Joining an umbrella fund instead of maintaining your separate identity is not only a business opportunity for RFS, but it offers a workable solution to funds who cannot afford to employ full time fund officials, a likely consequence of the new law. If you do consider this option, the sooner you do it the easier it will be as there are draft standards that will make it very difficult and onerous to move into an umbrella fund once the FIM Bill becomes law. You should also make sure that you choose the right umbrella fund likely to best suit your needs for many years to come, as a new proposed standard will make it extremely onerous to move to another umbrella fund in future. Email Günter Pfeifer or This email address is being protected from spambots. You need JavaScript enabled to view it. or call either on tel 061 446 000 if this is a matter you are currently grappling with.
Can a provident fund also offer annuities or pensions? Over a number of years, practices have evolved in the retirement fund industry that are inconsistent with the Income Tax Act. One example is that pension funds replaced dependants’ pensions upon the death of a member in service with lump sum benefits. Another example is that some provident fund rules provide for a member opting to receive a pension upon retirement instead of a lump sum. The different types of tax approved retirement fund (i.e. pension-, provident-, preservation- and retirement annuity fund) are a creation of the Income Tax Act. The Pension Funds Act does not recognise these differences. Whether or not a provident fund can offer pensions or annuities or whether or not a pension fund can offer lump sums would have to be determined by reference to the Income Tax Act. Referring to the definitions of pension fund and provident fund in the Income Tax Act, one will note that these definitions are mutually exclusive. A provident fund is thus a fund other than a pension fund and vice-versa. With the practice note 5 of 2003 debacle, it should have become clear to everyone that Inland Revenue insists that the definition of pension fund does not allow for the payment of more than 49% of a benefit due to dependants in the form of a lump sum, but has to rather provide annuities. The definition of provident fund in contrast has no provision for paying annuities. By implication a provident fund cannot provide annuities else it would become tax approved as a pension fund. Although it is possible to run two different types of fund in a single legal entity, each type of fund would have to have its own structure and receive separate tax approval. The rules of the fund should thus create a pension fund section and a provident fund section if a fund wishes to offer its members a choice between annuity and lumps sum benefits. Reflecting on 2019 – a noteworthy message to staff The year has once again come and gone in a frightening speed. From the first day of office of 2019 we were thrown with challenges and obstacles from many external angles, to name a few:
Nevertheless as a team we stood strong and managed to overcome and succeed over all these challenges. A few highlights I can mention are as follows:
I challenge you all to think about ways of working more efficient and effective going forward, without compromising quality and service excellence that our clients are accustomed to. If we can work smarter, not harder, we will all win.
Môreson School Donation Rudigar van Wyk recently donated handheld emergency alarms to Môreson Special School for the Cognitively Impaired on behalf of Retirement Fund Solutions. The innovative alarms are an initiative of the Make a Noise Organisation.  Above: Rudigar van Wyk hands over the alarms.  Above: Some of the learners who will benefit from extra safety.  Above: Rudigar van Wyk and the educators of Môreson. Long service awards complement our business philosophy RFS philosophy is that our business is primarily about people and only secondarily about technology. Every time a fund changes its administrator, a substantial amount of information is lost be it physically or knowledge. Similarly, every time the administrator loses a staff member, it loses information and knowledge. We know that as a small Namibia based organisation we cannot compete with large multinationals technology wise because of the economies of scale that global IT systems offer. To differentiate us we need to focus on personal service and on the persons delivering that service to get customer acceptance and service satisfaction. With this philosophy we have been successful in the market and to support this philosophy we place great emphasis on staff retention and long service. The following staff member celebrates her 5 year work anniversary at RFS! We express our sincere gratitude for her loyalty and support over the past 5 years to:
Unique comfort factors offered to our clients Our executive committee: Our total staff complement boasts the following credentials:
“The GIPF is too large to fail” and the flip side of this coin The following expert commentary on this article in last month’s newsletter was received from a reader. “I read this note with interest this morning... I am interested in the comment that GIPF is well run. While I do not want to disagree per se, I have seen a few things that I find quite worrying. The major issue among these is that the fund is fast approaching an actuarial deficit position, as can be seen in the graph below. This is likely due to a number of factors (challenging markets, more debt than optimal, concentration in a shrinking economy, concentration in bank equity in a shrinking economy, etc.), however I believe some of it is also management (and of course, bad regulations/legislation that narrows down the investible universe).  What is also noteworthy in the above is that this valuation is based on an expected fund return of 12% PA in perpetuity. This is possible, however I think a number of the assets in the fund have experienced price inflation (multiple re-ratings for example) over recent years, thanks to first the reg28, then the reg13 changes (dual listed reductions then the increase in the local asset requirement). As these reg changes are theoretically complete, the transitory buying of these local assets will stop and only natural demand will remain (which at these prices is limited I suspect). Thus, there is a very real possibility that many of these assets will not perform well in the future, especially as the economy is not poised to see a dramatic turnaround either. The quantum of this problem is illustrated in the graph below. If we added 2020, the “once off buying” would basically fall to zero (if GIPF was compliant). This also has a large bearing on general liquidity and Govt’s ability to fund their deficit in 2020.  An additional consideration for the fund is the ZAR, as this has boosted returns on the off-shore portion of the fund historically. However, with relative ZAR strength (despite all the bad news) this won’t be the case in 2019, and who knows what will happen in 2020. Then of course there is that ever-present risk of a global slowdown and US recession (still a little way off in my view). The magnitude of the asset appreciation can be seen in the spread between the SA and Nam yield curves, as illustrated below, showing the spread before the reg13 changes until September. The buying has dried up a little now and the spreads are widening again. This will mean a nasty mark to market for these buyers who were forced to buy through 2019 (all the defined contribution guys were, at least. Somehow, GIPF was exempted, which I think is completely wrong). Interestingly, if you go long on the curve (to the most interest rate sensitive part), GIPF owns the vast majority of these bonds (see second graph below – this is from March 18 so a bit outdated now, but the holdings remain weighted similarly), so their mark to market could be painful.   All in all, I think GIPF is in some trouble, and as you say, who can bail them out? I guess it will be us, the taxpayers, once again!” The FIM Bill gives carte blanche to Minister and NAMFISA I am finalising my overview of the FIM Bill and my attention was again drawn to the provisions of clause 7 of Schedule 3 [of chapter 11]. Clause 7 of Schedule 3 provides as follows: “Subordinate measures 7. On the effective date, and for a period of 60 days after the effective date, the Minister and NAMFISA may make any subordinate measure of a legislative nature contemplated in the Act without meeting the procedural requirements set out in this Act, provided the Minister and NAMFISA have published such proposed subordinate measure in the Gazette, allowing a period of at least 30 days for comment.” Herein lies the rub; for 60 days after the implementation date of the FIM Act or the relevant section thereof, the Minister of Finance and Namfisa have effectively been given the unfettered power to make subordinate legislation (standards and regulations) without having to comply with any of the procedural requirements for doing so. All that is required is that the proposed legislation is gazetted and at least 30 days be allowed for comment. This is extremely worrying. To my mind, our focus to date has been on the devil we know (the FIM Bill and the standards and regulations drafted to date), rather than on the devil we don’t know (those standards and regulations that can made on and within 60 days of the promulgation of the FIM Act or relevant section). It is trite law that an Act of parliament is merely a skeleton that in and of itself does not really effect change, but rather paves the way for change. To effect change, the Act must be given flesh by the relevant line ministry or statutory body, i.e. the line ministry or statutory body must interpret parliament’s intention in passing the Act (as broadly stated in the Act’s preamble or headnote) and then give effect to this intention by making subordinate legislation (standards and regulations) that detail how effect is to be given to the legislature’s intention. Just as the legislature does not pass laws in a vacuum and there is a law-making process with checks and balances to safeguard democracy and the nation, a line ministry or statutory body cannot operate in a vacuum when making subordinate legislation. Hence the procedural and other requirements of the FIM Bill regarding the passing of subordinate legislative measures. Law-making of subordinate legislation (legislation made under an Act) by a line ministry or statutory body is law-making under a delegated authority from the legislature (parliament). To guard against this delegated authority being abused by the line ministry/statutory body and to prevent the line ministry/statutory body from usurping the powers and functions of parliament, Acts of parliament contain certain safeguards, such as procedural requirements for making subordinate legislation. If parliament has to comply with certain procedural requirements before it can lawfully pass laws, surely an organ of state to which parliament has delegated a subordinate law-making authority must also be subject to procedural requirements? Proceedings in parliament are a matter of public record; much of what the Ministry of Finance and Namfisa do when making subordinate legislation is not. Giving affected institutions and persons a minimum of 30 days to comment makes a mockery of the idea of consultative law-making, given the complexity of the subject matter. What clause 7 effectively does is to give the Minister of Finance and Namfisa the power derogate from the FIM Act in a manner akin to the President’s power to suspend the operation of any law during a state of emergency. Notwithstanding the President’s powers to act in a declared state of emergency or national defence not even he has the unfettered right to derogate from or suspend the fundamental rights or freedoms granted by the Constitution. This provision of the FIM Bill is not only a threat to the Namibian non-banking financial sector, but in my opinion, is a threat to Namibia’s very democracy and may well be able to be struck down for being unconstitutional. In the light of the 2018 amendments to the Admin of Estates Act and the even more draconian proposals for further amendments to said Act, I believe the threat is credible. As they say, the devil is in the detail and when the Ministry of Finance and Namfisa feel the need to bypass safety measures in an Act in order to pass further legislation, one cannot but question their integrity and their motives. What shocks await us once the FIM Bill is promulgated? How easy will it be to overturn such subordinate legislation and at what cost? Note: The opinion of our readers does not necessarily reflect the opinion of RFS. We reserve the right to shorten and to edit letters received from our readers. Can a retirement fund recover a death benefit already paid? In this dated but still very relevant article in Pensions World March 2013, Johan Strydom, legal adviser of Metropolitan Retirement Administrators, discusses whether a fund can claim back a benefit paid to a beneficiary upon the death of a member, where a court or the adjudicator has ordered a fund to pay to a beneficiary not previously considered. Essentially, a fund would have to follow a common law enrichment action, which would present very narrow constraints for any action taken and is very likely to lead to the fund suffering losses. The author concludes in making recommendations on changes to the South African Pension Funds Act in order to avoid funds suffering loss even though the trustees acted prudently and in a bona fide manner. These recommendations are equally relevant to our current statutory environment applicable to pension funds. A superficial review of the Financial Services Adjudicator Bill revealed no explicit provision that would address the dilemma of a fund required to change the distribution of a death benefit after it has already paid out the full available capital. Namibian funds will therefore face the dilemma of having to fund and additional death benefit allocation from its – i.e. the members’ – reserves should it be required to do so by the financial services adjudicator after it has already paid out the full retirement capital. Download the article here... When must a person be a dependant to be eligible for a death benefit allocation? A very, very interesting SA Supreme Court of Appeal case pronounced itself on when a person must have been dependent on the deceased pension fund member in order to be eligible for a death benefit allocation in terms of section 37C. In this case the deceased member was separated from his wife at date of death and his wife had commenced divorce proceedings at the time. The deceased was also survived by a major son, a major daughter and his mother. The board of trustees made the largest allocations to deceased’s mother and his estranged wife and smaller allocations to his children. Deceased’s mother however passed away 4 days before the trustees took their decision. At the time the trustees were presumably not aware of her passing away. Deceased’s wife challenged the decision and the adjudicator ordered the trustees to review their decision. After reviewing their decision the trustees resolved not to change their original decision. The matter was then referred to the Supreme Court of Appeal. The question before the court was whether deceased’s mother was a dependant or not and had to consider at what stage a person must be a dependant in order to qualify for an allocation. The fund argued that it must be determined at date of death. The court pointed out that the Fund is obliged to keep itself abreast of the situation and to check that these are correct. Based on any changes in the situation the Fund can change the allocation to dependants even to the extent of them either becoming dependants or losing their dependency status. In this case the court was of the view that the fund should have taken into account the deceased mother’s life expectancy and stated that “…the time at which to determine who is a dependant for the purpose of distributing a death benefit is when that determination is made and furthermore the person concerned must still be a beneficiary at the time when the distribution is made.” The author interprets the underlined part of the quote at the end of the previous paragraph as meaning the date at which payment is made by the fund. From a practical point of view this would clearly create an untenable situation for the relevant board of trustees, if that interpretation were to be correct, as it might in certain cases lead to repeated re-consideration of the distribution. Worse if payment for whatever reason cannot be made simultaneously and there are time gaps between different payments to different beneficiaries, the situation may change for different beneficiaries at different times after the previous payment has been made but before the next payment is made. Download the full article by Leanne van Wyk that appeared in Pensions World October/ December 2019, here... The benefit of alternative investments “More South African investors are including alternative assets – also known as private market assets – in their portfolios as they increasingly understand the benefits offered by these investments. This echoes a global trend… Alternative or private market assets refer to those not traded on a public exchange, such as private equity, private debt, real estate and infrastructure. Art, antiques and classic cars are also classified as alternative investments. In the past, alternative investments were considered too hard to access, high-risk or complex for many investors, but now they are accepted as an attractive means to diversify portfolios, often achieving better inflation beating returns than traditional listed markets… The main benefit of including alternative asset classes in your investment portfolio is to have sufficient diversification to reduce risk and enhance returns. They may also act as an inflation hedge, provide reliable income streams, generate high absolute returns, contribute towards sustainable investing goals and provide access to emerging markets where public markets are thin... Investors should consider having a well-diversified portfolio that can deliver a steady, above-inflation return throughout market cycles. This might include public market allocations to fixed income, public equities and cash complemented by some exposure to inflation beating investments benefits offered by alternative assets…” Read the full article by Rudigor Kleyn, in Moneyweb of 11 December 2019, here... Could one of the best global investment opportunities be on the JSE “Across the world, stock markets are seeing an extreme and unusual divergence. There are certain regions and sectors that are highly in favour and therefore richly priced, while others are severely out of favour and looking extremely cheap. “For instance, the difference in valuations between the S&P 500 and emerging markets is the highest on record,” says Greg Hopkins, chief investment officer at PSG Asset Management. “The difference between the most expensive and least expensive parts of the US market is the highest it’s been since the 1950s. “And if you look at South Africa, there is a subset of South African shares where valuations are lower than they were in 2008 and 2009 (after the global financial crisis) and 2002 (after the dot-com crash).” Predominantly, these stocks can be found in the mid- and small-cap sectors on the JSE. Traditionally, mid and small caps have outperformed the Top 40, but as the chart below shows, this has not been the case in recent years...” Read the full article by Patrick Cairns, in Moneyweb of 23 October 2019, here... Wall Street refuses to get its head right “What we have here is a Wall Street that refuses to get its head right. After two decades of monetary, fiscal, and financial folly, honest price discovery is dead. And collective reasoning about anything except the next fix from the Federal Reserve has disappeared. Indeed, it’s fitting that the S&P 500 Index was up 30% and the NASDAQ 100 40% during the final year of a two decade-stretch that’ll go down as the birthing time of the greatest calamity in economic history. Trade wars and tariffs... those are mere details at this point. The real elephant in the room is debt, both the public kind and the private.” Read the full article by David Stockman in Deep State Declassified, here... Become a millionaire. It’s easier than you think “Investing is often presented as something complicated. Trying to make sense of the range of products available, the different asset classes, and the relationship between risk and return can be daunting to a lot of people. In reality, however, the basic principles are extremely simple: Start as early as possible. Save as much as you can. Be patient, and let time work in your favour. To illustrate this, Morningstar put together some data on what it takes to save your way to R1 million. Using different monthly contributions and rates of return, it calculated how long it would take an investor to become a millionaire. The analysis used a range of return outcomes varying from the current return investors can achieve by putting their money in a bank account... The findings are presented in the table below.  Source: Morningstar Read the full article by Patrick Cairns in Moneyweb of 20 January 2020 here... Great quotes have an incredible ability to put things in perspective. If you look at what you have in life, you’ll always have more. If you look at what you don’t have in life, you’ll never have enough. ~ Oprah Winfrey |
|||||||||||||||||||||||||
2019-12
| In this newsletter: Benchtest 11.2019, year end message, reckless trading, GIPF too large to fail, fishrot and more... |
|||||||||||||||||||||||||||||||||||||||||||||||||
|
The Tax Committee of the Institute of Chartered Accountants of Namibia has obtained some clarifications from the ITAS project team regarding the tax incentive in place up to 30 June 2020. See below the clarifications as per the ITAS team and the Inland Revenue Department (IRD):
Extension granted for Online Submission of Employees Tax (PAYE) returns via the ITAS portal - Reminder Employers were originally required to submit their monthly PAYE 5 returns on ITAS by 20 September. Due to difficulties experienced by many employers to adapt their payroll systems in time, the due date was postponed to 20 February with a clear message that any further extension will not be granted. Read the relevant PWC alert here... Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In our Benchmark column we present:
In our Administration Forum column we present:
In ‘News from RFS’, read about our year end function held at ‘De Kayak’.
In letters from our readers:
In ‘News from NAMFISA’ we present –
In ‘Legal snippets’ read about vicarious liability and the insurance implications thereof. 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 Year-end message In my shoes, it is customary and I would like to take stock of this year that is fast coming to a close. We recently held our staff end of year function under the ‘Western’ or ‘Cowboys’ theme. Over the years, we celebrate the coming to end of a year under a theme and it was the first time to celebrate as “Cowboys & girls”. To appreciate and make sense of the theme, I got the help of Google to read up a bit on definitions, origin and historical significance of this familiar western culture. I am not an ardent reader of history or novels, but if you are or would just like to feed some curiosity, I suggest it may be worth reading up on. In my case, it helped my ignorance, as I eventually learned that the ‘Wild West era’ is largely a myth perpetuated and portrayed via film as made popular by Hollywood characters. But on the back of this theme, I have taken a leaf from the lives of these ordinary human beings referred to as Cowboys and found various meanings in our own lives at RFS. As I take wisdom from some Cowboy inspired quotes, I wish to take stock of the past year. 1) "Country fences need to be horse high, pig tight, and bull strong". This quote sums up the type of people we employ at RFS. We look for specific personalities and go through a thorough process to ensure we only appoint persons we consider fit for our environment. In the course of the year, we were fortunate to secure the appointment of 5 new staff members (the names of the new staff members were shared in our previous editions of the newsletter). Unfortunately, 3 of our staff will be leaving our employ to pursue other interests, and we close the year with a staff complement of 74. We are very proud of our staff retention track record and in this respect, proud that during the year – 7 of our staff celebrated 5 years of service with the company, 4 celebrated 10 years’ service with the company and 2 staff members (namely Charlotte Drayer and the RFS founder Tilman Friedrich) celebrated 20 years’ service with the company. 2) "Don't worry about biting off more than you can chew; your mouth is probably a whole lot bigger than you think". Some things are not in your control, but how you choose to respond to those things is in your ultimate control. We no doubt faced difficult challenges this year, but we are not the only business that faced challenges. In fact many businesses faced different challenges or the same challenges but to a greater extent than we did. Some businesses had to decide not to offer any increases to their staff, others had to decide to reduce salaries to retain staff, yet others had to let go of staff or cease doing business altogether. Thankfully, we were not put in any of these severe circumstances. We have taken views and crafted strategies that had at the time not envisaged all current economic and other circumstances into account, but now that we are witnessing the impact of the same challenges on some businesses, as a business, we feel even more confident that the strategies we are pursuing will not just carry us through current challenges, but give us reasons to be very optimistic and confident about the future of RFS in the financial services industry. 3) "If you're riding ahead of the herd, take a look back every now and then to make sure it's still there with ya." We managed to retain our appointments to 3 of our clients that went on public tender during the course of the year. We are indebted and grateful for retaining our appointments to NBC Retirement Fund, NHE Retirement Fund and the Namwater Retirement Fund in such a difficult operating environment. We were during the year also appointed to the NAPOTEL (Nampost, Telecom & NPTH) Pension Fund. These appointments all signal the long term value that pension fund trustee boards place on quality and reliability of service rather than price. We will not relent on our efforts to seek optimal efficiencies in our operations. To this end, we are analysing data from our time keeping system with the view to ensure that we remain unrivalled not only in terms of service delivery, but concomitantly in the transparency of our service fees. During the year, we were also in a position to reflect and celebrate with clients and stakeholders 20 years of service in the pension funds industry. We have enjoyed remarkable support over the past 20 years and on the occasion to mark the milestone in the life of RFS. We have been given every reason to look forward to the next 20 years and beyond with renewed dedication and commitment. 4) “Every path has some puddles”. This will always be true and was indeed the case for this year. In this respect some aspects of our retail business have been impacted greatly by questionable competitive behaviour on the part of GIPF and its protégé company Kuleni. Fair and even field competition is always necessary. However, our industry still lacks a level of maturity with regard to market conduct and financial literacy. Another big challenge we faced during the year is on the regulatory front. The Administration of Estates Amendment Act was a new law that was introduced whilst we were away on holiday during December 2018 and came into effect on 01 January 2019. This law is now on the statutory books even if the introducer of the law, the former Minister of Justice is now facing the rough of the laws he was supposed to uphold. The FIM Bill is another law which will change the face of our industry. This law was introduced and discussed in Parliament, but could not be concluded and was postponed to next year. Our FIM Bill Project Manager, Monika Von Flotow has worked very hard this year to make sense of the FIM Bill and we managed to experience first-hand, the fruits of her hard labour as she took us through a few training sessions. The jury is still out on this and we look forward to further training and discussion sessions as we make sure to ready ourselves as an organisation. 5) "Good judgement comes from experience, and a lot of that comes from bad judgement". This was the first calendar year I have been at the helm of RFS. My taking over from Tilman was of course only the beginning of preparing our organisation for the next phase. As we look forward to the coming year, my fellow colleagues in senior management and I will start working on the organisational structure for the next phase of our business. In conclusion, I feel indebted to thank all our staff who have given so much of themselves and made so many sacrifices in the name of RFS! I also thank all our various clients, fellow service providers and indeed all our stakeholders for the support and for enriching our lives over the past year! I wish you all a safe and peaceful holiday season. May you enjoy the festive days and may you be blessed throughout as we look forward to see and work with you again come 2020.
Monthly Review of Portfolio Performance to 30 November 2019 In November 2019 the average prudential balanced portfolio returned -0.7% (October 2019: 1.6%). Top performer is Old Mutual Pinnacle Profile Growth with 0.0%, while Investment Solutions with -1.0% takes the bottom spot. For the 3-month period, Namibia Asset Managers takes top spot, outperforming the ‘average’ by roughly 1.2%. On the other end of the scale Stanlib Managed Fund underperformed the ‘average’ by 1.4%. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 30 November 2019 provides a full review of portfolio performances and other interesting analyses. Download it here... What do we expect of investment markets in 2020? Based on our above analysis, we do not foresee a return to a normal interest rate environment in 2020 but rather expect real interest rates to decline further some into more negative territory. Global consumer and investor sentiment should stand a fair chance of improving rather than declining further. We believe locally consumer and investor sentiment is probably as low as it can get with a fair chance of also improving in 2020, just thinking of the early rains we thankfully experienced in parts of the region and a faint hope that the new Escom management may be able to make some progress. We would thus expect global equity markets to show some real growth in 2020. We expect the trend in interest rates to continue downward which in turn will impact positively on the performance of bonds. Bonds should also be able to produce a real return in 2020. Money market rates are consequently likely to decline globally. As the result, the typical prudential balanced portfolio should outperform the money market portfolio and we would expect it to achieve its long-term objective of inflation plus 5%. Read part 6 of the Monthly Review of Portfolio Performance to 30 November 2019 to find out what our investment views are. Download it here... Reckless trading - pension fund trustees beware! In terms of section 96 (2) of the Companies Act, 2004, “A company must not make any payment in whatever form to its shareholders if there are reasonable grounds for believing that – (a) the company is, or would after the payment be, unable to pay its debts as they become due in the ordinary course of business; or (b) the consolidated assets of the company fairly valued would after the payment be less that the consolidated liabilities of the company.” Section 429 of the Companies Act holds directors personally liable, in the event of winding up or judicial management of a company, for any delinquency, including breach of faith or trust or carrying on business recklessly or committing an offence under the law of insolvency, to restore property and to compensate the company in the event of having conducted the business fraudulently. Section 431 goes further to apply criminal provisions to insolvency contraventions while section 432 provides for the prosecution of a director. So as an officer or director of a company, breach of faith or trust, carrying on business recklessly or committing an offence under the law of insolvency can have serious consequences. But what is the relevance of this for pension funds and pension fund trustees? Well it is common knowledge that a number of SOE’s are struggling to survive, having been used to budgetary support by government which has been cut or reduced substantially as the result of government’s financial predicament. It has been reported in the media that as the result of the reduction of the government subsidy some SOEs are failing to meet their contractual liability towards their retirement fund. So what happens if an employer stops contributing to its retirement fund as required in terms of the rules of the fund? Firstly, the assets of the fund do not grow by the contributions that would have been paid. Secondly, the liabilities of the fund, more specifically members’ fund credits, will continue to grow as if contributions had continued as provided by the rules. Evidently, the fund will be accumulating a shortfall equal to the contributions that should have been paid but were not paid by the employer, unless the fund has reserves that may be used to fund this shortfall in terms of the rules of the fund. Where a fund has reserves that may be applied to fund such contribution shortfall, it may have a grace period, but the principle is that the liabilities of the fund will exceed the assets of the fund. Where the fund does not have any reserves to be applied another concern for members will be that the fund cannot pay its service providers including the insurance companies supposed to provide life and disability cover. This may lead to the service providers suspending their services to the fund and members being without life and disability cover. This may have serious consequence for those leading the organisation, certainly under the Companies Act as elaborated above. While it is not uncommon for directors’ being held liable in their personal capacity for any breach of faith or trust or carrying on business recklessly or committing an offence under the law of insolvency, it seems that neither in Namibia nor in SA have any of these principles been tested yet with regard to retirement funds. However, the distinctions drawn between retirement funds and companies become ever less pronounced. As we know the NAMCODE and King IV are nowadays commonly applied to both types of legal entity. It therefore cannot be a foregone conclusion that trustees may not be held liable in the same way as company directors and officer can be held liable under the Companies Act. Trustees whose funds are in the situation where an employer no longer meets its obligations to make contributions to the fund as provided by the fund’s rules must be cognisant of the potential risk they may face should members challenge their performance in this regard. Where the employer does not contribute at all, the rules may already provide that no contributions will be allocated to members’ fund credits and death and disability benefits will be suspended. This of course constitutes a reduction of benefits with consequences under the Labour Act. Often the employer may also not make the full contributions but only partial contributions in contravention of the rules. If the rules do not provide for this, they may be amended to provide that the amount received shall first be appropriated to pay the service providers and the balance, after providing for insurance premiums calculated on a proportionally reduced pensionable salary, to be allocated to each member in proportion to their pensionable salary. It will be appropriate for the employer to be responsible for paying interest on any outstanding contributions. Trustees should also consider terminating the fund in order to avoid a situation where early leavers receive their full benefit while the last remaining members have to carry the shortfall Price is what you pay - value is what you get! This is a popular quote of Warren Buffet, and it is so true! It is especially relevant and extremely important when you are dealing with business of a long-term nature. Pension funds are of course business of a long-term nature. In pension fund business accuracy and reliability of data is a sine-qua-non. Transparency and disclosure provides those vested with the supervision and governance of their fund with the tools to ensure that the business of the fund is administered properly to let them ‘sleep in peace’. If things go wrong in the administration of a fund and this slips through all systems and controls undetected, its consequence may be felt many years later to then present a serious challenge to trustees how to deal with such errors or omissions. For trustees it will be very difficult to determine whether the price they pay for the administration of their fund presents value. In Benchtest 09.2019 we quote from the 2019 Sanlam Benchmark Survey where Barend le Grange makes the point “...that the impact of waiving all the administration and consulting fees over a 40-year term is just a 5% uplift [in the net replacement ratio, e.g. from 56% to 61%] and only 1% uplift [from 9% to 10%] over a 10-year term. Le Grange advised that clients should move away from focusing on the difference between the cost of administration and/or consulting between service provider A and B and rather focus more on which service provider produces more value. Although in making this comment we are clearly conflicted, we believe it is a valid point and it is in the interests of trustee to give due consideration to this. “The GIPF is too large to fail” and the flip side of this coin The GIPF is too large to fail, Minister Calle Schlettwein sounded at the recent 30 year anniversary of the GIPF. The problem is - who will be able to rescue this institution from failure if this were to happen? With its disproportionate size relative to government fiscal means and even the Namibian economy as a whole, what will our government be able to stomach? With a relatively modest shortfall or loss of 10% of its total assets we are talking of roughly N$ 15 billion that government will not be able to shoulder, let alone anything more than this. This is clearly a serious systemic risk the Namibian economy is facing and government seems to be content with this. Like in a number of other instances, government seems to see no threat while things are going well but ‘when the paw-paw hits the fan’ we are surprised that this could have happened. And I hasten to add, fortunately, the GIPF is currently run well by all reports, but this was not always the case and there is no guarantee that it will continue to be run well at all times. The other side of this coin, of being so disproportionately large is, that it can apply leverage its agenda like no other institution in Namibia or the rest of the pensions industry put together. An example of this is the acknowledgement by GIPF that it is probably the only pension fund in Namibia that does not comply with the minimum of 45% of total assets to be invested within Namibia. How many funds in Namibia were penalised by NAMFISA for not observing one or the other parameter laid out in regulation 13? In as much as I have appreciation for the GIPF finding it very difficult to meet the 45% requirement, in the absence of investible assets to the value the GIPF can purposefully invest, it does cast a shadow on the financial and regulatory system. If the Minister through NAMFISA has approved non-compliance by GIPF, I believe it is nothing less than fair and incumbent upon the Minister through NAMFISA to reduce the limit for all funds to what was granted to the GIPF. The point has to be made here that the Minister is seriously conflicted being the provider and underwriter of the GIPF and the highest authority of the pension funds industry. ‘Fishrot’ is not a fisherman’s disease ‘Fishrot’ is a new designation that should actually end up in the dictionary for its pictorial abundance. Corruption has a much more limited meaning. Fishrot is all around us every day and the pensions industry is particularly prone to this disease in affording access to other people’s money to a small and often exclusive board of trustees. What is prudent and appropriate and what is imprudent and inappropriate for pension funds is not defined anywhere and no benchmarks exist that trustees can refer to in assessing whether their actions are prudent and appropriate or not. Before entering into any expense the trustees should at least ask the question: is this prudent and appropriate for our fund or is it not? They should try to determine what other funds are doing and should not benchmark themselves on the outliers but on the mean. When dealing with service providers in a competitive market it is clearly a fairly simple task, given that the trustees need to distinguish between value and price as elaborated in another article above. Often it starts small and the lines may be blurred. How many funds are sending their trustees to attend seminars and conferences in South Africa, elsewhere in Africa and even offshore? Can this be justified? Does the fund get any meaningful return on the money it has invested into such forays? Is any of the knowledge acquired by a few trustees transferred to the other trustees so that they can also benefit for the same cost? We see funds paying seminar fees that include a personal tablet or laptop. We see funds delegating trustees to seminars and conferences at significant expense where the trustee is only seen at registration and never again thereafter. We see funds making donations to bodies totally unrelated to their membership. Does this mean that the need of such body is greater than the need within the fund’s membership? Has any attempt been made to make such an assessment? NAMFISA has an extensive data base that funds are required to update every quarter. This information is updated on the data base by every pension fund at its own expense. Should NAMFISA not make meaningful expense statistics available to the industry to enable trustees to benchmark their own discretionary expenses, in particular? Surely this will have a meaningful risk mitigating purpose for all funds, considering that trustees may be ruled in breach of their fiduciary duties for having incurred certain expenses without due regard to industry norms, by a court of law. As pointed out elsewhere in this newsletter, trustees can be held responsible for inappropriate expenditure in their personal capacity. Evaluating your investment managers and your investment portfolio When evaluating investment managers, the text books will tell you that you should consider the 6 P’s:-
When one considers performance track record, every expert will tell you that you cannot place any value on this criterium as historic performance gives no reliable indication of future performance and this has been shown to be true by just about every piece of research that has ever been published on this topic, but it is the only measurable criterium. When you consider all the criteria, aren’t you also only looking at historic evidence in any event, even if it was obtained a minute ago – it is history when you look at it and there is no way you can be sure that what you have seen today will be the same you will see tomorrow, as long as you consider anything that involves people. One may try to bring the historic track record of a manager into the context of economic and other environmental factors in an effort to use the deductions from the associations one believes to have identified to refine one’s own view of their implications for the future. At the same time one would need to have a view on the future to bring these deductions into the right context with regard to the manager being evaluated. In the final analysis one will always look at history whenever one is evaluating an investment manager. One would have to be able to foresee the future if one wanted to avoid considering history but such skill is not bestowed upon any of us. When evaluating an asset manager, one has to take comfort in only having a rear view mirror to decide on the way forward. One of the most common ways of evaluating a manager is to measure the manager’s performance against that of other managers operating within the same mandate, also referred to as ‘peers’. For pension funds the typical mandate is a balanced prudential mandate, in other words, the manager has to observe the maximum and minimum exposures to certain asset classes and assets defined by the regulator. Graphs 6.1 and 6.2 below measure peer performance of 7 prudential balanced portfolios. More specifically it measures the cumulative out- or underperformance of the managers relative to the average prudential balanced portfolio. The average balanced portfolio is represented by the straight horizontal line at 100%. In Graph 6.1 we see that the Old Mutual Pinnacle portfolio incrementally out-performed the average from August 2002 until the end of 2006 and then essentially maintained the gap it had built up over the first 4 years at 13% to October 2019. Investec underperformed the average for the first 4 years to then start outperforming incrementally, reaching a 12% cumulative out-performance by the end of October 2019. Prudential initially underperformed for about a year to then maintain a consistent outperformance ending up at 6% at the end of October 2019. Stanlib underperformed incrementally for the first 5 years, to then pick up to the average and ending up on par with the average at the end of October 2019. Graph 6.1  In graph 6.2 we see Allan Gray incrementally out-performing the average up to the end of 2015 and from then on losing a little bit of the cumulative outperformance and ending up at an outperformance of 32% at the end of October 2019. Investment Solutions did quite a good job in performing on the average for the full period. This is a multi-manager comprised of a number of building blocks consisting of other managers with a specialist mandate, but in aggregate also representing a prudential balanced portfolio. Interestingly, this picture disproves the claim of multi-managers of achieving an incremental outperformance of the average manager through the intelligent combination of the best managers in different asset classes. NAM/ Coronation marginally, but incrementally underperformed the average for the whole period ending up at an under-performance of 10%. Graph 6.2  For those pension fund members who look at point in time performance of portfolios and might have switched or considered to switch to a money market portfolio in view of the poor performance of the prudential balanced portfolios, graph 6.2 should be an eye opener. This graph again reflects the average prudential balanced portfolio as the horizontal line at 100%. It also reflects the cumulative under- or out-performance of the different asset classes relative to the average prudential balanced portfolio. It shows that as the result of the poor performance of equities as represented by the ‘JSE’ for the first 4 years, the all bond (ALBI) and cash indices (BM Csh) out-performed the average prudential balanced portfolio for the first 3 years. Ever since the beginning of 2005 however, the bond and cash indices incrementally underperformed the average prudential balanced portfolio except for a short period from the end of 2007 to the end of 2009, representing the peak of the financial crisis. We see that despite the average prudential balanced portfolio’s poor performance over the past 7 years, cash has only been able to maintain the gap over the past 6 years, but has not been able to reduce he gap and ends up with an under-performance of 62% at the end of October 2019! Finally we see that the all bond index actually managed to close the gap slightly since the beginning of 2018 but has still underperformed the average prudential balanced portfolio by 41% at the end of October 2019! Graph 3  Conclusion As we and every other commentator have cautioned so often before, the above graphs clearly show that the prudential balanced portfolio is the most appropriate investment portfolio for pension fund members over any period longer than 2 to 3 years. To try and capitalise on the short stints of outperformance of bonds and cash, or to avoid the short stints of underperformance of the prudential balanced portfolio, takes doing. As we see in the graphs above, these are usually very short periods of 2 to 3 years and it then requires the astute fund member to move out of the prudential balanced portfolio and back in again just at the right time. If we assume a 50% probability of each timing decision being spot on, between the two timing decisions, the total probability of picking the right moment for both moves is only 25%. In other words the chance of being wrong is 75%! One should thus never try to time the move and the objective of moving should not be to avoid a short-term blip but rather to avoid only the downside in accordance with the member’s long-term financial planning. Pension fund governance - a toolbox for trustees
A compliment from a Deputy Director of an SOE “Good morning colleagues Thank you for all support over the past years. You are such a useful and conscientious team to work with. May God continue to bless you!!” Read more comments from our clients, here... Employers beware - fund membership must be a condition of employment! We wish to draw the attention of employers who participate in the Benchmark Retirement Fund, to the fact that it is a requirement that all new employees joining the employer after the date the employer joined the fund, must be enrolled as members of the fund. This is not optional and employers affording new employees the choice whether or not to become a member are transgressing the rules, the agreement with the fund and the requirements of the Income Tax Act. Employers who engage in such practice firstly may find that the Receiver of Revenue cancels the tax approval of the employer’s pension fund. In terms of the Income Tax Act, membership of a fund must be obligatory in order for employee contributions being allowed as a deduction against the employee’s taxable income. Cancellation of tax approval will mean that the contributions that employees have made to the fund will be disallowed. In other words the employees that participate will be punished for the transgression by those the employer afforded the choice to join and who chose not to join. From the fund’s and the insurer’s perspective it is also important that membership is a condition of employment. This serves to ensure that the employees cannot apply anti-selection. In other words healthy employees are more likely not to join while those who know to have a health impediment are more likely to join. As the result the fund may end up with the poor risks, thereby undermining the principles of group underwriting. To protect the fund against such practices, the trustees have the powers to terminate membership of an employer. Email Günter Pfeifer or This email address is being protected from spambots. You need JavaScript enabled to view it. or call either on tel 061 446 000 if this is a matter you are currently grappling with.
Should you rotate your service providers on a regular basis? Pension funds typically employ a whole array of different services from 3rd party providers. Certain service providers offer composite services while others are focusing on a limited range of closely related services. Good corporate governance requires the regular review of service providers, does it not? In essence good corporate governance aims to manage risks and compliance. Rotating service providers for the sake of rotation certainly cannot be at the core of good corporate governance. Assuming one is satisfied with the services provided by a service provider one would have to determine whether rotation reduces risk and/or strengthens compliance management, before this question can be answered conclusively. What are the typical risks a fund faces vis-à-vis its service providers? Here are some that spring to mind immediately:
There are industries and situations where the rotation of service providers makes sense as it mitigates important risks. Rotation is typically employed in the security and asset protection industry or where highest standards of independence between client and service provider are required, such as in the audit profession. In other industries rotation could in fact present additional risks. Personal services dependent on an acquired knowledge of the client or administration services relying on historic data going back over many years, such as typically relevant to the pensions industry are a points in case where rotation may present bigger risks than it might mitigate.
RFS year-end function held at ‘de Kayak’ Staff of RFS had their year-end function on Saturday 30 November at ‘de Kayak’. Under the theme ‘Wild Wild West’ everyone made a great effort to dress up appropriately. The venue was beautifully decorated according to the theme and everyone enjoyed the function thoroughly.
Travel insurance is a must If you are one of those lucky people to be travelling abroad this holiday season, don't skimp on your travel insurance. Travel insurance can cover everything, "from missed connections, loss or damage of sports equipment, injuries sustained in adventure activities, pre-existing medical conditions and even crime and terrorist attack," explains Christelle Colman an insurance expert at Old Mutual Insure. In many African countries quality medical services are private, charged in US dollars and require either upfront payment – or recognised proof of cover or ability to pay," says Colman. Prescribed assets I read with interest your publication on Prescribed Assets on LinkedIn. In Namibia there is another unfair disadvantage. The same goes for Swaziland where there is also a local asset requirement. If prescribe assets are introduced in South Africa the same effect will happen here. If there is an increased demand for debt instrument investments because of prescribed assets and the volume of debt instruments is fairly stable, then something most give. this will be the price and thus the return. But it is more subtle than what meets the eye. As the prices of the instruments are bid up to artificially high levels to such an extent that the return offered relative to the credit raking of the sovereign is too low and does not compensate the investor adequately for the implied credit risk given the credit rating of the sovereign. The BoN has alluded to this recently. It could mean that banks and insurers will need to hold more capital than would have been required had the local investment requirement not existed. In practice investors receive a lower return and products investing in debt instruments - like annuities, disability income claims in payment and risk products offered by insurance companies will become more expensive. Should Namfisa implement a solvency II or equivalent regime for insurers it will magnify the problem. I think they are working on this. The new accounting regime for insurers - IFRS 17 - will not help matters at all either and could well give a distorted picture of the financial position of, particularly, long term insurers. Kind regards Philip Barnard Note: The opinion of our readers does not necessarily reflect the opinion of RFS. We reserve the right to shorten and to edit letters received from our readers. Feedback from industry meeting of 3 December 2019 NAMFISA conducted the last industry meeting for the year on 3 December. Following is feedback from RFS staff who attended the meeting:
Vicarious liability and the insurance implications thereof An interesting article from South African Financial Planning Institute members’ digest “While employers get to enjoy the benefit of the profits resulting from the deeds of their employees, they also create the risk of harm to others through the actions of their employees – this is why public policy dictates that employers should be held liable for the wrongful acts of their employees. The doctrine of vicarious liability, which has recently been developed by the Supreme Court of Appeal, will have implications for liability insurance covers. The Supreme Court of Appeal ("the SCA"), in a recent decision in Stallion Security (Pty) Limited v Van Staden (526/2018) [2019] ZASCA 127 (27 September 2019), found the employer to be vicariously liable, and ordered the employer to pay damages, in circumstances where an employee acted intentionally, and "entirely for his own purposes", because there was a sufficiently close link between the actions of the employee and the business of the employer. The employee in this case, a security guard, had been provided with an override key for the purpose of inspecting the interior of a building. He used the key to facilitate the robbery of an individual who was working late in the building and in the process the individual was murdered. In arriving at its decision, the SCA determined that the South African law "should be further developed to recognise that the creation of risk of harm by an employer may, in an appropriate case, constitute a relevant consideration in giving rise to a sufficiently close link between the harm caused by the employee and the business of the employer". (our emphasis added) The yardstick for establishing vicarious liability is whether there is a sufficiently close link between the employee's unlawful actions and the business of the employer. In view of the Stallion decision the yardstick of a "sufficiently close link", traditionally satisfied through the employee acting in the course and scope of his or her employment, may now be satisfied simply through "the creation of risk of harm by the employer". The further extension of vicarious liability, driven by the development of public policy, presents even greater exposure to employers. Importantly, are deliberate actions (such as that in the Stallion decision) even insurable?
How much can you safely draw from your living annuity? “One of the most complex problems in financial planning is how to manage your capital in retirement. This is because there are so many unknowns. Most significantly, nobody can be certain about how long they will need their money to last. Someone who retires at 65 may only live to 75, but they might also make it to 100. This is a vital consideration for anyone who has reached the stage where they need to turn the capital they have saved up during their working lives into an income. They naturally want the highest monthly payments they can get, but they can’t afford to run the risk of running out of money. Identifying at what level that balance is reached is one of the greatest debates in retirement planning... Marriott recently conducted some interesting research looking at what level of withdrawals could be viewed as safe by those using living annuities... “Initial safe withdrawal rates have fluctuated significantly over time,” Coetzee points out. “Some retirees were able to start with a withdrawal rate as high as 13%, grow their income in line with inflation, and still have a successful retirement.” This is because they enjoyed very strong returns from their portfolios in the first 10 years, which put them in a much stronger position for the full period. Where returns in the first 10 years were much lower, however, initial safe withdrawal rates dropped as low as under 4%... Marriott’s analysis found that even at a 5% initial withdrawal rate, retirees would have run out of money more than a quarter of the time over the period since 1900. Many investors, and their advisors, may therefore need to carefully re-evaluate their strategies. To secure their retirement income, there are two options to consider. The first is to make greater use of guaranteed annuities. This means giving up some capital, but in return investors are ensured of receiving an income for their entire lives. Recent studies have shown that the optimal retirement strategy almost always involves a combination of living annuities and guaranteed annuities to reduce all the risks that investors face...” Read the full article by Patrick Cairns in Moneyweb of 13 December 2019, here... 3 Lessons for investors from the past 5 years “Over the past five years, investors on the JSE have struggled to earn inflation-beating returns. The FTSE/JSE Capped Shareholder Weighted All-Share Index (Swix) has delivered just 3.09% per annum over this period. ...the average South African general equity unit trust has fared slightly better than that. The median annual return of funds in this category has been 3.41%, and mean average return is 3.13% Those who have invested in balanced funds have done even better. The median return from the South African multi-asset high equity category is 4.84%, and the mean average return is 5.05%. There is, however, a fairly wide dispersion among these funds. As the table below shows, the spread of returns between the best and worst performing unit trusts over this period is quite large. Best and worst performing unit trusts over five years
Compounded over a five-year period, this is a meaningful variance. The table below shows the difference in final value that would have been realised from investing R100 000 in either the top or bottom performers. Illustrative returns of R100,000 invested over five years
Lessons for investors These figures reveal a number of important considerations for investors. The first is how much better multi-asset funds have held up over this period than pure equity unit trusts. The returns from balanced funds are still not enormously exciting, but they have at least, on average, kept up with inflation. Most investors in these products have therefore not lost value over this period, which they would have done in most pure equity funds. The reason for this is that balanced funds are able to build portfolios from a range of asset classes. Over the longer time frames, this type of return profile can deliver outstanding returns. It can, however, be difficult for the average investor to sit through it from year to year. This is a further benefit of diversification. Including a range of asset classes in a portfolio smooths out returns, because when one part of the portfolio isn’t performing, there should be another part that lifts it. Longer-term returns can still be a result of short-term performance. One of the most often heard pieces of advice is that investors need to be patient and think long term. This is not just because it is only when you start compounding returns that they really become meaningful. It is also because markets do not deliver performance in a straight line.... Read the full article by Patrick Cairns in Moneyweb of 11 December 2019, here... NHI plan will create another state monopoly SA government is planning to introduce a National Health Insurance plan, something already provided for in our Social Security Act. In Namibia however, it seems that government has prioritised a National Pension Fund above a National Medical Scheme. The question is, will Namibia learn from SA’s atrocious experience with state-run monopolies such as Transnet and Escom, or of some of our own state-run monopolies such as Air Namibia, Transnamib etcetera? “Concerns have been raised that the government’s plan to set up a National Health Insurance (NHI) scheme will result in another state-run monopoly that will be susceptible to greater levels of corruption and mismanagement. These fears have been voiced by Alex van den Heever...Van den Heever, who is chair of Social Security Systems Administration and Management Studies at the Wits school, is a vocal critic of the NHI and has more than 25 years of experience around public healthcare policy and advocacy. “Tenders and the existing framework in government healthcare have also been affected by a system of patronage, which is already endemic in the current system,” he said. “A new government monopoly – in the form of the NHI – is not going to solve the problems in healthcare...” Read the full article by Suren Naidoo in Moneyweb of 25 November 2019 here... 7 Boardroom tips to ensure a future fit organisation To be ‘future-fit’ requires doing work today that will mean you are ready for tomorrow – regardless of what that tomorrow might look like. This is far more difficult than it sounds. There are several impediments that inhibit or block achieving this readiness. Here are (at least) seven challenges that will need to be recognised and addressed if your organisation is to be future-fit. Ensuring the capacity to recognise and meet these challenges is what a wide-awake and vigilant Board concerns itself with – it starts at the very top! Challenge #1: Current success. Being successful can lead to complacency (and arrogance) where the focus becomes one of guarding the status quo whilst reducing healthy risk and experimentation. Challenge #2: Looking inward, not outward. The focus swings from ‘out there’ to ‘in here’. Less attention is given to the broader context, to ‘what is changing and why’ and the focus, attention and energy is all inward. Challenge #3: The failure to adapt. When things stop working (as well as they once did) we respond with exhortations for increased effort whilst looking for greater efficiencies. Challenge #4: Values that become meaningless. Values drive behaviour and I am yet to meet a company that didn’t have a good (if not great) set of values. Challenge #5: Leaders who stop learning. All too often the prevailing assumption within organisations is that leadership / personal development initiatives are ‘for everyone else’ except the Executive team. Challenge #6: Acknowledging that every business model has a ‘sell-by date’. This might just be the hardest of challenges and it requires an ability to be able to challenge core assumptions about the business. Challenge #7: Failure to understand the importance of reputation. Understanding that reputation could be your biggest future risk is a key Board responsibility. Read the full article by Keith Coats in Tuesday Tip of Tomorrow Today here... Great quotes have an incredible ability to put things in perspective. Perfection is not attainable, but if we chase perfection we can catch excellence. ~ Vince Lombardi |
|||||||||||||||||||||||||||||||||||||||||||||||||
2019-10
| In this newsletter: Benchtest 10.2019, disabled members and retirement and more... |
||||||||
|
As was recently reported in the Namibian, “Government lifts lid on unlisted investments. Pension funds will now be able to invest more money in private companies and diversify their portfolios. This follows a government announcement that they will increase the percentage of funds put in unlisted investments. Finance Minister Calle Schlettwein announced the lifting last week during the mid-term budget review saying regulations will be amended to allow pension funds, insurance companies to invest from 5%, 7.5% and ultimately 10% in phases, as the 45% domestic asset requirement takes effect.” Inland Revenue offers to write-off penalties for registering on ITAS The Ministry of Finance has announced an incentive programme in terms of which penalties imposed for non-compliance by taxpayers will be written off if those taxpayers are registered on the Integrated Tax Administration System (ITAS). The incentive programme ends on 30 June 2020. Read the EY newsletter setting out the incentive scheme offered by Inland Revenue here... (attached as Tax Bulletin 7-2019…Pdf) Administration of Estates Act – where do we stand? Following our formal enquiry and an informal meeting between a senior official of RFS and the Master of the High Court, the following points were noted with regard to the status of the prospective further amendment of the AoEA:
News from parliament on FIM Bill The debate on the second reading of the FIM Bill resumed in the National Assembly on 29 October. A member of the opposition raised an objection that the opposition of their Parties to the Bill be formally recorded in the Minutes of Proceedings. The Bill was then read for a second time. On 30 October the Minister of Finance deferred the discussion of the FIM Bill to February 2020. Extension granted for Online Submission of Employees Tax (PAYE) returns via the ITAS portal - Reminder Employers were originally required to submit their monthly PAYE 5 returns on ITAS by 20 September. Due to difficulties experienced by many employers to adapt their payroll systems in time, the due date was postponed to 20 February with a clear message that any further extension will not be granted. Read the relevant PWC alert here... Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In ‘News from the marketplace’ read –
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 Monthly Review of Portfolio Performance to 31 October 2019 In October 2019 the average prudential balanced portfolio returned 1.6% (September 2019: 1.3%). Top performer is Momentum Namibia Growth Fund with 2.2%, while Investec with 1.2% takes the bottom spot. For the 3-month period, Allan Gray Namibia Balanced Fund takes top spot, outperforming the ‘average’ by roughly 1.2%. On the other end of the scale Stanlib Managed Fund underperformed the ‘average’ by 1.2%. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 31 October 2019 provides a full review of portfolio performances and other interesting analyses. Evaluating your investment managers and your investment portfolio When evaluating investment managers, the text books will tell you that you should consider the 6 P’s:-
Read part 6 of the Monthly Review of Portfolio Performance to 31 October 2019 to find out what our investment views are. Download it here... Should you allow a disabled member to go on early retirement? Many funds offer a disability income benefit to members, insured with an insurance company. When a fund member becomes disabled, the member would be entitled to an income benefit, paid by the insurance company that would effectively replace a certain percentage of the salary the member used to earn from employment prior to disablement; usually between 60% and 100% of his previous salary. The disabled member would remain a member of the fund. The insurance company usually also takes over the employer contribution towards the fund, in respect of the disabled member. The member will remain obliged to contribute to the fund as if he was still employed, but the contribution would normally be deducted from the income benefit payable by the insurance company and be paid over to the fund. As a member of the fund, the disabled person would also remain entitled to the death benefit the fund offers that is also usually insured with an insurance company. The employer of this member would usually terminate the employment of the employee upon his disablement. As pointed out, the employer’s contributions would be taken over by the insurance company so the employer also no longer has any obligation towards the former employee in this regard. Where the rules of the fund (and the Income Tax Act) requires that membership of the fund must be a condition of employment, the termination of employment as the result of disablement, would then imply that the disabled member cannot remain a member of the fund unless the rules specifically provide that a disabled member will remain a member of the fund notwithstanding the fact that he is no longer an employee of the employer, and most rules do provide for this. The relationship of the disabled member with the employer would thus be severed and the disabled member would now be a member of the fund is his own capacity as provided for in the rules. Usually rules would link the conditions of the disabled member’s continued membership to the terms and conditions set out in the insurance policy under which the disability income benefit is being paid to the disabled member. Fund rules would normally describe under what circumstances a member becomes entitled to a benefit, typically, termination of employment, death or retirement; all of these reasons being linked to the employee’s employment. For employed members, these would cover all possible reasons for termination of membership, other than disablement elaborated above. The retirement rule would normally provide for early, normal or late retirement where early retirement is normally at the discretion of the employee, normal retirement manifests the obligation of the employee to retire and late retirement is at the discretion of the employer. As pointed out above, the terms and conditions applicable to a disabled member who is no longer employed are usually linked to the terms and conditions of the policy providing the benefit. Clearly in the absence of an employment relationship, there can be no termination of employment due to resignation, dismissal or retrenchment, yet the benefit has to cease at some stage. Rationally this is either death or normal retirement age and this is usually also what the disability insurance policies provide for. Where the rules of a fund link the disability benefit to the insurance policy, fund membership of the disabled member can only terminate as provided in the disability insurance policy. Where the rules do not explicitly link the disability benefit to the disability insurance policy we would argue that the only reason for termination of fund membership remains the termination of payment of the disability benefit by the insurance company, which would be upon the earlier of recovery, death or reaching normal retirement age. We are regularly confronted with requests by disabled members receiving a disability income benefit, to terminate their fund membership for whatever reason but more often than not the member being after the ‘pot-of-gold’ he has in the pension fund. This would not be in the interests of the disabled fund member or his dependants who will lose the continued contribution by the insurance company, the benefit payable in the event of the death of the disabled member and any investment returns on the money that will continue to be invested on behalf of the disabled member, until the earliest of recovery, death or retirement. Besides the fact that the early retirement of a disabled member will seriously prejudice the disabled member, section 37A of the Pension Funds Act explicitly prohibits the member to sacrifice his benefits in stating that “…no benefit provided for in the rules of a registered fund (including an annuity purchased or to be purchased by the said fund from an insurer for a member), or right to such benefit, or right in respect of contributions made by or on behalf of a member, shall notwithstanding anything to the contrary contained in the rules of such a fund, be capable of being reduced, transferred or otherwise ceded, or of being pledged or hypothecated, or be liable to be attached or subjected to any form of execution under a judgment or order of a court of law, …, and in the event of the member or beneficiary concerned attempting to transfer or otherwise cede, or to pledge or hypothecate such benefit or right, the fund concerned may withhold or suspend payment thereof…” The disabled member thus has a statutory right to the benefits offered by the rules to a disabled member which right cannot be disposed of by the disabled member or even allowed to be disposed of by the fund and these rights can be sued for by the disabled member and/ or his dependants at any time in future. Prescription will never apply to this right. Trustees are advised to ignore any request by a disabled member to be allowed to take an early retirement benefit. Can your employees deduct voluntary contributions to the fund? The contract of employment One principle of the Income Tax Act is that expenses can only be claimed for tax purposes if they were incurred in the production of income (refer section 17(1)(a). In the case of employees, Inland Revenue will not easily accept any claim for expenses incurred by the employee. An employee can only claim expenses that he is required to incur in terms of his employment contract. In other words the salary you earn is dependent on you incurring certain costs so these costs are incurred in the production of income as contemplated in section 17(1)(a). If an employer can formulate the employment contract in such a way that a pension contribution in respect of the employee’s bonus is an obligation, the employee should be able to claim that expense. If the decision is left to each employee, the employer should find that it is not possible to formulate it in the contract as an obligation. This does not mean that every employee has to have the same contract of employment. So certain employee categories or certain employees can have a special provision in their contract of employment that others do not have, to make the contribution obligatory. The fund rules Most fund rules provide for voluntary contributions by members. We caution to use this clause as the heading is problematic, referring to ‘voluntary’. As pointed out above, the word ‘voluntary’ means it cannot be an obligatory contribution by the employee and would thus not be incurred as a condition of employment for the purpose of producing income from employment. It is important that the rules of the fund mirror the employee’s employment contract. Thus, if a contribution calculated on a member’s bonus is a condition of employment, it should not be referred to as ‘voluntary contribution’ in the fund’s rules. The Income Tax Act on fund contributions The definition of ‘pension fund’ in sub-section (b)(i) requires that the rules of a fund provide that ‘…all annual contributions of a recurrent nature of the fund shall be in accordance with specified scales…’. The definition of ‘provident fund’ lays down the same requirement. Typically, this refers to the contribution percentages at which members contribute on a monthly basis. The definitions do not make any reference to any other contributions. Section 17 of the IT Act deals with ‘General deductions allowed in determination of taxable income’. Section 17(1)(n)(i), sets out that the employee may deduct ‘…by way of current contributions [which are required to be in accordance with specified scales per definition of ‘pension fund’ and ‘provident fund’] in the year of assessment and directs that ‘…such contribution is a condition of employment…’ The IT Act contains no other specific provision that allows any deduction for contributions to a pension fund, and here we do not refer to a transfer of accumulated contributions to another fund. Conclusion As set out above, the principle of the IT Act militates against an employee deducting any expense that he was not required to incur in the production of income [and that can only be achieved through the contract of employment]. This sets out the dilemma of employers or funds wanting to allow staff to make additional contributions to their fund and indicates what route the employer and the fund should take to achieve their goal of having employees contribute to the fund in respect of their bonus. We would caution employers and funds though not to create an impression towards employees that voluntary contributions are tax deductible, or worse, to offset voluntary contributions from an employee’s salary in determining the taxable income unless you have obtained comfort that Inland Revenue will allow these as a deduction for tax purposes. RFIN, the GIPF and the remnants of an industry – a bridge too far? Ever since RFS was established, senior employees made it their business to support this industry body in various roles as we always considered it our responsibility to contribute towards the development of the retirement funds industry in Namibia. Over the years RFIN was confronted with numerous challenges impacting its members either as service providers to the industry or as retirement fund, primarily when it comes to legislation and regulation. I would venture to say that RFIN has not been able to effectively counter most of these challenges. One of the outstanding features of our industry that contributed to this ineffectiveness is that it is utterly lopsided. One single institution, being the GIPF, comprises more than 50% of the industry, the balance of it comprised of some 80 small private and umbrella funds. During my latest term of office it has become evident to me that RFIN faces a serious challenge for which it needs to find an answer that better balances the needs of all its members. The interests of the GIPF cannot be, as the result of it operating in a different ‘sphere’, and are often not consistent with the interests of the other funds and vise-versa. However, because RFIN simply cannot afford to alienate GIPF for what might be in the interests of the other funds, the interests of the other funds may often not receive the necessary support. The consequence is that RFIN is trying to find a balance between these often conflicting interests of the two categories of membership, that satisfies neither category. To find an answer to this challenge will not be easy. To my mind it is encumbent upon the one big player to sub-ordinate its interest to the majority interest. It surely has a key role to play in promoting and protecting the interest of our industry, as lopsided as it is. Rather than seeing itself to be part of the government structure, the GIPF should fully align itself with the interests of the pension funds industry, whether or not this may please the executive, but will it be able to exert the necessary autonomy? As things stand it seems tax payer funded GIPF is set on using it overwhelming size and resources to compete with the tax paying remnants of this industry rather than supporting and promoting it. As the minister of finance was quoted at the occasion of GIPF’s 30th anniversary - “with big things comes big responsibility” and that responsibility to my mind goes further than the responsibilities one would expect any pension fund to carry! Will the GIPF live up to this expectation? Should you be concerned about recent poor performance of your pension fund? As a pension fund member you will no doubt be disappointed with the investment returns your (probably) biggest investment has earned over the last number of years. This investment is to carry you through retirement and in order to ensure a comfortable retirement. This assumes a typical total contribution by you and your employer of around 17% of salary and on the underlying expectation of long-term returns that your pension fund investment should earn of 5% per year in real terms, i.e. above inflation. Where inflation for the year to 30 September was 3.2%, your investment should thus have earned 8.2% for the year to 30 September. The average return of typical pension fund investments for the same period however, was only around 3.4% (after fees). Over a 5 year period inflation was 4.7% per year. Your investment should have thus earned 9.7% per year while the average return of typical pension fund investments for the same period however, was only around 6.8% per year (after fees). So over both periods, your investment has substantially underperformed the underlying expectation. One will have to extend the period to 8 years to get to the first measurement period where the average return of about 9.8% per year (after fees) actually achieved the expected real return of 9.9% per year (inflation of 4.9% plus 5% real return). Any member of a fund who has been in the fund for 7 years or less certainly has good reason to be disappointed and to be concerned, however, only if you are approaching retirement and you have not preserved your pension capital for all the years you have worked until 7 years ago. The underlying expectation for you to retire in comfort is that you will have worked and saved up uninterruptedly for your entire working life of at least 30 years, i.e. you only started to work at age 30 and will already go on retirement at age 60. Most people in fact start working at 20 and retire earliest at age 60, actually giving them 40, not 30 years of saving up for retirement. If you are one of the diligent fund members who has indeed saved up uninterruptedly for the past 20 years (or longer) your return should have been 11.8% per year as opposed to inflation over the same period of 6.3% per year, i.e. a real return of 5.5% per year including the disappointing past 7 years. If you diligently started to save up from the day you started to work (at age 25) and this was 7 years ago, and you intend to remain as diligent, you still have 28 years to save up. Why should you be concerned now? Clearly it is only those fund members that have reneged on their commitment to save up from their first to their last working day who may find that they will not be able to live comfortably on their pension. Unfortunately this is not how pension funds are designed and these members should rather look critically at themselves than at the performance of their pension fund over the past 7 years. Over the past 10 years, pension funds have achieved the return expectation of inflation plus at least 5% per year per year (after fees). Having referred to the past, you may well ask “but what about the future”? Can I be certain that over the next 28 years my pension investment will recover what it fell short over the past 7 years? Of course, no one will be able to look into the future, and indeed one may have valid concerns considering that ‘things’ have changed in financial markets globally since the financial crisis in 2008/ 2009. It seems, the law of economics, of demand and supply, no longer has any bearing on the behaviour of markets today. Savers are paying off the debt of borrowers through artificially low interest rates that are set by monetary authorities across the world. So-called ‘safe haven’ investments are earning negative real interest rates and the investor is now conditioned to accepting that he will have to work until he passes away, instead of realising his dream of retiring at an age where one might still be able to enjoy life for a while. Retirement ages are extended while pension entitlements are at best being questioned already, and even reduced in some countries. It is pretty much common knowledge that the situation we are and have been facing in investment markets globally for the past nearly 10 years, is the result of ‘ultra-loose’ monetary policy by central banks across the world, including Namibia. After the financial crisis, central banks poured money into the financial markets in order to encourage the consumer to pick up spending levels again after these had fallen flat in the aftermath of the financial crisis. Artificially low interest rates, designed to encourage spending, were great for the borrower, but bad news for the depositor, pension fund members and pensioners to a significant extent. In many instances depositors would earn negative real interest rates. With negative real interest rates seemingly having become the ‘new norm’, asset valuation models are now being questioned. Why should this be of concern to a pension fund member? Well as we pointed out above pension fund contribution structures were established over the course of the past century or more based on the assumption of cash returning around 2% above inflation, bonds around 4% above inflation, property around 5% above inflation and equity around 8% above inflation. A typical balanced portfolio comprising of a mix of these assets based on conventional investment theory was expected to return roughly 5% above inflation, net of fees. Pension theory then arrived at a net retirement funding contribution rate of 11%+, to produce an income replacement ratio of 2% per year of membership, that is 60% of the member’s last salary before retirement after 30 years, or 80% after 40 years uninterrupted fund membership. Indications based on the ‘new norm’ are that one is now only looking at a net return of between 2% and 3% per year as opposed to 5% per year. If this were to become true, the retirement funding contribution rate would have to be raised from 11% to at least 16%. Add to this a typical cost element of 6% for risk benefits and management costs, the ‘new norm’ for a total retirement fund contribution rate is now at least 22% instead of the 17% before the advent of the ‘new norm’. Alternatively the retiree would now have to settle on an income replacement ratio of only around 40% after 30 years of service, instead of his expected 60%! We are certainly living in a different world today to what it was 30 years ago. What we expected of the future may be materially different and we will have to find ways and means to deal with the impact these changes have on our lives and on our retirement planning. One can only find some comfort in the fact that we are all ‘in the same boat’, from ‘top to bottom’, the answers have not been found and a lot of energy and time will be spent all across the globe to find answers how to still have time in retirement to enjoy. The global economy just has to get going again by getting consumers to start spending again and governments across the world are making every effort to achieve this goal. We are all consumers and we all know that we have an urge to spend our money, to buy a new TV, a new motor vehicle, to go on leave etc. but we are able at times to also to hold back on spending when times are bad, only to feel the spending urge growing as time goes by. There are many possible scenarios that are likely to lead to increased spending. Namibia has experienced a terrible drought for the past few years that has resulted in many Namibians holding back on spending. At some stage it will start raining again and this will then lead to the pent up spending urge to be unleashed. Globally there is much talk about the ‘4th industrial revolution’ evolving right now where the advancement in technology is in the process of changing the world of work ever faster. Any revolution will lead to the destruction of existing infrastructure and reconstruction of new infrastructure that will require large-scale investment. With the prevailing exceptionally low interest rates, borrowers have a ‘hay-day’ while depositors (and pension fund members) are suffering. This is turning conventional money wisdom upside-down and must and can be corrected in different ways. Conclusion We are convinced that the prevailing situation cannot continue for too long and that conventional money wisdom will return. Which investor in his right mind will invest in an asset that gives him a return of 0% or even a negative return, i.e. his investment declines in value as time goes by? And this is currently in nominal terms and the situation is exacerbated by prevailing inflation as the result of which the decline in value is actually accelerating. Either interest rates will return to normal or we will see deflation (or negative inflation) meaning that goods and services will become ever cheaper as time goes by. Pension fund members we believe do not need to be overly concerned about the poor investment experience of the past 7 years, provided they have been and remain diligent and focused on saving up for retirement throughout their working life. A pension fund is designed to deliver only over the working life of a member of 30 to 40 years. Those that are at the end of their working life and have saved up right through should still be able to retire in comfort, given that 7 years ago the picture was a lot rosier, but we are still on target! If you are at the beginning of the road of still saving up for another 30 to 40 years, markets still have a lot of time to correct and the pension fund member ultimately can influence the growth of his pension savings by saving more at a time when interest rates are low and house and rent prices have declined as the result of the prevailing economic environment. Pension fund governance - a toolbox for trustees
From a broker “Good morning M Thank you very much for the proof of payment. You always deliver exceptional service, I appreciate it.” Read more comments from our clients, here... Are you bogged down by increasing demands on trustees and increasing governance requirements? The continuously increasing demands on trustees in terms of their fiduciary responsibilities and for more governance driven by NAMFISA, many boards of trustees feel ever more overwhelmed. The advent of the FIM Act that has been coming along for a long time now and may be expected to become law in the next year or two will only exacerbate this experience. But what should trustees do to overcome this challenge? An umbrella arrangement is the obvious alternative and the one being strongly pushed by the regulator. But this is typically quite a drawn out and painful process and will become a lot more difficult once the FIM Act is in place. So if this state of affairs concerns your board of trustees it will avoid prospective complexities if a decision is made and carried out before the advent of the new FIM Act. Whilst RFS is not a proponent of umbrella funds under all circumstances, increasing regulatory demands unfortunately do make it more and more difficult for trustees to manage their private fund in compliance with these conditions. To assist trustees who feel overwhelmed by the regulatory demands we have developed an alternative within the Benchmark Retirement Fund that offers a smooth and painless transition into an umbrella fund. The Benchmark Retirement Fund, a unique Namibian fund, driven by Namibian intellectual capacity, will continue to find innovative ways to meet any needs that may evolve in the pension funds market. Email Günter Pfeifer or This email address is being protected from spambots. You need JavaScript enabled to view it. or call either on tel 061 446 000 if this is a matter you are currently grappling with..
Dismissal – a major risk for the employer Whilst the dismissal of an employee may appear to be purely a matter of following the correct procedures as envisaged in the Labour Act, the implications for the employer may be a lot more profound than just a possible reinstatement. Consider the scenario of dismissing an employee. HR will now complete a withdrawal form that will be forwarded to the pension fund administrator. As far as the fund is concerned its rules would typically determine that membership of the fund terminates upon termination of employment by the employer. The implication for the administrator is that a termination benefit must be paid. Whether or not the employer was within its rights to initiate the termination of this person’s membership of the fund is not within the administrator’s knowledge. The fund administrator will therefor terminate the employee’s membership of the fund and will pay out the benefit due to the employee in terms of the fund’s rules. The employee then challenges his dismissal. In the meantime and before the matter is concluded, the employee passes away or becomes disabled. The court then finds the dismissal to have been unfair and orders the reinstatement of the employee. Where does this now leave the employer as far as the fund’s death or disability benefit is concerned, to which the employee should now be entitled in the light of his reinstatement? The dismissal of an employee can clearly create a dilemma for the employer given that the employee can challenge such dismissal, while the fund is obliged to terminate fund membership once a notification of termination of service has been issued by the employer. To avoid the risk of being held liable to make good the loss of the benefit that would have been due to the employee from his fund upon death or disability, the employer should rather consider suspending contributions to the fund in case of a dismissal where there is any possibility of such dismissal being challenged by the employee. The employer would thus not contribute to the fund in respect of the employee but the fund would maintain death and disability benefits (which should be borne by the employer in terms of most rules). The cost of keeping cover in force will be a fraction of the cost of making good the loss of the benefit to the employee.
Blood Transfusion Service recognised for loyal support Unfortunately Mrs Christa Gouws, who heads up Blood Transfusion Service of Namibia was unable to attend RFS’ 20 year anniversary function. The Blood Transfusion Service of Namibia was the first employer group who had the courage of joining the Benchmark Retirement Fund as the fund’s very first participating employer on 1 January 2000, the day on which the fund ‘opened its doors for business’.  To give recognition to the 20 years loyal support, Mrs Gouws was handed a certificate by Tilman Friedrich. Interesting statistics Since RFS was founded and commenced to administer retirement funds as from 1 July 2000, it has processed the following benefit payments:
No sale of SOEs for now. The partial sale of Namibia's state-owned enterprises is not being considered at the moment with the exception of MTC, which is expected to be listed on the Namibia Stock Exchange next year. Owing to government's precarious financial state, public enterprises minister Leon Jooste was asked whether there were any plans to raise money by partially disposing of some commercial assets, as was the case with MTC. Jooste was of the opinion that certain SOEs are not suitable to be sold, owing to corporate governance concerns at these entities. This publication recently did an assessment in which it found that a number of SOEs were without permanent chief executive officers. A number of SOEs also do not publish their annual financial results, a key requirement for listing. “You need to be a very healthy, well-governed entity to consider listing, so at the moment there is no candidate for listing. In the long term there may be other candidates that could qualify and that might be viable but in the short-term, there is not anything,” Jooste said. – Namibian Sun Informal sector tax off the table. The ministry of finance has struck any plans to introduce a presumptive tax on the informal sector of the economy off the table and said it would rather look at introducing favourable tax rates for small and medium enterprise in that sector. Tax commissioner Justus Mwafongwe shed some light on the issue of presumptive tax in an interview with Namibian Sun. while the idea seemed favourable to Treasury at one point in time, a feasibility study showed otherwise. “Presumptive tax is something we wanted to introduce for these small businesses, but we actually did not continue with that because at the time the feasibility study we conducted was a bit difficult to implement at the time,” said Mwafongwe. – Namibian Sun Sanlam and the Sanlam broker community say farewell to Willie Geldenhuys. Sanlam recently announced the departure of their colleague Willie Geldenhuys who has left the company at the end of October after 30 years of dedicated service. Willie successfully served in various capacities at various management levels, from junior positions as an advisor, pupil branch manager, founder of the unit trust business and SPP in Namibia and later ably representing his businesses on the Sanlam executive management team, as an Exco member. Willie leaves a rich history and vast legacy behind. Sanlam will certainly feel the loss of an immense institutional memory that he will be taking with him. As RFS we say thank you for the many years of working with Willie and bid farewell to him. We wish him all the best for the future. Ex-Rössing employees press on for pension surplus Disgruntled former Rössing Uranium Limited employees have given the company 30 days to conclude their pension surplus pay-out, citing unspecified action if their demands are not met. The group held a press conference at Ongwediva last week to air their concerns, saying the beneficiaries of the fund have been subjected to unfair treatment and unequal distribution of the pension surplus to former members, and that the process is very slow. The former Rössing employers are demanding equal payment to all members, and the immediate payment of the surplus allocated to former members being shared equally among them. Read the full article that appeared in the Namibian of 2 October 2019 here... Do we have a hostile or an empathetic regulator? My involvement in the Namibian and South African retirement funds industries began in 1988. Having witnessed Namibia’s independence and South Africa’s transition to democracy, I have experience of in-house retirement fund regulation by government ministries and outsourced regulation by independent regulators in both countries. I believe that one can classify regulators as “hostile” or “empathetic”. A hostile regulator is:
The antithesis of the hostile regulator is the empathetic regulator. But first let’s examine empathy and its importance. Psychologists define empathy as the ability to emotionally understand what another person is experiencing. The term “empathy” derives from the German “Einfühlung” or "feeling into". Empathy is important because it helps people build connections with each other. According to sociologist Herbert Spencer, empathy leads to helping behaviour. Empathy requires avoidance of cognitive bias, relating to others as individuals, not stereotypes and realising that those different from us feel and behave as we do. In my opinion, an empathetic regulator:
A note on the Benchtest newsletter “thank you RFS, always informative and relevant!!” Note: The opinion of our readers does not necessarily reflect the opinion of RFS. We reserve the right to shorten and to edit letters received from our readers. Circular issued on benefits provided by provident funds NAMFISA recently issued circular PF/CIR/06/2019 that deals with the benefits provident funds may not offer. Quoting the definition of ‘provident fund’ in the Income Tax Act the circular advises that all rules purporting to be for provident funds must comply with this definition. NAMFISA further advises that it will assess provident fund rules against compliance with this definition. The concern specifically raised in this circular relates to funds that pay risk benefits while the member is still a member of the fund, while the definition seems to only provide for benefits being paid upon death or retirement of the member and not under any other circumstances. Disability income benefits and funeral benefits for any person other than the fund member are consequently considered to be inconsistent with the Income Tax Act, although if one wants to restrict oneself to the definition of ‘provident fund’ withdrawal benefits are also not provided for in the definition. It is only when considering other sections of the Act that withdrawal benefits and disability benefits may possibly also be offered. One will also find that when one only considers the definition of the other types of tax approved funds, some ridiculous conclusion may be reached. NAMFISA is mistaken in assuming the power to rule on matters contained in the Income Tax Act and should only apply the provisions of the Pension Funds Act. After all, a fund registered by NAMFISA only has to comply with the requirements of the Pension Funds Act. There is no obligation to comply with the Income Tax Act and the consequence of not complying with the Income Tax Act is merely the loss of the beneficial tax treatment of contributions, benefits and income earned by the fund. Inland Revenue has made the point that it will not prescribe to funds on matters relating to contribution rates or benefit structure but will either cancel the tax approval of the fund or disallow the deduction of contributions that are paid towards benefits no provided for in the Income Tax Act. Provident funds, the Income Tax Act and NAMFISA NAMFISA has recently decided to ‘dig in its heels’ on said to be in contravention of the Income Tax Act and has turned down application for rule amendments by provident funds that offer such benefits. To try and resolve this matter, we understand that a meeting recently took place between RFIN, NAMFISA and Inland Revenue. Unofficially we understand that the Commissioner of Inland Revenue expressed his surprise that NAMFISA is making it its business to approve rules only if the benefits meet the prescriptions of the Income Tax Act and suggested that the rules should be registered by NAMFISA but Inland Revenue would disallow contributions in respect of benefits that are inconsistent with the Income Tax Act. It was suggested that NAMFISA should alert the industry about such benefits and should suggest to the funds to amend their rules. It was furthermore agreed that NAMFISA should provide Inland Revenue with information concerning registered funds that offer such benefits. GIPF gets 45% domestic asset requirement extension “Nuyoma indicated that by the end of September 2019, the fund's local assets amounted to 37%, with a need to bring about 8% of foreign-invested assets back home to meet the minimum 45% domestic asset requirement. “We are not yet at the required 45% level, but obtained an extension by when we need to comply with that requirement. Our deadline to comply is now 31 March 2021,” he added...” Read the article in the Namibian of 25 November 2019 here... Landmark ruling of adjudicator on negligence of valuator A summary by Andreen Moncur BA (Law ) The Amplats Group Provident Fund, its Board of Trustees and its PO lodged a complaint with the Adjudicator against certain of the Fund Trustees, the Fund’s actuary, Vivian Cohen and the Fund administrator for payment of R40 501 000 with interest, for losses suffered by the Fund. Between September 2012 and December 2012, Mr Cohen made a unit pricing error in the opening balance of one of the Fund’s portfolios. A cell in the Excel spreadsheet of one of the investment portfolios was hard-coded with the value as at 31 July 2012 when it should have referred to the previous month’s balance using a standard Excel formula. The unit price was thus overstated and as a result members’ Fund credits were overstated by 4%. Members who left the Fund after September 2012 received more than they should have, causing the Fund to suffer a loss of R40 501 000. The important points to take away are:
As far as I can establish, the matter has not yet been reconsidered by the Adjudicator. Since the Tribunal did not even analyse the merits of the Adjudicator’s determination in its decision, the Adjudicator has no guidelines for reconsidering the decision. The Tribunal made a point of emphasising the “fatal flaws” in the proceedings before the Adjudicator-flaws relating to, amongst others, jurisdiction to make a determination against Cohen, procedural unfairness, incorrect assumptions regarding the loss by the independent actuary employed by the Adjudicator for advice and the adjudicator’s lack of expertise to make a determination of negligence on paper. The ruling by the Tribunal is probably the only one possible in the circumstances since the Tribunal lacked the power to substitute its own decision for that of the Adjudicator. So the poor actuary still does not know if he will be held liable for the loss. What is the most over-rated quality in a fund manager? “Many asset managers want you to believe that they are uniquely smart – that investing is such a difficult thing to get right that it should be left to only the brightest among us. In reality, however, successful investing is really quite simple. Intelligence is probably the most overrated quality required to be a fund manager, says Kevin Murphy, co-head of the global value team at Schroders... A good example of this, Murphy points out, is what happened during the tech bubble in the late 1990. Everyone got carried away with technology stocks and was happy to buy them at any price because the future was guaranteed, he says. That didn’t work out too well... Most fund managers talk about the quality businesses they invest in, the great management that they have, the wonderful barriers to entry and so on,” says Murphy. “But the problem with those kinds of businesses is that there are only a few of them in the world, and everyone is looking for them. That drives the prices of those businesses up to very high levels, and there’s a lot of research that shows that if you buy expensive companies you get very bad outcomes... the more expensive stocks are at any point, the lower their future return is likely to be. Diane Strandberg, director of international equity at Dodge & Cox, believes that understanding this is one of the three pillars of value investing. Valuation starting point matters, Strandberg told the recent Morningstar Investment Conference in Cape Town. “It is the most powerful determinant of long term return – more powerful than GDP growth, earnings growth or other measures that we might look at...” Read the full article by Patrick Cairns in Moneyweb of 18 November 2019, here... You can achieve above inflation returns and be cautious “...Equities have shown the ability to outperform inflation over the long term. However, with the potential for greater returns comes the increased risk of capital loss, as well as increased short-term volatility... generally an equity fund, or balanced fund that includes equities, would be able to meet the needs of an investor saving with long-term goals in mind, and able to stomach volatility. But what if you need real returns but you can’t tolerate as much volatility, is there a way to beat inflation? Pure cash investments are unlikely to go the distance. To generate investment returns that beat inflation over time, the reality is that investors have to include other asset classes, like equities, in their portfolios. The key is to strike the right balance for your personal circumstances. For the more risk-averse investor, one option to consider is a ‘defensive’ or ‘stable’ unit trust from the Multi Asset – Low Equity unit trust category of the Association for Savings and Investment South Africa (ASISA). As the category name suggests, these unit trusts can invest in the full range of assets, like equities, bonds, property, money market instruments and offshore investments. However, they are restricted to a maximum equity exposure of 40%, and 25% for property. As a result, they usually display lower short-term volatility and aim to provide long-term capital growth. Therefore, the unit trusts in this category are generally a good option for investors seeking inflation-beating returns with fewer ups and downs than multi- asset unit trusts with higher equity weightings. Within the parameters of this category, the asset mix for any particular unit trust will depend both on the unit trust’s specific mandate and on the investment managers’ opinions on where they’re finding value at the time. For example, if they’re cautious about the equity market, they may increase the unit trust’s allocation to bonds or money market instruments instead. The benefit of multi-asset unit trusts is that you don’t have to think about all the decisions yourself – the investment professionals take care of the unit trust’s asset allocation and select the specific underlying investments, all you need to do is pick a unit trust from the category most suited to your needs and timeframes...” Read the article by Radhesen Naidoo and Stephan Bernard in Cover Magazine of 22 October 2019 here... Allan Gray remembered with tremendous respect Allan Gray, who launched Allan Gray Limited in 1973, recently passed away in Bermuda at the age of 81. Read the befitting tribute by Patrick Cairns in Moneyweb of 12 November 2019 here... 2019 Medium-Term Budget Policy Statement in a nutshell If you are interested in a high level overview of the South African medium-term budget policy statement in graphical format by Deloitte, follow this link... The biggest challenge facing the investment industry “In the discounted cash flow model, which is arguably the cornerstone of active investment management, year 50 is almost irrelevant,” the president and chief investment officer at Morningstar Investment Management, Daniel Needham pointed out. “Years one to 10 make up the largest proportion of what you look at.” The impacts of climate change on business models and industries, however, have to be considered way beyond this kind of time frame. For example, how do you assess an investment in a coal miner, when the use of fossil fuels will fall dramatically over the next few decades? Models that rely on historical data are inherently incapable of assessing these sorts of risks and opportunities. “Consultants and clients are typically backward-looking,” Green noted. “But this is not a backward-looking problem you can solve.” Read the full article by Patrick Cairns in Moneyweb of 11 November 2019, here... Great quotes have an incredible ability to put things in perspective. I’ve learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel. ~ Maya Angelou |
||||||||
2019-11
| |
||||||||
| In this newsletter: Benchtest 10.2019, disabled members and retirement and more... |
||||||||
|
As was recently reported in the Namibian, “Government lifts lid on unlisted investments. Pension funds will now be able to invest more money in private companies and diversify their portfolios. This follows a government announcement that they will increase the percentage of funds put in unlisted investments. Finance Minister Calle Schlettwein announced the lifting last week during the mid-term budget review saying regulations will be amended to allow pension funds, insurance companies to invest from 5%, 7.5% and ultimately 10% in phases, as the 45% domestic asset requirement takes effect.” Inland Revenue offers to write-off penalties for registering on ITAS The Ministry of Finance has announced an incentive programme in terms of which penalties imposed for non-compliance by taxpayers will be written off if those taxpayers are registered on the Integrated Tax Administration System (ITAS). The incentive programme ends on 30 June 2020. Read the EY newsletter setting out the incentive scheme offered by Inland Revenue here... (attached as Tax Bulletin 7-2019…Pdf) Administration of Estates Act – where do we stand? Following our formal enquiry and an informal meeting between a senior official of RFS and the Master of the High Court, the following points were noted with regard to the status of the prospective further amendment of the AoEA:
News from parliament on FIM Bill The debate on the second reading of the FIM Bill resumed in the National Assembly on 29 October. A member of the opposition raised an objection that the opposition of their Parties to the Bill be formally recorded in the Minutes of Proceedings. The Bill was then read for a second time. On 30 October the Minister of Finance deferred the discussion of the FIM Bill to February 2020. Extension granted for Online Submission of Employees Tax (PAYE) returns via the ITAS portal - Reminder Employers were originally required to submit their monthly PAYE 5 returns on ITAS by 20 September. Due to difficulties experienced by many employers to adapt their payroll systems in time, the due date was postponed to 20 February with a clear message that any further extension will not be granted. Read the relevant PWC alert here... Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In ‘News from the marketplace’ read –
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 Monthly Review of Portfolio Performance to 31 October 2019 In October 2019 the average prudential balanced portfolio returned 1.6% (September 2019: 1.3%). Top performer is Momentum Namibia Growth Fund with 2.2%, while Investec with 1.2% takes the bottom spot. For the 3-month period, Allan Gray Namibia Balanced Fund takes top spot, outperforming the ‘average’ by roughly 1.2%. On the other end of the scale Stanlib Managed Fund underperformed the ‘average’ by 1.2%. Note that these returns are before (gross of) asset management fees. The Monthly Review of Portfolio Performance to 31 October 2019 provides a full review of portfolio performances and other interesting analyses. Evaluating your investment managers and your investment portfolio When evaluating investment managers, the text books will tell you that you should consider the 6 P’s:-
Read part 6 of the Monthly Review of Portfolio Performance to 31 October 2019 to find out what our investment views are. Download it here... Should you allow a disabled member to go on early retirement? Many funds offer a disability income benefit to members, insured with an insurance company. When a fund member becomes disabled, the member would be entitled to an income benefit, paid by the insurance company that would effectively replace a certain percentage of the salary the member used to earn from employment prior to disablement; usually between 60% and 100% of his previous salary. The disabled member would remain a member of the fund. The insurance company usually also takes over the employer contribution towards the fund, in respect of the disabled member. The member will remain obliged to contribute to the fund as if he was still employed, but the contribution would normally be deducted from the income benefit payable by the insurance company and be paid over to the fund. As a member of the fund, the disabled person would also remain entitled to the death benefit the fund offers that is also usually insured with an insurance company. The employer of this member would usually terminate the employment of the employee upon his disablement. As pointed out, the employer’s contributions would be taken over by the insurance company so the employer also no longer has any obligation towards the former employee in this regard. Where the rules of the fund (and the Income Tax Act) requires that membership of the fund must be a condition of employment, the termination of employment as the result of disablement, would then imply that the disabled member cannot remain a member of the fund unless the rules specifically provide that a disabled member will remain a member of the fund notwithstanding the fact that he is no longer an employee of the employer, and most rules do provide for this. The relationship of the disabled member with the employer would thus be severed and the disabled member would now be a member of the fund is his own capacity as provided for in the rules. Usually rules would link the conditions of the disabled member’s continued membership to the terms and conditions set out in the insurance policy under which the disability income benefit is being paid to the disabled member. Fund rules would normally describe under what circumstances a member becomes entitled to a benefit, typically, termination of employment, death or retirement; all of these reasons being linked to the employee’s employment. For employed members, these would cover all possible reasons for termination of membership, other than disablement elaborated above. The retirement rule would normally provide for early, normal or late retirement where early retirement is normally at the discretion of the employee, normal retirement manifests the obligation of the employee to retire and late retirement is at the discretion of the employer. As pointed out above, the terms and conditions applicable to a disabled member who is no longer employed are usually linked to the terms and conditions of the policy providing the benefit. Clearly in the absence of an employment relationship, there can be no termination of employment due to resignation, dismissal or retrenchment, yet the benefit has to cease at some stage. Rationally this is either death or normal retirement age and this is usually also what the disability insurance policies provide for. Where the rules of a fund link the disability benefit to the insurance policy, fund membership of the disabled member can only terminate as provided in the disability insurance policy. Where the rules do not explicitly link the disability benefit to the disability insurance policy we would argue that the only reason for termination of fund membership remains the termination of payment of the disability benefit by the insurance company, which would be upon the earlier of recovery, death or reaching normal retirement age. We are regularly confronted with requests by disabled members receiving a disability income benefit, to terminate their fund membership for whatever reason but more often than not the member being after the ‘pot-of-gold’ he has in the pension fund. This would not be in the interests of the disabled fund member or his dependants who will lose the continued contribution by the insurance company, the benefit payable in the event of the death of the disabled member and any investment returns on the money that will continue to be invested on behalf of the disabled member, until the earliest of recovery, death or retirement. Besides the fact that the early retirement of a disabled member will seriously prejudice the disabled member, section 37A of the Pension Funds Act explicitly prohibits the member to sacrifice his benefits in stating that “…no benefit provided for in the rules of a registered fund (including an annuity purchased or to be purchased by the said fund from an insurer for a member), or right to such benefit, or right in respect of contributions made by or on behalf of a member, shall notwithstanding anything to the contrary contained in the rules of such a fund, be capable of being reduced, transferred or otherwise ceded, or of being pledged or hypothecated, or be liable to be attached or subjected to any form of execution under a judgment or order of a court of law, …, and in the event of the member or beneficiary concerned attempting to transfer or otherwise cede, or to pledge or hypothecate such benefit or right, the fund concerned may withhold or suspend payment thereof…” The disabled member thus has a statutory right to the benefits offered by the rules to a disabled member which right cannot be disposed of by the disabled member or even allowed to be disposed of by the fund and these rights can be sued for by the disabled member and/ or his dependants at any time in future. Prescription will never apply to this right. Trustees are advised to ignore any request by a disabled member to be allowed to take an early retirement benefit. Can your employees deduct voluntary contributions to the fund? The contract of employment One principle of the Income Tax Act is that expenses can only be claimed for tax purposes if they were incurred in the production of income (refer section 17(1)(a). In the case of employees, Inland Revenue will not easily accept any claim for expenses incurred by the employee. An employee can only claim expenses that he is required to incur in terms of his employment contract. In other words the salary you earn is dependent on you incurring certain costs so these costs are incurred in the production of income as contemplated in section 17(1)(a). If an employer can formulate the employment contract in such a way that a pension contribution in respect of the employee’s bonus is an obligation, the employee should be able to claim that expense. If the decision is left to each employee, the employer should find that it is not possible to formulate it in the contract as an obligation. This does not mean that every employee has to have the same contract of employment. So certain employee categories or certain employees can have a special provision in their contract of employment that others do not have, to make the contribution obligatory. The fund rules Most fund rules provide for voluntary contributions by members. We caution to use this clause as the heading is problematic, referring to ‘voluntary’. As pointed out above, the word ‘voluntary’ means it cannot be an obligatory contribution by the employee and would thus not be incurred as a condition of employment for the purpose of producing income from employment. It is important that the rules of the fund mirror the employee’s employment contract. Thus, if a contribution calculated on a member’s bonus is a condition of employment, it should not be referred to as ‘voluntary contribution’ in the fund’s rules. The Income Tax Act on fund contributions The definition of ‘pension fund’ in sub-section (b)(i) requires that the rules of a fund provide that ‘…all annual contributions of a recurrent nature of the fund shall be in accordance with specified scales…’. The definition of ‘provident fund’ lays down the same requirement. Typically, this refers to the contribution percentages at which members contribute on a monthly basis. The definitions do not make any reference to any other contributions. Section 17 of the IT Act deals with ‘General deductions allowed in determination of taxable income’. Section 17(1)(n)(i), sets out that the employee may deduct ‘…by way of current contributions [which are required to be in accordance with specified scales per definition of ‘pension fund’ and ‘provident fund’] in the year of assessment and directs that ‘…such contribution is a condition of employment…’ The IT Act contains no other specific provision that allows any deduction for contributions to a pension fund, and here we do not refer to a transfer of accumulated contributions to another fund. Conclusion As set out above, the principle of the IT Act militates against an employee deducting any expense that he was not required to incur in the production of income [and that can only be achieved through the contract of employment]. This sets out the dilemma of employers or funds wanting to allow staff to make additional contributions to their fund and indicates what route the employer and the fund should take to achieve their goal of having employees contribute to the fund in respect of their bonus. We would caution employers and funds though not to create an impression towards employees that voluntary contributions are tax deductible, or worse, to offset voluntary contributions from an employee’s salary in determining the taxable income unless you have obtained comfort that Inland Revenue will allow these as a deduction for tax purposes. RFIN, the GIPF and the remnants of an industry – a bridge too far? Ever since RFS was established, senior employees made it their business to support this industry body in various roles as we always considered it our responsibility to contribute towards the development of the retirement funds industry in Namibia. Over the years RFIN was confronted with numerous challenges impacting its members either as service providers to the industry or as retirement fund, primarily when it comes to legislation and regulation. I would venture to say that RFIN has not been able to effectively counter most of these challenges. One of the outstanding features of our industry that contributed to this ineffectiveness is that it is utterly lopsided. One single institution, being the GIPF, comprises more than 50% of the industry, the balance of it comprised of some 80 small private and umbrella funds. During my latest term of office it has become evident to me that RFIN faces a serious challenge for which it needs to find an answer that better balances the needs of all its members. The interests of the GIPF cannot be, as the result of it operating in a different ‘sphere’, and are often not consistent with the interests of the other funds and vise-versa. However, because RFIN simply cannot afford to alienate GIPF for what might be in the interests of the other funds, the interests of the other funds may often not receive the necessary support. The consequence is that RFIN is trying to find a balance between these often conflicting interests of the two categories of membership, that satisfies neither category. To find an answer to this challenge will not be easy. To my mind it is encumbent upon the one big player to sub-ordinate its interest to the majority interest. It surely has a key role to play in promoting and protecting the interest of our industry, as lopsided as it is. Rather than seeing itself to be part of the government structure, the GIPF should fully align itself with the interests of the pension funds industry, whether or not this may please the executive, but will it be able to exert the necessary autonomy? As things stand it seems tax payer funded GIPF is set on using it overwhelming size and resources to compete with the tax paying remnants of this industry rather than supporting and promoting it. As the minister of finance was quoted at the occasion of GIPF’s 30th anniversary - “with big things comes big responsibility” and that responsibility to my mind goes further than the responsibilities one would expect any pension fund to carry! Will the GIPF live up to this expectation? Should you be concerned about recent poor performance of your pension fund? As a pension fund member you will no doubt be disappointed with the investment returns your (probably) biggest investment has earned over the last number of years. This investment is to carry you through retirement and in order to ensure a comfortable retirement. This assumes a typical total contribution by you and your employer of around 17% of salary and on the underlying expectation of long-term returns that your pension fund investment should earn of 5% per year in real terms, i.e. above inflation. Where inflation for the year to 30 September was 3.2%, your investment should thus have earned 8.2% for the year to 30 September. The average return of typical pension fund investments for the same period however, was only around 3.4% (after fees). Over a 5 year period inflation was 4.7% per year. Your investment should have thus earned 9.7% per year while the average return of typical pension fund investments for the same period however, was only around 6.8% per year (after fees). So over both periods, your investment has substantially underperformed the underlying expectation. One will have to extend the period to 8 years to get to the first measurement period where the average return of about 9.8% per year (after fees) actually achieved the expected real return of 9.9% per year (inflation of 4.9% plus 5% real return). Any member of a fund who has been in the fund for 7 years or less certainly has good reason to be disappointed and to be concerned, however, only if you are approaching retirement and you have not preserved your pension capital for all the years you have worked until 7 years ago. The underlying expectation for you to retire in comfort is that you will have worked and saved up uninterruptedly for your entire working life of at least 30 years, i.e. you only started to work at age 30 and will already go on retirement at age 60. Most people in fact start working at 20 and retire earliest at age 60, actually giving them 40, not 30 years of saving up for retirement. If you are one of the diligent fund members who has indeed saved up uninterruptedly for the past 20 years (or longer) your return should have been 11.8% per year as opposed to inflation over the same period of 6.3% per year, i.e. a real return of 5.5% per year including the disappointing past 7 years. If you diligently started to save up from the day you started to work (at age 25) and this was 7 years ago, and you intend to remain as diligent, you still have 28 years to save up. Why should you be concerned now? Clearly it is only those fund members that have reneged on their commitment to save up from their first to their last working day who may find that they will not be able to live comfortably on their pension. Unfortunately this is not how pension funds are designed and these members should rather look critically at themselves than at the performance of their pension fund over the past 7 years. Over the past 10 years, pension funds have achieved the return expectation of inflation plus at least 5% per year per year (after fees). Having referred to the past, you may well ask “but what about the future”? Can I be certain that over the next 28 years my pension investment will recover what it fell short over the past 7 years? Of course, no one will be able to look into the future, and indeed one may have valid concerns considering that ‘things’ have changed in financial markets globally since the financial crisis in 2008/ 2009. It seems, the law of economics, of demand and supply, no longer has any bearing on the behaviour of markets today. Savers are paying off the debt of borrowers through artificially low interest rates that are set by monetary authorities across the world. So-called ‘safe haven’ investments are earning negative real interest rates and the investor is now conditioned to accepting that he will have to work until he passes away, instead of realising his dream of retiring at an age where one might still be able to enjoy life for a while. Retirement ages are extended while pension entitlements are at best being questioned already, and even reduced in some countries. It is pretty much common knowledge that the situation we are and have been facing in investment markets globally for the past nearly 10 years, is the result of ‘ultra-loose’ monetary policy by central banks across the world, including Namibia. After the financial crisis, central banks poured money into the financial markets in order to encourage the consumer to pick up spending levels again after these had fallen flat in the aftermath of the financial crisis. Artificially low interest rates, designed to encourage spending, were great for the borrower, but bad news for the depositor, pension fund members and pensioners to a significant extent. In many instances depositors would earn negative real interest rates. With negative real interest rates seemingly having become the ‘new norm’, asset valuation models are now being questioned. Why should this be of concern to a pension fund member? Well as we pointed out above pension fund contribution structures were established over the course of the past century or more based on the assumption of cash returning around 2% above inflation, bonds around 4% above inflation, property around 5% above inflation and equity around 8% above inflation. A typical balanced portfolio comprising of a mix of these assets based on conventional investment theory was expected to return roughly 5% above inflation, net of fees. Pension theory then arrived at a net retirement funding contribution rate of 11%+, to produce an income replacement ratio of 2% per year of membership, that is 60% of the member’s last salary before retirement after 30 years, or 80% after 40 years uninterrupted fund membership. Indications based on the ‘new norm’ are that one is now only looking at a net return of between 2% and 3% per year as opposed to 5% per year. If this were to become true, the retirement funding contribution rate would have to be raised from 11% to at least 16%. Add to this a typical cost element of 6% for risk benefits and management costs, the ‘new norm’ for a total retirement fund contribution rate is now at least 22% instead of the 17% before the advent of the ‘new norm’. Alternatively the retiree would now have to settle on an income replacement ratio of only around 40% after 30 years of service, instead of his expected 60%! We are certainly living in a different world today to what it was 30 years ago. What we expected of the future may be materially different and we will have to find ways and means to deal with the impact these changes have on our lives and on our retirement planning. One can only find some comfort in the fact that we are all ‘in the same boat’, from ‘top to bottom’, the answers have not been found and a lot of energy and time will be spent all across the globe to find answers how to still have time in retirement to enjoy. The global economy just has to get going again by getting consumers to start spending again and governments across the world are making every effort to achieve this goal. We are all consumers and we all know that we have an urge to spend our money, to buy a new TV, a new motor vehicle, to go on leave etc. but we are able at times to also to hold back on spending when times are bad, only to feel the spending urge growing as time goes by. There are many possible scenarios that are likely to lead to increased spending. Namibia has experienced a terrible drought for the past few years that has resulted in many Namibians holding back on spending. At some stage it will start raining again and this will then lead to the pent up spending urge to be unleashed. Globally there is much talk about the ‘4th industrial revolution’ evolving right now where the advancement in technology is in the process of changing the world of work ever faster. Any revolution will lead to the destruction of existing infrastructure and reconstruction of new infrastructure that will require large-scale investment. With the prevailing exceptionally low interest rates, borrowers have a ‘hay-day’ while depositors (and pension fund members) are suffering. This is turning conventional money wisdom upside-down and must and can be corrected in different ways. Conclusion We are convinced that the prevailing situation cannot continue for too long and that conventional money wisdom will return. Which investor in his right mind will invest in an asset that gives him a return of 0% or even a negative return, i.e. his investment declines in value as time goes by? And this is currently in nominal terms and the situation is exacerbated by prevailing inflation as the result of which the decline in value is actually accelerating. Either interest rates will return to normal or we will see deflation (or negative inflation) meaning that goods and services will become ever cheaper as time goes by. Pension fund members we believe do not need to be overly concerned about the poor investment experience of the past 7 years, provided they have been and remain diligent and focused on saving up for retirement throughout their working life. A pension fund is designed to deliver only over the working life of a member of 30 to 40 years. Those that are at the end of their working life and have saved up right through should still be able to retire in comfort, given that 7 years ago the picture was a lot rosier, but we are still on target! If you are at the beginning of the road of still saving up for another 30 to 40 years, markets still have a lot of time to correct and the pension fund member ultimately can influence the growth of his pension savings by saving more at a time when interest rates are low and house and rent prices have declined as the result of the prevailing economic environment. Pension fund governance - a toolbox for trustees
From a broker “Good morning M Thank you very much for the proof of payment. You always deliver exceptional service, I appreciate it.” Read more comments from our clients, here... Are you bogged down by increasing demands on trustees and increasing governance requirements? The continuously increasing demands on trustees in terms of their fiduciary responsibilities and for more governance driven by NAMFISA, many boards of trustees feel ever more overwhelmed. The advent of the FIM Act that has been coming along for a long time now and may be expected to become law in the next year or two will only exacerbate this experience. But what should trustees do to overcome this challenge? An umbrella arrangement is the obvious alternative and the one being strongly pushed by the regulator. But this is typically quite a drawn out and painful process and will become a lot more difficult once the FIM Act is in place. So if this state of affairs concerns your board of trustees it will avoid prospective complexities if a decision is made and carried out before the advent of the new FIM Act. Whilst RFS is not a proponent of umbrella funds under all circumstances, increasing regulatory demands unfortunately do make it more and more difficult for trustees to manage their private fund in compliance with these conditions. To assist trustees who feel overwhelmed by the regulatory demands we have developed an alternative within the Benchmark Retirement Fund that offers a smooth and painless transition into an umbrella fund. The Benchmark Retirement Fund, a unique Namibian fund, driven by Namibian intellectual capacity, will continue to find innovative ways to meet any needs that may evolve in the pension funds market. Email Günter Pfeifer or This email address is being protected from spambots. You need JavaScript enabled to view it. or call either on tel 061 446 000 if this is a matter you are currently grappling with..
Dismissal – a major risk for the employer Whilst the dismissal of an employee may appear to be purely a matter of following the correct procedures as envisaged in the Labour Act, the implications for the employer may be a lot more profound than just a possible reinstatement. Consider the scenario of dismissing an employee. HR will now complete a withdrawal form that will be forwarded to the pension fund administrator. As far as the fund is concerned its rules would typically determine that membership of the fund terminates upon termination of employment by the employer. The implication for the administrator is that a termination benefit must be paid. Whether or not the employer was within its rights to initiate the termination of this person’s membership of the fund is not within the administrator’s knowledge. The fund administrator will therefor terminate the employee’s membership of the fund and will pay out the benefit due to the employee in terms of the fund’s rules. The employee then challenges his dismissal. In the meantime and before the matter is concluded, the employee passes away or becomes disabled. The court then finds the dismissal to have been unfair and orders the reinstatement of the employee. Where does this now leave the employer as far as the fund’s death or disability benefit is concerned, to which the employee should now be entitled in the light of his reinstatement? The dismissal of an employee can clearly create a dilemma for the employer given that the employee can challenge such dismissal, while the fund is obliged to terminate fund membership once a notification of termination of service has been issued by the employer. To avoid the risk of being held liable to make good the loss of the benefit that would have been due to the employee from his fund upon death or disability, the employer should rather consider suspending contributions to the fund in case of a dismissal where there is any possibility of such dismissal being challenged by the employee. The employer would thus not contribute to the fund in respect of the employee but the fund would maintain death and disability benefits (which should be borne by the employer in terms of most rules). The cost of keeping cover in force will be a fraction of the cost of making good the loss of the benefit to the employee.
Blood Transfusion Service recognised for loyal support Unfortunately Mrs Christa Gouws, who heads up Blood Transfusion Service of Namibia was unable to attend RFS’ 20 year anniversary function. The Blood Transfusion Service of Namibia was the first employer group who had the courage of joining the Benchmark Retirement Fund as the fund’s very first participating employer on 1 January 2000, the day on which the fund ‘opened its doors for business’. To give recognition to the 20 years loyal support, Mrs Gouws was handed a certificate by Tilman Friedrich. Interesting statistics Since RFS was founded and commenced to administer retirement funds as from 1 July 2000, it has processed the following benefit payments:
No sale of SOEs for now. The partial sale of Namibia's state-owned enterprises is not being considered at the moment with the exception of MTC, which is expected to be listed on the Namibia Stock Exchange next year. Owing to government's precarious financial state, public enterprises minister Leon Jooste was asked whether there were any plans to raise money by partially disposing of some commercial assets, as was the case with MTC. Jooste was of the opinion that certain SOEs are not suitable to be sold, owing to corporate governance concerns at these entities. This publication recently did an assessment in which it found that a number of SOEs were without permanent chief executive officers. A number of SOEs also do not publish their annual financial results, a key requirement for listing. “You need to be a very healthy, well-governed entity to consider listing, so at the moment there is no candidate for listing. In the long term there may be other candidates that could qualify and that might be viable but in the short-term, there is not anything,” Jooste said. – Namibian Sun Informal sector tax off the table. The ministry of finance has struck any plans to introduce a presumptive tax on the informal sector of the economy off the table and said it would rather look at introducing favourable tax rates for small and medium enterprise in that sector. Tax commissioner Justus Mwafongwe shed some light on the issue of presumptive tax in an interview with Namibian Sun. while the idea seemed favourable to Treasury at one point in time, a feasibility study showed otherwise. “Presumptive tax is something we wanted to introduce for these small businesses, but we actually did not continue with that because at the time the feasibility study we conducted was a bit difficult to implement at the time,” said Mwafongwe. – Namibian Sun Sanlam and the Sanlam broker community say farewell to Willie Geldenhuys. Sanlam recently announced the departure of their colleague Willie Geldenhuys who has left the company at the end of October after 30 years of dedicated service. Willie successfully served in various capacities at various management levels, from junior positions as an advisor, pupil branch manager, founder of the unit trust business and SPP in Namibia and later ably representing his businesses on the Sanlam executive management team, as an Exco member. Willie leaves a rich history and vast legacy behind. Sanlam will certainly feel the loss of an immense institutional memory that he will be taking with him. As RFS we say thank you for the many years of working with Willie and bid farewell to him. We wish him all the best for the future. Ex-Rössing employees press on for pension surplus Disgruntled former Rössing Uranium Limited employees have given the company 30 days to conclude their pension surplus pay-out, citing unspecified action if their demands are not met. The group held a press conference at Ongwediva last week to air their concerns, saying the beneficiaries of the fund have been subjected to unfair treatment and unequal distribution of the pension surplus to former members, and that the process is very slow. The former Rössing employers are demanding equal payment to all members, and the immediate payment of the surplus allocated to former members being shared equally among them. Read the full article that appeared in the Namibian of 2 October 2019 here... Do we have a hostile or an empathetic regulator? My involvement in the Namibian and South African retirement funds industries began in 1988. Having witnessed Namibia’s independence and South Africa’s transition to democracy, I have experience of in-house retirement fund regulation by government ministries and outsourced regulation by independent regulators in both countries. I believe that one can classify regulators as “hostile” or “empathetic”. A hostile regulator is:
The antithesis of the hostile regulator is the empathetic regulator. But first let’s examine empathy and its importance. Psychologists define empathy as the ability to emotionally understand what another person is experiencing. The term “empathy” derives from the German “Einfühlung” or "feeling into". Empathy is important because it helps people build connections with each other. According to sociologist Herbert Spencer, empathy leads to helping behaviour. Empathy requires avoidance of cognitive bias, relating to others as individuals, not stereotypes and realising that those different from us feel and behave as we do. In my opinion, an empathetic regulator:
A note on the Benchtest newsletter “thank you RFS, always informative and relevant!!” Note: The opinion of our readers does not necessarily reflect the opinion of RFS. We reserve the right to shorten and to edit letters received from our readers. Circular issued on benefits provided by provident funds NAMFISA recently issued circular PF/CIR/06/2019 that deals with the benefits provident funds may not offer. Quoting the definition of ‘provident fund’ in the Income Tax Act the circular advises that all rules purporting to be for provident funds must comply with this definition. NAMFISA further advises that it will assess provident fund rules against compliance with this definition. The concern specifically raised in this circular relates to funds that pay risk benefits while the member is still a member of the fund, while the definition seems to only provide for benefits being paid upon death or retirement of the member and not under any other circumstances. Disability income benefits and funeral benefits for any person other than the fund member are consequently considered to be inconsistent with the Income Tax Act, although if one wants to restrict oneself to the definition of ‘provident fund’ withdrawal benefits are also not provided for in the definition. It is only when considering other sections of the Act that withdrawal benefits and disability benefits may possibly also be offered. One will also find that when one only considers the definition of the other types of tax approved funds, some ridiculous conclusion may be reached. NAMFISA is mistaken in assuming the power to rule on matters contained in the Income Tax Act and should only apply the provisions of the Pension Funds Act. After all, a fund registered by NAMFISA only has to comply with the requirements of the Pension Funds Act. There is no obligation to comply with the Income Tax Act and the consequence of not complying with the Income Tax Act is merely the loss of the beneficial tax treatment of contributions, benefits and income earned by the fund. Inland Revenue has made the point that it will not prescribe to funds on matters relating to contribution rates or benefit structure but will either cancel the tax approval of the fund or disallow the deduction of contributions that are paid towards benefits no provided for in the Income Tax Act. Provident funds, the Income Tax Act and NAMFISA NAMFISA has recently decided to ‘dig in its heels’ on said to be in contravention of the Income Tax Act and has turned down application for rule amendments by provident funds that offer such benefits. To try and resolve this matter, we understand that a meeting recently took place between RFIN, NAMFISA and Inland Revenue. Unofficially we understand that the Commissioner of Inland Revenue expressed his surprise that NAMFISA is making it its business to approve rules only if the benefits meet the prescriptions of the Income Tax Act and suggested that the rules should be registered by NAMFISA but Inland Revenue would disallow contributions in respect of benefits that are inconsistent with the Income Tax Act. It was suggested that NAMFISA should alert the industry about such benefits and should suggest to the funds to amend their rules. It was furthermore agreed that NAMFISA should provide Inland Revenue with information concerning registered funds that offer such benefits. GIPF gets 45% domestic asset requirement extension “Nuyoma indicated that by the end of September 2019, the fund's local assets amounted to 37%, with a need to bring about 8% of foreign-invested assets back home to meet the minimum 45% domestic asset requirement. “We are not yet at the required 45% level, but obtained an extension by when we need to comply with that requirement. Our deadline to comply is now 31 March 2021,” he added...” Read the article in the Namibian of 25 November 2019 here... Landmark ruling of adjudicator on negligence of valuator A summary by Andreen Moncur BA (Law ) The Amplats Group Provident Fund, its Board of Trustees and its PO lodged a complaint with the Adjudicator against certain of the Fund Trustees, the Fund’s actuary, Vivian Cohen and the Fund administrator for payment of R40 501 000 with interest, for losses suffered by the Fund. Between September 2012 and December 2012, Mr Cohen made a unit pricing error in the opening balance of one of the Fund’s portfolios. A cell in the Excel spreadsheet of one of the investment portfolios was hard-coded with the value as at 31 July 2012 when it should have referred to the previous month’s balance using a standard Excel formula. The unit price was thus overstated and as a result members’ Fund credits were overstated by 4%. Members who left the Fund after September 2012 received more than they should have, causing the Fund to suffer a loss of R40 501 000. The important points to take away are:
As far as I can establish, the matter has not yet been reconsidered by the Adjudicator. Since the Tribunal did not even analyse the merits of the Adjudicator’s determination in its decision, the Adjudicator has no guidelines for reconsidering the decision. The Tribunal made a point of emphasising the “fatal flaws” in the proceedings before the Adjudicator-flaws relating to, amongst others, jurisdiction to make a determination against Cohen, procedural unfairness, incorrect assumptions regarding the loss by the independent actuary employed by the Adjudicator for advice and the adjudicator’s lack of expertise to make a determination of negligence on paper. The ruling by the Tribunal is probably the only one possible in the circumstances since the Tribunal lacked the power to substitute its own decision for that of the Adjudicator. So the poor actuary still does not know if he will be held liable for the loss. What is the most over-rated quality in a fund manager? “Many asset managers want you to believe that they are uniquely smart – that investing is such a difficult thing to get right that it should be left to only the brightest among us. In reality, however, successful investing is really quite simple. Intelligence is probably the most overrated quality required to be a fund manager, says Kevin Murphy, co-head of the global value team at Schroders... A good example of this, Murphy points out, is what happened during the tech bubble in the late 1990. Everyone got carried away with technology stocks and was happy to buy them at any price because the future was guaranteed, he says. That didn’t work out too well... Most fund managers talk about the quality businesses they invest in, the great management that they have, the wonderful barriers to entry and so on,” says Murphy. “But the problem with those kinds of businesses is that there are only a few of them in the world, and everyone is looking for them. That drives the prices of those businesses up to very high levels, and there’s a lot of research that shows that if you buy expensive companies you get very bad outcomes... the more expensive stocks are at any point, the lower their future return is likely to be. Diane Strandberg, director of international equity at Dodge & Cox, believes that understanding this is one of the three pillars of value investing. Valuation starting point matters, Strandberg told the recent Morningstar Investment Conference in Cape Town. “It is the most powerful determinant of long term return – more powerful than GDP growth, earnings growth or other measures that we might look at...” Read the full article by Patrick Cairns in Moneyweb of 18 November 2019, here... You can achieve above inflation returns and be cautious “...Equities have shown the ability to outperform inflation over the long term. However, with the potential for greater returns comes the increased risk of capital loss, as well as increased short-term volatility... generally an equity fund, or balanced fund that includes equities, would be able to meet the needs of an investor saving with long-term goals in mind, and able to stomach volatility. But what if you need real returns but you can’t tolerate as much volatility, is there a way to beat inflation? Pure cash investments are unlikely to go the distance. To generate investment returns that beat inflation over time, the reality is that investors have to include other asset classes, like equities, in their portfolios. The key is to strike the right balance for your personal circumstances. For the more risk-averse investor, one option to consider is a ‘defensive’ or ‘stable’ unit trust from the Multi Asset – Low Equity unit trust category of the Association for Savings and Investment South Africa (ASISA). As the category name suggests, these unit trusts can invest in the full range of assets, like equities, bonds, property, money market instruments and offshore investments. However, they are restricted to a maximum equity exposure of 40%, and 25% for property. As a result, they usually display lower short-term volatility and aim to provide long-term capital growth. Therefore, the unit trusts in this category are generally a good option for investors seeking inflation-beating returns with fewer ups and downs than multi- asset unit trusts with higher equity weightings. Within the parameters of this category, the asset mix for any particular unit trust will depend both on the unit trust’s specific mandate and on the investment managers’ opinions on where they’re finding value at the time. For example, if they’re cautious about the equity market, they may increase the unit trust’s allocation to bonds or money market instruments instead. The benefit of multi-asset unit trusts is that you don’t have to think about all the decisions yourself – the investment professionals take care of the unit trust’s asset allocation and select the specific underlying investments, all you need to do is pick a unit trust from the category most suited to your needs and timeframes...” Read the article by Radhesen Naidoo and Stephan Bernard in Cover Magazine of 22 October 2019 here... Allan Gray remembered with tremendous respect Allan Gray, who launched Allan Gray Limited in 1973, recently passed away in Bermuda at the age of 81. Read the befitting tribute by Patrick Cairns in Moneyweb of 12 November 2019 here... 2019 Medium-Term Budget Policy Statement in a nutshell If you are interested in a high level overview of the South African medium-term budget policy statement in graphical format by Deloitte, follow this link... The biggest challenge facing the investment industry “In the discounted cash flow model, which is arguably the cornerstone of active investment management, year 50 is almost irrelevant,” the president and chief investment officer at Morningstar Investment Management, Daniel Needham pointed out. “Years one to 10 make up the largest proportion of what you look at.” The impacts of climate change on business models and industries, however, have to be considered way beyond this kind of time frame. For example, how do you assess an investment in a coal miner, when the use of fossil fuels will fall dramatically over the next few decades? Models that rely on historical data are inherently incapable of assessing these sorts of risks and opportunities. “Consultants and clients are typically backward-looking,” Green noted. “But this is not a backward-looking problem you can solve.” Read the full article by Patrick Cairns in Moneyweb of 11 November 2019, here... Great quotes have an incredible ability to put things in perspective. I’ve learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel. ~ Maya Angelou |
||||||||
2019-10
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In this newsletter: Benchtest 09.2019, prescribed assets are blatant theft of pensions and more... |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Employers were originally required to submit their monthly PAYE 5 returns on ITAS by 20 September. Due to difficulties experienced by many employers to adapt their payroll systems in time, the due date was postponed to 20 February with a clear message that any further extension will not be granted. Read the relevant PWC alert here... Social security and labour legislation review The latest Namibia Employers Federation (NEF) newsletter reports on developments concerning the Social Security Act, the Employees Compensation Act, the National Pension Fund and other matters. Download the newsletter here... Administration of Estates Act – where do we stand? Following an informal meeting between the Principal Officer of the Benchmark Retirement Fund and the Master of the High Court, the following points were noted with regarded to the status of the prospective further amendment of the AoEA:
News from parliament on FIM Bill and other Bills The Namibia Financial Institutions Supervisory (NAMFISA) Bill passed committee stage in parliament without any amendments and was read a third time on 15 October 2019. The Financial Services Adjudicator Bill passed committee stage in parliament without any amendments and was read a third time on 15 October 2019. On the motion of the Deputy Minister of Industrialisation, Trade and SME Development, seconded by Ms. Kandumbu, debate on the second reading of the Financial Institutions and Markets (FIM) Bill was adjourned until Tuesday, 22 October 2019. During the session of the 24th of October discussion was adjourned to 24 October at which time the Minister is to answer to earlier questions from the floor. Due to election campaigning underway, a quorum may not be present on 24 October. However should a quorum be present, it is expected that the Bill will be referred to committee stage in the last week in October. Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In our Benchmark column we present:
In our Administration Forum column we alert employers of their obligations concerning correct calculation and payment of contributions.
In ‘News from the marketplace’ read
In ‘News from NAMFISA’ we present –
In ‘Legal snippets’ read our guest writer’s exposition on ‘Age of majority – the Child Care and Protection Act vs the Administration of Estates Act’.
How do you invest in times of political and economic unrest?
A compliment with a difference “Dear Directors, I wish to thank you once again for this token of appreciation. As always, I don’t take anything for granted and am indeed grateful that I am working for such a great Company and with such awesome people. I have never regretted a moment since joining RFS more than 12 years ago. I am extremely thankful and proud to be part of this team!  Kind regards...” Read more comments from our clients, here... Changing the retirement funding landscape (part 2) In the previous article we focused on the key considerations for financial resilience, which was the theme of this year’s Sanlam Benchmark Symposium in South Africa as presented by Barend le Grange – Head of Individual Member Support: Sanlam Employee Benefits South Africa, at the Benchmark Retirement Fund Annual Member Meeting held on 5th September 2019 at NIPAM. In this article we are going to have a look at the fascinating findings and stats of the Sanlam Benchmark Survey that were presented by Le Grange at the same meeting. Le Grange advised that one of the biggest megatrends in the pension fund industry is the rapid consolidation of stand-alone (private funds) into umbrella funds, stating that “ in South Africa only about 1,500 funds can broadly be categorised as stand-alone compared to about 13,000 in 2005.”. He further noted that about 350 stand-alone funds are in the process of transferring to an umbrella fund. Le Grange advised that the rapid consolidation is driven by the underlying key considerations of financial resilience, which we touched on in the previous article. These are default strategies, good governance, member engagement, information security, professional and independent trustees and scale. Le Grange advised that increase in funeral cover, the introduction to severe illness benefits and increase in insurance rates were the top advice themes noted by employee benefit (EB) consultants in the Group Risk space. Le Grange advised that 19% EB consultants indicated that their clients experience a trend towards more claims being declined and 52% EB consultants noted that their clients have experienced large insurance rate increases over the past three years. Le Grange advised that the EB consultants also noted that the number 1 thing that they would change in retirement fund industry is that clients stop fixating on costs and pay more attention to value. Le Grange shared the below, in figures 1 to 3, to illustrate the impact of cost. Figure 1 – Average Contributions and Cost  Figure 1 is the estimated average contributions and cost of both stand-alone and umbrella funds, which result in an average net contribution of 13%. Figure 2 – Replacement Ratio  Figure 2 shows the estimated salary replacement ratio over various terms (years) of investment. The salary replacement ratio expresses the pension that will be received on retirement as a percentage of the pensionable salary in the last month before retirement. Figure 3 – Replacement Ratio with no administration and consulting fees  Le Grange noted that the impact of waiving all the administration and consulting fees over a 40-year term is just a 5% uplift and only 1% uplift over a 10-year term. Le Grange advised that clients should move away from focusing on the difference between the cost of administration and/or consulting between service provider A and B and rather focus more on which service provider produces more value, quoting Warren Buffet – “Price is what you pay, value is what you get.”
"Non-standard service fees" – is this principle in your fund’s interest? Clients often appear to be irritated about our charging and fee philosophy, more particularly with the principle that while we are usually paid a retainer fee, certain services attract a so-called “non-standard service fee”. In one instance this practice has even been discredited as being unprofessional! Typically, clients take the position that all fund management services must be covered by the ‘retainer’ fee. The Code of Ethics and Professional Responsibility of the Financial Planning Institute defines a pensions practitioner’s practice for determining fees for professional services. It requires of a professional member of the Institute to “..explain in writing, the precise range of professional services that the fee is intended to cover, the basis on which the fee is computed…” and that “…the main criteria are fairness and equitability for the client and the member…”. This means that a professional service provider should not charge for work it has not executed. By implication, the principle requires a service provider to charge for services carried out. The services we carry out in return for a ‘retainer fee’ agreed upon with our clients, are clearly defined in our service level agreement as required by the Code, and in addition, our service level agreement clearly demarcates our mandate from that of other service providers and also clearly defines services we will provide on an ad-hoc basis as and when required, for which we would then raise an additional “non-standard service fee” as agreed upon with our client in advance. If a service provider were to include all conceivable services that a fund might require in the course of time, clearly provision would have to be made for the unknown requirement for ad-hoc services. This would entail charging for services not rendered on an on-going basis and applying the over recovery to recover the cost of ad0hoc services should they be required at any time in future. In our view this is inconsistent with the Code of Ethics and Professional Responsibility. An analogy ‘closer to home’ for most, is building a house. The only two possible arrangements with the contractor consistent with our professional obligations are, firstly that where you add to the original plans you pay extra and where you deduct you get a price reduction. Alternatively, you agree with the contractor that whatever you desire to be changed must be changed without a change in costs and that the contractor then informs you only upon completion, what the actual cost is. We apply the former approach which we believe is the right approach. We invite our clients to share their views on this topic with us or to let us know should they prefer any mechanism different from that we currently apply.
RFS recognises long service Erica Hipondoka celebrated her 5th anniversary at RFS recently. We express our sincere appreciation to Erica for the 5 years of her life she has dedicated to RFS and its clients and look forward to her continuing to contribute towards the success of our team! RFS welcomes new staff Elray Goreseb joined our private funds accounting team on 15 May 2019. We welcome Elray heartily and look forward to him applying his skills and experience for the benefit of our team and our clients! Managed by Namibians, trusted by Namibians - RFS celebrates its 20th anniversary in pictures  The staff behind the success of the company!  F.l.t.r. M Fabianus, managing director of RFS, Ms A Moncur, editor of the first issue of Benchtest Review, T Friedrich, chairperson of the board of RFS and H Müseler, chairperson of the Benchmark Retirement Fund.
 Axel Thyssen of Cymot (right), our first and oldest client.  Martino Olivier of UNIREF, our first SOE client.  RFLAUN, our largest client.  Agra, our second private fund.  RFS made a donation to Make-a-Noise, a community safety organisation.  Charlotte Drayer received a 20 year certificate. Charlotte joined the company with no salary.  Founder Tilman Friedrich receives his 20 year certificate. Read the press release here... Here are some messages from stakeholders: “Good day Tilman, Marthinuz and Gunter Thank you very much for the invitation to your 20th birthday celebration. I was indeed memorable and very enjoyable. RFS is truly a Namibian success story and you, rightfully, have a lot to be proud of. Here is to another great 20 years!” ̴ ~ I Erlank, CEO Capricorn Asset Management “Dear Marthinuz, words of thanks sound so ordinary but I can assure you and your excellent team that there was nothing ordinary to the celebrations last night. Thank you for the invitation to be part of the joyful occasion to celebrate with RFS the 20 Year Birthday Celebrations. It was such a great evening and portrayed the effort that RFS puts into everything they do. I was really honoured to be part of it. A very big Thank You for the Certificate of Appreciation – it will proudly be displayed in the UNIREF office. It is my wish that you and your team and the company as a whole will reach even higher milestones. With respect and appreciation.” ~ A de Greef, Fund Administrator Universities Retirement Fund “Guten morgen Tilman & Kai, Vielen Dank für gestern Abend! Habt Ihr gut gemacht ?” ~ A Theissen, CEO Cymot “Fabulous evening, amongst great company! Thank you! ?” ~ A Schimming-Chase, Trustee, Benchmark Retirement Fund The price of fuel – do you know what you pay for? The latest fuel levy was set in Government Gazette 7003 of 25 September 2019 and reflects an interesting composition of the price of fuel as per below table. The total for Namibia is based on an estimated annual consumption of 1.6 billion litres of fuel in Namibia. Interestingly included in the ‘taxes and levies’ is a ‘strategic oil storage levy’ at N$ 0.6 per litre. That is approximately N$ 1 billion per year. Given the total capital cost of the strategic oil storage facility at Walvis Bay harbour of around N$ 5.5 billion, as reported in local media, the annual levy presents a return on investment of 17% p.a. if the capital cost was amortised over 20 years.
Concerning news for pension funds and their members So the chickens are coming home to roost? Forcing pension funds’ and pensioners’ life savings into Namibia through regulation to promote development has not really happened and this is making them lose money in the process. “Capital market in diversification dilemma. Namibia’s financial market is not developed enough to take up excess funds in the economy, with most pension funds recently settling for government debt. Worryingly, this has resulted in returns on government debt diminishing, with some investors currently praying that inflation stays low in order for them to earn meaningful returns on their investments. The Bank of Namibia recently said changes in the domestic asset requirement is gradually reducing treasury bills and bond yields as the market becomes flooded with too much money chasing few investments.” ~ The Namibian “Lack of bankable projects keeping money idle. There are a lot of funds in Namibia but there are few bankable projects to take up such money, Bank of Namibia governor Iipumbu Shiimi said yesterday. Speaking at the monetary policy announcement in the capital, he observed that the capital market is flooded with funds, and not even the government debt issuance will make a dent on it. “In the last two months, there has been a lot of interest in treasury bills from financial institutions and investment outlets. In itself, it is not bad, as they had enough money and were just looking for where to invest and making more money for themselves,” he said. ~ The Namibian “Revenue agency struggles to take off. The finance ministry is struggling to launch the Namibia Revenue Agency this month as promised, and has now pushed the implementation date to March 2020. Finance minister Calle Schlettwein revealed the new date yesterday after the ministry missed the 1 October launch date. “The launch will now be in March next year,” the minister said, adding that the date is not far, as the process involves the migration of personnel. At the appointment of the board of directors last year, the minister said the tax authority would be operational by March 2019, but that take-off date was pushed to October due to “many operational hurdles that remained unresolved”. ~ The Namibian Minutes of industry meeting of 19 September 2019 NAMFISA held another quarterly pension funds industry meeting on 19 September 2019. Some 26 funds were represented, which is only about 30% of the 82 active registered funds. Of these 7 are RFS administered funds, just less than one-third of those represented. It seems, our comment in previous newsletters on the low representation of funds administered by our competitors has borne some fruit at last! Here is a summary of the key discussion topics for the convenience of our readers:
Age of majority – the Child Care and Protection Act vs the Administration of Estates Act A guest contribution by Andreen Moncur BA (Law ) Ordinarily, in the case of two contradictory statutes, the most recently promulgated Act would amend the earlier Act, unless otherwise provided in the most recent Act or there is an entrenched clause in the earlier Act or in another Act. While the Administration of Estates Act 66 of 1965 (the Estates Act) appears to conflict with the Child Care and Protection Act 3 of 2015 (the Child Care Act), a closer examination of both statutes will show that this is not the case. The Estates Act as amended on 31 December 2018 does not amend the age of majority in Namibia; it merely deems a minor to be a person younger than age 21 for purposes of the Estates Act. While the Child Care Act, effective from 30 January 2019, amended s72 of the Estates Act, it did not amend s1(2) of the Estates Act. Section 1(2) is the section deeming a minor to be a person under age 21 for purposes of the Estates Act. While it is true that the Child Care Act repealed the Age of Majority Act 57 of 1972 and reduced the age of majority from 21 to 18 years, there are certain exceptions:
Can a death claim become unclaimed? Luxury handbag designer Lana Marks has been appointed US ambassador to South Africa, the US embassy said on Friday. Marks was born in South Africa and speaks Afrikaans and Xhosa, the White House has said. The US Senate confirmed her nomination, which President Donald Trump put forward last year. Washington has had no ambassador in South Africa since Patrick Gaspard left in December 2016, with its mission being overseen by a chargé d’affaires. The website for Marks’ firm offers handbags for up to $20,000 and says they have become favourites for celebrities including Oprah Winfrey, Kate Winslett and Madonna. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2019-09
|
||||||||||||||||
| In this newsletter: Benchtest 08.2019, IMF report, provident funds and the IT Act, Benchmark member meeting and more... |
||||||||||||||||
|
Annual insurance cover confirmations Fund officials and trustees who may have missed our annual insurance cover confirmations by financial institutions and intermediaries, can download the circular here... If this is important information to you please ascertain whether the information provided suffices for your needs or if not, please follow up with the relevant institution for more comprehensive and conclusive information. Since there are no standards for insurance cover and for reporting by insurers on insurance cover underwritten, it is not possible for us to provide a summary report that addresses all possible permutations. Extension granted for Online Submission of Employees Tax (PAYE) returns via the ITAS portal Employers were originally required to submit their monthly PAYE 5 returns on ITAS by 20 September. Due to difficulties experienced by many employers to adapt their payroll systems in time, the due date was postponed to 20 February with a clear message that any further extension will not be granted. Read the relevant PWC alert here... Namibia joins Base Erosion and Profit Shifting (BEPS) Inclusive Framework “The BEPS agenda focuses on equipping governments with domestic and international instruments to address tax avoidance to ensure that profits are taxed where economic activities generating the profits are performed and where the economic value is created. In part it is focused on closing the gaps in international tax rules that allow multinational enterprises to legally, but artificially shift profits to low or no-tax jurisdictions...” Download the EY tax bulletin 06/2019 here... Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In our Benchmark column we present
In our Administration Forum column we alert employers of their obligations concerning correct calculation and payment of contributions.
In ‘Legal snippets’ we our guest writer’s exposition on section 37D deductions from benefits for misconduct.
When is a good time to switch to another investment manager
From an investment consultant “Hi T... Thanks for the email. Yes, it worked and we submitted on time. Thanks so much for your input. We really appreciate your valuable contribution towards the Fund. You make the whole process so efficient with your world class input which is timeously and of high and undisputable quality. We have so much joy working with you.” Read more comments from our clients, here... Benchmark announces 2018 results to members In 2018 the Benchmark Retirement Fund’s assets grew to N$2.920 billion, up from N$2.744 billion in 2017. Its membership grew to 11 548 members. Despite the challenging operating environment and the proliferation of regulatory requirements, the Fund continues to grow, with new participating employers joining the Fund as well as with a growing number of members preserving their retirement capital in the Fund or choosing to draw monthly pensions from the Fund. The Fund catered to 961 annuitants who received N$54 million in annuities in 2018. The Fund continues to be managed on a world class basis with a strong focus on governance and is increasingly becoming the number one address in the umbrella pension fund space. Read the full press release here... Changing the Retirement Funding Landscape At the Benchmark Retirement Fund annual member meeting that was held at NIPAM on 5 September, Head of Individual Member Support: Sanlam Employee Benefits South Africa presented on ‘Changing the Retirement Fund Landscape’. In this article we focus on the key considerations for financial resilience that Barend shared with our audience. Fascinating findings and stats of the Sanlam Benchmark Survey that were presented by Barend will be discussed in the next Benchtest newsletter. On an annual basis Sanlam South Africa conducts a market survey with a specific focus and presents their findings at the Sanlam Benchmark Symposium in South Africa. This year their research included a deep dive into the concept of financial resilience, basically the ability of individuals and corporates to withstand the financial impact of a downturn in the economy. Barend le Grange, one of the speakers at the Sanlam Benchmark Symposium, presented the findings of the market survey on financial resilience at the Benchmark Retirement Fund Annual Member Meeting held on 5th September 2019 at NIPAM. Barend noted that the key considerations for financial resilience are default strategies, good governance, member engagement, information security, professional and independent trustees as well as scale. He briefly discussed some key consideration as documented below. Barend advised that the South African Regulator has basically forced all pension funds to introduce default strategies with the Default Regulation effective 1 March 2019. He advised that all retirement funds should actually have this in place, without the Regulator’s intervention, to cater for the average member who is not that knowledgeable on retirement funds and may end up losing his retirement savings by investing in the wrong product(s). Barend complimented Benchmark Retirement Fund on having default strategies in place, saying “I was pleasantly surprised to find out that Benchmark already had default options. South African pension funds can learn a thing or two from Benchmark.”. Barend pointed out that the King IV Report, for the first time, includes principles and practices for good corporate governance of retirement funds. The previous King Reports did not include any retirement funds. The trustees of retirements are now able to enhance governance even further. Barend noted that the research indicates that consultants believe the 2nd most dominant trend in advice is the shift to focusing more on members rather than on funds or employers. The findings from the research indicate that the Member’s actual experience with their retirement funds has been pretty bleak: disappointment, shock and regret.
Information security is the practice of preventing the unauthorised use, disclosure, disruption, modification, inspection, recording or destruction of information, whether physical or electronic. The 2019 Allianz Risk Barometer of Top Business Risks indicated that Cyber Risk is the top worldwide business risk alongside Business Interruption. Cybercriminals are global, ruthless, skilled, organised, at times government funded and have a sophisticated network. Barend mentioned that the average cost of cybercrime has increased by 62% in 5 years to U$600 billion per annum, that’s almost threes time the average loss due to natural disasters at U$208 billion per annum. He advised that the biggest counter to cybercrime is people. Collectively, we (people) must make information security an integral part of our culture and overall structure across funds, employers, consultants and administrators. Finally, he noted that IT Governance is addressed in detail for the first time in King IV Report.
Employers to ascertain that contributions are paid timely and correctly In last month’s newsletter in ‘Employers to ascertain that contributions are paid timely and correctly’ under ‘Legal snippets’ we reported on a case before the Eastern Cape High Court dealing with an employer who failed to pay the correct premiums over a very long period and who was obliged to pay-up all amounts underpaid plus interest. Incorrect contribution payments by the employer are one of the more serious headaches the fund administrator faces. Accurate member records are sine qua non for a pension fund. This requires meticulous reconciliation of moneys received from the employer with moneys updated in the fund member data-base on a monthly basis. Having meticulously reconciled and updated the contribution for any month, more often than not the administrator will have ended up with differences between what was received and what was updated. This is typically due to information from the employer being incorrect or incomplete, or the employer having over- or under-paid by mistake. Often the manner in which the employer calculates the contribution of a member (particularly upon entry or exit) is inconsistent with the rules, while being in accordance with the member’s conditions of employment. The rules constitute the agreement between the fund, the employer and the member, and contributions have to be made in terms of the rules of the fund. This may well create a dilemma for the employer if it is inconsistent with the employee’s employment contract. In such a situation it is incumbent upon the employer to either change its conditions of employment or to arrange with the fund to have the rules amended in order to be consistent with the employer’s conditions of employment. As per last month’s article under ‘Legal snippets’, incorrect payments by the employer do not prescribe while the employer continues to make monthly contributions. Differences between contributions received and contributions updated by the administrator must be communicated to the fund by the administrator. While it is practice that the administrator would also inform the employer, no contract exists between these 2 parties and the administrator has not authority to require of the employer to resolve all differences without delay. Such differences of course are of multiple nature, so it is not as if the administrator can run an ‘open-item’ debtors ledger of the differences. Over time it becomes ever more difficult to substantiate how the accumulated balance of over- and under-payments has built up and what the exact nature of the differences was. Typically, when the administrator requests that the accumulated balance eventually be written off, the fund and the employer want to know what the balance is made up of. That despite the fact that the administrator may have provided full detail, month-by-month, that was simply ignored. When such accumulation spans more than one financial year it becomes extremely challenging and time consuming to build up the accumulated balance, as this will have to be a manual process. It is the responsibility of the fund, through its principal officer, to ascertain that the employer diligently corrects all differences, month-by-month, by either adjusting its payment for the following month or by requesting the administrator to correct its member data-base.
RFS recognises long service Jo-ann Klazen and Terence Christiaan celebrated their 5th anniversary at RFS recently. We express our sincere appreciation to Jo-ann and Terence for the 5 years of their life they have dedicated to RFS and its clients and look forward to them continuing to contribute towards the success of our team! RFS welcomes new staff Desiree Kuutondokua joined our Benchmark department on 1 April 2019. Desiree matriculated at Ella Du Plessis Secondary School in 2002. She started to work in the pension funds industry in 2011 when she joined Old Mutual as an Administrator. During the 5 years she worked at Old Mutual she gained a lot of experience especially on the Orion funds. Desiree joined NMG in 2016 as a Scheme Administrator and then moved on to join Liberty Life later in the same year as a Scheme Consultant. She resigned from Liberty at the beginning of 2017 to become a full-time mother. Desiree is married and her husband is employed by Namdeb at Oranjemund. They have 3 kids, 2 girls and one boy. We welcome Desiree heartily and look forward to her applying her skills and experience for the benefit of our team and our clients! RFS teams up for a jukskei day RFS “Witches & Wizards” in black t-shirts finished joint 10th out of 36 teams with 41 points, comfortably beating their colleagues of the Benchmark “Red Warriors” in the red t-shirts that finished with 31 points. Not a bad result for juksei apprentices at all!
Government responds to matters raised at economic summit Should you have missed the official document issued by government in response to various recommendations made, and concerns raised at the economic summit arranged by the High Level Panel on the Namibian Economy (HLPNE) that took place in early August this year, you can read up by following this link... Minutes of industry meeting of 13 June 2019 If you missed the minutes of the industry meeting of 13 June 2019, you can download them here... This meeting was attended by representatives from 28 funds and a representative from RFIN. Interestingly only 24 of some 80 active funds in Namibia were present and of the 24 present 12 are RFS clients. It seems RFS is more successful in mobilising its clients that any of the other service providers. Following is a brief overview of the content of the minutes:
NAMFISA annual report for the year ended 31 March 2019 boasts a huge surplus of N$ 65 million on a total income of N$ 261 million. That represents 25% of its total income. 2019 was the first full year of the new levies that were implemented as from 1 November 2017! The report offers a wealth of interesting information that offers fertile ground for further research. If you are interested, follow this link... If you are a Master’s or PhD student and you are interested in doing research on the report, talk to us, we may be able to assist you. Section 37d and the meaning of misconduct by a retirement fund member A guest contribution by Andreen Moncur BA (Law ) Section 37D of the Pension Funds Act 24 of 1956 (the Act) allows the employer to claim compensation in specific instances for certain damages caused by an employee who is a member of the employer-sponsored retirement fund. Section 37D(b)(ii) states that a fund may - “(b) deduct any amount due by a member to his employer on the date of his retirement or on which he ceases to be a member of the fund, in respect of ... (ii) compensation (including any legal costs recoverable from the member in a matter contemplated in subparagraph (bb)) in respect of any damage caused to the employer by reason of any theft, dishonesty, fraud or misconduct by the member... from any benefit payable in respect of the member or a beneficiary in terms of the rules of the fund, and pay such amount to the employer concerned;”. What constitutes “misconduct” for the purposes of s37D? This issue has not yet come before the Namibian courts. However, valuable insights from South African common law can guide us. While South African common law is not binding in Namibia, it is highly persuasive and Namibian courts are likely to consider it. In the case of a claim for damages due to a member’s misconduct, the SA common law principle is that the member’s conduct “must have been wrongful and intentional conduct that causes harm and have involved dishonesty”. The SA judiciary has interpreted “misconduct” rather strictly as excluding negligent or careless conduct. In Moodley v Local Transitional Council of Scottburgh Umzinto North and Another [2000] 9 BPLR 945(D), the high court effectively distinguished between “negligent misconduct” and “dishonest misconduct”. The court applied the principle of restrictive application and held that “misconduct” as envisaged in s37D(1)(b)(ii) should be interpreted to mean conduct that has an element of dishonesty because the words “theft”, “dishonesty” and “fraud” as referred to in section 37D(b)(ii) all describe wrongful and intentional conduct causing harm. Under the principle of restrictive application, where words which have a limited or particular meaning are followed by a phrase of general application, the meaning of such phrase is restricted to the generic meaning of the preceding words. Given that the words “theft”, “dishonesty” and “fraud” all describe deliberate actions, “misconduct” as referred to in s37D(1)(b)(ii) must be interpreted as referring to wilful, reckless and intentional conduct, which would exclude negligent misconduct. Furthermore, the court held that the common denominator of the preceding words is dishonesty. Thus, only “misconduct” that contains an element of dishonesty will qualify as one of the grounds upon which a fund may deduct an amount from the employee’s benefit. The interpretation of “misconduct” laid down in Moodley was upheld by the Pension Funds Adjudicator (“PFA”) in subsequent rulings. In William M. Sebola v Johnson Tiles (Pty) Ltd & Alexander Forbes Financial Services & Johnson Tiles Provident Fund PFA/ GA/529/99/CN, the PFA, citing Moodley, held that, “Neither the rules of the fund nor the Act contain a definition of the word “misconduct”. The meaning of the word is ambiguous... used in connection with misdemeanours of both a serious and a less serious nature. Therefore, I am of the view that in ascertaining its meaning, the word should be looked at in the context of the rule in which it appears. This is known as contextual interpretation, which is encapsulated in the maxim noscitur a sociis. The maxim means that the meaning of words is inferred from that of its companions... When used in the context of rule 7.2, the word “misconduct” should be construed in the light of the word “fraud” ... In my mind, the drafter of the rules intended to deprive only members who had been dismissed on grounds of misconduct which has an element of wilful dishonesty, of their entitlement to the employer’s portion of the withdrawal benefit.” This concept of only allowing compensation for “dishonest misconduct” to be deducted was echoed in, among others, Razlog v PLJ Pension Fund Case No PFA/KZN/761/02/PM 31 October 2002, where the PFA found that the fund was not entitled to deduct any damages from the complainant member’s benefit despite him having caused his employer great loss because the fund could not prove that the member’s mistakes were in any way “tainted with impropriety or dishonesty.” The difference between cost and value “In the retirement fund industry, value for members is about more than just the cheapest option. The idea that umbrella funds are all the same and that the cheapest one must be the best one is misguided – there are many more factors at play. In 2005 there were around 13 000 standalone retirement funds in South Africa. There are now fewer than 1 500. This massive consolidation in the industry is largely due to many companies choosing to use umbrella funds rather than manage their own pension funds. Umbrella funds cater to multiple employers, which brings benefits of scale. In the last 17 years, 78 new umbrella funds have been launched in the country. While this has created choice for employers, deciding on the criteria to use when selecting an umbrella fund is a challenge. Since their primary benefit is bringing down the cost to the employer, the decision is often driven by the fees being charged. However, David Gluckman, head of special projects at Sanlam Employee Benefits, says that while a focus on costs is broadly desirable, it has an unintended consequence. “It’s easier to measure costs than value, so I think that while disclosure and transparency should drive the right behaviour from providers, one of the slight risks is that it might put more emphasis on costs than it should,” he says. Appreciating value One of the findings of the recently published 2019 Sanlam Benchmark Survey is that the consultants who advise companies on umbrella fund options see this as a particular challenge. “The number one thing that employee benefit consultants would want to change is for their own clients to stop fixating on costs and pay more attention to value,” says Viresh Maharaj, chief executive at Sanlam Corporate for sales and marketing. “There is value to be sought elsewhere, not just in costs.” To illustrate this point, Maharaj calculates what a 20% reduction in overall costs would mean for the average retirement fund member. Over an investment horizon of between 10 and 40 years, their final outcome improves by only between 0.4% and 4%...” Read the full article by Patrick Cairns in Moneyweb of 28 June 2019, here... Keep your retirement goal post in sight “Many South Africans face a bleak retirement because they are either not saving enough, cash out their retirement savings when changing jobs, or are following an inappropriate investment strategy. However, even those fund members who are keeping their eyes on the prize risk being blindsided by an unfortunate and unexpected life event. This is according to Nashalin Portrag, Head of FundsAtWork at Momentum Corporate, who warns that illness and disability, or the premature death of a spouse, can seriously hamper the probability of members reaching their retirement goals. “While the ultimate aim is to save sufficiently for retirement, all members need to be aware of these unpredictable, yet often sudden and life-changing events. In addition to derailing a member’s retirement plan, a hurdle such as being diagnosed with a critical illness or losing a spouse can have a major negative impact on someone’s lifestyle during retirement...” Read the article by Nashalin Portrag Cover magazine of 9 September 2019 here... Educating children for the jobs of the future “...By 2030, robots, artificial intelligence, automatons, call them what you like, will have displaced up to 800 million workers or one fifth of the global workforce, according to McKinsey Global Institute. The inexorable and exponential march of technology will create new jobs, experts assure us, but what are those roles likely to be and how should we prepare? It’s important to equip young people with foundational skills that will stand them in good stead regardless of what jobs they end up taking on The World Economic Forum’s Future of Jobs Report 2018, estimates that by 2022 “no less than 54 per cent of all employees will require significant reskilling and up skilling”. The report adds: “Human skills, such as creativity, originality and initiative, critical thinking, persuasion and negotiation will retain or increase their value, as will attention to detail, resilience, flexibility and complex problem-solving.” What skills should we be teaching children in schools? How about in 2032, or 2042, and beyond? What tools should we be arming today’s children with so they stand a chance of surviving the world or work in one or two decades from now? “Many pedagogical experts argue that schools should switch to teaching ‘the four Cs’ – critical thinking, communication, collaboration and creativity,” Yuval Noah Harari writes in his new book, 21 Lessons for the 21st Century...” Read the full article by Oliver Pickup in Raconteur of 5 December 2018, here... Pros and cons of working remotely “Technology and improved ease of communication are making it possible for an increasing number of people to work remotely. Akeso Milnerton occupational therapist, Mariaan Jacklin, says there are both advantages and disadvantages in working away from a central office, and offers advice for maintaining a work-life balance to avoid burnout... “There is a common perception that working remotely has positive effects for the worker, however, there is very little evidence to support this view,” Jacklin notes.
“Ease of communication across the planet makes it possible to work from the other side of the world, which may even involve working across different time-zones, however, this makes it challenging to differentiate when a workday starts and ends.” Here are some of the cons of working remotely:
Did you ever wonder why? WHY: Why are zero scores in tennis called 'love'? BECAUSE: In France, where tennis became popular, the round zero on the scoreboard looked like an egg and was called 'l'oeuf,' which is French for 'the egg.' When tennis was introduced in the US, Americans (naturally), mispronounced it 'love.' |
||||||||||||||||
2019-08
|
||||||||||||||||||||||||||||||||||||
| In this newsletter: Benchtest 07.2019, 20 years of RFS, minors to be expropriated, tax and annuities and more... |
||||||||||||||||||||||||||||||||||||
|
New taxes coming into effect EY Tax bulletin 4/2019: Fuel levy rate increase
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In ‘News from RFS’, read about new appointments and our company anniversary.
Monthly Review of Portfolio Performance to 31 July 2019 In July 2019 the average prudential balanced portfolio returned -0.7% (June 2019: 1.7%). Top performer is Allan Gray Balanced Fund with 0.1%, while Momentum Namibia Growth Fund with -1.6% takes the bottom spot. For the 3-month period, Investment Solutions Balanced Fund takes top spot, outperforming the ‘average’ by roughly 1.2%. On the other end of the scale Allan Gray Balanced Fund underperformed the ‘average’ by 1.8%. Note that these returns are before asset management fee. When is a good time to switch to another investment manager? Retirement fund members who have become used to Allan Gray ‘shooting the lights out’ often can no longer bear with its performance lingering right at the bottom or close to the bottom of the performance ranking tables of prudential balanced managers, for periods up to 5 years as depicted in graphs 1.2 to 1.7 in our review. For the month of July Allan Gray managed to rise to the top, given that it is a very short period and bears no relevance. As the result, clients more and more often contemplate or even decide to move their investments away from Allan Gray to another manager. The questions are - is it a good time to move away from Allan Gray and when is a good time to move away from your trusted manager? I guess when we talk about buying or selling a house, there will be little argument about not selling when the market is at the bottom and not buying when the market is at the top. This is a sensible principle that one should apply to one’s investments and investment manager as well. The difficulty however is to know when any asset has reached the bottom or the top. Read part 6 of the Monthly Review of Portfolio Performance to 31 July 2019 to find out what our investment views are. Download it here... The Administration of Estates Act – where do we stand? The Minister of Justice issued a second draft amendment to the Administration of Estates Act (AoEA) following a stakeholders meeting held on 10 July, that would bring about changes to the previously promulgated amendments of 31 December 2018 and draft regulations. For the purpose of the following analysis, I will not consider the previous draft amendment issued in July. I presume that the regulations on the ‘governance framework of the Guardians Fund’ and on ‘Knowledge management and financial administration regulations of the guardians fund’ are to remain in place and for completeness of my analysis my comments in last month’s newsletter are repeated below. Key proposed changes or clarifications to the AoEA are – 1.) Subject to 2 below, all moneys due to a person under the age of 21 or under curatorship, which derive from
2. ) Benefits deriving from the following sources are exempted-
4.) The Minister may prescribe further requirements and conditions for exemptions under 2 above. 5.) The Minister may amend the list of benefits deriving from sources listed in 2 above. 6.) Provision is made for the voluntary transfer of capital in a testamentary or inter-vivos trust to the Guardians Fund. 7.) A person who is obliged but fails to pay over any money as required in terms of the above shall pay ‘…interest a prescribed under the Prescribed Rate of Interest [Act], 1975…’ It is interesting to note that –
An investment committee is established for the guardians fund which shall comprise of the Master as chair and two experienced independent external members appointed by the Minister;
Minister adamant to expropriate minors In the preceding article under ‘Tilman Friedrich’s industry forum’ we comment on the second revised draft amendment of the Administration of Estates Act. This version was discussed at a stakeholders meeting on 14 August. Despite all assurances by the Minister and the proposed exclusion of pension funds paying annuities per the latest revised draft, the Minister made it clear at this meeting that none of the typical pension fund vehicles will be excluded and will be obliged to transfer all moneys due to a minor upon the death of a fund member to the Guardians Fund. A third revised draft was circulated on 27 August that no longer provides for any exemption of any vehicle registered under the Pension Funds Act and will be commented on in next month’s newsletter. This places trustees in an extremely awkward position of meeting their fiduciary duties towards minor beneficiaries in terms of the Pension Funds Act and common law and a new requirement where it is clear from the start the Master is not geared to handle payments to minor beneficiaries yet. The Master has furthermore made it clear that its office will only make quarterly payment where the guardians of these beneficiaries were hitherto used to being paid on a monthly basis. The Minister of Justice’s justification for the amendment of the Administration of Estates Act in parliament at the end of last year was unsubstantiated allegations of abuse of minors’ moneys by service providers and pension funds and of excessive costs having been charged to minors for the processing of benefits due to them. However, as time has gone by, it becomes ever more evident that these allegations were but pretence for laying governments hands on moneys due to minors. Draft regulations issued recently, direct the Master of the High Court to carry all costs of administering moneys on behalf of minors and it actually requires that persons sitting on the committees that are to be established must be remunerated. Contrast this with so many pension funds that actually do not remunerate their trustees or their principal officer. Any person who has or had dealings with the Master’s office will be able to testify to what extent there has been poor administration of moneys entrusted to the Master and any rational person will be able to assess how inefficiently and ineffectively the Master is likely to be in future. Those that do not have the benefit of experience with the Master’s office will come to learn whether the Minister has been the saviour of moneys formerly entrusted to pension funds. Any annuity is taxable but what is an annuity? In the light of the fact that an annuity always constitutes ‘gross income’ and is therefore always subject to income tax, it is quite important to understand what actually constitutes an annuity. Old age grant In Namibia any citizen is entitled to the state old age grant of currently N$ 1,300 as from age 60. The pensioner has not worked for this ‘windfall’, at least not directly. Is this an annuity and therefor taxable? Well there is no provision in the Income Tax Act exempting this grant and the grant is thus clearly taxable being an annuity payable for more than 2 years, as argued further on. Maintenance upon divorce The same question should be posed with regard to maintenance payments by one divorced spouse to the other divorced spouse. Section 16(1)(q) however exempts from income tax “…any amount received by or accrued to any person from such person’s spouse or former spouse by way of alimony or allowance or maintenance…” Annuities from pension – and retirement annuity funds ‘Closer to home’, the Income Tax Act stipulates in the definition of ‘pension fund’ as follows: “(a) that the fund is a permanent fund bona fide established for the purpose of providing annuities for employees on retirement or for widows, children, dependants or nominees of deceased employees (i.e. upon death in service)…” The definition of ‘retirement annuity fund’ in turn provides as follows: “(a) that the fund is a permanent fund bona fide established solely for the purpose of providing life annuities for the members of the fund or annuities for the spouses children, dependants or nominees of deceased members …” and goes on “(b) (vii) that where a member dies after he or she has become entitled to an annuity no further benefit shall be payable other than an annuity or annuities…” Take note of the difference in the definition of ‘pension fund’ that merely refers to an annuity for members or their dependants as opposed to the definition of ‘retirement annuity fund’ that refers to life annuities for members and annuities for dependants. So the Income Tax Act distinguishes between annuities and life annuities without defining these terms. In South Africa two prominent cases in the Appellate Division dealt with this subject. In SIR v Watermeyer Holmes JA said the following in respect of annuities: “Used in regard to payments, the word, from its very nature, postulates the element of recurrence, in the sense of annual payments (even if made, say, quarterly during the year). And this element of necessary annual recurrence cannot be present unless the beneficiary has a right to receive more than one annual payment… Hence de facto recurrent payments, if voluntary and payable at will, do not qualify as annuities.” The decision in KBI v Hogan affirmed the principles laid down in SIR v Watermeyer regarding the characteristics of an annuity. When Inland Revenue responded to a new product in the market referred to a living annuity or flexible annuity by way of practice note 1/96 it required that “…where the annuitant dies, the annuity available to the deceased’s spouse, children, dependants or nominees, shall constitute an annuity for a minimum of 5 years.” This practice note appears to be referring to annuities paid by retirement annuity funds (although it vaguely refers to retirement annuity agreements. Inland Revenue later issued practice note 1/98 that refers to flexible annuities paid by any pension fund and directs that “…where the pensioner dies, the annuity available to the deceased’s spouse, children dependants or nominees, shall constitute a life annuity.” Since the definition of ‘pension fund’ does not require a life annuity in respect of either the member or his/ her dependants, practice note 1/98 is ultra vires Inland Revenue’s powers to the extent that it require a life annuity for dependants of a deceased fund member. Considering the judgements referred to above, Inland Revenue is probably also wrong in directing that the annuity should be paid for a minimum of 5 years. According to those judgements, living or flexible annuities can thus be accelerated to pay over a minimum of two years to members of pension funds and their dependants and to dependants of members of retirement annuity funds. The annuity payable to the member of the retirement annuity fund however, must be an annuity for life. Provident funds facing a new Income Tax Act challenge In last month’s newsletter we reported that Inland Revenue considers the following benefits current typically offered by provident funds to be inconsistent with the definition of ‘provident fund’ and has threatened to withdraw tax approval of funds offering such benefits, e.g.
Following a meeting with RFIN and industry participants NAMFISA has taken it upon itself to arrange a meeting between Inland Revenue itself, RFIN and industry participants to try and find a solution of the challenge retirement funds are currently facing. This meeting has not come about yet, so the matter remains in suspense. In the mean-time NAMFISA will return rules and rule amendments of provident funds that offer the deplored benefits. So much for a narrow interpretation of the Income Tax Act In the previous article on the challenge provident funds currently face with regard to a very narrow interpretation of the definition of ‘provident fund’, it just caught my eye that pension funds may yet face a challenge if Inland Revenue were to apply an equally narrow interpretation to the definition of ‘pension fund’. Note that this definition refers to a pension fund being established “…for the purpose of providing annuities for employees on retirement or for widows…” In other words the definition presupposes that fund members are male. Where they are female the fund is thus prohibited from making provision for the surviving widower of the female member! Note too that the definition of ‘retirement annuity fund’ actually refers to ‘spouse’ where the definition of ‘pension fund’ refers to ‘widow’ only! Such an argument would be discriminatory, is unconstitutional and would probably be thrown out by any court. Point is though that a very narrow interpretation of the Income Tax Act will produce more such surprises. Can capital be transferred from a retirement annuity fund to an untied insurance product at retirement? It seems to have become common practice in the market that members of retirement annuity funds, upon retirement, purchase an untied annuity from an insurance company. Is this practice consistent with the Pension Funds Act and the Income Tax Act? Firstly, NAMFISA has confirmed in writing that it is comfortable for retirement capital to be moved into an untied insurance policy that then provides the annuity. Secondly, from an Income Tax Act point of view, Inland Revenue bought the argument of insurance companies in support of being allowed to issue untied annuity policies with money derived from a retirement fund and to transfer the capital tax-free upon retirement from the fund, as this money does not constitute gross income and as the fund member is obliged to arrange an annuity. The obligation to buy an annuity can obviously only apply to a pension fund as it would always be optional in a provident fund. But what about retirement annuity funds? The Income Tax Act in the definition of ‘retirement annuity fund’ sets out the benefits a retirement annuity fund may provide under various circumstances. In sub-paragraph (x) its states “that save as is contemplated in subparagraph (ii), no member’s rights to benefits shall be capable of surrender, commutation or assignment or of being pledged as security for any loan.” Subparagraph (ii) states “that no more than one third of the total value of any annuities to which any person becomes entitled, may be commuted for a single payment...” The crux of the matter is the word ‘assignment’. The Oxford English dictionary defines ‘assign’ as “to give something to somebody as a share of work to be done or of things to be used…”. Another dictionary defines ‘assign’ as “allot, apportion, ascribe, transfer”. Clearly, unless the annuity is purchased from an insurer in the name of the retirement annuity fund, it would imply that the member’s retirement capital is indeed transferred or given to somebody else. My conclusion thus is that a retirement annuity fund cannot allow the purchase of an annuity from an untied insurance product once a member becomes entitled to a retirement benefit. Avoid permanent loss but be prepared to give up value If you own something you do not use, chances are you will lose – “use it or lose it” is a rugby rule. It applies to all spheres of life. What you use, no one will be able to take from you, if we equate ‘using’ to ‘consuming. This wisdom also applies to your investments. Your capital is something you do not use and chances are you will lose. This is not to say that you will always lose, but there will be times when you will lose. The best thing you can do is to be prepared for losing at times. One also needs to distinguish between different types of losses namely, a temporary loss and a permanent loss. A permanent loss is something you cannot recover as opposed to a temporary loss. Since we are dealing with pension fund and personal investments, in terms of market conditions we find ourselves in a situation where we feel we have been on a losing streak for quite some time. But how do you actually define loss in these circumstances? Is it a loss relative to something inflation or is it a loss relative to the types of returns one has seen in investment markets until the advent of the financial crisis at the end of 2008 and from the middle of 2011 up until the middle of 2015? I suspect many investors are still clamouring for returns in the 20% and more. Important however should only be your real return, with inflation being your bottom line! Where would you have invested had you anticipated developments in financial markets since the financial crisis? It was not too difficult to anticipate what the impact of quantitative easing and the low interest rate environment would be, but, no one would have anticipated such a strong recovery for a 4 year period followed by a flattening of financials markets thereafter. The readers that have been following this column would be aware that I have been anticipating flat markets for quite some time. What alternative investments could you possibly have made in anticipation of what was to be expected - property, life stock, vintage cars or other exotic objects? Well test them one-by-one. Property in Namibia would not have been a good idea. Life stock in Namibia would have been a disaster. Gold or any other exotic object? Try and sell them when you need money for consumption! That basically leaves you with bonds, equity and cash. Nowadays, it is quite common for investors to say, I want to be in cash because its returns are, let’s say, not worse than those of bonds and equity. So with that argument you are concerned about a loss of returns on equity and bonds relative to returns on cash. How about a loss relative to a real return, i.e. you are not achieving inflation plus 5% as the typical pension fund formula would expect? It is common cause that cash is only for investment with a short-term horizon. Look at graph 6.1 which reflects rolling 1 year returns (short-term horizon) of the main conventional asset classes pension funds typically invest in. You will note that cash depicted as the black line is sitting on around 10%. Compare this to the other asset classes and the average prudential balanced portfolio, in particular. You will notice that cash generates very smooth returns while the other lines are very volatile, moving between minus 30% and plus 50% on a rolling one year basis. If you add the number of months the other lines are below the black line, you should find that the other lines are more often above than below the black line. Graph 6.1  In graph 6.2 I have extended the period measured to rolling 2 year returns (short-term horizon). Note how the volatility decreases to between minus 15% and plus 30%. Note also that by-and-large cash returns are lower than those of the other asset classes. Graph 6.2  Finally in graph 6.3 I have extended the period measured to rolling 3 year returns (medium-term horizon). Note how the volatility decreases further to between zero % and plus 23%. Again, cash returns are mostly lower than those of the other asset classes. Graph 6.3  There are also those investors who believe that the smooth bonus portfolios can avoid the downs of investment markets. If you look at graph 6.4 and track the red line against the black line, you will note that they actually produce returns, less volatile, but very closely resembling those of the average prudential balanced portfolio. After all, they invest in exactly the same assets as any conventional pension fund portfolio does. Graph 6.4  Conclusion: Going by the above facts, there is actually nowhere to hide. The assets you do not use will expose you to the probability of losing. The other assets that you do use, will give you the pleasure of their usage but you do not really know what they are worth. You should at all-time try to avoid a permanent loss of your investment but be prepared to give up value from time to time. How do you avoid a permanent loss? It’s really about not putting all your eggs in one basket. Spread your investment across different asset classes, different continents and different countries. Know what your investment horizon is and invest accordingly. Have a strategy and stick to that, whether it means that you may not time the best moment for moving assets offshore or for buying into assets when it may not have been the ideal moment. You cannot time the market. As often as you may be right you will be wrong! While the interest rate environment has not normalised, we will continue to experience low returns, not only in absolute terms but also relative to inflation. If you have to live off your investments, you must adapt your cost of living to the returns your investments realise, i.e. the net rental income, net dividends and net interest earned. When you are in a pooled investment vehicle, you should work on a net return of approximately 3%. Pension fund governance - a toolbox for trustees The following documents can be further adapted with the assistance of RFS.
From a principal officer of one of the largest funds in Namibia “Marthinuz After all these years of professional co-operation I have never had any reason to question the professional conduct of any member of the RFS Team...” Read more comments from our clients, here... RFS celebrates its 20th anniversary This year marks a very special occasion in the life of Retirement Fund Solutions Namibia. The company was incorporated on 19 August 1999 and commenced business on 1 September the same year. The company has therefore been in business for 20 years.  RFS’ staff complement has today increased to over 70 staff members, whilst members of funds under RFS’ administration have increased to more than 36 000. We proudly share the history of our growth in figures as follows:
RFS recognises that employees are its most important asset and believes that its people are more important for the success of the company than technology. We understand that our employees can only be successful if they enjoy the support of their families in all their occupational endeavours. Hence we make a point of undertaking events that involves their families. RFS welcomes new staff Janolene Rittmann joined our permanent staff complement on 1 August 2019 as receptionist from Schoemans Office Systems where she also held the position of receptionist. Janolene matriculated in 2007 at David Bezuidenhout High School. She started her formal career in 2011 as a buying clerk at Woermann & Brock, where she worked for 5 years. She resigned from Woermann & Brock to join her husband at the coast, but the couple moved back to Windhoek after a few months. Zane-Lea Drotzky joins our permanent staff on 1 September 2019 as a Fund Administrator in the Benchmark team. Zane-lee grew up in Rehoboth and matriculated at Dr. Lemmer High School in 2012. She started her formal career at Alexander Forbes as a fund administrator in 2014 where she was employed as a team leader. Zane-Lee is enrolled as a third year student at NUST for a Bachelor Degree in Business Management. She also attended a number of in-house courses at Alexander Forbes. We welcome our two new staff members heartily and look forward to them applying their traits for the benefit of our team and our clients! Old Mutual launches new disability income products Old Mutual recently held a road show to introduce new disability income products that will complement the standard disability income benefit that is typically offered by retirement funds. Analyses of claim trends in medical aid schemes in South Africa and Namibia that typically result in disability claims in retirement funds reveal some of the following disconcerting trends over the past 5 years that are likely to lead to significant increases in group risk premiums in future.
As the result of these trends it is expected that the medical aid industry and the insurance industries will continue to see costs increasing in future. To curb the on-going increase in costs Old Mutual has launched two new disability income products complementing the standard disability income benefit that offers an income until the earliest of recovery, death or retirement, and a 2 year temporary disability income benefit. The first complementary product is a 5 year medium term disability income benefit that can be dove-tailed with a lump-sum disability benefit with a 5 year waiting period. The second complementary product is a 2-tier disability income benefit offering an income until the earliest of recovery, death or retirement. However instead of offering a fixed percentage income replacement, the income benefit at commencement is reduced by 50% after an initial period. The premiums and benefit of this product can be set with reference to pensionable salary or to total guaranteed package. Two draft standards issued under FIM NAMFISA issued the following 2 new draft standards for comments by 13 September:
Pension funds industry meeting coming up The date of the upcoming pension funds industry meeting will now take place on 19 September. Employers to ascertain that contributions are paid timely and correctly In this case of Municipal Workers Retirement Fund v Ndlambe Local Municipality that served in the Eastern Cape High Court, the municipality had made regular payments to the fund, but as it was revealed many years later, the payments were calculated incorrectly. As the result the municipality had underpaid over an extended period. In its first defence, the municipality argued that the shortfalls that arose more than 3 years prior to the summons having been issued, had prescribed. To this defence the court ruled that the employer had acknowledged its liability for the payment of contributions to the fund in terms of the rules and prescription therefor had been interrupted. In its second defence, the municipality argued that the underpayments were an honest mistake and that no late payment interest should be applied to the amounts the municipality had not been aware it was liable to pay, particularly as the fund had not alerted it to this mistake. It was also stated that although the Pension Funds Act allows a grace period of seven days for the payment of contributions, interest is calculated from the first day of the month following the month in respect of which the contribution should have been paid. Download the full article that appeared in Pensions World magazine of June 2019 here... Section 37C and nominees – can an artificial person be nominated? The question whether a fund member can nominate a non-natural person as a beneficiary as contemplated in section 37C comes up here in Namibia quite regularly too. The conclusion reached in this article that an estate cannot be a nominee is based on section 37C (1) (b). This section is identical to the SA section 37C (1) (b). Hence the conclusion reached in SA is equally relevant to Namibia. “...Although the Act does not define the concept of a “nominee”, the wording of section 37C as a whole provides clear guidance as to who may qualify as such. Section 37C (1) (b) reads as follows: “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....” Clearly a deceased estate cannot, in law, be a person "who is not a dependant of the member". PFA determinations The interpretation of the concept of “nominee” has been tested in court. In the matter of Martin v Beka Provident Fund (2000) 2 BPLR 196 (PFA) the member had nominated his deceased estate as the sole beneficiary of his death benefit. The Adjudicator held that the deceased’s estate cannot be a nominee on the basis that Section 37C specifically excluded death benefits from a member’s deceased estate. Therefore, the nomination of the estate by the deceased should not have carried any weight at all in the trustees' considerations. The benefits are only payable to the estate by “default”, i.e. in the circumstances set out in subparagraph (b) (to the extent required to settle the unpaid debts of an insolvent estate, where a member has nominated a non-dependant as a beneficiary and the trustees do not become aware of any dependants within twelve months, after which the nominated beneficiary receives any balance) and subparagraph (c) (where the fund is unaware of or cannot trace any dependants within twelve months of the member's death and no nomination has been made). Similarly, in the matter of Muir v Mutual & Federal Pension Fund (2002) 9 BPLR 3864 (PFA) the deceased had completed a nomination form in which she indicated that she wished the entire benefit to go into her estate. The Adjudicator held that a nomination in favour of the estate is in fraudem legis (i.e. in circumvention of the rules of law) and thus invalid. At paragraph 17 he held as follows: “Section 37C (1) (b) makes it additionally clear that an estate cannot be a nominee. The provision states that if there are no dependants and "the member has designated in writing to the fund a nominee who is not a dependant of the member", then the benefit should be paid to the nominee. Clearly a deceased estate cannot, in law, be a person "who is not a dependant of the member". While the trustees would have been obliged to bring into consideration any nomination of a person as a beneficiary, the nomination of the "estate" as beneficiary may not be treated in the same way as other nominations, since the Act refers only to nominees who are dependants and nominees who are not dependants, and an estate cannot be either. (my emphasis) Conclusion It is clear from the above cited case law (read together with the Act) that the member’s deceased estate cannot be a nominee for the purposes of section 37C (1). Similarly, when applying the logic followed by the Adjudicator in both matters, neither can a juristic person such as a company or a non-profit organisation.” Read the full article by Liz de la Harpe in FA News of 5 June 2019 here... This is how much you need just for medical aid in retirement “The generally accepted wisdom is that when you reach retirement you need to be able to secure an income equal to 75% of your final salary. This is because there are many expenses that you can trim once you stop working. · you no longer need to save for your retirement. · You also won’t be travelling into work every day · If you and your spouse were using two cars before, it might even be possible to downsize to one. · There will probably be less need for formal wear and shoes. There is however one expense that is not going to decrease... “Over the last few years, the average increase in medical aid contributions has exceeded inflation by 3% to 5% per year,” says Karen Wentzel, head of annuities at Sanlam Employee Benefits. According to Sanlam, the average contribution for an adult member is now between R3 000 and R5 000 per month. In many cases, individuals who are still working will have part of that paid by their employer. In retirement, however, you’re likely to be on your own... “Unfortunately no pension fund will pay increases of 15%, thus your medical aid contributions will be a bigger portion of your income every year.” The numbers This is a reality that retirees need to plan for... However, few people appreciate exactly how much capital is required just to meet their medical aid expenses. The following table puts this into perspective:  Source: Sanlam Employee Benefits What this shows is that a woman who retired today at age 55, and whose medical aid costs increased by 3% above inflation for the rest of her life, would need retirement capital of R1.77 million just to cover that expense. “A couple consisting of a male aged 60 and a female aged 55 will need between R3.5 million and R4.5 million to cover their life-long medical aid premiums, assuming a monthly medical contribution of R5 000,” says Wentzel...” Read the full article by Patrick Cairns in Moneyweb of 20 June 2019, here... Don’t lose faith in a good manager “If your fund manager delivers poor returns over a period - even a protracted one - it doesn't always mean it's time to dump them and move to a new manager. In fact, a manager's poor performance may well be followed by strong returns and disinvesting at the very lowest point may make you lose out on the recovery and realise an investment loss. But there are managers who deserve to be fired, say those who research fund managers. The trick is to know one from the other... Knowing your manager's style and how and why it will perform are key to understanding any periods when it underperforms, Köhler and Jugmohan say. Different funds perform in different market cycles. If you want more consistent returns you need to invest across managers with different styles, Köhler says. Joanne Baynham, the director and head of strategy at MitonOptimal, which sets up investment portfolios for financial advisers' clients, says if a manager is good at its job but its style is out of favour, stick with it...In fact, she says, the time to buy into a value manager's funds is precisely when its performance has put it among the managers who rank lowest on performance. Jugmohan says if you judge managers on performance only, you may well fire a manager just when it is about to deliver its best returns, and investors make this mistake time and again. Jugmohan recently plotted the annual returns of managers over three years to the end of December 2015 against the annual returns over three years to the end of December 2018 and found most managers had very different returns in each of these periods...” Read the article by Laura du Preez in Sunday Time Business Times of 14 August 2019 here... Nine skills you should learn that pay off for ever “The further along you are in your career, the easier it is to fall back on the mistaken assumption that you’ve made it and have all the skills you need to succeed. The tendency is to focus all your energy on getting the job done, assuming that the rest will take care of itself. That’s a big mistake. Recent research from Stanford University tells the story. Carol Dweck and her colleagues conducted a study with people who were struggling with their performance...They discovered that learning produces physiological changes in the brain, just like exercise changes muscles.
Dealing with dissatisfaction “Very often I find myself listening to people talking about their levels of dissatisfaction. Dissatisfaction in their work environments, work relationships, personal lives and even marriages. What always takes me by surprise is how long people spend in states of dissatisfaction - feeling helpless and unable to see the options available to them. As a psychologist, my role is to use frameworks to help people find a way out of what it is that they are stuck in. One such framework is the simple Change Situation offered by Adam Grant in his book Originals (2016). Grant (2016) suggests that when facing a difficult decision or dissatisfaction in an organizational setting or even a personal relationship you have 4 choices. You can Exit, Voice, Neglect or Persist. They are visually displayed below:  The options are further split up into passive and active. The bottom two options, Neglect and Persist are both passive in the sense that they will continue to maintain the status quo. If you choose to Neglect the situation, you will be emotionally, mentally and perhaps even relationally checking yourself out. In the work context this looks like the ostrich with its head in the sand at best, and a very aloof disinterested employee at worst... You can also choose to Persist. This option is less harmful to the organization than neglect because you are still engaged in your work function, but it also still maintains the status quo and nothing actually changes... Exit needs no explanation. You’ve looked at your situation conducted some analysis and realized that this organization is not a good fit for you and potentially you are not a good fit for them... The last choice, perhaps the most difficult is Voice. Voice requires action. It requires you to speak your mind in the right way to the right people at the right time. It requires courage and often persistence...” Read the full article in TomorrowToday’s Tuesday Tips here... What African countries largest exports are  Did you ever wonder why?? WHY: Why do ships and aircraft use 'mayday' as their call for help?? BECAUSE: This comes from the French word m'aidez - meaning 'help me' - and is pronounced, approximately, 'mayday.' |
||||||||||||||||||||||||||||||||||||
2019-07
|
|||||||
| In this newsletter: Benchtest 06.2019, National Pension Fund Part 7, FIM Bill and Income Tax Act challenges and more… |
|||||||
|
Phasing out of cheques - reminder
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In ‘News from RFS’, read about our staff philosophy and how staff is engaged.
In ‘News from NAMFISA’ we present –
In ‘Legal snippets’ we report on a financial adviser who was held liable for his client’s loss.
Monthly Review of Portfolio Performance to 30 June 2019 In June 2019 the average prudential balanced portfolio returned 1.7% (May 2019: -2.8%). Top performer is Hangala Prescient Balanced Fund with 2.8%, while Allan Gray Balanced Fund with 0.4% takes the bottom spot. For the 3-month period, Hangala Prescient Balanced Fund takes top spot, outperforming the ‘average’ by roughly 1.7%. On the other end of the scale Allan Gray Balanced Fund underperformed the ‘average’ by 3.3%. Note that these returns are before asset management fees. Avoid permanent loss but be prepared to give up value If you own something you do not use, chances are you will lose – “use it or lose it” is a rugby rule. It applies to all spheres of life. What you use, no one will be able to take from you, if we equate ‘using’ to ‘consuming. This wisdom also applies to your investments. Your capital is something you do not use and chances are you will lose. This is not to say that you will always lose, but there will be times when you will lose. The best thing you can do is to be prepared for losing at times. One also needs to distinguish between different types of losses namely, a temporary loss and a permanent loss. A permanent loss is something you cannot recover as opposed to a temporary loss. Since we are dealing with pension fund and personal investments, in terms of market conditions we find ourselves in a situation where we feel we have been on a losing streak for quite some time. Read part 6 of the Monthly Review of Portfolio Performance to 30 June 2019 to find out what our investment views are. Download it here... FIM Bill reading in parliament postponed Much to the dismay of the Minister of Finance, the second (?) reading of the FIM Bill in parliament was postponed to when parliament reconvenes in September. When the Minister tabled the Bill he made mention that the retirement funds industry will move from a compliance based, to a risk based supervisory regime. Well, I am not sure this is true. The retirement funds chapter (Chapter 5) is not too dissimilar to the old Pension Funds Act, given that it substantially dilutes the protection mechanisms of the Pension Funds Act in the FIM Bill and that it eliminates any interest an employer may have had in retirement provision for its employees altogether! The devil though lies in the detail and this anyone will realise when you inculcate the string of regulations and standards that were issued, if you have the capacity to inculcate the huge volume of detailed prescriptions. As a point in case, to determine late payment interest on a benefit, the fund will have to weigh up various parameters to assess whether it complies with the following:
The next very concerning consequence of the late payment interest prescription is that the underlying assets may actually never have earned the returns the fund is obliged to pay to the exited member, out of the pocket of the other members! Of course the other members can challenge this and argue that the delay in payment was not due to their doing and they cannot be held liable to pay up for the shortfall. This may very well end up as a personal liability of the trustees. Any practitioner will know that delay in payment is more often than not outside the control of the fund, sometime well within the control of the exited member, sometimes within the control of Inland Revenue – but the remaining members of the fund have to cough up for all delays, whatever the reason. As the next heading states – ‘the FIM Bill – brace for challenges! As industry, I guess we have to acknowledge defeat. We have unfortunately not been able to obtain an open ear for the concerns we have voiced over many years. There has never been an arbitrator between NAMFISA as Bill sponsor with vested interests and industry with its own vested interests. I fear that the Bill will pass through parliament and national council without much questioning due to its complexities and due to the fact that politicians do not have the technical and practical insight into the potential consequences of the Bill. As I pointed out above, the retirement funds chapter, and most probably the other chapters too, are actually quite inconspicuous. Once passed however, NAMFISA will have exclusive, unfettered legislative powers by means of it issuing standards that will become law without parliamentary oversight. The FIM Bill – brace for serious challenges! I have been expressing my concern about the implications of the FIM Bill and the fact that it will turn an established industry upside down, ever since it reared its head. The more I look at it the more I realise what the industry and its stakeholders will face – uncertainty, frustration and expense for many years to come, and the fun will start soon! When I refer to the fun to start soon, I refer to how this Act is to be interpreted, how NAMFISA will interpret and apply it, how we will go about obtaining certainty where there is none and how long will it take at what cost to obtain clarity? Let’s look at funds currently offering pension or annuity benefits to its members and their dependants and nominees. In the interpretation of the Act, the definitions of key terms are very important. What benefit may a ‘retirement fund’, as it will in future be referred to, offer. The definition of this term in the retirement funds Chapter 5 only refers to benefits to members of the fund. Does this mean that a fund can no longer offer benefits to dependants and nominees of fund members upon their death? Contrast this definition with that in the Pension Funds Act that specifically provides for such benefits as well. Obviously NAMFISA will tell you what it thinks, which may not necessarily be correct. Now we have a new animal with its own definition – the ‘beneficiary fund’. Its definition only makes provision for benefits payable on the death of a member, clearly excluding any other benefits. But are these two definitions mutually inclusive or exclusive? In the definition of ‘fund’ in the retirement funds Chapter 5, the Bill refers to this including a ‘retirement fund’ and a ‘beneficiary fund’. When the Bill deals with registration application, registration requirements and the effect of registration, it refers to the broader term ‘fund’ thus applying to both types of fund. Does this mean that a retirement fund can also serve the dual purpose of being a beneficiary fund if its rules so provide? Obviously NAMFISA will tell you what it thinks, which may not necessarily be correct. So, clear as mud. But reading further the definition of ‘financial institution’ in the preliminary Chapter 1 lists a ‘beneficiary fund’ and a ‘retirement fund’ as a financial institution. Does that definition necessarily imply that a ‘financial institution’ has to be a legal person therefore prohibiting the registration of a legal entity that is both a ‘retirement fund’ and a ‘beneficiary fund’ as referred to in the definition of ‘financial institution’ in the preliminary Chapter 1? Obviously NAMFISA will tell you what it thinks, which may not necessarily be correct. As a trustee you may thus follow the directives of NAMFISA and act accordingly, only to find someone who did not agree with you, successfully challenging your decision in a court of law and holding you liable for his loss or damage in your personal capacity. If you did obtain legal opinion that contradicts NAMFISA’s opinion, you are likely to find that NAMFISA will not register your rules or your rule amendments. Now you have one of two choices. Challenge NAMFISA through the available means and go through a long drawn-out process or do as you were told and face the possible consequence of being held personally liable for loss or damage caused. The problem is that you will have 12 months to submit your re-application for registration of your fund, once the FIM Act is proclaimed. This is not a long time when you start arguing with NAMFISA and being required to make changes, and makes more changes etc. What makes it worse, the Bill does not contain transitional provisions. Many funds will thus find that what they have been offering under the old dispensation cannot be offered under the new dispensation anymore and have to be pulled apart and placed elsewhere or dissolved for not being consistent with the provisions of the FIM Act anymore. Since you are likely to be subject to the Labour Act, you need to comply with this Act should any of your responses on the retirement fund side impact in any way the employees’ conditions of employment. How are you going to get your employees to toe the line and what if they are so aggrieved that they actually take industrial action against your business? Evidently there may and will be situations where it is practically impossible to submit your application for registration of your existing fund within the prescribed 12 months. So if your application is not approved within 12 months, your fund’s is no longer a legal entity, you operate illegally and face the prospect of a fine of N$ 5 million or 10 years in prison or both. Being on the wrong side of the law as a fiduciary of others’ moneys is a no-win situation; you can only lose. The Administration of Estates Act – where do we stand? The Minister of Justice called a meeting with stakeholders for 10 July to discuss a further amendment to the Administration of Estates Act (AoEA) that would bring about changes to the previously promulgated amendments of 31 December 2018 and draft regulations. While the proposed further amendments duly take cognisance of the drafting errors that were pointed out by stakeholders, it seems that none of the principles that stakeholders expressed their concern about and for which amendments were proposed, were recognised. Even this second attempt contains some poor drafting that will lead to further uncertainties Key proposed changes to the AoEA are –
To anyone who may leave an estate or a trust from which persons under the age of 21 will benefit, you either need to take comfort that this capital due to such persons under age 21 will be managed by the Master within his unfettered discretion in every respect, including the manner in which it will be invested. If you cannot find peace with that arrangement you should either leave the moneys earmarked for persons under 21 to someone you have total trust and confidence in to look after your heirs under 21 within their total discretion, or you need to consider directing that these moneys be paid into a trust registered outside Namibia. Of course, having a trust outside Namibia, presents its own challenges that should be properly researched and assessed. Should retirement funds registered under the Pension Fund Act be exempted from the AoEA requirements in this regard, another consideration may be to make contributions to a retirement fund and to nominate anyone you want to benefit that is or may not be 21 yet when you pass away. Bear in mind that the trustees are vested with the responsibility to dispose of your death benefits but they will take you nomination into account. The FIM Bill will definitely overrule the AoEA once again and your nomination becomes much more instructive to the trustees of the fund than is the case under the Pension Funds Act. Be sure you apportion the benefit fully between the people you want to benefit, in your desired proportions. Pensioners, the FIM Bill and the Administration of Estates Act Following the arguments presented in the previous article (The FIM Bill – brace for serious challenges!), there is a fair chance that ‘retirement funds’ as defined in the FIM Bill can no longer provide benefits arising from the death of a member and this includes the GIPF with over 30,000 pensioners. Pensioners may have to be transferred to a ‘beneficiary fund’ instead. Problem is that the Administration of Estates Act, as amended effective 1 January 2019, states that “…any money…that is payable in respect of a minor or a person under curatorship…shall be paid directly to the guardians fund within 30 days after the date on which it became payable.” Does this mean that a fund cannot actually transfer the capital “…payable in respect of a minor or a person under curatorship…” to the beneficiary fund but only the capital in respect of major beneficiaries? How will trustees know? The Administration of Estates Act evidently is ambiguous. In my layman’s opinion it cannot be transferred since the Act uses the phrase ‘payable in respect of’ and not ‘payable to’. Latter would have made it clear that the Act refers to the monthly pension payable and not the capital underlying the monthly pension. The draft revised amendment goes a step further in referring to “…a death benefit from a pension fund, preservation fund, provident fund and retirement annuity fund, including the total amount awarded for annuities and lump sum…”. Although the underlined phrase is once again ambiguous, in my layman’s opinion it refers to the capital underlying the annuity. Again who will be able to conclusively tell the trustees what to do? Establishing a beneficiary fund pro-actively and in anticipation of the FIM Act appears too early at this stage due to prevailing uncertainties. The Minister of Justice indicated at a recent stakeholder meeting that it will revise its revised draft amendment following the stakeholder meeting of 10 July. An indication was given that persons subject to supervision by any regulator (such as pension funds) may be exempted from the ambit of the AoEA. In the mean-time, any fund that does not pay over amounts payable to a minor (person under age 21) contravenes the AoEA and any minor beneficiary who may feel that this fact has disadvantaged him or her in any way or manner, be it administratively or in respect of actual or prospective returns can take on the fund in a court of law and is likely to succeed. Any compensation payable by the fund as the result, may well end up having to be paid by the trustees in their personal capacity. This may well be a ‘worst case scenario’ but one that is not inconceivable and that should be overlooked lightly by trustees. Provident funds facing a new Income Tax Act challenge We have it ‘on good authority’ that Inland Revenue is in the process of reviewing the rules of all tax-approved provident funds to ascertain that the rules comply with the provisions of the Income Tax Act. It appears the concern is that provident funds offer benefits the definition of ‘provident fund’ in the Act does not provide for. The definition provides that such fund must have been “…established solely for the purpose of providing benefits for employees on retirement from employment or solely for the purpose of providing benefits for the spouses, children, dependants or nominees of deceased employees or deceased former employees, or solely for a combination of such purposes…” Benefits currently commonly found in provident fund rules that do not meet the prescriptions of the definition include –
However, when one studies the definition of paragraph (dB) of the definition of ‘gross income’ in the Act, it defines ‘gross income’ as including “any amount received or accrued under the rules of a provident fund upon …(ii) the termination of such a member’s employment or membership of the provident fund due to dismissal or resignation, or for any other reason…” . This definition would be superfluous if a provident fund were not to be mandated by the definition of ‘provident fund’ to offer benefits upon resignation etcetera. The two definitions are clearly in conflict with each other. I would argue that disability income benefits and resignation-, termination- or retrenchment benefits are all consistent with subsection (ii) of section (dB) of the definition of ‘gross income’ as being a benefit payable upon either ‘termination of employment’ (disability income benefit, where member remains a member of the fund) or ‘termination of membership’ of the fund (resignation-, termination- or retrenchment benefit where fund membership also terminates). The question is - what was the intention of the legislator and how can this conflict of two clauses of the Act be resolved? Clearly every attempt should be made to maintain the status quo as represented by industry practice and to amend the Act to cover industry practice. NAMFISA is now faced with the challenge of how to deal with applications for registration of rules or rule amendments of provident funds that provide for any of the benefits referred to above that are in conflict with the definition of ‘provident fund’ in the Act in the mean-time, particularly knowing that Inland Revenue will object to such rules or rule amendments. This matter first has to be resolved before funds should submit rule or rule amendment applications or even only contemplate these. Have investment markets normalised? It is pretty much common knowledge that the situation we are and have been facing in investment markets globally for the past nearly 10 years, is the result of ‘ultra-loose’ monetary policy by central banks across the world, including Namibia. After the financial crisis, central banks poured money into the financial markets in order to encourage the consumer to pick up spending levels again after these had fallen flat in the aftermath of the financial crisis. Artificially low interest rates, designed to encourage spending, were great for the borrower, but bad news for the depositor, pensioners to a significant extent. In many instances depositors would earn negative real interest rates. To avoid this they would have been looking around for any asset class that offered any real returns. This is what we have seen, where all assets other than fixed interest investments experienced significant inflows resulting in their artificial and unsustainable growth. This was certainly the case until the US Fed thought that it had achieved its objective of re-igniting economic growth. It started to raise the Fed rate for the first time in December 2015 when it looked like inflation was ticking up. At that point inflation has just turned positive and grew to 2.95% by April 2018, only to start turning down again since then to currently only 1.7%. The Fed rate was increased to 2.5% in December 2018 to stagnate since then and recent talk being for it to be lowered again. The US Fed rate currently represents a real return of only 0.8%. Going by its long-term average the real rate should be around 1.7% in a normal interest rate environment. The likelihood is that the Fed will start reducing its policy rate which will imply a further decline in the real rate unless inflation continues to decline as well. While these trends continue, investment markets will remain distorted in favour of all asset classes other than fixed interest investments. Furthermore we have seen a change of mind of foreign investors who have become nervous of developing countries and have consequently moved their capital to safer havens on a large scale. This has led to a depression of values in financial markets in the developing countries. Asset classes that have been and still are benefiting from the artificially low interest rate environment have run so far ahead of themselves, particularly in the developed world, that there is little scope for further prudent growth. A normalization of the interest rate environment will have to happen but this does not seem to be imminent. In addition global financial markets are depressed as the result of the economic war the US is waging against all global economic adversaries. There is no end in sight to this either. This is not a good time for the investor. Despite presenting a higher risk than cash and bonds, equities have been and are likely to continue yielding returns similar to those of cash over longer periods, but due to their volatility there will be shorter periods of them even under performing cash. Graph 1  Considering above graph 1, it is interesting to note that the JSE Allshare index did not grow at all in real terms (the red line) over a 19 year period from January 1986 up to the end of 2004, the start of the commodity bubble that eventually burst in October 2007. Since then the market effectively moved sideways. Taking the full 33 year plus period, the JSE Allshare grew a meagre 2.6% p.a. in real terms. Adding the dividend yield of 3%, the JSE Allshare index returned 5.6% p.a. in real terms, substantially below a 100 year plus average of over 7%. In addition, if one removed the impact of the stellar performance of a few large cap shares such as Naspers, the performance of the JSE Allshare index has in fact been significantly worse that the index suggests. Graph 2  Contrasting our local market with the US S&P 500, the US market in graph 2 above evidently showed a much more consistent growth over the same 33 year plus period. Despite posing a lower risk than the JSE, the US S&P 500 grew by a real rate of 4.7% p.a. Adding its dividend yield of 2.1% p.a., the S&P 500 returned 6.8% p.a., on par with its 100 years plus return, or 1.2% more than the JSE Allshare return. Going by the graph 1 and 2 above and in the light of our expectation that markets will continue to move sideways for at least another 1 to 2 years, we will expect the local market to stand a much better chance of turning around than the US market. Investing in cash is a safe option for avoiding short term market volatility, but at the same time it means that one will most probably miss the opportunity of a turnaround of the local market. An investor with a time horizon of 6 months or longer should rather be in the market so as not to miss the turning point. In the light of an expected decline in interest rates, it is likely that fixed interest investments should do well over the next 1 to 2 years. Pension fund governance - a toolbox for trustees The following documents can be further adapted with the assistance of RFS.
From an actuary “Dear K I have conferred with R who did all the heavy work on this and we both concur that the data was very clean and accurate. So were the management accounts. Thank you for this.” ...and from an HR administrator of an employer of RFLAUN “Dear madam, It was indeed an honor to be working with you when I was employed at ... as HR Administrator. Your love and dedication to your work has left me amazed all the time. Even if there were delays from my side you were always calm and composed when re-requesting the information. Until the very last minute I received my pension from RFLAUN, you have been more than helpful. Indeed, just because of your dedication, I regret leaving the Local Authority industry. It was really wonderful working with you.” Read more comments from our clients, here... RFS family day with potjie competition  RFS recognises that employees are its most important asset and believes that its people are more important for the success of the company than technology. We understand that our employees can only be successful if they enjoy the support of their families in all their occupational endeavours. Hence we make a point of undertaking events that involves their families. On 22 June we held such a family fun day at ‘The Vintage’ in Olympia – a pleasant day it was and most enjoyable for around 90 adults and a lot of kids present. Every team really tried its best to walk away with the laurels but at the end of the day there can always only be one winner – this time it was ‘the witches’. The National Pension Fund – where do we stand? Following our enquiry with Mr Tim Parkhouse, secretary general of the Namibia Employers Federation, we were informed “...that there is no progress with respect to the NPF. The issue is still with the Ministry of Labour where there are apparently negotiations ongoing with the ILO regarding consultants (again) to do another study. So this will be a long time yet, but we will keep you informed as and when anything happens...” Offshore portfolio investment applications Circular CM/02/04/2019 In this circular of 18 June 2019, NAMFISA explains the process pension funds need to follow when they want to invest offshore. Download the explanatory note here... Classification of and reporting on property PF/EN/01/2019 In this explanatory note of 4 July 2019, NAMFISA explains how the ‘property’ asset class as defined in regulation 12, and the exposure limit as referred to in regulation 13(1), is to be interpreted. Accordingly a fund may invest in the shares, loans to and debentures of a property company that does not have to be listed on a stock exchange, but the ‘single issuer’ limit (currently 5%) and the maximum percentage (currently 25%) of aggregate market value of the total assets of the fund must be observed. Download the explanatory note here... Financial adviser held liable for loss of R 1 million Whilst Namibia does not yet have the same legal structures in place concerning the conduct of intermediaries, the advent of the FIM Bill will certainly place our industry in a new orbit that will require more care and diligence in managing the affairs of your client. From that point of view the case cited below makes for interesting reading. “The complainant was the executor of the estate for the late Mr H. Upon his passing on 13 April 2018, the complainant, whilst finalising the affairs of the estate, discovered that the deceased's existing life insurance policy had been cancelled and replaced with a new policy with another insurer. The complainant subsequently submitted a claim to the new insurer, which was rejected as the insured had passed away prior to the inception of the policy. On further investigation, the complainant determined that the application for the replacement policy had been completed on 20 February 2018 and that there was correspondence dated 14 March 2018 from the respondent instructing the deceased to cancel his existing policy. This letter was signed by the deceased and forward to the existing insurer, however the replacement policy had at that time not yet incepted. The replacement policy was supposed to incept on 1 April 2018, however during the underwriting process there were concerns surrounding the results of the deceased's Body Mass Index ('BMI'). The results of the deceased's BMI resulted in the new insurer issuing an 'Acceptance of Offer Letter' which saw the inception date of the policy extended to 1 May 2018. As a result, when the deceased passed away on 13 April 2018, there was no policy in place. The complainant was of the view that the deceased had not been correctly advised to cancel the existing life insurance policy before the application for the new policy had even been accepted, let alone the new policy having incepted. The complainant therefore held the respondent liable for the losses incurred as a result. This Office (the FAIS Ombud) agreed with this view and the fact that the respondent had not acted with the required due skill care and diligence in the best interests of the deceased as required in terms of section 2 of the General Code of Conduct for Authorised Financial Services Providers and Representatives. This was communicated to the respondent, who accepted responsibility for the losses incurred by the complainant and provided the complainant with an offer of R1000 000, the cover amount, in full and final settlement. The offer was accepted by the complainant. Whilst the facts surrounding this matter would appear to have been rather straight forward, and highlight the additional duty of care that a Financial Services Provider ('FSP') must exercise during the replacement of an existing life assurance policy, the significance of this matter lies in the respondent's willingness to resolve the complaint for the total loss incurred, despite this amount exceeding this Office's R800 000 jurisdictional limit. The Rules on Proceedings of this Office do restrict the jurisdiction of this Office to the investigation of complaints where the losses incurred do not exceed R800 000, and any matter received that does exceed this limit would require that the complainant confirm in writing to forgo any amount in excess of R800 000. However, the very same rules do provide that this jurisdictional limit may be exceeded should the respondent agree to it in the interests of proceeding with the investigation. It is therefore refreshing to note that especially during this time where there is a heightened focus on treating customers fairly, that a respondent has chosen to not only acknowledge the negligence that resulted in the losses incurred, but was also willing to resolve the matter in full. It is this type of collaboration between industry and an institution such as this Office, where the interests of the client are first and foremost, that will contribute further towards increasing the integrity of the financial services industry. Something that is not only part of the mandate of this Office, but an aspect that we take very seriously and we encourage more FSPs to follow the example above.” This case was reported on in the FPI Member Community Digest of 4 July 2019. How should you invest after retirement? “...What is particularly noteworthy for Hugo, however, is when those returns are generated. Assuming an investor earns 5% above inflation for their whole lives... 87% is earned after retirement,” says Hugo. “That is quite scary and we need to think about it quite a bit, because when many clients, at age 60, come with their pot of money to an advisor, they say please help me to invest this money. It needs to last for the rest of my life, so can we please invest it conservatively. I don’t want to see volatility, and I don’t want to see it go down.” This is an understandable approach. However, if the majority of your investment return [87%] needs to be earned post-retirement, you can’t afford to move away from growth assets. You still need to be exposed to the best generator of growth, which is the stock market. For Hugo, the concern is that many investors don’t do this because they are focusing on the wrong risk. “At age 60, many investors don’t want to take on growth assets like equities that will get them inflation plus 5%,” says Hugo. “But if you invest at inflation plus 2%, you lose 11 years’ worth of income. That is the cost of investing conservatively.” That doesn’t mean there isn’t a need to be prudent with your money in retirement. Particularly because a large drop in the stock market in the early stages can have a material impact on your retirement as a whole, it is worth considering separating your capital into two parts – a conservative investment that can fund your income needs over the next few years, and a more aggressive investment that can generate long-term inflation-beating returns.” Read the full article by Patrick Cairns in Moneyweb of 4 July 2019, here... South Africans continue to work in retirement “Nine of every 10 retirees included in Old Mutual’s survey are working to supplement retirement income. The 2019 Old Mutual Savings Monitor shows that many South Africans continue to earn some kind of income after they retire. It found that for every R100 these retirees receive, more than half (R56) is derived from post-retirement earnings. The monthly contribution from a pension or retirement savings for nearly 80% of retirees makes up only 27% of their income, with other investments or savings contributing only 7%. Retirees included in the survey were from a sample that had retired formally with income of R15 000 or more each month. Two conclusions can be drawn from the fact that they have chosen to continue working past retirement age:
Nearly two-thirds of their income is directed toward living expenses, with 14% going to savings and 10% towards insurance and medical costs. Most retiree households – 83% – have an emergency fund of some sort. Nearly 80% hold this in a bank savings account, with 35% having these funds unbanked or in cash. Nicholson says most surprising of all is that 14% admit to having a stash of cash that their spouse or partner is not aware of...” Read these interesting findings of an Old Mutual survey of retirees in an article by Neesa Moodley in Moneyweb of 17 July 2019 here... 10 Years and counting...the longest bull market in history “By some measures, the current bull market in US stocks is now the longest in history. The S&P 500 has not experienced a drop of more than 20% since March 9, 2009, more than 10 years ago. This extended rise in US stocks has also translated into a bull market for global stocks generally. Since the US makes up over 60% of the MSCI World Index, the performance of listed equities in New York has driven overall global returns. The longevity of this bull market has however caused as much consternation as it has excitement. The longer it carries on, the more worried many investors have become that it must be nearing its end.... the scale of the current recovery is beaten by both the ‘roaring 90s’ and the recovery from the Great Depression in the 1930s. The rate at which the market has gone up has therefore been fairly moderate.... The second important consideration, Smit believes, is that, on certain metrics, equity markets do not look that expensive. ..the S&P 500 is currently not stretched by historical standards. The S&P 500 PE valuation is very close to its 30-year average...So just on that basic principle, one cannot make the case that equities are overvalued.” Read the full article by Patrick Cairns in Moneyweb of 30 April 2019, here... Conversation with your ‘outer circle’ The Problem: In spite of what we may think, the group of people we turn to when we have need to bounce an idea off, get advice or have a conversation, is usually surprisingly small. In other words, under scrutiny, our ‘inner circle’ is often far less diverse than we believe it to be. This can create blind spots and linear thinking within a business setting. The Solution: Frame an important question for your business / team. This could be a question concerning strategy, the future, something to do with your organisational culture, a perspective ...anything really, but identify a good question to be asking. It could even be, ‘what is the question that we as a business should be asking but aren’t?’ Identify 3 to 4 people within your business that fall outside of the circle of those people you usually connect with / chat to in the course of your day to day activities. Go and ask them that question and have a conversation. Tips: This sounds disarmingly ‘simple’ so check yourself as to how ‘easy’ you find it. What made you choose the people you did? Be intentional in how you tee-up the conversations. If it is somewhat awkward for you, it might be more so for those you target for the conversation. Be aware of this and look to mitigate this possibility. Make sure you get your timing (for the conversation) right. Having had the conversations, reflect a while on what it was like; what insights you gained; what common themes emerged; how can you repeat this and perhaps make a habit of it. What might happen if more people within your business did this?” Get more general business management tips in TomorrowToday’s Tuesday Tips here... Did you ever wonder why?? WHY: Why do X's at the end of a letter signify kisses? BECAUSE: In the Middle Ages, when many people were unable to read or write, documents were often signed using an X. Kissing the X represented an oath to fulfil obligations specified in the document. The X and the kiss eventually became synonymous. |
|||||||
2019-06
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In this newsletter: Benchtest 05.2019, National Pension Fund Part 5, treating your customers fairly |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Phasing out of cheques - reminder
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In our ‘Benchmark’ column we welcome SatCom
In ‘News from NAMFISA’ we present –
In ‘Legal snippets’ our guest writer considers how to dispose of unclaimed benefits in the light of the requirements of the Administration of Estates Act versus those of the Pension Funds Act.
Monthly Review of Portfolio Performance to 31 May 2019 In May 2019 the average prudential balanced portfolio returned -2.8% (April 2019: 2.7%). Top performer is Investment Solutions Balanced Fund -1.3%, while Allan Gray Balanced Fund -4.0% takes the bottom spot. For the 3-month period, Stanlib takes top spot, outperforming the ‘average’ by roughly 1.1%. On the other end of the scale Allan Gray Balanced Fund underperformed the ‘average’ by 1.0%. Note that these returns are before asset management fees. Have investment markets normalised? It is pretty much common knowledge that the situation we are and have been facing in investment markets globally for the past nearly 10 years, is the result of ‘ultra-loose’ monetary policy by central banks across the world, including Namibia. After the financial crisis, central banks poured money into the financial markets in order to encourage the consumer to pick up spending levels again after these had fallen flat in the aftermath of the financial crisis. Artificially low interest rates, designed to encourage spending, were great for the borrower, but bad news for the depositor, pensioners to a significant extent. In many instances depositors would earn negative real interest rates. To avoid this they would have been looking around for any asset class that offered any real returns. This is what we have seen, where all assets other than fixed interest investments experienced significant inflows resulting in their artificial and unsustainable growth. This was certainly the case until the US Fed thought that it had achieved its objective of re-igniting economic growth. It started to raise the Fed rate for the first time in December 2015 when it looked like inflation was ticking up. At that point inflation has just turned positive and grew to 2.95% by April 2018, only to start turning down again since then to currently only 1.7%. The Fed rate was increased to 2.5% in December 2018 to stagnate since then and recent talk being for it to be lowered again. The US Fed rate currently represents a real return of only 0.8%. Going by its long-term average the real rate should be around 1.7% in a normal interest rate environment. Read part 6 of the Monthly Review of Portfolio Performance to 31 May 2019 to find out what our investment views are. Download it here... Treating your customers fairly – what’s good for the goose should be good for the gander Two interesting news snippet that caught my eye read: “GIPF gambles with pension money. The government borrowed N$34 billion (latter corrected to N$ 11 bn by Minister of Finance) from the Government Institutions Pension Fund (GIPF) in the last four years, a most definite sign that the state is increasingly relying on the national pension fund to pay its operational budget shortfalls. This practice has raised concerns from experts who warn that the GIPF could fail to pay pensioners on time if the government goes broke. The GIPF, which has assets totalling N$116 billion at the end of 2018, had about 106,000 civil servants as members.” – The Namibian “The Namibian Government may default on GIPF debt. Although it is not illegal for the government to borrow from the Government Institution Pension Fund, some financial experts believe that national rules favour the government to raid the national pension fund. According to the expert who spoke to the Namibian, the GIPF is also elbowing out private companies which want to win government bonds by bidding high price/low yield, and in so doing, dictating how much the bonds should cost. University of Namibia risk management lecturer Samuel Nuugulu told The Namibian last month that the GIPF’s exposure to government bonds is a cause of concern, given the increasing number of people retiring from government service, as well as the high life expectancy in the country.” – The Namibian So why is this interesting? Well section 19(4) of the Pension Funds Act reads “No registered fund shall invest any of its assets in the business of an employer who participates in the scheme or arrangement whereby the fund has been established or in any subsidiary company (as defined in the Companies Act, 1973 (Act 61 of 1973)) of such employer's business or lend any of its assets to such employer or subsidiary company: Provided that the Minister may exempt wholly or in part any fund established or conducted by a statutory body or a utility undertaking from this provision.” So the Minister may exempt his pension fund to invest in his employer. Doesn’t this constitute a serious conflict of interest and fly in the face of one of the key protection mechanisms of the Pension Funds Act? In addition, given the GIPF’s overwhelming size relative to the rest of the industry and relative to the Namibian economy, doesn’t this also pose a serious systemic risk? It is also relevant to consider section 19(6) of the Pension Funds Act, which reads “The registrar may, under exceptional circumstances, and on such conditions for such periods as he may determine, temporarily exempt any fund from compliance with any provision of subsection (4), (5) or (5B)(a).” So the Namfisa CEO, as registrar, may grant temporary exemption. And this responsibility is taken very seriously by the registrar. For example a fund that invests in a unit trust, which invests in Stimulus, which has invested in the principal employer of the fund, amongst its many investments, is required to establish what its effective investment in the employer is, even though there is no proximity between the employer and the fund’s investment, none more than that of an investee company of Stimulus that may coincidentally be a major customer of the employer. In another instance a pension fund holding an investment in the listed shares of one of its participating employers is required to also add its operating bank account balance to this investment to really get to the bottom of its exposure to the employer. These funds must apply for exemption to the registrar and as a rule such exemption is only granted for between 1 year and 3 years and is capped at 10% of the assets of the fund. When conflict of interest reigns, fairness fades. What’s good for the goose should be good for the gander, not so? On the one end the measure is bent to breaking point while on the other it is stretched to the point of ridicule. The objective of the Pension Funds Act to protect the interests of the members of the fund at all cost is very sound but maybe we have lost sight of what the Act tries to achieve and maybe we have become excessively dogmatic? Some introspection should serve good purpose in this discussion! Provision for late payment interest in fund rules Fund rules more often than not, are silent about any interest payable from the time of a member’s termination of membership of the fund. Late payment interest (LPI) is usually a rate as determined by the trustees in their utter discretion. If LPI is not specified in your fund’s rules it is always taxed as long as there is an encashment of the benefit. On the other hand, if LPI forms part of your fund’s rules, it may be to the benefit of members as LPI will be taxed as part of the relevant benefit due e.g. in case of a retirement claim, the one-third portion of the benefit to which LPI applies will not be taxable. Another factor to take into account is that a draft standard to be issued under the FIM Bill prescribes the inclusion of LPI as part of a benefit payable from a Fund. For the sake of avoiding income tax and to pre-empt the provisions of the FIM Bill we suggest that funds consider including LPI in their rules. The Administration of Estates Act – where do we stand? An amendment on the Administration of Estates Act (Government Gazette 6813 of 31 December 2018) has been passed by parliament and signed into law on 31 December 2018. It requires with immediate effect, that all monies payable to minors and persons under curatorship payable from pension funds, insurance policies, annuities and even from deceased estates, to be paid to the Guardians Fund in the Master’s Office. This Amendment Act applies ‘notwithstanding any other law’. It thus overrules every other law including the Pension Funds Act. NAMFISA circulated a notice to pension fund stakeholders with a copy of a letter issued by the Minister of Justice on 22 January in which stakeholders including pension funds and their administrators are informed that “The Minister of Justice has decided, in the interests of all concerned stakeholders, to consult with the industry members to discuss the implementation of the Amendment Act. These consultations will take place during the second week of February 2019…Until such time, all affected institutions are advised to continue making payments for the months of January and February 2019 in terms of their mandates prior to 31 December 2018.” On, 12 February 2019, the Minister called for a public consultation session at the Country Club, which was very well attended including RFS representatives. From these discussions it seems that the Minister will not repeal this law but is open for further amendments based on concerns raised by industry. In summary his concluding remarks were as follows:.
We have coincidentally come across a letter by the Minister to various stakeholders but not to the pensions industry, dated 9 May wherein the Minister acknowledges the contributions received from various stakeholders and hastens to point out that he has not been amenable to all proposals for changes. He also makes reference to a consultation to be held in the second half of June. Find the letter here... To our knowledge this consultation has not taken place. Many funds had resolved to continue paying benefits to minors as before the amendment of the Administration of Estates Act came into force. In doing this, funds are in breach of the law. The fact that both NAMFISA and the Minister of Justice have seemingly condoned this will not carry any weight before a court of law. It places funds in the unenviable position that beneficiaries may argue from both positions, i.e. the fund should have applied the law to achieve a better outcome for the beneficiary or because it did not apply the law the beneficiary is now in a worse position! Death benefits and circular 04/2019 I must say when I first read this latest NAMFISA Circular while on overseas holiday, I thought that it only states the obvious and saw no fault with it as it merely cites the definition of ‘member’, ‘dependant’ and section 37 C, quite correctly. Back in office I read the circular again. To my mind it only refers to a lump sum benefit arising upon death of a pensioner member for which the rules do not designate a beneficiary. The circular is certainly ambiguous! It seems though that the regulator attaches a very different interpretation to this circular. The regulator appears to interpret section 37 C as prohibiting a fund to offer annuities to children and spouses when a fund member passes away. The Act does not draw any distinction between a pensioner member and an active member and the circular would thus be equally applicable to both categories. Where the rules offer specified benefits to a spouse and or children following the death of the pensioner (or active member) such benefit is payable in terms of the rules and in my humble opinion does not fall under section 37C or the Circular. In years gone by, spouse’s and children’s pensions were a very common benefit offered by most funds. Some of the largest funds in Namibia today still offer such benefits such as the GIPF most prominently. In the new circular, the regulator now seemingly requires funds that offer such benefits to amend their rules. Besides the fact that I wholeheartedly disagree with NAMFISA as I will explain further on, such a rule amendment would imply a change in the conditions of employment which I as an employee, would certainly not accept. Imagine 100,000 government employees having to give up such exceptionally important benefits and imagine government having to enter into a consultation process with its 100,000 employees to give up these benefits, because the regulator has now all of a sudden decided to attach a new interepretation to section 37 C of the Act! The definition of ‘pension fund organisation’ explicity makes provision for lump sums or annuities to members, former members after retirement, or their dependants: “(a) any association of persons established with the object of providing annuities or lump sum payments for members or former members of such association upon their reaching retirement dates, or for the dependants of such members or former members upon the death of such members or former members; or...” How am I to understand this definition then other but explicitly allowing a fund to offer annuities to spouses and children being dependants of such members or former members (i.e. fund pensioners)? New regulation and standards issued under the FIM Bill RF.S.5.24 - Manner and form of application for registration of a fund Application for registration must be done per form in Annexure A signed by –
RF.S.5.25 - Form of certificate of registration for a fund This prescribes the format the certificate of registration will take. Our comment:
Minister may allow the following funds to invest in or lend to a participating employer or its subsidiary for determined period and conditions, if fund has certified that such investment is in terms of its rules and investment policy:
Our comment:
The FIM Bill to be tabled in parliament Report back from parliament by Monika von Flotow, Manager: Projects at RFS The NAMFISA Bill and Financial Adjudicator Bill were tabled and motivated in Parliament on June 25, 2019 – the debate was postponed to July 3, 2019. The FIM Bill was then tabled and motivated in parliament on 26 June 2019. Concern was raised regarding timing of the Bill due to its volume and complexity and the number of industries involved. (It was acknowledged that it important, but not urgent..) A proposal to postpone to September 2019 was rejected by the Minister of Finance, arguing that once it’s off the agenda it will receive no attention. The Speaker proposed that the Chief Whips of the various political parties should meet to consult on the way forward; an announcement can possibly be expected very soon. Pension fund governance - a toolbox for trustees The following documents can be further adapted with the assistance of RFS.
From a former fund member “Good afternoon I acknowledge to have received the document. Working in Namibia again and recommendation to others on the best Pension Fund, I would choose Benchmark thank you. Regards” Read more comments from our clients, here... The Benchmark Retirement Fund welcomes SatCom Benchmark Retirement Fund takes further strides on its course to become the biggest retirement fund in Namibia (just joking... it will never get anywhere close to the GIPF). Nevertheless, it could by now be the 4th largest fund in Namibia in terms of assets under management, including the GIPF, thanks also to the latest sign of confidence by SatCom, manufacturer of communication equipment for military purposes, that has taken the decision to join the Fund. We welcome SatCom and its staff and look forward to serving you beyond expectation for many years to come!
The Retirement Fund Solutions Winter Classic 2019 volleyball tournament The third of 7 Timeout Beach Series 2019 events took place on Sunday, 26th May 2019, at DTS Beach Arena, Windhoek. The Retirement Fund Solutions Winter Classic 2019 saw a huge turnout of over 100 athletes participate in 4 categories; 2-a-side Men’s, Ladies, Social, and 4-a-side Social Mixed. The Timeout Beach Series 2019 makes its fourth stop of the year at DTS Beach Arena for the Clausthaler King of the Court 2019 in July. Official Results:
 Above: Stefanus Kangandjera (left) Bernhard Schurz (right). Photograph: Steve K Photography.  Above: Nonofo Motswetla (left) Tony Orapeleng (middle) Bernhard Schurz (right). Photograph: Steve K Photography.  Above: All ladies category teams (1st Place Rosi Hennes & Almut Hoffman on the left). Photograph: Steve K Photography. Long service awards complement our business philosophy RFS philosophy is that our business is primarily about people and only secondarily about technology. Every time a fund changes its administrator, a substantial amount of information is lost be it physically or knowledge. Similarly, every time the administrator loses a staff member, it loses information and knowledge. We know that as a small Namibia based organisation we cannot compete with large multinationals technology wise because of the economies of scale that global IT systems offer. To differentiate us we need to focus on personal service and on the persons delivering that service to get customer acceptance and service satisfaction. With this philosophy we have been successful in the market and to support this philosophy we place great emphasis on staff retention and long service. The following staff recently celebrated their 5 year work anniversary at RFS! We express our sincere gratitude for their loyalty and support over the past 5 years to:
Unique comfort factors offered to our clients Our executive committee: Our executive committee of 11 staff boasts the following credentials:
How RFS measures up: RFS answers to the key requirements of board of trustees as set out below.  Fund administrators should answer to a few key requirements, set out below that every board of trustees should have.  Stefan du Preez to head Alexander Forbes Reliable information has it that Stefan du Preez, who was formerly employed as actuary at Sanlam Namibia, was appointed to head up Alexander Forbes Financial Services in Namibia. This is another senior appointment at Alexander Forbes of a former Sanlam employee. The question begs to be asked whether Sanlam has a strategy to take over Alexander Forbes as rumours blowing over from SA have it? If that is the case, it is consequent to ask whether Sanlam Namibia is contemplating to re-enter the fund administration industry in Namibia? RFS appointed as administrator to Napotel In conclusion of its tri-annual tender process, the Napotel Pension Fund recently resolved to appoint RFS as its administrator as from 1 October 2019! We sincerely appreciate this gesture of trust and comfort in our capabilities and look forward to a long lasting association over many years to come! Considering that we served the Napotel Pension Fund from 1 October 2001 to 31 March 2016, it is appropriate to say – welcome back Napotel, we are really pleased and proud to have you back! Orbis proposes changes to some of its fee structures Orbis has proposed a change to the fees on most of its funds available to African investors. The change is intended to make the fee structure more ‘reactive’, so that the fee being charged will more accurately reflect an investor’s current experience. “This is not something we are doing in reaction to the last year of underperformance,” says Lamb. “We think this is a better fee through the cycle.” The main funds affected by the proposed changes are the Orbis Global Balanced Fund and the Orbis Global Equity Fund, which will also then reflect in the Allan Gray-Orbis Global Equity Feeder Fund. The first component of the new fee is that it will be meaningfully lower when the fund performs in line with its benchmark. At this level the funds currently charge 1.5%. Under the new structure, they will charge 1.1%. However, the potential for Orbis to earn additional fees for outperformance will be significantly greater. Currently, Orbis earns around 12% of outperformance as a fee. The proposal is to increase this to 25%. The total fee charged will also be uncapped – both to the downside and the upside. Read the full article by Patrick Cairns in Moneyweb of 19 June 2019 here... The price of fuel – do you know what you pay for? The latest fuel levy was set in Government Gazette 6928 of 5 June 2019 and reflects an interesting composition of the price of fuel as per below table. The total for Namibia is based on an estimated annual consumption of 1 billion litres of fuel in Namibia.
New regulation and standards issued for industry comment NAMFISA issued the following regulation and standards on 19 June, for industry comment by 22 July 2019:
Industry Meeting 13 June 2019 A pension funds industry meeting was held on 13 June 2019. The presentation contain interesting statistics on fund investments and unlisted investments specifically. It provides an exposition of issues experienced with regard to CoA returns and of circulars recently issued. If you missed the presentation given by NAMFISA officials, download it here... Requirements for registration of special rules NAMFISA communicated new requirements where an employer is tranferring from one fund to another fund. Accordingly when special rules are submitted for registration, the following is required:
If you want to acquaint yourself with directive 05/2015, find it here... Unclaimed Benefits Circular In this circular NAMFISA takes issue with funds failing to observe the following prescriptions when disposing of unclaimed benefits of 5 years and older:
Circular PF/03/2019 – Death Benefits of Pensioner Members NAMFISA issued this circular on 27 May 2019. Although it refers specifically to death benefits of pensioner members, the contents of the circular will equally apply to death benefits of ‘active members’ as the reasoning is based on the PF Act and the PF Act makes no distinction between a pensioner member and an ‘active member’ but only refers to a member. In short the circular provides as follows:
NAMFISA just released new version of the -
Meeting between industry and Inland Revenue NAMFISA invited all interested parties from the pensions industry to a meeting that was held with Inland Revenue on 26 June at NIPAM. The following topics were placed on the agenda by industry participants:
Disposal of unclaimed benefits: The Administration of Estates Act vs the Pension Funds Act A guest contribution by Andreen Moncur BA (Law ) Disposal of unclaimed benefits: The Administration of Estates Act vs the Pension Funds Act Unclaimed benefits from a retirement fund are regulated by the Administration of Estates Act 66 of 1965 (the Estates Act) and the Pension Funds Act 24 of 1956 (the PFA). Let’s examine unclaimed benefits from a retirement fund in terms of the applicable legislation: Since the promulgation of amendments to the Estates Act effective from 30 December 2018, s 87A of the Estates Act applies on the withdrawal, death, disablement or retirement of a member where benefits are payable to a minor or to a person under curatorship. For purposes of the Estates Act a “minor” is a person under the age of 21 years. A person is placed under curatorship when he/she is no longer able to manage his/her her own affairs. The law distinguishes between the curator ad litem and the curator bonis. We are concerned with the latter type of curator, i.e. a legal representative appointed by the court to manage the affairs (finances, property, estate or person) of another person who is incapable of managing his/her own affairs due to mental or physical incapacity. The Estates Act requires any benefit payable to a member or other beneficiary who is a minor or under curatorship to be paid directly to the Guardian’s Fund within thirty days of becoming payable. Thus, for withdrawals, deaths, disablements or retirements involving payment of benefits to minors or persons under curatorship on and after 30 December 2018, unclaimed benefits cannot arise. Unclaimed withdrawal, death, disability or retirement benefits held by funds for minors or persons under curatorship that became payable before 30 December 2018 should have been paid to the Guardian’s Fund within thirty days of 30 December 2018. However, on 22 January 2019, the Minister of Justice addressed a letter to NAMFISA wherein he advised all retirement funds to continue making payments in accordance with their mandates prior to 30 December 2018. On 22 January 2019, NAMFISA issued a Notice for Information to retirement funds whereby NAMFISA appeared to endorse the Minister’s advice. At a consultative meeting between the Minister and all parties affected by the amendments to the Estates Act, funds were requested to continue making payments in the best interest of minors and persons under curatorship until such time as the Ministry of Justice issues a formal notification to the contrary. Unclaimed withdrawal, death, disability or retirement benefits held by funds for members and other beneficiaries who are not minors, nor persons under curatorship, become subject to the provision of the Estates Act only once such benefits have been unclaimed for five years or more. Section 93 of the Estates Act requires each retirement fund to publish in the Government Gazette each January a detailed statement of all unclaimed benefits held by the fund on 31 December of the previous year that at the time of preparing the statement have remained unclaimed for five years or more. Three months after the date of publication of the statement, the fund must deposit in the Guardian’s Fund to the credit of the beneficiaries concerned, all such amounts remaining unclaimed. Interestingly, the PFA does not mention unclaimed benefits, probably because the legislature felt that the matter fell within the purview of other legislation such as the Estates Act. This certainly seems to be the view of the Registrar of Pension Funds as evidenced by NAMFISA Circular PI/PF/07/2015. This circular prohibits the reversion of unclaimed benefits to a retirement fund after any period and requires funds to pay any benefits unclaimed for five years or longer to the Guardian’s Fund in accordance with s 93 of the Estates Act. Said circular also provides for the payment of unclaimed benefits to the Guardian’s Fund before benefits have been unclaimed for five years if the fund rules so provide. The sole exception hereto would be s 37C(1)(c) of the PFA in terms whereof the death benefit or the relevant portion thereof must be paid into the Guardian’s Fund if within twelve months of a member’s death, the fund does not become aware of or cannot trace any dependants and the member has not designated a nominee or has designated a nominee to receive less than the full benefit and the member does not have an estate. The potential unintended consequences of prescribed investments “Over that decade [of prescribed investments in SA], inflation in South Africa averaged 11.3%, and prescribed bonds delivered a negative real return of 4% per year. Equities returned 13.2% above inflation over the same period. As pension funds were forced to invest at least 53% of their portfolios in government and state-owned company bonds, they had to be exposed to their relative underperformance, even though local equities were enjoying such a strong run.  Source: Asisa It is extremely difficult to align this with the responsibilities placed on pension fund trustees under Regulation 28. The regulation insists that trustees have a “fiduciary responsibility” to manage the fund’s assets responsibly and to deploy capital into markets that will “earn adequate risk adjusted returns”. They simply can’t do this with one hand tied behind their backs...” Read the full article by Patrick Cairns in Moneyweb of 14 June 2019, here... Making retirement fund contributions meaningful “Alexander Forbes Member Watch analyses over one million retirement fund members' behaviours and retirement outcomes. It has found that more than 50% of pension fund members who retire each year receive less than 20% of their pensionable salary as an income in retirement. "The first problem is that people don't consciously connect what they are contributing now and what happens when they retire in the future. It is an abstract concept that people struggle to connect with," says Lange. Generally most members default into the lowest contribution category. If you're saving 13% of your pensionable salary for your entire working life, you will get less than R60 for every R100 earned at retirement, as a pension income. But if you're saving 17%, then R75 for every R100 is achievable, explains Lange. If you are currently 40 years old, you should have saved at least 3.2 times your current annual salary. By age 65 (at retirement) you need to have saved 12 or more times your annual salary. This is calculated on a 75% replacement ratio. Auto-escalation of contributions over time could be a way to increase contribution rates without significantly affecting employees' take-home pay. This concept has worked around the world to raise contribution levels, according to Lange. A small 0.25% increase each year since 2012 at salary increase time would have led to a 1.5% of salary contribution rate increase by 2018, leading to an almost 10% improvement in expected retirement benefits for younger members...” Read the full article in Fin24 of 5 May 2019 here... Don’t fall victim to the switch itch “Our brains are very much like a central processing unit (CPU) for the world we live in, and a pretty effective one at that. However, with the modern age having brought exponential complexity to our decision-making process, our cognitive biases – or bad mental habits – result in an actual cost over time in the form of lower investment returns. This cost is commonly referred to as a “behaviour gap” and, for investors, is often attributed to the “switch itch”. This is according to Paul Nixon Head of Technical Marketing and Behavioural Finance at Momentum Investments, who says that the switch itch – which refers to the urge to change investment funds – is best explained by the theory that losses are experienced roughly 2.5 times as much as the equivalent gains. “This theory suggests that investors are 2.5 times more likely to switch funds as a result of their current fund performing poorly, than as a result of another fund performing exceptionally well...Nixon suggests the following simple tips to help investors quell bad investment urges:
This is how much your investment behaviour is costing you “...Trying to time the market or pick where it might be best to move your money is rarely more productive than simply staying invested. This is emphasised by a study conducted by Momentum Investments and the North-West University into the cost of investor behaviour. The research covered approximately 17 600 investors who had money on the Momentum Wealth Platform between January 2008 and January 2018, and investigated what impact switching funds had on their outcomes. “We had a look at each investor, and what their strategy was when they started the journey, and compared that against what they ended up with after they changed funds,” explains Paul Nixon, head of technical marketing and behavioural finance at Momentum Investments. “We then tracked the two journeys. We looked at original strategy and what return they could have got, and compared that against what they actually got.” What the study found is that 64% of investors switched funds based on past performance. An annual return from their fund of 3% or more below the previous year tended to trigger a switch to an alternative fund. Doing this, however, resulted in a behavioural cost of 1.38% per annum for some of these investors. Similarly, a return of 25% on a fund in which they were not invested tended to trigger a switch into that fund. Once again, however, this had negative consequences. It resulted in a behavioural cost of 1.05% for some investors. Overall, nearly one in four investors incurred a behavioural cost of 1% per annum. That may seem small, but compounded over time it becomes substantial...” Read the full article by Patrick Cairns in Moneyweb of 3 May 2019, here... The one word that negates what Harvard professor says is leadership’s central issue “John Kotter is a legend in the world of leadership and change... One particular thought of his stands out to me above all others. According to Kotter, “the central issue [of leadership] is never strategy, structure, culture, or systems. The core of the matter is always about changing the behavior of people.” As a leader, you want your people to choose to do the right things, to interact in positive ways with your customers, and to apply best practices. You want them to act in the best interest of the organization and take on new, more effective, behaviors. And, you want them to choose to do these things because they see value in doing them - not because you are lording over them or because of an organizational policy... Have you ever tried to change your own behavior? It's tough... Have you ever tried to change someone else's behavior? It's really tough... Have you ever tried to change the behavior of many people? It's really, really tough. It's called being a leader... You start with changing paradigms. People behave differently when they see things from new and different perspectives... if he sees the change as a short-term sacrifice for a long-term gain, if he understands why the change is happening, and if he is given a voice in the process, his willingness to change can go way up... Luntz explained that the word imagine is one of the most powerful words in the human language. He said that more leaders should put the word to use... When a leader harnesses the power of the word imagine she can help people see what's possible, how they can overcome an obstacle, or what things can look like in the future if they go a new direction. Arguably, this one word has the power to help you accomplish the biggest leadership challenge you face - changing the behavior of others...” Read the full article by Patrick Laddin in Linkedin of 19 April 2019, here... Did you ever wonder why?? WHY: Why are people in the public eye said to be 'in the limelight'? BECAUSE: Invented in 1825, limelight was used in lighthouses and theatres by burning a cylinder of lime which produced a brilliant light. In the theatre, a performer 'in the limelight' was the Centre of attention. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2019-05
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In this newsletter: Benchtest 04.2019, National Pension Fund Part 4, pension fund vs insurance policy investment and more... |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Phasing out of cheques - reminder
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
Monthly Review of Portfolio Performance to 3o April 2019 In April 2019 the average prudential balanced portfolio returned 2.7% (March 2019: 1.4%). Top performer is Stanlib (3.6%); while Allan Gray Balanced Fund (2.0%) takes the bottom spot. For the 3-month period, Stanlib takes top spot, outperforming the ‘average’ by roughly 1.7%. On the other end of the scale Momentum Namibia Growth Fund underperformed the ‘average’ by 1.7%. Note that these returns are before asset management fees. Download the Benchtest for April 2019, here... Monthly investment commentary Dear reader, due to the fact that I will be on leave at the time this newsletter will be published no investment commentary will be available. There will most probably (and hopefully!) not be any dramatic developments in global financial markets so that there is no need to change one’s investment strategy and that previous commentaries are still relevant. Leveling the playing fields between underwritten and other investment products In Namibia, we have the extraordinary situation where every pension fund must comply with the Pension Funds Act but a pension fund can also be wrapped as an insurance policy by an insurance company, in which event both the Long-term Insurance Act as well as the Pension Funds Act applies. The question is, which of the two laws prevail? This is where it becomes tricky and where the boundaries between an insurance product, a pension fund wrapped as an insurance product and a free standing pension fund become blurred. Pension funds can also invest in different products such as unit trusts and insurance policy wrapped investment products. To avoid any conflicting requirements under the Pension Funds Act and under the Long-term Insurance Act, the regulator has issued investment regulation 15 under the Long-term Insurance Act that regulates investments in an insurance policy wrapped product. Regulation 13 issued under the Pension Funds Act regulates all other pension fund investments. Furthermore, any investment in an insurance policy wrapped product is exempted from the provisions of regulation 13 issued under the Pension Funds Act. The investment regulation under the Long-term Insurance Act applies to the investments of the insurance company globally no matter whether these investments are owned by the insurance company or whether they are owned by another pension fund. This fact creates room for arbitrage and un-level playing fields between funds using insurance policy wrapped investment products and funds that use other investment products. This raises the question of fairness. The relevance of this concern is that an insurance company can for all intents and purposes ignore the constraints placed on pension fund investments by regulation 13 under the Pension Funds Act by using the ‘slack’ in some insurance products to offer insurance policy wrapped investment products to pension funds that would otherwise be considered non-compliant. We have for example seen insurance policy wrapped investment products held by pension funds that invest far in excess of 75% in equity and substantially short of 45% in Namibia. If the purpose of investment regulation 13 is to prevent members’ pension investments being over-exposed to market risk, the fact that one such investment is in an insurance product that has ignored the prudential guidelines set by regulation 13, surely will expose members to potential loss that regulation 13 tries to prevent. I do not believe that legislation should create such opportunities for arbitrage and that it is incumbent upon the legislator to maintain level playing fields between different laws, in particular if both laws are regulated by the same regulator as applies in this instance. Surely each law answers to a set of objectives and purposes and while these may be different for different financial institutions, every type of financial institution should be subject to the same requirements in line with the objectives and purposes of the relevant law. Pension fund governance - a toolbox for trustees The following documents can be further adapted with the assistance of RFS.
Compliment from a NAMFISA official “Good day Kai, Compliments of the new season. Thank you very much for the swift response as always. We really do appreciate your feedback. We will take your comments into consideration and discuss them further during the industry consultations next month.” Read more comments from our clients, here... Long service awards complement our business philosophy RFS philosophy is that our business is primarily about people and only secondarily about technology. Every time a fund changes its administrator, a substantial amount of information is lost be it physically or knowledge. Similarly, every time the administrator loses a staff member, it loses information and knowledge. We know that as a small Namibia based organisation we cannot compete with large multinationals technology wise because of the economies of scale that global IT systems offer. To differentiate us we need to focus on personal service and on the persons delivering that service to get customer acceptance and service satisfaction. With this philosophy we have been successful in the market and to support this philosophy we place great emphasis on staff retention and long service. The following staff recently celebrated their 5-year work anniversary at RFS! We express our sincere gratitude for his loyalty and support over the past 5 years to:
Our wealth of experience and qualifications
Our proud record of growth
RFS once again sponsors Retirement Fund Solutions Indoor Hockey League During March, Retirement Fund Solutions Indoor hockey league finals took place with exciting finals in the under 10 mixed category, the under 13 boys and girls categories, and the mixed under 16 group taking place. This indoor league for children ranging from eight to 16 years old has been offered to all players for the last four years and has grown from strength to strength. This year there were 120 entries, while the following teams were entered in the league: Lions, Cougars, Cheetahs and Jaguars in the under 10 mixed category; the under 13 boys and girls and u16 mixed league. The league took place over four weekends from mid-February until the finals that took place at the end of March. Children from all schools and clubs entered and were then placed into various teams. The u10 mixed category was won by the Jaguars who beat the Lions in the final. Louis Theron and Hannes van Tonder represented RFS at the tournament. The individual award winners were as follows:
 Above: the winners of the mixed under 16 team posing for a photo with Louis Theron, associate director of RFS in the background. RFIN makes its voice heard! Following an appeal to the parliamentary Committee on Economics and Public Administration (EPA) to refer the FIM Bill to the committee for public hearing, the committee invited the institute to a meeting for an initial introduction to this topic. This meeting took place on 24 April. RFIN Legislation and Compliance Committee, assisted by pension funds law expert Mrs S0phia Amoo-Chimunda who previously was employed in the pensions department of NAMFISA, attended the meeting on behalf of RFIN. Members of the EPA committee expressed their sincere appreciation to RFIN for having taken the initiative and expressed their opinion that such interaction between stakeholders and the committee should take place much more regularly. This meeting seemingly was the first of its kind. Members of the EPA committee unanimously saw this meeting in a very positive light and listened attentively to the matters raised by the RFIN delegation. Since some of the members had served on boards of trustees they could relate very well to some of the matters raised having experienced these matters personally. The point was made that parliamentarians represent the man in the street and it was stressed that legislation should not be imposed on the people. The people are the owners of all moneys in pension funds and legislation should give cognisance to the imperatives of the people. It should be avoided at all cost to promulgate laws that do not take local imperatives and the needs of the people properly into account. Past mistakes of rushing legislation through parliament without parliamentarians being placed in the position to properly appraise and to fully understand the implications of new legislation should not be repeated. Past experience has shown that this will result in legislation having to be amended again in an effort to correct mistakes. In conclusion the committee suggested that a 2 or 3 day workshop should be held with all parliamentarians by stakeholders to properly appraise parliament of the implications of the FIM Bill. RFIN should be applauded for this initiative and other industry bodies should join hands with RFIN to stage the suggested workshop for parliamentarians on the FIM Bill. PF 01/2019 re payment of premiums by fund of separately insured benefits Namfisa issued circular PF/01/2019 that deals with the current practice where fund contributions are transmitted to an insurer as a premium for an insurance policy taken out by an employer in respect of benefits that are not provided by the fund in its rules. The circular concludes that -
Again it must be emphasised that trustees can be held personally liable for such compensation. A pension fund is a trust fund to be managed strictly within the parameters of its rules by its trustees. A pension fund is not an object that is subject to the whims of its trustees as it seems some trustees sometimes believe. Pension fund moneys must be managed by the trustees with greater care and circumspection than they would apply in managing their own moneys. If you missed this circular, download it here... The NAMFISA Appeal Board in a nutshell A guest contribution by Andreen Moncur BA (Law ) Section 19 of the Namibia Financial Institutions Supervisory Authority Act 3 of 2001 (the Act) established the NAMFISA Board of Appeal (the Board) to hear appeals contemplated in s 24(1) of the Act. Section 24(1) provides that any person aggrieved by a decision of the chief executive officer of NAMFISA (CEO) taken under the Act or any other law may appeal against that decision to the Board. Appeals to date have been by regulated financial institutions or interested parties against decisions by the CEO in his/her capacity as Registrar of a financial institution supervised by NAMFISA. An appeal does not suspend the operation of the decision appealed against, but Reg. 8 of the Appeal Regulations recognises that a party to an appeal may require urgent interim relief. A party may thus apply to the Board to suspend the operation of the decision pending the finalisation of the appeal. The Board comprises three members appointed by the Minister of Finance: The Chair appointed because of his/her knowledge of law, one member because he/she is a member of the NAMFISA board and one member who is “fit and proper” under s 20 of the Act and competent to serve as a Board member. Subject to s 22 of the Act, Board members hold office for three years and may be reappointed. Section 24(3) of the Act stipulates that the Commissions Act No. 8 of 1947 (Commissions Act) applies to the Board and to witnesses and their evidence, thereby making the Board a commission like any other government-appointed commission of enquiry into matters of public concern. The Board has the same powers as the High Court to summon witnesses, to cause an oath or affirmation to be administered to them, to examine them and to call for the production of books, documents and objects (s 3(1) of the Commissions Act). Section 24(1) of the Act gives the Board jurisdiction to hear any type of grievance by any person aggrieved by the decision of the CEO taken under the Act or any other law, but not to hear any other matters. The Board may not hear “test cases” nor review decisions by the CEO of its own accord. Section 24(6) of the Act gives the Board the power to:
When planning to appeal a decision of the CEO, bear in mind that an appeal must be lodged with the Board within 14 days of receipt of the decision by the CEO. The Board may admit any person with an interest in the appeal as a party to the appeal (as an “interested party” rather than as a “friend of the court”). Any party to an appeal may call witnesses and may be represented by a legal practitioner or any other person at the hearing. The appeal hearing is public, unless the chair otherwise directs. The Board must give a decision in writing as soon as practicable after the hearing. The Board ruling handed down on 15 October 2018 in the matter of Heritage Health Medical Aid Fund and the Registrar of Medical Aid Funds emphasised that there must be an identifiable decision of the CEO that has aggrieved a party. Unless such a decision is the subject matter of an appeal, no appeal lies to the Board and the Board will consequently have no jurisdiction to hear the grievance. We will look at this ruling in more detail in a future issue. Deduction from or withholding of benefits because of debt to the employer – S37D revisited RFS is confronted regularly with instructions to deduct from or to withhold payment of a benefit on the basis of the employee owing an amount to the employer. Usually the principal officer, who is normally an employee of the employer, issues the instruction to withhold or to deduct. Although as administrator, RFS will not know in which capacity the principal officer issued the instruction. We believe that mostly the instruction is issued by the principal officer in his or her capacity as employee and not as a fund official. Often the principal officer is probably not clear in which capacity the instruction is issued to RFS and does not appreciate that he or she has a fiduciary duty towards the fund as officer of the fund and may not be driven by the employer’s imperatives. Section 37D is very clear on the circumstances under which a benefit may be reduced. It already offers unique protection of an employer’s interests under very specific circumstances. Fund officials are well advised to give due recognition to the law rather than the expectations of the employer. RFS also has a fiduciary duty towards the fund as it administrator with dire consequences if it were to ignore these duties. Andreen Moncur, a renowned expert in pension fund law has revisited this topic and provides a detailed exposition which every trustee and every principal officer should study and take to heart. Download this exposition here... Incentives a better answer than prescribed investments “Creating appropriate incentives that will enable the allocation of capital to areas where it can make a meaningful difference in the lives of retirement fund members is a better answer than introducing prescribed assets, institutional investors have heard. The problem with prescription is that it relies on a policymaker who sits in one part of the country taking a view on the economy and determining the amount of assets that need to be allocated to a specific part of the economy to benefit the country, Elias Masilela, former CEO of the Public Investment Corporation (PIC), told institutional investors during a panel discussion hosted by RisCura on Wednesday. I would rather have a different approach [...] that says: we’ve identified these imbalances. Can we create incentives that are going to get capital to flow into those areas?” The biggest driver of behaviour in any economy is incentives, not “a stick”, Masilela said, referring to forced adherence to more legislation in the form of prescribed assets. The problem with a stick is that you then have to police it and we’ve failed to police anything in this country. Look at BEE – a beautiful programme, but it is not working. You can pick any other policy and ask yourself: have we been able to police implementation and the answer with all of them is no... Certainly a position we fully associate with but - will our Minister of Finance take this to heart? Read the full article by Elias Masilela in Moneyweb of 25 April 2019, here... The danger of focusing on past performance “For most investors who are choosing unit trusts, the first, and often only, thing they consider is past performance. This is despite the well-worn disclaimer on every fund fact sheet that past performance is no indication of what might happen in the future, and decades of research that proves it isn’t. Yet it is not unreasonable. People need to base their decisions on something, and historical returns are an obvious choice... As a starting point, it’s important to recognise the shortcomings of looking only at history. To illustrate this, Nedgroup Investments compared the three-year returns of unit trusts in the South African multi-asset high equity category over two consecutive three-year periods: from January 1, 2013 to December 31, 2015, and from January 1, 2016 to December 31, 2018. The results were remarkable, and are illustrated in the chart below. Each marker on the chart shows a particular fund with its performance over the first three years plotted on the horizontal axis, and the second three years on the vertical axis.  ...Without that information, using past performance alone as a guide carries little value. For it to be worthwhile, investors need to appreciate how that performance was generated, and therefore how repeatable it is likely to be. “On a superficial level, using past performance is dangerous,” Jugmohan says. “But if you are willing to do the hard work and dig deeper, then there is a lot to gain out of it.” Read the full article by Patrick Cairns in Moneyweb of 25 April 2019, here... A deceptively simple way to find more happiness at work “Do you like what you do?...We don’t often step back to ask whether the small, individual components of our job actually make us happy. But maybe we should. As many as a third of United States workers say they don’t feel engaged at work... A study from the Mayo Clinic found that physicians who spend about 20 percent of their time doing “work they find most meaningful are at dramatically lower risk for burnout.” But here’s what’s fascinating: Anything beyond that 20 percent has a marginal impact...In other words: You don’t need to change everything about your job to see substantial benefits... When you look at people who are thriving in their jobs, you notice that they didn’t find them, they made them... To be sure, transforming your job isn’t easy. But you have to start somewhere, and there’s a wonderfully simple but surprisingly revealing trick that can help. For a full week, carry a notepad at all times. Draw a line down the center of a page and label one column “Love” and the other column “Loathe.” Whenever you perform a task, no matter how small, be mindful of how it makes you feel. Are you excited about it? Do you look forward to it? Does time fly when you’re doing it? Or did you procrastinate, dreading every moment and feeling drained by the time you’re done?... Understand what it is that lights you up. Understand what you run toward. Understand where you are at your most energetic, your most creative, your most alive, and then volunteer for that more and more and more,” he added. This is, of course, just a starting point. You won’t instantly be happier at work once you have a list of things you dislike about your job. But this exercise gives you a road map about how to focus your time and energy on the things that get you excited. Rather than trying to get better at things you hate doing and know you’re not great at, reframe the issue and try to do more things that energize you and that you excel at. No one can tell you what those things are, and discovering them can be transformative...” Read the full article by Tim Herrera in The New York Times of 7 April 2019, here... Why hard work isn't enough to thrive “Very few, if any, workplaces operate like strict meritocracies, where the very best performers reap the greatest professional rewards, argues Morgan Stanley Vice Chair Carla Harris. Instead, stellar performance at work functions more like table stakes in your quest for advancement. What truly helps you get ahead? The quality of relationships you have with people at every level of the organization you are a part of. Such oft-neglected “relationship currency” can lead to lasting success, Harris says.” Did you ever wonder why?? WHY: Why is someone who is feeling great 'on cloud nine'? BECAUSE: Types of clouds are numbered according to the altitudes they attain, with nine being the highest cloud. If someone is said to be on cloud nine, that person is floating well above worldly cares. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2019-04
|
||||||||
| In this newsletter: Benchtest 03.2019, National Pension Fund Part 3, Namibia's debt metrics and more... |
||||||||
|
Phasing out of cheques - reminder
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
Monthly Review of Portfolio Performance to 31 March 2019 In March 2019 the average prudential balanced portfolio returned 1.4% (February 2019: 2.8%). Top performer is Allan Gray Balanced Fund (2.4%); while Investec Namibia Management Fund (0.7%) takes the bottom spot. For the 3-month period, Nam Coronation Balanced Plus Fund takes top spot, outperforming the ‘average’ by roughly 1.9%. On the other end of the scale Momentum Namibia Growth Fund underperformed the ‘average’ by 1.8%. Note that these returns are before asset management fees. What history tells us about the current state of the JSE Running for cash at this point in time is most probably too late having endured the pain of low returns on equities relative to cash over the past 5 years, give or take another few months. The difficulty of moving between asset classes is the correct timing. The chance of one’s timing being spot-on, is 50: 50 at the very best, but probably substantially lower than that. Moving between asset classes for the sake of improving long-term investment returns obviously requires moving out of equities into cash and back again. On the basis of probability the chance of moving out of equities at the right time is small and moving back into equities at the right time is small once again. The aggregate probability of a correct timing of these two moves is much smaller as one multiplies the two probabilities of a fraction of 1 with each other. Those investors who moved out of equities some time ago because of their poor performance must move back into equities sooner or later. Unfortunately one will not know up front whether it should be sooner like immediately, or only in a few months. This is the risk the investor has to take after having moved out of equities. Read part 6 of the Monthly Review of Portfolio Performance to 31 March 2019 to find out what our investment views are. Download it here... Can we allow pension fund returns to be diluted ever more? Investors in general and pension fund members more specifically will not be happy with the returns their investments have generated. Up to the end of December 2018, the average prudential balanced portfolio’s return of 7.7% has barely outperformed inflation of 5.2% and has just managed to match the money market return of 7.5% over a 5 year period but fell far short of both the money market return and its long-term performance objective over any shorter periods. It only really managed to achieve its long-term objective of inflation plus 5.5%, before fees, over 10 years and longer. Now consider the same parameters to the end of January 2019 where the average prudential balanced portfolio’s return of 8.0% represents a slightly improved the outperformance inflation of 5.2% and of the money market return of 7.5% over a 5 year period but still falling far short of both the money market portfolio and its long-term performance objective over all shorter periods, once again only really managing to achieve its long-term objective of inflation plus 5.5% over 10 years and longer. Finally let’s move the goal post by another month to the end of February 2019. Now the average prudential balanced portfolio’s return of 8.2% represents a slightly improved outperformance of inflation of 5.1% and of the money market return of 7.6% over a 5 year period but still falling far short of both the money market portfolio and its long-term performance objective over any shorter periods. It only managed to achieve its long-term objective of inflation plus 5.5% over 10 years and longer. What this does show is that fortunes for the more volatile and higher risk prudential balanced portfolios turn rather rapidly and adding two months of positive, just slightly positive returns, add the end of the period and taking off 2 months at the start of the 5 year period can make quite a difference to the end result. We added a cumulative 4% for January and February 2019 and dropped a cumulative 1.5% for January and February 2014. Can we look forward to the results of the first two months of 2019 signifying a turnaround of the fortunes of equities? Certainly as far as local equities are concerned, they have been far behind the curve in terms of medium term actual yields versus long-term yield expectations. Since the beginning of 1987 the real return was a mediocre 5.8% including dividends – that’s over the past 32 years! Compare this to the S&P 500’s 6.6% real return over the same 32 year period where one would expect the risk premium to require local equities to produce a higher return than US equities. Compare local equities 32 year return also with long term (116 years) returns of around 7.5% for SA equities and 6.5% for US equities. Of course this is not the only consideration. It is common cause that current low returns are the result of central bank intervention in the markets since the financial crisis and that we are currently en route to a normalization of monetary policy. In the US, the Fed rate currently represents a real return of 1%, which at times has been negative, so at least a bit of normalization although the gap needs to open up further to around 2% in order to get back to its long-term average. Markets tend to factor in the future to the extent it is reasonably foreseeable, so it is likely that at least some further normalization has already been factored in that is still due to come about. US inflation currently shows a clear downward trend which means that the gap will be opened up as the result of declining inflation, where it was already down to 1.2% recently but has picked up a bit to 1.5% of late. Our concern is thus not so much that equities may not meet their long-term return expectations going forward. Our concern is much more that pension fund investment returns are diluted ever more by what we have been referring to as a serious onslaught on the pensions industry that seems to be considered a duck that lays the golden egg. Consider the ever increasing cost as a result of increasing regulatory and governance requirements. Consider fiscal and monetary objectives of healing all sorts of ailments government and our national economy are experiencing where pension fund assets are forced into unlisted investments and where the local investment allocation will soon reach 45%, higher caps having been mooted already. In our commentary in the September column of this investment brief, we speculated that the investment regulations will result in pension funds’ equity allocation effectively being capped at 60% as opposed to an implicit allocation of 75% that the current typical pension fund model presupposes. This will dilute expected long-term pension fund returns down form 6.3% to 4.6% before fees. After fees we will thus be looking at a net return of below 4% per annum whereas the pension model requires 5.5%. We believe that this is a very unfortunate development pension fund members are facing without them being able to do much about it. It seems our government finances are under so much pressure that short-term survival rather than long-term planning defines government policies, to our own detriment. South Africa scores only 52 points on the Melbourne Mercer global pensions index, putting it into the 3rd lowest of 7 categories, where the highest ranked country is Netherlands with a score of more than 80. Namibia will be below SA by some margin just on the basis of our old age grant being quite inferior to that of SA and we are likely to move down further as declining pension fund investment returns will further dilute the overall adequacy of our pension system. The direction should be the opposite and should be driven by supportive national policies. It does not seem we have the means for such policies. What does this mean for Namibia’s future credit rating? Conclusion What can a pension fund member do about this dilemma? Well the majority of members, particularly on the lower half of the income spectrum will not be able to do anything about this, as they will not be able to afford any other savings. They will have to hope that government will be able to look after them once they have retired and do not have the means of their own to do so. On the upper half of the income spectrum, savers can and must apply their total discretionary capital to make up the effect of declining pension fund investment returns. Unfortunately this will not be possible through investment in Namibia as every conventional savings mechanism is subject to the same or similar dilution. It is common cause that equities are an essential component of every investment strategy and are really the only asset class that offers the opportunity to make good the shortfall experienced on pension investments in Namibia. Consequently investors need to use every opportunity to expatriate their discretionary capital to invest primarily in foreign equities. Unfortunately the Rand is currently substantially undervalued at around 14.3 to the US Dollar and should be closer to 12. It is thus not a good time to expatriate discretionary capital right now. It is perhaps not a bad idea then to keep this capital in the money market, while it returns a real rate of about 2% p.a., in anticipation of an opportunity to expatriate the capital. As far as our knowledge goes, approved expatriation applications are valid for 6 months. Typically obtaining approval to transfer money offshore is quite a constraining factor, where timing will be crucial, and perhaps one should ensure that one has the approval in your pocket and renew if an opportunity does not arise within the next 6 months. Does it still make sense to hold on to your private fund? As things stand, trustees are already overwhelmed by the governance requirements but up to now most still managed to muddle through with the assistance of their service providers. Fortunately the consequences of any non-compliance so far were not too serious. The pressure will continue to increase and with the advent of FIM Bill matters will become substantially more onerous and trustees will be facing substantially higher risks relating to compliance failures. Trustees and principal officers are facing joint and several liability for compliance and governance failures and this risk will have to be mitigated through professionalisation of trusteeship and principal-officership. The ‘going rate’ for a part-time professional in this specialist filed is in the region of N$ 300,000 p.a. In addition other operating costs will also increase substantially as the result of the increasing requirements. Trustees and fund sponsors are well advised to seriously consider whether it will be viable to retain the fund’s separate identity or to move the fund into an umbrella fund where the governance requirements are transferred to the umbrella fund. Trustees should also be aware that such a transfer to an umbrella fund will become significantly more onerous and thus more costly once the FIM Bill becomes effective. Although our current information indicates that the FIM Bill is not on the parliamentary schedule for this year, it will only give a short reprieve. A draft standard has been issued under the FIM Bill dealing with transfers and amalgamations between funds referenced RF.S.5.22. If you want to acquaint yourself with these requirements follow this link... You will no doubt realise that such a transaction will become very onerous under the FIM Bill. And some sound advice to any board of trustees contemplating to move their private fund to an umbrella fund. Do carry out a proper due diligence before you take this decision. Follow this link for some guidance in this regard that recently appeared in Money magazine... Namibia’s debt in layman’s terms One hears a lot about Namibia’s government debt in the media and in private discussions. One also regularly reads and hears that the budget deficit should not exceed 3% of GDP. I am sure many people will be aware that the situation is bad but very few can actually relate to the figures being bandied about. Again how does one relate to this benchmark? The following two graphs are interesting in this context These graphs are from the Capricorn Asset Management Daily Brief. Graph 1 shows that the debt to GDP ratio will reach 47% in the current fiscal year, to increase further the year after and only start decreasing in 2022, if things go as planned. The debt excludes government guarantees. Graph 1  Graph 2 includes government guarantees to SOE’s. The picture now looks worse and will continue to worsen from 54% of GDP over the current year to 58% by the end of 2023, if everything goes as planned. Graph 2  To make these metrics more palatable for the layman, one should express them in terms of a layman’s financial metrics. Relating these figures to one’s own finances, the concept of GDP is really not relevant and one has to eliminate this concept when trying to relate debt and deficit to one’s own finances. What is relevant is the income we earn. At national level it is expressed as a percentage of GDP. Namibia’s revenue for the past few years has, and estimated revenue for the next few years will be in the region of 30% of GDP. For the current fiscal year, GDP is estimated to amount to N$ 205 billion. Namibia’s national revenue will thus be around N$ 60 billion (N$ 205 billion times 30%). Government revenue in an employee’s terms equates to his/her total remuneration. If an internationally accepted benchmark for government deficit is 3% of GDP, this equates to 10% (3% divided by 30%) of the employee’s remuneration. So this says that you should be fine if you borrow 10% of your annual income annually to fund capital expenditure, provided you repay enough of your accumulated debt so that it does not exceed the total debt ceiling. Of course government is able to borrow at substantially lower rates of interest than the employee. This means that an employee should actually borrow less than 10% of his total income on an annually recurring basis to recognise the higher rate of interest the employee will pay. In the case of Namibia we are currently borrowing at the rate of 4% of GDP or 13% of government revenue. Now turning to the debt ceiling of 30% of GDP that governments should ideally not exceed, this equates to 100% (30% divided by 30%) of the employees total annual income, to be adjusted still for the higher rate of interest the employee will have to pay. Thus, an employee earning say N$ 50,000 per month and N$ 600,000 per annum should thus have total debt of less than N$ 600,000. In the case of Namibia our total public debt is currently 50% of GDP or around 1.7 times (or 170%) of annual government revenue. So if this was me earning N$ 50,000 per month, I would currently have a total debt of N$ 1 million. If I had to pay back my total debt of N$ 1 million at 11.75% (housing loan interest rate) over 20 years, it would consume 22% of my total remuneration. This is well below the 30% the Labour Act allows as the maximum deduction from an employee’s salary. I venture to say that very few employees’ financial position would be considered healthy if the norms applied to national finances were to be applied to the man in the street. Something evidently does not gel when assessing the financial position of an individual and that of a country. Pension fund governance - a toolbox for trustees The following documents can be further adapted with the assistance of RFS.
From a former fund member “Caroline was awesome and in agreement with the assistance granted. Thank you so much for prompt and efficient service. C” Read more comments from our clients, here... Benchmark Retirement Fund welcomes Komatsu Benchmark Retirement Fund takes further strides on its course to become the biggest retirement fund in Namibia (just joking... it will never get anywhere close to the GIPF). Nevertheless, it could by now be the 4th largest fund in Namibia in terms of assets under management, including the GIPF, thanks also to the latest sign of confidence by Komatsu in Namibia that has taken the decision to join the Fund. We welcome Komatsu in Namibia and its staff and look forward to serving you beyond expectation for many years to come!
The Retirement Fund Solutions SKW youth soccer tournament The annual Retirement Fund Solutions SKW youth soccer tournament was staged at SKW sport fields. 67 teams and some 900 players from under 7 up to under 17 put their prowess on display over 3 days. SKW won in all but one age group. Pictured: the SKW cohorts. The annual Retirement Fund Solutions SKW youth soccer tournament was staged at SKW sport fields. 67 teams and some 900 players from under 7 up to under 17 put their prowess on display over 3 days. SKW won in all but one age group. Pictured: the trainer cadre of SKW. RFS once again sponsors Retirement Fund Solutions SKW youth soccer tournament The annual Retirement Fund Solutions SKW youth soccer tournament was staged at SKW sport fields in Olympia on the last weekend of March. 67 teams and some 900 players from under 7 up to under 17 put their prowess on display over 3 days, some games played in the very welcome rain at that weekend. SKW must have drawn the lucky ticket, winning all but one age group.  Above: the trainer cadre of SKW.  Above: the SKW cohorts.  Above: young stars in action.  Above: Kai Friedrich, RFS tournament sponsor, handing over the cup to the winning team representing his favourite club. RFS entrusted with the administration of NBC Retirement Fund It is an interesting phenomenon that many of the funds RFS is serving as administrators, regularly put out on tender fund administration services to their fund meaning that RFS’ competitors get another bite at this bait every 3 years. So much more disappointing that funds administered by our competitors hardly ever reciprocate by affording the market an opportunity to showcase their capabilities. It is so much more an achievement and a reason to be proud when RFS is re-appointed by one of its clients in conclusion of its tender process as happened in the case of the NBC Retirement Fund. We express our sincere gratitude to the board of trustees of the NBC Retirement Fund for its gesture of support and look forward to serving the fund and its stakeholders beyond expectations for many years to come! Pension fund industry meeting presentation The last pension funds industry meeting was held on 19 March 2019. If you missed the presentation, download it here... Should retirement funds have a default benefit if members don’t claim their retirement benefits? A guest contribution by Andreen Moncur BA (Law ) Retirement funds offering member investment choice often invest members’ retirement savings in default portfolios if members don’t exercise timely investment choices. Similarly, funds provide default risk benefits where members fail to exercise timely options regarding cover levels. But should funds pay a default benefit to members who don’t claim their retirement benefits within a reasonable time after retirement date? A recent case I consulted on seems to indicate they should. A member retired almost fifteen years ago and didn’t claim his retirement benefit-he refused to exercise any of his options at retirement, stating that that he would defer all such decisions until he had received “divine guidance”. To date, the member has not claimed his benefit nor exercised any associated options. The rules of the fund in force when the member retired provided that his claim to his benefit prescribed three years after retirement. His benefit then reverted to the fund, but the fund must reinstate his benefit if he subsequently claims it. NAMFISA Circular PI/PF/07/2015 prohibiting the reversion of unclaimed benefits to a retirement fund and requiring funds to pay any benefits unclaimed for five years or longer to the Guardian’s Fund, is not applicable in this case because the member’s benefit had already reverted to the fund several years earlier. In all other instances the problem will be defining exactly what an unclaimed retirement benefit is when a member does not choose his retirement benefit in a timely manner. In such case, there is no unclaimed benefit until such time as the member exercises the available options because his input is required to determine the exact nature of his benefit. In the case I referred to, the member had to choose how much of his accrued retirement benefit to commute and then choose between three types of pensions. The fund in question is a pension fund so at least two-thirds of members’ accrued retirement capital must be used to secure pensions for them. By failing to choose and claim his benefit before it prescribed, the member lost the investment returns on the benefit. When the member’s benefit reverted to the fund, he forfeited his benefit and it became a fund asset. The member now has no benefit in the fund until he claims the forfeited benefit. In this case, the amount due to him would be that due to him on his retirement date all those years ago. No late payment interest is payable on the benefit as from the introduction of such interest because no benefit existed. Late payment interest would be payable only as from the date on which the member requests payment of the asset until the date of payment thereof. He may take up to one-third thereof in cash and the balance must be used to secure a pension for him according to the rules in force when he retired. Can trustees do anything to prevent retirees from using funds to “park” their retirement benefits until they choose to claim their benefits? The answer is yes. Firstly, trustees can amend the fund rules to stipulate that retirement benefit options must be exercised within a reasonable period of the member’s retirement but in any event no later than the end of the tax year in which the member retires. Three months is a reasonable period because members are alerted to their impending retirement and the options to be exercised far in advance of their retirement. Secondly, trustees can introduce a default retirement benefit. For a provident fund, this would simply mean paying the member his/her accrued benefit as a lump sum. In a pension fund, this could be a lump sum of one-third of the member’s accrued benefit and a conventional annuity from the fund or purchased from a pension provider if the fund does not pay pensions, assuming the member’s accrued benefit can secure an annuity exceeding N$50 000. In all other cases, the default benefit is the same as for a provident fund. Any such amendments will of course apply only to members who retire on or after its effective date. Is there now more value locally than there is offshore? “Over the past few years South African asset managers have preferred holding international equities to investing in the local stock market. Their view has been that the potential returns offshore have been much higher. They have been proven correct too. Over the five years to the end of March 2019 the MSCI World Index was up 11.72% per annum in rand terms, while the FTSE/JSE Top 40 had grown only 6.44% per annum. However, this view is starting to shift. While many fund managers still believe that there are better opportunities offshore, the perception of the local stock market is improving. The Old Mutual MacroSolutions boutique, which recently published its annual Long-Term Perspectives, now expects that over the next five years, the potential returns from the JSE are higher than those investors can expect offshore...” Read the full article by Patrick Cairns in Moneyweb of 9 April 2019, here... Severe illness cover increasingly included in group cover risk offering “There has been an increased preference among employers to include severe illness products in their group risk benefit suite over the last few years. “We think the increased prevalence of these severe illnesses – cancer in particular – is driving this trend,” says Viresh Maharaj, chief executive for corporate sales and marketing at Sanlam Employee Benefits. This is one of the trends that emerged from interviews with professional employee benefit (EB) consultants that were conducted during the initial stages of the annual Sanlam Benchmark Survey. Cancer, strokes and heart attacks are some of the diseases considered severe illnesses. While employers often include disability cover as part of their group risk benefits, severe illness cover has historically not been offered as part of the group risk suite....” Read the full article by Ingé Lamprecht in Moneyweb of 4 April 2019, here... Message to South Africans: the good times will be back shortly “Listening to the daily corruption report from the Commission of Inquiry into State Capture one can easily miss some shards of optimism glinting through the cloud cover. FTI Consulting’s The future of South Africa report released this week has some encouraging words from CEOs such as Discovery’s Adrian Gore and Goldman Sachs’s sub-Saharan Africa CEO Colin Coleman, who breaks rank with many of his peers in forecasting reasonably strong growth of 1.9% in 2019 and 2.8% by 2021. Coleman says a good target for SA is to get back to 3% growth within three to four years. “During the Thabo Mbeki years, we were growing at 4% and during the Jacob Zuma years, at 1.5%. Over the combined period we had an average 3% growth rate.” Gore introduces some much-needed optimism into the picture, pointing out that life in SA gets better with time. “Our GDP is 2.5 times the size it was in 1994 on a dollar basis; formal housing has increased by 131% from 1996 to 2016; new HIV infections are down 60% from 1999-2016; and the murder rate per 100 000 is down 50% from 1994 to 2017.” South Africans tend to wallow in gloom, which leads them to make erroneous predictions...” If good times will be back shortly in SA it will of course have a positive spin-off effect for the Namibian economy. So let’s hope that these predictions will come true! Read the full article by Ciaran Ryan in Moneyweb of 11 April 2019, here... Why conflict is a good thing The perils of avoiding work conflict When you defer difficult conversations, avoid the people you are struggling with or cut off conflict at meetings by insisting on “discussing things offline,” you’re pushing your organization deeper into conflict debt, argues organizational psychologist Liane Davey. And, like most debt, it will become more onerous as it grows over time: “When you’re unwilling to work through uncomfortable situations, you’re stretching your resources thin, stifling innovation and allowing risks to go unnoticed,” Davey writes. Read the full article on LinkedIn, here... Did you ever wonder why?? WHY: Why are many coin collection jar banks shaped like pigs? BECAUSE: Long ago, dishes and cookware in Europe were made of dense orange clay called 'pygg'. When people saved coins in jars made of this clay, the jars became known as 'pygg banks.' When an English potter misunderstood the word, he made a container that resembled a pig. And it caught on. |
||||||||
2019-03
| In this newsletter: Benchtest 02.2019, National Pension Fund 3, Proportionate Supervision, COEs and more... |
|||||||||
|
Important notes and reminders
Phasing out of cheques - reminder
More specifically from a government’s point of view;
From a labour (union) point of view;
From an employer’s point of view;
As stated, most (if not all) previous and current consultants to the SSC on the NPF were foreign experts. These experts have preconceived views about suitable pension fund models based on first world experiences;
Finally, the laborious task to overhaul the statutory environment to accommodate the NPF has not received coordinated attention. There is a need to prepare a thorough assessment of the impact a proposed NPF would have on the statutory environment to fully appreciate its extent.
Tilman Friedrich's Industry Forum Monthly Review of Portfolio Performance to 28 February 2019 In February 2019 the average prudential balanced portfolio returned 2.8% (January 2019: 1.2%). Top performer is Investec Namibia Managed Fund (4.4%); while Hangala Prescient Absolute Balance Fund (1.4%) takes the bottom spot. For the 3-month period, Investec Namibia Managed Fund takes top spot, outperforming the ‘average’ by roughly 1.4%. On the other end of the scale Metropolitan Namibia Managed Fund underperformed the ‘average’ by 1.6%. Note that these returns are before asset management fees. Can we allow pension fund returns being diluted ever more? To the end of February 2019 the average prudential balanced portfolio’s return of 8.2% represents a slightly improved outperformance of inflation of 5.1% and of the money market return of 7.6% over a 5 year period but still falling far short of both the money market portfolio and its long-term performance objective over any shorter periods. It only managed to achieve its long-term objective of inflation plus 5.5% over 10 years and longer. Our concern is not so much that equities may not meet their long-term return expectations going forward. Our concern is much more that pension fund investment returns are diluted ever more by what we have been referring to as a serious onslaught on the pensions industry that seems to be considered a duck that lays the golden egg. Consider the ever increasing cost as a result of increasing regulatory and governance requirements. Consider fiscal and monetary objectives of healing all sorts of ailments government and our national economy are experiencing where pension fund assets are forced into unlisted investments and where the local investment allocation will soon reach 45%, higher caps having been mooted already. In our commentary in the September column of this investment brief, we speculated that the investment regulations will result in pension funds’ equity allocation effectively being capped at 60% as opposed to an implicit allocation of 75% that the current typical pension fund model presupposes. This will dilute expected long-term pension fund returns down from 6.3% to 4.6% before fees. After fees we will thus be looking at a net return of below 4% per annum whereas the pension model requires 5.5%. We believe that this is a very unfortunate development pension fund members are facing without them being able to do much about it... Read part 6 of the Monthly Review of Portfolio Performance to 28 February 2019 to find out what our investment views are. Download it here... The world of investments and retirement is not what it used to be! by Tilman Friedrich Politicians, particularly those of the western world, would want to make us believe we live in an open global economy. However, where international trade is concluded in a single currency, where fiscal and monetary authorities intervene massively in financial markets, more will have to be done by the politicians to make the public believe. The law of demand and supply, has no bearing on the behaviour of markets today. Savers are paying off the debt of borrowers through artificially low interest rates that are set by monetary authorities. So-called ‘safe haven’ investments are earning negative real interest rates and the investor is now conditioned to accepting that he will have to work until he drops dead, instead of realising his dream of retiring at an age where one might still be able to enjoy life for a while. Retirement ages are extended while pension entitlements are at best being questioned and already reduced in some countries. With negative real interest rates seemingly having become the ‘new norm’, asset valuation models are now being questioned. Why should this be of concern to a pension fund member? Well the point is that pension fund contribution structures were established over the course of the past century or more based on the assumption of cash returning around 2% above inflation, bonds around 4% above inflation, property around 5% above inflation and equity around 8% above inflation. A typical balanced portfolio comprising of a mix of these assets based on conventional investment theory was expected to return roughly 5% above inflation, net of fees. Pension theory then arrived at a net retirement funding contribution rate of 11%+, to produce an income replacement ratio of 2% per year of membership. Indications based on the ‘new norm’ are that one is now only looking at a net return of between 2% and 3% p.a. If this were to be true, the retirement funding contribution rate would have to be raised from 11% to at least 16%. Add to this a typical cost element of 6% for risk benefits and management costs, the ‘new norm’ for a total retirement fund contribution rate is now at least 22% instead of the 17% before the advent of the ‘new norm’. Alternatively the retiree would now have to settle on an income replacement ratio of only around 40% after 30 years of service, instead of his expected 60%! No wonder the mortals are being conditioned by politicians to be prepared to work until they drop dead. We are certainly living in a different world today to what it was 30 years ago. What we expected of the future will be materially different and we will have to find ways and means to deal with the impact these changes have on our lives and on our retirement planning. One can only find some comfort in the fact that we are all ‘in the same boat’, the answers have not been found and a lot of energy and time will be spent all across the globe to find answers how to still have time in retirement to enjoy. For local pension fund investors, one probably needs to take a different view of the risks of investing offshore. In the past, developing countries and Africa in particular was loaded with a political risk premium. Today the political risks in developed countries are probably as high, if not higher than those in developing countries. Sanctions and trade war are the weapons the US employs today to achieve its political goals and being the largest economy in the world such actions have serious repercussions for any country arousing the fret of the US, such as Iran, Turkey, Russia and so on. Add to this huge demographic risks, for a more callous view on investment in developed countries. In contrast the demographic risks Africa is facing appear to be receding going by general population growth rates. Given this environment, where can a pension fund still invest? Fixed interest assets are evidently too risky being too exposed to monetary and fiscal manipulation. Even if we at the southern tip of Africa are living in a much more sheltered environment, our financial markets are shackled to global developments. This essentially leaves real business as the asset class to invest in. We all have to live, eat, drink, dress, get to work, nurture our health, go on holiday, learn, find shelter and so on. The ‘real economy’ will continue and is best represented by commerce and industry, in short, investment in equity appears to be really the most appropriate asset class for the normal investor who shies away from the more exotic asset classes such as gold, works of art etc. Conclusion As we usually say, based on fundamentals, equity is our preferred asset class, more specifically value companies offering a high dividend yield. We believe that the normalization of interest rates has largely been factored into equity valuations already and that the risk of a further downward correction is slim. We expect normal returns from US equities and believe that SA equities need to catch up as they are behind the curve in terms of long-term returns. They should present a buying opportunity. Despite all we have said about the risks presented by offshore markets, sound risk diversification principles still dictate that investments should be spread across the globe, the prevailing exchange rate allowing, and again with an equity bias. If one can find value in property, it should also be an appropriate asset class, being closely tied into the ‘real economy’. Since there is no evidence that the global economy is busy turning around, it is difficult to identify any economic sector that might produce some fireworks over the next 12 months meaning that one should spread your investments across all economic sectors but should preferably pick companies with quality earnings and high dividend yields. In SA Consumer Goods and Consumer Services should be viewed with caution as they are still ahead of the curve having delivered stellar performance over the past 13 years, despite their more recent sharp correction. The Rand is currently substantially undervalued and should be closer to 12 to the US Dollar. It is probably to some extent weakened through the low Repo rate that should be around 2% higher than it currently is based on current inflation. An increase in the Repo will be forced by an increase in the Fed Rate but that looks like an unlikely course for the next 12 months. A weak Rand should allow the local economy to pick up which is what the SA Reserve Bank would like to see. We are therefor unlikely to see a change in interest rates for the next 12 months and we are likely to see a relatively weak Rand for the next 12 months The relatively weak Rand that holds the prospects of strengthening over the next 12 months intimates that it is not a good time to move money offshore for the purpose of diversifying one’s investments although that should remain the objective of any local investor who holds more than half his wealth in Namibia.. One elephant in the room and the question of proportionality I just came across an interesting discussion on regulation and supervision of financial institutions. Not NAMFISA this time around but its SA equivalent nowadays known as FSCA (the Financial Sector Conduct Authority - I love acronyms!) In Moneyweb of 13 March 2019, Patrick Cairns quotes Brandon Topham, newly appointed head of investigations and enforcement blowing his trumpet on his unit. This was now established as a “...division in its own right...in a fundamental change from how investigations took place within [predecessor] Financial Services Board”. His team has doubled to around 60 staff. “...With the change in legislation, the importance of being proactive and not just reactive has become emphasised, which is why we have established a separate division within the FSC...” He prides himself on one of their first major break-throughs “...In a recent example, the regulator was able to act within just one week of receiving a complaint against Dian Goosen, a licenced representative in Cullinan who was misappropriating clients’ funds. Having scrutinised what he was doing, the FSCA conducted an early morning search and seizure operation at his premises...” Well done, we say! At this juncture, just a brief interlude – if FSCA employs 60 staff in the investigations and enforcement division, NAMFISA should deploy 2 staff members, considering that our economy is about 4% of SA’s, applying proportionality! But let’s carry on and get to the story of the elephant in the room... As one reader of the FSCA’s trumpet blowing aptly comments “...Now, there’s an asset manager in Pretoria called the Public Investment Corporation. They’re a registered Financial Services Provider (FSP), so you’re their regulator. They’ve been a bit naughty with their client’s money, investing into some dodgy deals like AYO Technologies. Are they one of your 13 investigations? Or are you worried because the PIC is owned by the SA government, and answer to the Minister of Finance, who is actually your boss! Maybe you could use some of those great conflict of interest regulations that you expect the rest of us to adhere to, to resolve the problem...You might also want to know that the PIC’s client is the Government Employees Pension Fund. So the money they’ve been a bit naughty with is probably yours...” We are talking of billions of public moneys having been misappropriated between AYO and VBS by the PIC! By now you may have guessed where I am heading. We too have a PIC, called GIPF, the elephant in the room, and it seems the issues are not dissimilar. Fortunately the GIPF has pulled up its socks doubling and quadrupling its governance and oversight. Fact of the matter is that it is an elephant in the Namibian room. And unfortunately it is also intent to unleash its financial muscle to compete with the private sector for the spoils of the pensions industry it hitherto managed to survive on, considering that the GIPF represents 50% of all active members of pension funds and close to 70% of all assets owned by members of pension funds in Namibia. That is market domination by any measure! If government is at all sincere about creating an economic environment that will allow a private sector to flourish it should take urgent and purposeful steps to create an enabling environment for a vibrant private sector. I do not think it will be in anyone’s interest to further undermine the foundation on which our economy rests! Where the private sector is capable and willing to drive economic activity, it should be left to do so while government should preserve its extremely scarce resources on such economic activity that the private sector is not capable or willing to undertake. But back to the regulator and proportionality. So here we have this elephant that represents 50%+ of Namibian pension fund membership and about two-thirds of total Namibian pension fund assets. This means that in terms of supervisory effort, NAMFISA should allocate roughly 60% of its pension fund supervisory attention on the GIPF in terms of proportionality. I do not know how much attention NAMFISA spends on GIPF. I suspect it is disproportionally little, going by the number of on- and off-site inspections of funds as small as 200 members that in terms of proportionality should not ever feature on the inspecti0n program. Pension fund governance - a toolbox for trustees The following documents can be further adapted with the assistance of RFS.
Check out the new retirement calculator Our web based retirement and risk shortfall calculator has been enhanced and updated to assist you to determine how much if anything, you should contribute additionally, either by way of lump sum or regular salary based contribution, to get to your target income at retirement, death or disablement. Try it out, here is the link...
The Benchmark Retirement Fund - Flagship of umbrella funds in Namibia By Paul-Gordon, /Guidao-Oab, Benchmark Product Manager Agribank and Dutch Reformed Church in Namibia to join the Benchmark The board of trustees of the Agribank Retirement recently invited proposal from interested umbrella funds to accommodate Agribank as a participating employer of the umbrella fund. Similarly, the Dutch Reformed Church in Namibia Retirement Fund recently considered whether it should join an umbrella fund, after it became evident that it is no longer viable for smaller employers to maintain their own pension funds due to the ever increasing regulatory and compliance requirements, and the costs attached thereto. We are proud to share the news that both, the Agribank and the Dutch Reformed Church in Namibia resolved to join the Benchmark Retirement Fund! That is a feather in the cap of the Benchmark Retirement Fund. We welcome Agribank, the Dutch Reformed Church and their staff and look forward to serve them beyond expectations for many years to come!
News from RFS Long service awards complement our business philosophy RFS philosophy is that our business is primarily about people and only secondarily about technology. Every time a fund changes its administrator, a substantial amount of information is lost be it physically or knowledge. Similarly, every time the administrator loses a staff member, it loses information and knowledge. We know that as a small Namibia based organisation we cannot compete with large multinationals technology wise because of the economies of scale that global IT systems offer. To differentiate us we need to focus on personal service and on the persons delivering that service to get customer acceptance and service satisfaction. With this philosophy we have been successful in the market and to support this philosophy we place great emphasis on staff retention and long service. The following staff members recently celebrated their 10 year work anniversary at RFS! We express our sincere gratitude to these staff for their loyalty and support over so many years:
RFS once again sponsors prize giving for NAMCOL achievers For the 7th consecutive year RFS sponsored generous financial rewards to high performers at NAMCOL.  Above FLTR: Special advisor to the Governor of the Khomas Region, Mrs R Sibiya; Director of NAMCOL, Dr H Murangi; RFS Client Manager, Ms M Auene; and Director of Ceremonies Mr J Nitschke.  Above RFS Client Manager Mariana Auene handed the prizes (totalling N$ 16 000) to the recipients. FLTR: best overall NAMCOL candidate on NSSCO Level, Ms. Condensia Paulus; best overall NAMCOL candidate Mr. Simaneka L Mumbala; Ms Mariana Auene of RFS. We congratulate all NAMCOL achievers! May their dedication and commitment to their studies serve as an example to many other Namibians! News from the market RFS entrusted with the administration of NAMFISA Provident Fund With great pleasure and gratitude we announce our reappointment as administrator to the NAMFISA Provident Fund. This is a great compliment to our combined admin, fund accounting and client servicing team directly responsible for this account and of course the support teams and indeed the entire RFS team at large. We are humbled and grateful for this gesture of comfort in our service delivery and trust that we will be able to continue providing service beyond expectation! At this juncture we would like to quote wisdom of unknown origin: “In today’s world meaningful differences between businesses are rarely rooted in price or product, but instead in customer experience!” Specialist Administration Services swallowed by Liberty Life Specialist Administration Services (SAS) was launched in June 2014 by Monique Cloete, former managing director of Alexander Forbes Financial Services in Namibia and her colleague Janell van Wyk. Since its launch SAS attracted appointments by the Standard Bank Namibia Retirement Fund and the Meatco Retirement Fund. Rumours of a tie up between SAS and Liberty Life have been rife since its appointment by the Standard Bank Namibia Retirement Fund from the beginning of 2015. Although not publicly announced yet, the buy-out of SAS by Liberty Life was now confirmed independently. With this buy-out, RFS remains the only Namibian private fund administrator. SA heading the FIM Bill way A revised draft Conduct of Financial Institutions (COFI) Bill will be submitted to the South African cabinet for approval towards the end of 2019. The draft bill was published for comment in December 2018. It is designed to provide for the setting up of a consolidated, comprehensive and consistent regulatory framework for the conduct of financial institutions. These objectives are also integral to our own FIM Bill meaning that SA is now heading the FIM Bill way as far as market conduct standards are concerned. The SA Pension Funds Act must be next in line for a major overhaul. After all Namibia may once again be able to rely on big brother down south for training and legal support? Legal snippets Certificate of existence – unnecessary red tape? A guest contribution by Andreen Moncur BA (Law ) What is a Certificate of Existence (COE) in the context of retirement funds? When a person becomes a pensioner, the retirement fund that will pay his pension/annuity enters into a contract with the pensioner. In essence, this contractual arrangement provides for the pensioner to “pay” the fund a capital sum in exchange for the fund undertaking to pay the pensioner a monthly pension, usually for life. The fund and the pensioner may also agree that when the pensioner dies, the fund will pay a pension to a surviving dependant/s of the pensioner. For the fund to be able to pay the pensioner his pension, the pensioner must provide the fund with certain documentary and other information and proof, including but not limited to proof of age, bank details, and proof of life. Some of this information may need to be furnished only once, while some of it, such as a COE, may need to furnished at regular intervals. A COE is a form that essentially states that a pensioner is alive on a given date and that this fact has been verified by an authorised person (attestor), e.g. a Commissioner of Oaths, bank manager or police officer. This form is issued to pensioners annually by a retirement fund and must be completed, certified and returned to the fund by each pensioner before the expiry of a certain period. The pensioner must complete and sign the form and have it attested by the attestor. The pensioner must present himself, proof of identity and the form to the attestor to certify the form. If the attestor is satisfied as to the pensioner’s identity and other relevant facts, he attests thereto by signing and stamping the COE with an offical stamp. Thereafter the pensioner must return the certified form to the retirement fund by the due return date. Why is a COE necessary A COE is necessary because only members of a retirement fund and other beneficiaries as defined in the rules of the fund may receive benefits from the fund. Furthermore, in order to receive a pension from a retirement fund, a pensioner must be alive. There is a fiduciary relationship between the Board of Trustees (BOT) of a retirement fund and the fund and its members. The fiduciary role of the BOT creates fiduciary duties for the BOT to prevent possible abuse of the trust placed in it. A fiduciary duty is the duty of utmost good faith (uberrima fides) that demands a greater standard of care than the reasonable person would apply when dealing with his own affairs. This means that BOT must always act in good faith towards the fund and its members and always exercise its powers for the benefit of the fund and in the best interests of the members. Should a breach of its fiduciary duties by the BOT constitute a criminal offence, the BOT can be prosecuted under the Financial Institutions (Investment of Funds) Act 39 of 1984, which prescribes financial penalties and/or imprisonment. There could also be action by the fund for breach of trust and the BOT could be held liable for any losses suffered by the fund as a result of negligence. It is the duty of the BOT to direct, control and oversee the operation of the fund on behalf of the members and to look after the fund assets. This includes ensuring that:
Finally, the relationship between a retirement fund and its members is one of good faith. For each party to act in good faith and comply with their obligations, certain information/proof is required from the other party. Are COEs required by law? COEs are an established trade practice in the retirement funds industry and in other sectors in Namibia. In this sense, COEs are customary law requirements. COEs are also statutory law requirements, albeit implicit equirements. The Pension Funds Act 24 of 1956 (the Act) implicitly recognises the need for COEs. In terms of section 11(d), the rules of a fund must provide for the conditions under which any member or other person may become entitled to any benefit and the nature and extent of any such benefit. In terms of Regulation 6 of the Regulations made under the Act, the BOT of a retirement fund must annually furnish a statement of responsibility to the Registrar of Pension Funds wherein it confirms that during the financial year under review it has complied with duties imposed by law and the rules of the fund, including ensuring that proper internal control systems were employed. Fund ignores member instruction to transfer to another fund In this case (ref PFA/WC/00028340/2016/MCM) former fund member AJ van Zyl (complainant) laid a complaint with the Adjudicator on the basis that the fund paid his withdrawal benefit in accordance with his first instruction, ignoring a subsequent instruction he had submitted. The Adjudicator received the complaint on 19 October 2016 and this was forwarded to the former member’s fund for a response. It was alleged by the complainant and acknowledged by the former fund that it had paid a cash withdrawal benefit on 20 September 2016 to complainant’s bank account after having received a signed and stamped withdrawal claim form to pay the benefit in cash. Complainant had subsequently to his request for a cash withdrawal benefit, submitted a withdrawal claim form requesting the benefit to be transferred to another fund and submitted that the subsequent request was ignored by the fund. As the result he suffered loss as the result of tax on the benefit. The fund informed complainant’s former employer on 18 October 2016 that it assumed the second form was a duplication of the first form as the form was neither stamped nor signed by the authorised signatory and that it would have to submit an ACB recall to the complainant’s bank to reverse the payment already effected. The fund sent an email to complainant on 26 September after it received the member’s complaint on 26 September 2016, wherein the fund apologised and explained that it would have to submit an ACB recall in order to give effect to the second form. Complainant however advised that he no longer wanted to claim or continue as he had already invested the benefit and that he would lay a complaint. In adjudicating the complaint the tribunal considered whether the fund –
The tribunal concluded that -
Media snippets (for stakeholders of the retirement funds industry) Should government tell you what to do with your retirement savings? “...At the launch of its election manifesto in January, the ANC said that it intends to look at the introduction of prescribed assets to fund social and economic development. This would mean that retirement funds, and potentially other forms of investment, would have to invest in specific asset classes or securities set by the government. This is hardly a new idea. For a long period up until 1989, when international investment into apartheid South Africa dried up, the government prescribed that pension funds had to invest 53% of all their assets into para-statals and government bonds...It was not widely perceived to be a positive thing for individual investors then, and the return of the idea has not been welcomed by the industry now...Overall, limiting investment freedom is not a good thing. It creates artificial demand for certain asset classes and limits the amounts of money available for other asset classes, which has an impact on returns...There is no question that South Africa’s enormous retirement savings pool has the potential to play a bigger role in developing the country. It must however do so in a way that does not pose a risk to the investors whose money it is...This is because South Africa already has a retirement savings problem...The government therefore needs to bring a more nuanced approach to the problem...The question is whether one does that through prescription or other policies. We think you can do it by making asset classes that are difficult to invest in, like infrastructure, easier to invest in...This has shown conclusively that large amounts of capital, much of it from pension funds, can be freed up for economic development when the right incentives are created...” Read the full article by Patrick Cairns in Moneyweb of 8 March 2019, here... RA vs pension fund – here are the pros and cons “...Retirement annuity Retirement annuities are private retirement funds that anyone can purchase in order to save for their retirement. Pros
You contribute to an employee fund through your employer deducting the amount from your salary. An employee retirement fund can either be a pension fund or a provident fund. Pros
Read the full article by Zola Zingithwa in Sunday World of 13 February 2019, here... Media snippets (for investors and business) Is your leadership team acting like a true team...? Here is an extract of 2 interesting questions and answers from an article on leadership: Q. So how do leaders create that level of trust? A. As a leader, you have to be very open and up front yourself. If the team leader doesn’t demonstrate that they’re prepared to be challenged and questioned, then it’s very hard for the rest of the team to do the same. If you’ve got a senior leader with appropriate humility who is prepared to put issues on the table and be challenged and questioned, then I think it makes it easier for the rest of the team to do that. It also helps to be explicit in team discussions about what, as a leader, you want from the meeting. Have you already made your decision and you just want their input? Or do you want their input to help make a decision? I don’t think leaders are always clear with their team about such things in meetings, and people will generally be accepting if you’re clear with them because they know that, on the really big calls, it’s the CEO’s decision because he or she ultimately is held accountable for the outcome.” Q. What were some important leadership lessons for you personally? A. The biggest feedback I got about my leadership style early on was around my style of communicating to people on major issues. I would try to get them to see the issue through prompts and communication rather than being very direct. I was probably too empathetic as a leader, and that would get in the way of sometimes giving the direct or clear feedback that people needed to hear. I was told that I needed at times to be a lot more direct and a lot clearer and less consensus-driven and empathetic. One challenge for leaders is that you sometimes have to move into a style that’s not your natural style. Some people struggle with that because they almost feel like they’re acting – “That’s not who I am. I’m not being real.” But as a leader, sometimes you have to be different things to different people, and you may need to stretch your style. And that doesn’t mean in any way impacting your integrity or your honesty. But a lot of people struggle with that.” Read the full interview by Adam Bryan in Linkedin of 11 March 2019, here... Think your job is meaningless? Think again. “In our lifetimes, each one of us will spend the majority of the time we have on Earth doing one of two things: sleeping (26 years) and working (13 years). That’s right, 113,880 hours of our lives will be spent working - that’s more time than we will spend on holiday or even socialising... It goes without saying that that the career we choose to follow is a dominant force in our lives, not just in terms of the amount of time we spend doing it, but also in terms the impact it has on us... What gets us out of bed each and every morning for 13 years? I think most of us would agree that it’s not the pay packets or office perks that ultimately get us out of bed every single morning, time and time again, for years and years... In fact, what really drives us is the sense of meaning and purpose we get from what we do every day... Our jobs are changing yet again, with most of us facing the prospect of working alongside machines in the not too distant future. So, does this, combined with the fact that most will be working for longer, mean it will become even harder for us to find meaning in our work? Are some jobs more meaningful than others? The short answer is no. When people think about meaning at work, many wrongly assume this is reserved only for those who work for organisations that have a direct, positive impact on the world around us – for instance, charities, schools, hospitals etc. That thinking is wrong... How to build more meaning into your work, no matter what you do Even if, admittedly, you’re not inherently motivated by your company’s mission, it is, in fact, possible to find and build meaning in other aspects of your day-to-day work:
The secret power of a thank you note Thank-you notes might seem old-fashioned but there's plenty of value to be found in the tradition. According to a study by Accountemps, just 24% of job applicants send thank-you notes after interviews — but 80% of hiring managers who receive them say they are useful in evaluating the potential of applicants. Proponents of thank-you notes say they are an inexpensive way to strengthen a relationship and show the applicant cares about the job. Perspectives curated by LinkedIn Editors And finally... Did you ever wonder why?? WHY: In golf, where did the term 'Caddie' come from? BECAUSE: When Mary Queen of Scots went to France as a young girl, Louis, King of France, learned that she loved the Scots game 'golf.' He had the first course outside of Scotland built for her enjoyment. To make sure she was properly chaperoned (and guarded) while she played, Louis hired cadets from a military school to accompany her. Mary liked this a lot and when she returned to Scotland (not a very good idea in the long run), she took the practice with her. In French, the word cadet is pronounced ‘ca-day' and the Scots changed it into caddie. |
|||||||||
2019-02
| In this newsletter: Benchtest 01.2019, Administration of Estates, National Pension Fund 2, the CoA Return and more... |
||||||||
|
Important notes and reminders
VAT refunds stuck in the system! Newsletter
And our Managing Director continues his discussion on a National Pension Fund.
Tilman Friedrich's Industry Forum Monthly Review of Portfolio Performance to 31 January 2019 In January 2019 the average prudential balanced portfolio returned 1.2% (December 2018: 0.74%). Top performer is Namibia Asset Management Fund (2.7%); while Allan Gray Balanced Fund (-0.49%) takes the bottom spot. For the 3-month period, Hangala Prescient Absolute Balance Fund takes top spot, outperforming the ‘average’ by roughly 2.78%. On the other end of the scale Allan Gray Balanced Fund underperformed the ‘average’ by 3.25%. Note that these returns are before asset management fees. The world of investment and retirement is not what it used to be! Politicians, particularly those of the western world, would want to make us believe we live in an open global economy. However, where international trade is concluded in a single currency, where fiscal and monetary authorities intervene massively in financial markets, more will have to be done by the politicians to make the public believe. The law of demand and supply, has no bearing on the behaviour of markets today. Savers are paying off the debt of borrowers through artificially low interest rates that are set by monetary authorities. So-called ‘safe haven’ investments are earning negative real interest rates and the investor is now conditioned to accepting that he will have to work until he drops dead, instead of realising his dream of retiring at an age where one might still be able to enjoy life for a while. Retirement ages are extended while pension entitlements are at best being questioned and already reduced in some countries. With negative real interest rates seemingly having become the ‘new norm’, asset valuation models are now being questioned. Why should this be of concern to a pension fund member? Well the point is that pension fund contribution structures were established over the course of the past century or more based on the assumption of cash returning around 2% above inflation, bonds around 4% above inflation, property around 5% above inflation and equity around 8% above inflation. A typical balanced portfolio comprising of a mix of these assets based on conventional investment theory was expected to return roughly 5% above inflation, net of fees. Pension theory then arrived at a net retirement funding contribution rate of 11%+, to produce an income replacement ratio of 2% per year of membership. Indications based on the ‘new norm’ are that one is now only looking at a net return of between 2% and 3% p.a. Read part 6 of the Monthly Review of Portfolio Performance to 31 January 2019 to find out what our investment views are. Download it here... Can you currently invest anywhere but in cash? The US Repo rate is currently 2.25%. In this month’s commentary we continue the discussion on the US repo rate and its implications for global financial markets and therefore on investment decisions. What is the risk of investing anywhere other than cash now and in which asset class can you otherwise invest? We have in last month’s commentary shown how closely correlated the SA interest rates and the JSE is to its US equivalents. Fiscal policy is driven primarily by the state of the economy which drives inflation and the tools used to drive policy are interest rates and the supply of money to the market. If the economy overheats inflation rises and this will result in the lifting of the Fedrate (or repo rate in SA). If the economy is moving into recession, the Fed will attempt to stimulate it by dropping its policy rate. Inflation will follow the decline in the economy. When the global financial crisis struck at the end of 2007, the US economy turned into recession. The Federal Reserve responded by lowering its policy rate from 5.25% in July 2007 to 0.25% in December 2008, and by flooding the market with money, in order to support the economy. GDP did recover rapidly out of negative territory up until the middle of 2009 to peak at just below 6% in quarter 2 of 2014. Since then it has declined steeply to steady at around 2% barring a blip taking it to just over 4% in the middle of 2018, probably the result of changes to US tax laws (refer graph 1). Graph 1  Over the past just over 30 years the US Fed Rate was on average around 0.7% above inflation. However, excluding the period since the start of the global financial crisis from December 2007 to date the differential was 1.7%. Graph 2 shows how well correlated these two metrics have been since 1987 (Fed Rate measured on the right hand axis) but it shows a large gap between these currently. The graph also confirms that a 2% shift between the two axes produces a good fit of the two lines. The gap between these two lines can close through a decline in inflation or an increase in the Fed Rate or both. As things stand, it seems that the Fed has stalled further rate increases for the time being while the inflation rate is on a downward slide. This is not what the Fed wants to see as it means that the economy is in reverse gear and therefor it cannot afford to lift the Fed Rate, the chance being that it will be reduced if inflation continues to sag. Currently the differential between the Fed Rate (2.5%) and US annual inflation (1.9%) is 0.6%. This is still around 1% lower than the long term average. Graph 2  Tracking the red (CPI) lines and the blue (policy rate) lines in graph 2 and 3, it is indeed surprising how closely they resemble the other, as I referred to in last month’s column, “the dog wags the tail”. Note that on graph 3 the SA Repo is measured on the left hand axis and the CPI (Namibian) on the right hand axis. Evidently SA had nothing to do with global politics, e.g. Kuwait invading Iraq or with the Tech Bubble yet our market moved in sympathy with the US market. Currently the differential between the Repo Rate (6.75%) and Namibian annual inflation (5.1%) is 1.8%. That represents a real rate of 0.6%. Over the past just over 30 years the Repo Rate was on average around2.5% above inflation. However, excluding the period of artificially low interest rates since the start of the global financial crisis, from December 2007 to date, the differential was 3.6% and this is where we have to get back to for a normalization of asset class valuations. A normalization will probably be delayed due to the state of the SA economy. Undoubtedly also due to the absence of sufficient risk premium for foreign investors, we saw R 120 billion foreign portfolio investment leaving local markets for the year 2018. To lure foreign investor into SA, the repo will have to be raised substantially. Once the Federal Reserve resumes lifting of its policy rate, SA Reserve Bank’s hand will in any event be forced. Graph 3  It is evident from the above analyses that the US Fed Rate is still around 1% off its long-term inflation differential and a normalised interest rate environment. Since the Fed has stalled further increases in its policy rate for the time being it is difficult to foresee for how long global financial markets will remain in the current state of flux but markets will definitely not show any fireworks for the next 12 months and perhaps quite a bit longer. Graph 4 shows a noticeable, negative trend in global equity markets since the beginning of 2018, the DAX leading the pack with a decline of close to 20%. Graph 4  The question is whether we will see this continuing or whether equity markets have now bottomed out. Since 1986 SA equities now delivered a real return of only 5.7%, including dividends where the long-term expectation is 7.4%. This indicates that our equity market is now ‘behind the curve’ and needs to catch up again. Looking at the US equity market, the S&P 500 produced a real return of 6.7% including dividends which is in line with the long-term expectation of 6.5%. From that perspective, the US market does not pose a threat of a significant downward correction. Conclusion We believe that the normalization of interest rates has largely been factored into equity valuations already and that the risk of a further downward correction is slim. We expect normal returns from US equities and believe that SA equities need to catch up as they are behind the curve in terms of long-term returns. They should present a buying opportunity. Since there is no evidence that the global economy is busy turning around, it is difficult to identify any economic sector that might produce some fireworks over the next 12 months meaning that one should spread your investments across all economic sectors but should preferably pick companies with quality earnings and high dividend yields. The CoA return - time for a post mortem? The Chart of Accounts return came a long way and changed its guise repeatedly and substantially. The first time it raised its head in official form was so long ago, I can hardly remember – 2012 it was. By 2013 it had become imminent. We had already been in touch with our system vendors and they had started to gear up – and then it fell flat again. Imagine we had instructed our system vendors to proceed programming the report as it then looked on the basis of this reporting being imminent? It would have been a total waste of time! 2016 then saw a resurrection of the report under the guise of the One Chart of Accounts. Back then we questioned a number of principles, following an open invitation by the regulator, such as:
At the request of NAMFISA, RFS engaged in testing the report at considerable expense and provided extensive commentary. These comments were ignored by the regulator. JbC (just before Christmas) the regulator issued a circulator informing all retirement funds that the new report now needed to be submitted, and this 15 days sooner than the predecessor report the industry had just gotten on top of, namely by 31 January. No guidelines were provided on how this report is to be compiled. Pleas by RFS to provide an input sheet to industry to facilitate the uploading of information were dismissed by the regulator. The report was not accessible on the ERS system until after Christmas, for all intents and purposes only on the 2nd of January. RFS suggested to its clients immediately to apply for extension, having been aware about a number of problems with the report. These applications were all denied by the regulator on the basis of the arguments being unwarranted. When it eventually became evident that there were indeed problems with the report, the regulator eventually granted some funds extension to end of February but at the same time set the condition that the predecessor report had to be submitted by 15 February! This predecessor report of course was substantially different from the new report meaning that the whole processes of compiling and submitting information needed to be started all over again. This condition was apparently eventually waived by the regulator. It did not affect RFS as our clients had all submitted their returns in the deficient format in time! No sooner had some funds diligently and in time submitted their report as directed by the regulator, the regulator for the first time acknowledged some of the problems with the report. Certain fields were not open and could not be filled in. Funds were now directed to resubmit their reports within 7 days after these fields were opened! We suggest that the run-up to the submission of the new report as set out above should warrant a post mortem to determine whether this reflects the spirit in which cooperation between the industry and the regulator should be approached. NAMFISA’S 2018 annual report defines objectives vis-à-vis its stakeholders as -
Child Care and Protection Act - an overview The Child Care and Protection Act, Act 3 of 2015 was promulgated in Gazette 5744 of 29 May 2015, to give effect to the United Nations Convention on the Rights of the Child, the African Charter on the Rights and Welfare of the Child and other international agreements binding on Namibia. This massive Act of 254 sections and 279 pages, plus 120 regulations covering over 300 pages that were promulgated on 30 January 2019, commenced on 30 January 2019. It provides for a penalty not exceeding N$ 50,000 or imprisonment not exceeding 10 years or both, for offences relating to abuse, neglect, abandonment or failure to maintain a child. It also provides for the state paying a maintenance grant, a child disability grant and a foster parent grant, in an amount and frequency as determined by the Minister by regulation. The Act aims to:
If you would like to have any overview of the contents of the regulations to the Act, download it here... Administration of Estates Act debacle The amendment to the Administration of Estates Act requires with immediate effect, that all monies payable to minors and persons under curatorship payable from pension funds, insurance policies, annuities and even from deceased estates, to be paid to the Guardians Fund in the Master’s Office. This Amendment Act applies ‘notwithstanding any other law’. It thus overrules every other law including the Pension Funds Act as from 1 January 2019 and requires that pension funds now have to pay any lump-sum benefit and any pension benefit to the Guardians Fund, given that the Minister of Justice believes that he has the powers to stay the prompt implementation thereof by way of public pronouncements and a letter which requires trustees to continue paying benefits to minor as before, ‘in the best interests’ of the minor. This puts trustees in a very awkward position. Firstly, can the Minister stay the implementation in this manner? Remember that trustees have a duty to comply with laws and regulations, the same for the funds’ auditors and non-compliance may carry serious sanctions for trustees and auditors. Why has NAMFISA not pronounced itself on this yet? Does this mean that all funds should obtain legal opinion on how they should act under these conditions? Secondly, if the Minister’s official staying of the implementation of his amendment indemnifies trustees from being in breach of the law, which I believe not to be the case, how would they interpret ‘in the best interests of the minor’? Considering that the amendment was justified by reference to abuse of minors’ moneys by service providers and by reference to excessive costs having been charged to minors for the processing of benefits due to them. Now funds are to continue as before but does that include them condoning the abuse referred to? Surely it must be argued that this will then not be ‘in the best interests’ of the minor. Considering that the Master will administer these moneys at no cost, I would argue that trustees need to ascertain that minors should bear no costs in respect of the processing of any benefits payable to them. Just not sure who would do any work without compensation? Let’s turn to the topic of costs. Clearly no-one would engage in business without compensation. Whether it is a minor or a major, everyone has to pay for any service consumed and that includes the taxpayer who has to pay for the services provided by government – through tax primarily but often through fees as well. Why should a minor be treated differently to a major? As far as my knowledge goes, fees charged by the various providers of financial services are based on the type of transaction and do not consider the age of the beneficiary. The free market mechanism surely will separate the corn from the chaff and ascertain that anyone charging unreasonable or abusive fees will sooner rather than later run out of business? To use these arguments for government or one of its agencies to ‘nationalise’ a part of the economy in a monopolistic environment, is highly questionable. This insinuates that government can do better than private sector operating in a competitive environment. Unarguably this is not the case as has been proven by so many socialist experiments across the world, and this is regularly admitted by government. In contrast Martyn Davies MD of emerging markets and Africa at Deloitte believes that “…the state cannot be trusted to own anything... (see report ‘The state should not own anything’ further down). Another interesting dilemma in this saga is that the amendment now inserted age 21 as age of majority for the purposes of the Act. Yet the Child Care and Protection Act just reduced the age of majority to 18 from 30 January 2019! Which one prevails? Finally we have a dilemma regarding the Income Tax Act. The fund and its administrator are obliged in terms of the ITA to determine and to deduct income tax on any taxable benefit and to issue a PAYE 5 certificate to the relevant taxpayer. Furthermore, any annuity is gross income. The implication is that in practice the administrator must deduct income tax from the annuity and issue a PAYE 5 certificate for the amount paid and any tax withheld. In terms of the amended Administration of Estates Act, the annuity now must be paid to the Guardians Fund. The Guardians Fund in turn should pay this annuity as an annuity for the benefit of the minor beneficiary to the guardian. Since this will then also be an annuity it must be taxed, or at least it is taxable. The ITA never envisaged such a scenario and therefore does not require the Guardians Fund to deduct tax and to issue a PAYE 5 certificate, which does not change the taxable nature of the annuity. To address this dilemma will require some fancy footwork in terms of trustees deciding what they want to offer to the minor beneficiaries of any deceased employee and how this must be dealt with in the rules in order to deal with this dilemma, To round off the discussion on the Administration of Estates Act debacle, our industry will now be forced to change its processes and procedures to comply with this Act. The Master will set up processes and procedures to receive, to record to maintain and to dispose of benefits it will receive in respect of minor beneficiaries – and this will only be for a short while where after the situation will change fundamentally once again! Come the FIM Act, we are effectively back to the previous dispensation because it will once again be the trustees’ responsibility to dispose of benefits for minors and majors in a clearly prescribed manner, as set out in section 276 and will have to be observed ‘despite anything to the contrary contained in any law’! Since the FIM Act will be a younger Act than the Administration of Estates Act, as now amended, the FIM Act will prevail! Estate planning in the new estates law environment Estate planning is no longer what it used to be with the amendment of the Administration of Estates Act. Where a testator directed that a trust be created for his minor child or children, grandchild or grandchildren or any other minor to be funded from a portion of his estate after his passing away or if he has already created a trust for such minor beneficiaries, the testator needs to be aware that the moment a benefit becomes vested in a minor, i.e. the minor has a legal claim on receiving the benefit, the amount, whether it is a capital amount or an annuity, must be paid to the Master for disposition to or for the benefit of the minor in its absolute discretion. Bear in mind that anyone above the age of 18 is no longer a minor as from 31 January 2019. The Master will thus now, most likely, pay out any remaining capital of a minor upon the minor reaching the age of 18. (Note that it is not clear yet how the conflict between the age of majority of 18 and the age of 21 specifically referred to in the amendment of the Administration of Estates Act will be resolved.) This may also not be what the testator would have wanted. Where the testator is also not comfortable that his bequest to a minor is entrusted to the Master of the High Court, he needs to consider the alternatives. Hopefully the Minister of Justice will realise that the amendment of the Administration of Estate Act may lead to capital flight from Namibian to other jurisdictions that still provide for freedom of testation. Failing the retraction of the obligatory disposition of all moneys due to minors to the Guardians Fund, subject to the total discretion of the Master, testators conceivably may create a trust in South Africa or another jurisdiction and determine an amount to be paid into that trust without specifying the minor or minors in respect of whom this money is to be paid so that at that point the minor has no legal claim on the money. The trust deed in the neighbouring country would then lay down the parameters of how the money should be allocated to minor beneficiaries. Testators may also attempt to circumvent these unwanted consequences by nominating a trustworthy family member with whom they agree to accept a bequest and how the family member is to deal with the moneys in the interests of the minor beneficiaries. Trustees are put under ever increasing, disproportionate pressure So we in Namibia are trying to emulate, sometimes even lead the developed world in putting ever increasing pressure on trustees to shape up. Trustees are expected to become professionals in their role as trustee, never mind the fact that for 90% of all trustees this job has been assigned to them by or with the blessing of the employer, as an adjunct to their position in the management structure of the employer. They cannot, and will never be pension experts as this would require them to neglect their job that earns their company its keeps. Neither can pension funds, barring a few exceptions, afford to engage professional trustees. I believe trustees already find the going tough, and that is even before they have been confronted with the requirements of the FIM Act. Just the other day principal officers received a circular from NAMFISA “Supervisory guidelines on the integration of ESG factors in the investment and risk management of pension funds” with the remark that this “…document for your use and submit your comments if any to the IOPS Secretariat, Dariusz Stanko at This email address is being protected from spambots. You need JavaScript enabled to view it. by 11 March 2019. We like acronyms – IOPS, the International Organisation of Pension Supervisors Who will respond? Unlikely that anyone will, after all who has already incorporated ESG factors into their company management processes? For those that have never heard about ESG, it stands for Economic, Social and Governance principles that KING IV also refers to. Does it make sense for your fund to lead your company from a governance perspective or should it rather be the other way round. Surely your company should come first as its survival will determine the survival of its pension fund rather than the converse. This is where proportionality should come in! Not interested in IOPS or ESG, you may think, but be aware! When the regulator sends this out for commentary, it probably has something up its sleeve! It will likely not be the last time you as a trustee will hear about these acronyms. Just another indicator that the road forward will be uphill for the pensions industry. The direct cost of operating a retirement fund for employees is steadily increasing and that does not account for a significant element the employer is and has been carrying all along such as the time its senior staff spend on pension fund matters. For all its good intentions to provide for the well-being of its employees through its pension fund, the employer gets slapped with ever increasing regulatory demands and is exposed to the ever increasing risk of non-observances of laws and regulations some of which can have the consequence of a senior staff member either ending up in jail or being barred from serving on its board of directors. In just about every discussion on global best practice with regard to the management and governance of the pensions industry, reference is made to ‘proportionality’. Surely in every country there should be intense discussion about what proportionately means for the country when striving to pursue global best practice? As far as my knowledge goes, there has never been an open discussion between the regulator and the industry as to what proportionately means to our regulator and our industry. Pension fund governance - a toolbox for trustees The following documents can be further adapted with the assistance of RFS.
News from RFS RFS says thank you for loyal service We express our sincere appreciation for 5 year’s loyal service and commitment to RFS and our clients to –
Since its establishment in August 1999, RFS Tigers participated in every Volleyball for All tournament!  Above: the MD motivating our team.  Above: some of our ladies distracting the attention of their competitors! News from the media RFS captures PMR Diamond Arrow award  Above: Louis Theron (L) and Gunter Pfeifer (R) with the 2019 PMR Diamond Arrow for the Pensions / Retirement Fund Administrators category. Retirement Fund Solutions (RFS) has been awarded the 2019 PMR Diamond Arrow award. This is the 4th Diamond Arrow awarded to RFS for achieving 1st place in the category ‘Pension / Retirement Fund Administrators’ in as many times participated. Marthinuz Fabianus, Managing Director of RFS, dedicated the award to the tireless commitment and dedication of RFS staff that often go beyond the call of duty. He remarked that the Diamond Arrow did not come easily as RFS squared off against established multinationals. He thanked RFS clients for consistent support and loyalty over the past 19 years RFS that has been in business. The Diamond Arrow is awarded to the participant with the highest score of not less than 4.10/5. RFS scored 4.26/5. Second place Gold Arrow went to Old Mutual with a score of 4.20/5. Sanlam took the Silver Arrow with a score of 4.15/5. Alexander Forbes was fourth in this category with a score of 4.06/5. Legal snippets Death benefits – did you know that...
(for stakeholders of the retirement funds industry) Before you restructure your fund, consider this truly independent advice Richard Morris, former associate director of PWC offers some prudent advice which trustees should carefully consider when restructuring their fund. Although this is a fairly dated article it is still as relevant today as it was then and is worth reading by every trustee and adviser.
No fund manager stays on top for ever In 2002 S&P Dow Jones Indices published the first S&P Indices Versus Active (Spiva) scorecard. It was a piece of analysis that compared the returns of active fund managers in the US against a broad market benchmark. It wasn’t exactly a revolutionary piece of research, but it did introduce a new level of clarity to the argument for the use of index funds. Back in 2002, and consistently ever since, Spiva has showed that very few active managers are able to outperform a broad market index over any time period, either short-term or long-term, and even fewer can do so consistently… What SPDJI did find surprising, however, was that this was a global phenomenon, and that it was persistent. The opportunity for active managers to outperform is higher in inefficient markets, but there just aren’t that many of these anymore.” Read the full article by Patrick Cairns in Moneyweb of 19 February 2019, here... Three factors that will determine your future wealth Saving enough for retirement can seem like a daunting and complex problem. However, there are really only three things that investors have to consider. “In its simplest form, saving for retirement depends on three factors: time, contributions and returns…
Media snippets (for investors and business) The state should not own anything State-owned entities (SOEs) should be privatised, because the state cannot be trusted to own anything, says Deloitte MD of Emerging Markets and Africa Martyn Davies. This comes ahead of the 2019 budget policy statement at a time in which stabilising SOEs, which have weighed on the country’s finances, will again be at the fore. “Hopefully the trajectory is one from stagnation to currently thanks to [public enterprises minister] Pravin Gordhan moving towards stabilisation. The inevitable next step is privatisation. Those are the three steps,” Davies said at a media briefing. “I don’t believe the state should own anything. In SA’s case, you clearly can’t trust the state to own anything,” he said. Davies said President Cyril Ramaphosa will likely announce in the next few weeks that embattled power utility Eskom will be broken up. “It should have been announced a year ago but we waited until we’re in this policy limbo as we wait for elections,” Davies said. “Breaking up Eskom is inevitable otherwise it’s going to tank the economy.” ̴ The Red Eye – Momentum Investments The six habits of successful companies “What makes private companies great? In an unscientific analysis six habits found at the biggest private firms as well at some smaller, successful ones have been extrapolated. The writer hopes you can apply one or more of these lessons to your business, no matter what size. Here is the list:
4 Simple things you can do to improve your leadership right now “…Leadership can be easy, and I wanted to share four secret tips that you can do right now, that will make you a better leader and will help to improve your influence and results immediately. Now you might not think that these are really secrets, but, given how few leaders do them, it certainly seems that way to me,
And finally... Did you ever wonder why?? WHY: Why is shifting responsibility to someone else called 'passing the buck'? BECAUSE: In card games, it was once customary to pass an item, called a buck, from player to player to indicate whose turn it was to deal. If a player did not wish to assume the responsibility of dealing, he would 'pass the buck' to the next player. |
||||||||
2019-01
| In this newsletter: Benchtest 12.2018, the National Pension Fund, FIM Bill concerns, new CoA report, Admin of Estates Act and more... |
||||||||
|
Check out our new retirement calculator
PWC Tax Alert on ITAS Newsletter
Tilman Friedrich's Industry Forum Monthly Review of Portfolio Performance to 31 December 2018 In December 2018 the average prudential balanced portfolio returned 0.74% (November 2018: -1.73%). Top performer is Momentum (2.33%); while Namibia Asset Management (-0.56%) takes the bottom spot. For the 3-month period, Momentum takes top spot, outperforming the ‘average’ by roughly 1.74%. On the other end of the scale Namibia Asset Management underperformed the ‘average’ by 2.50%. Can you currently invest anywhere but in cash? In this month’s commentary we continue the discussion on the US repo rate and its implications for global financial markets and therefor on investment decisions. What is the risk of investing anywhere other than cash now and in which asset class can you otherwise invest? We have in last month’s commentary shown how closely correlated the SA interest rates and the JSE is to its US equivalents. Fiscal policy is driven primarily by the state of the economy which drives inflation and the tools used to drive policy are interest rates and the supply of money to the market. If the economy overheats inflation rises and this will result in the lifting of the Fedrate (or repo rate in SA). If the economy is moving into recession, the Fed will attempt to stimulate it by dropping its policy rate. Inflation will follow the decline in the economy. When the global financial crisis struck at the end of 2007, the US economy turned into recession. The Federal Reserve responded by lowering its policy rate from 5.25% in July 2007 to 0.25% in December 2008, and by flooding the market with money, in order to support the economy. GDP did recover rapidly out of negative territory up until the middle of 2009 to peak at just below 6% in quarter 2 of 2014. Since then it has declined steeply to steady at around 2% barring a blip taking it to just over 4% in the middle of 2018, probably the result of changes to US tax laws (refer to graph 1 below). Read part 6 of the Monthly Review of Portfolio Performance to 31 December 2018 to find out what our investment views are. Download it here... It’s the dog that wags the tail - how the US economy impacts SA (and Namibia) For those readers who may have overlooked our monthly investment commentary in last month’s Performance Review as at 30 November 2018, we present this here once again. The US Repo rate is currently 2.25%.While the US annual CPI has steadily been creeping up from around 0% in January 2015 to 2.95% at the end of July, it has been on the decline again since then, contrary to the Fed’s expectation, to reach 2.18% at the end of November. This means that any US citizen investing in US treasuries is now for the first time since November 2015, earning a positive real interest rate. If this trend continues, the appetite of US investors for equities is likely to wane, removing the underpin of equities in the US and globally. The declining inflation in the US is probably also at least part of the reason why the Fed has no raised the repo rate at its last sitting, contrary to a general expectation that it would. The US needs inflation to deflate its huge debt burden and expected quantitative easing to do this job. It seems though that this strategy has not worked and the risk of deflation is on the rise. This may present major structural challenges and may result in us treading a very uncertain path and in increased market volatility. A negative real interest rate is clearly not sustainable and is the cause of artificial imbalances in asset valuations that are due to correct once the situation returns to normal as we are starting to see now. The US repo rate should be around 1.5% higher than US CPI, going by historic evidence stretching back to 1988 and up to the onset of the global financial crisis. Based on current US CPI of 2.2%, the US repo rate should be around 4%. Once the repo rate offers a real return of 1.5% or reaches 4% under current inflationary conditions, it would indicate a normalised interest rate environment. At the more recent rate of upward adjustment of the US repo rate and the state of the global economy we are once again looking at around 3 to 4 years now until we reach this point given that we saw 6 increases of 0.25% each over the past 4 years. This of course assumes that the global economy will pick up at the speed it has over the past 4 years, whereas at the moment it could go in either direction. So where will this leave SA? Graph 1  Graph 1 above shows how closely correlated the SA and the US repo rates have been over the past 30 years plus, the SA repo (measured on the left vertical axis) generally lagging the movement of the US repo (measured on the right vertical axis). With an expectation that the Fed is unlikely to raise its repo rate given the current state of affairs, the SA Reserve Bank is unlikely to lift its repo further any time soon unless forced to do so because of a declining positive differential between US and SA real repo rates. Graph 2  Since one would expect the interest rate to impact the exchange rate an interesting question is whether this is indeed the case. Graph 2 above measures the differential between the US and the SA real repo rate, i.e. the nominal repo rate minus annual inflation (the red line measured on the left vertical axis) and the Rand: US Dollar exchange rate (the blue line measured on the right vertical axis). Tracking the red line against the blue line, one will note a fairly distinct decline in the real repo rate differential (i.e. SA offers a higher real repo rate than the US) up until around 1994, coincidentally the time of the democratization of SA, despite a growing gap in real repo rates in favour of SA. There is hardly any correlation between these two lines over this initial period. Over this period the Rand weakened steadily against the US Dollar. From the beginning of 1999 up until about 2012 a relatively higher real repo rate in the US is accompanied by a weakening of the Rand and vise-versa, and we see much closer correlation between the red line and the blue line. Since 2012 the real repo differential hovered between minus 4% and 0% in favour of SA while the Rand continued to weaken significantly against the US Dollar from about 9 to its current level of around 14. It would be interesting to overlay political events in SA onto this graph such as the election of president Zuma and the end of his term. This graph does indicate that the Rand is currently excessively weak relative to the real repo rate differential between the US and SA, possibly for political reasons. This is also borne out by graph 5.1 in paragraph 5 above. Looking at the last few months, the real repo rate differential is closing in favour of the US and we simultaneously see a weakening of the Rand. This indicates that SA will be under pressure to raise its repo rate if the US inflation continues to drop or if the US lifts its repo rate. Graph 3  As illustrated in graph 3 above, both the S&P 500 and the ALSI have grown strongly in real terms since the beginning of 1987. While the current S&P 500 price: earnings ratio at 18.9 is well below its 30 year average of 22.3, the current ALSI price: earnings ratio of 14.9 is now on its 30 year average of 14.7. Graph 4  However looking at graph 4 above, the S&P 500 CPI adjusted earnings (measured on the left vertical axis) of currently 145 are twice its 30 year average of 71. The ALSI CPI adjusted earnings (measured on the right vertical axis) of currently 3,411 are 40% higher than is 30 year average of 2,400. This also indicates a risk of earnings declining to more normal levels and a consequent risk of equity markets adjusting downward. With these expectations, the Rand and local interest rates will remain under pressure for the next 2 to 3 years and this will also impact negatively on local inflation. Equity markets are exposed to the risk of a downward adjustment. Low returns on equities and rising interest rates will also impact negatively on the consumer. On the flipside, a weak Rand should promote exports and support Rand hedge shares that benefit from the weak Rand and should promote local manufacturing and exports which should eventually create jobs and lead to improved consumer sentiment. Minister at long last responds to FIM Bill concerns The Minister of Finance at long last responded to a long list of concerns industry raised with him during a meeting held on 26 July, in a letter dated 11 December. Although the meeting was arranged with the Minister, he unfortunately did not attend. The hand of the ‘ghost writer’ is all too obvious in the Minister’s response. As one commentator observed “what is the purpose of requesting a meeting with the Minister to listen to concerns and grievances of an industry and its regulator if the Minister considers it appropriate to simply sign off the answers provided by the regulator that the industry has taken up with the regulator before and has been unable to get what it would consider a fair hearing.” A reader will be able to get a good feeling by simply browsing over the responses provided to the arguments raised by the industry, without needing to refer to the submission by the industry to the Minister. Download the response here... Annual ERS return replaced by CoA return It appears that the annual ERS returns as at 31 December funds had to submit by 15 February over the past few years has now been replaced by a quarterly ‘Chart of Accounts’ (CoA) return. Not only has NAMFISA unannounced cut down the time for submission from 15 February to 31 January for the first return as at 31 December, but this is also now a format that is quite different from what has last been under discussion and testing and totally different of course form the previous ERS returns that service providers slowly got on top of. Our precursory assessment of these all-new reporting requirements highlights the following concerns:
It seems that the Registrar has little sympathy for funds requesting extensions, on the basis that there has been sufficient forewarning for some time that a ‘new animal’ will be released from its cage and the argument that ‘all other industries’ also have to submit by 31 January 2019. (Interestingly we understand that the insurance industry was in fact granted extension.) Tough luck for you if you thought it’s going to be a house cat and it actually turned out to be a lynx since its release jbC (‘just before Christmas’). The fact that pension fund administrators administer significant numbers of financial institutions on the outsourced basis, each one of whom has to submit the all-new report, whereas the other regulated industries typically only report on their own institution on the in-sourced basis, seems not to carry any weight! We have pointed out before that it serves little purpose to require any reporting that is not aligned to international generally accepted accounting standards, which CoA certainly is not. It is so detailed that it will be impossible to achieve consistent disclosure by all funds and hence any comparisons between funds and pension fund industries be it local or international, will not be reliable or meaningful. It is a futile exercise that will only add to the cost of compliance of funds and puts ever more in question the viability of funds other than very large funds, to retain their identity as stand-alone fund. The following commentary by a well versed trustee gives a reflection of the current state of affairs in our industry: “I really do not think that the Chart of Accounts is reasonable at all for Pension Funds, and this project must have been scaled down to balance the costs versus the benefits. Further, they should have developed the returns in Excel which can then be uploaded. These returns should also have been coherent and meaningful rather than an endless list. NAMFISA must act reasonably as administrators of the Pension Funds Act. Reasonability is required of administrators of all laws by our Constitution. We must go back to the drawing board, agree on what is reasonable to be provided on quarterly basis and to be provided on annual basis (together with the AFS) as well as formats and structure of the returns. They must also show their readiness on the project and remove all errors that are being encountered, things don’t balance.” Administration of Estates Act Surprise An amendment to the Administration of Estates Act (Government Gazette 6813 of 31 December 2018) has been passed by parliament and signed into law on 31 December 2018. It requires with immediate effect, that all monies payable to minors and persons under curatorship payable from pension funds, insurance policies, annuities and even from deceased estates, to be paid to the Guardians Fund in the Master’s Office. This Amendment Act applies ‘notwithstanding any other law’. It thus overrules every other law including the Pension Funds Act that otherwise offers such attractive protection to beneficiaries. It passed through parliament without any question being raised where one would have thought that the phrase “...notwithstanding any other act...” should immediately raise red flags and should arouse probing questions on what other acts may be overridden and in which way! The implications of the Amendment Act were never discussed with the pensions industry and, as we understand, other affected industries although it has a severe impact on it and its stakeholders. It was also slipped through at year end, seemingly a strategy for implementing controversial amendments? We have raised our concerns with the Master of the High Court, the deputy permanent secretary of the Ministry of Justice and NAMFISA respectively, immediately upon our return to office in January. The Master advised that it was not the intention to oblige pension funds to pay all amounts due to minor beneficiaries to the Master as stated in the Gazette. The intention is that all lump sum amounts are to be paid to the Master but that all recurring payments should be paid as before by the administrator of the pension fund to the beneficiary. Imagine the duplication of effort of pension funds paying monthly pensions to the Master and the Master now transmitting these onward to the designated beneficiaries! NAMFISA circulated a notice to pension fund stakeholders with a copy of a letter issued by the Minister of Justice on 22 January in which stakeholders including pension funds and their administrators are informed that “The Minister of Justice has decided, in the interests of all concerned stakeholders, to consult with the industry members to discuss the implementation of the Amendment Act. These consultations will take place during the second week of February 2019... Until such time, all affected institutions are advised to continue making payments for the months of January and February 2019 in terms of their mandates prior to 31 December 2018.” Interested readers can download the letter here... (This letter also contains some reference to the rationale for this amendment. ) The position pension funds find themselves in at the moment is untenable. A new law obliges funds to pay over all amounts due to a minor beneficiary, to the Master as from 1 January 2019. Nothing is in place on the Master’s side to deal with the consequences of this law. Funds now need to decide whether they are comfortable being in breach of a law on the basis of a letter from the Minister ‘advising’ stakeholders to continue as before. Is this condoning and promoting lawlessness? We suggest that something has gone horribly wrong here and quite a few top officials in government should be questioned and taken to task! The unintended (intended?) consequences of the Estates Act So between the Master and the Minister, the decision was taken that private sector is unreliable, if not outright corrupt and criminal in disbursing moneys due to minors. Government must thus step in to protect the interests of minors by assigning responsibility for the disbursement of all benefits to minors to the Master. It is noteworthy that the incriminated institutions, pension funds, insurance companies and trust administrators are all regulated by either the Master or NAMFISA. Have these regulators not done their job properly to allow such misconduct to permeate their systems? Here are a few of the consequences that the man in the street should take careful not of as it may impact his or her estate planning badly: Duplication of administrative effort As we have pointed out in the preceding article, obliging any institution paying monthly benefits to minors, to transfer these monthly payments to the Master for onward transmission to the beneficiaries by the Master duplicates the administrative effort and present wastage of resources. Even if the Master were not to recover its administrative effort, it still comes at a cost to the taxpayer and remains wastage! Trusts rendered superfluous In estate planning of individuals, setting up trusts to take care of any surviving minor beneficiary will become an anachronism as the designated trust will be required to transmit the capital received from the estate to the Master within 30 days. So where the testator may have planned for family members to manage the trust in the interests of their minor survivors, knowing the family circumstances, the Master will now assume the responsibility. It seems that testators now need to consider rather setting up such trusts outsider the borders of Namibia if they want to avoid the scenario of the Master looking after their minor survivors. This will clearly promote capital flight but does the Master have the reputation and trust of the general public that one would gladly make over one’s legacy to the Master? Responsibility for investment of trust assets now assigned to the Minister Amongst the reasons offered for the amendment of the Administration of Estates Act were “...to ensure effective governance as there was not provision in the existing...Act to determine and the standard of bookkeeping...” and “...the Act did not provide for a clear and transparent investment process.” Well, the Amendment Act still does not determine the standard of bookkeeping nor does it provide for a clear and transparent investment process. This can of course be done via regulation as the Amendment Act now provides. Evidently though, the Minister has total discretion how to invest and this can mean that all moneys are to be invested in treasury bills and government bonds, earning inferior returns for their minor beneficiaries. Pension fund governance - a toolbox for trustees The following documents can be further adapted with the assistance of RFS.
News from RFS RFS welcomes new staff Helena Simon joined our permanent staff complement on 1 January 2019 as a Fund Accountant in our Benchmark team. She is a Namibian by birth and matriculated at the Hage Geingob Secondary School in 2008. She took up full-time studies at NUST in 2009 and obtained a Bachelor in Accounting and Finance degree 1n 2014. Helena was employed by Alexander Forbes since 2015 as a Fund Bookkeeper. Julien Oosthuizen joined our permanent staff on 1 January 2019 from Alexander Forbes to strengthen our Benchmark administration team. Julien hails from Usakos and matriculated at Jan Möhr High School in 2007. She obtained a B. Tech degree in Business Management from NUST in 2016. Julien started her career in the financial services industry in 2011 with Momentum as a New Business Officer. In 2012 she moved to the FNB Trust department as an administrator. In 2014 she moved within the FNB Group to Wesbank as an Administrator. She joined Alexander Forbes in July 2015 as an Administrator. Menesia Nangolo joined our permanent staff on 1 January 2019 after having been in diverse temporary employment from 2014 to 2017. She matriculated at David Bezuidenhout High School in 2009 and proceeded to university where she obtained a Bachelor in Financial Management Honours degree from the International University of Management in 2014. We welcome our three new staff members heartily and look forward to them applying their traits for the benefit of our team and our clients! RFS says goodbye
RFS says thank you for loyal service We express our sincere appreciation for 5 year’s loyal service and commitment to RFS and our clients to –
RFS places great value on and encourages staff to advance their qualifications to be in a better position to serve our clients beyond expectation. We share our pride with and congratulate –
RFS in pictures  Staff dressed up in recognition of cultural day. Legal snippets Death claims – a real life scenario In a recent case, a female fund member was married and had two children from the marriage. She joined the fund in 2007 at a time when she was divorced from her first husband. Member married again in 2009 and passed away in 2018. The only beneficiary nomination on record was that of her two sons from her first marriage. Prior to her passing, she instituted divorce proceeding and a divorce summons was issued 3 months before she passed away. The trustees are concerned that their decision could be challenged both if the to be divorced husband was to be awarded a portion of the death benefit but also if he was to be excluded from any award. The obvious question is what decision and action, if any, the trustees should take in the face of this dilemma. It would have helped their decision if the to be divorced husband had distanced himself from any award but as it seems he in fact lays claim to an award. It also appears that the relationship between the two children from the first marriage and the second husband was rather acrimonious, indicating that there will be fair chance of one or all 3 dependants challenging the trustees’ decision. Both children were still minor at the time of death of the member and were thus also legal dependants entitled to a fair portion of the death benefit of deceased member Depending on how far divorce proceedings had progressed, a divorce order could possibly still have been handed down even after the member passed away. It would appear however that this was not the case and the divorce proceedings therefore terminated as the result of the member’s passing before the divorce order was handed down. The fact that the member was about to divorce her husband, in our opinion, is irrelevant. At date of member’s death, she was not divorced and her to be divorced husband was still a legal dependant in terms of the definition of ‘dependant’ in the Pension Funds Act and is thus legally entitled to be considered by the trustees for an award of a portion of the death benefit of deceased member. It now becomes a matter of investigating the circumstances that prevailed at the date of death of the member in as much detail as possible. If the couple still shared a common household, the passing of the member would in most likelihood place the husband in a financially worse position than he had been before and there is a clear argument for his dependency on the deceased member. One would also need to establish what the husband’s future dependency would have been to determine whether or not his dependency would have increased or declined following the passing of his spouse. If the couple were already separated and lived apart, the preceding cause of dependency would not exist. However, the trustees now need to obtain information on the two spouse’s financial position to effectively put them into the position of the judge who would have had to establish any level of maintenance the surviving spouse would have been required to make. Since there were apparently no children from the second marriage, the trustees’ job becomes a little simpler. One now needs to consider for how long the two partners lived apart already and whether this state of affairs should reasonably have led to the manifestation of one of the partner developing financial bottlenecks. If this was the case the trustees should attempt to quantify the financial bottlenecks that have developed and whether any of the two partners made any contribution towards alleviating these financial bottlenecks. If this information now enables the trustees to quantify the actual support provided by the one partner to the other or by the financial bottleneck that arose on the side of one partner, the trustees should be able to make a decision that will be difficult to challenge by the deceased’s dependants. The next consideration of the trustees is to determine and quantify the extent of dependency of the two minor children. This will also not be an easy task as it would require the trustees to obtain as much information as possible on deceased member’s income and cost of living patterns. The trustees might want to refer to the deceased’s testament, if there is one, to pick up some hints to guide them. They might also want to consult close family of the deceased. At the end of the day, as much diligence the trustees may apply to this case, it does not mean that one or more of the legal dependants will not challenge their decision. In this situation it would help sharing their decision with the legal dependants and affording them an opportunity to object. If no one objects the trustee should feel comfortable to proceed. If anyone objects, the trustees should consider the arguments for the objection and whether this should require an adjustment to their initial award and/ or further investigation. News from the market Alexander Forbes in turmoil After the unceremonious departure of former CEO Andrew Darfoor a few months ago, at least another 5 top executives and members of the executive management team of 9 have left Alexander Forbes. It also cancelled the acquisition of a new administration platform that would have cost a significant amount. NEF secretary-general retires Tim Parkhouse, long-time secretary-general of the Namibian Employer’s Federation gave notice of his retirement at the end of 2019. Tim has done an excellent job promoting the interests of Namibian employers. His successor will have a challenge filling his shoes but this is what challenges are about. Media snippets (for stakeholders of the retirement funds industry) How to improve SA’s pension system How do I get my pension to last “I’m 75 and my pension resides on a Lisp (linked investment service provider) platform, in the form of a living annuity. I require growth of 5-8% net of costs, for my pension to sufficiently last. If I could, I would prefer to place the entire amount with a bank in order to earn the required interest. How can this be achieved, given the current regulatory requirements?” If you are a pensioner and the same thought has crossed your mind, read this article providing very useful advice that is equally relevant to Namibia, both in terms of products in the market and prevailing interest rates that are being offered by fixed interest products Read the full article by Trevor Lee in Moneyweb of 12 December 2018, here... Why it pays to be aware of the effects that inflation and interest will have on your pension pot. “... looking at the outcomes for pensioners against the promises made, the conclusion is a sad one: very few pensioners have been able to keep up with inflation over the years after retirement. The industry has let them down. What has gone wrong? There are a number of items to discuss but let’s start with inflation: while employed, members have the luxury of expecting at least inflation increases in their salaries and may get promotions. That stops at retirement – but inflation does not stop... Then we need to look at interest rates. There has been a lot more awareness recently of the problems of people who seek the greatest return on their ‘pot of cash’ which they typically were previously advised should not be exposed to the risk of negative returns (although that is very true!). The problem is that interest rates are linked to inflation which is the rate of change of prices...” Read the full article and consider the table that sets out how inflation will erode the value of your pension and how your retirement capital erodes rapidly if your draw down rate, annually adjusted by inflation, is not supported by future investment returns. Read the article by Liston Meintjes in Moneyweb of 14 December 2018, here... Monitor your pension fund “Many employees depend on their pension fund for retirement, but most do not even know the name of the company fund, let alone the benefits they will get from it. Consumer Line's experience shows that very few people take an interest in their pension funds... Some people don't even know what benefits they or their children and other dependants should expect when they retire, die or resign from their companies... Lesiba Tjikana, 50, of Mokopane in Limpopo has proof of the amount payable to him, but his fund administrator, SALT, paid far less than what he and his employer contributed. At the time of resignation, Tjikana and his employers had contributed R19700 but was paid only R9000.” Read the full article by Thuli Zungu in Consumer Line of 3 September 2018, here... Media snippets (for investors and business) Why save for retirement if you don’t intend to retire? “The products being offered to employees today are essentially the same that have been available for decades. Employees are being offered pension funds, death and disability benefits, and education savings plans based on the experience of providing these products to people living a ‘linear’ life. How relevant are these solutions to those joining the workforce today, who are frequently changing employment, freelancing in the gig economy, and not expecting life events to happen in a straight line? Financial services providers have to become more creative in thinking about solutions that are meaningful to people living their lives in a substantially different way. Pension funds that are based on the idea of someone starting to contribute at the age of 25 and carrying on for 40 years until they retire and then start drawing on those savings are the first place to start...You can’t convince someone that saving for their retirement is necessary when they have no intention of retiring in the traditional sense. To make saving meaningful, it has to be relevant. Employers and financial services providers can no longer get away with imposing products on employees and clients. As Regard Budler, the head of product solutions at Momentum Corporate notes, solutions have to be designed from listening to what people really need. Read the article by Patrick Cairns in Moneyweb of 9 November 2018, here... Three simple steps to getting your team excited about the future
Read this and other interesting articles from ‘tomorrowtoday’ Tuesday tip of 15 January 2019, here... Top 10 largest economies by 2050
And finally... Stats of the day  Our comment: The measure of ‘ultra-rich’ is roughly N$ 420 million. How many does Windhoek have – probably not much more than a dozen? Windhoek’s population of roughly 325,ooo in relation to Hong Kong’s 7.4 million means that Windhoek should be comfortable having some 400 ‘ultra-rich’ residents! If this were to be true they would in fact ‘own’ Namibia’s GDP! From Capricorn Asset Management Daily Brief of 1 October 2018. |
||||||||
2018-12
| In this newsletter: Benchtest 11.2018, season's greetings, comments on IT Act changes, Prescription Acts and unclaimed benefits and more... |
|||||||
|
Important notes and reminders
Update on proposed amendments to the IT Act
If you have missed the news release, you can download it here...
I would like to thank each and every staff member for their contribution and of course these clients for having once again entrusted RFS with the responsibility to administer their funds for another tenure. Newsletter Monthly Review of Portfolio Performance to 30 November 2018 In November 2018 the average prudential balanced portfolio returned -1.73% (October 2018: -2.53%). Top performer is Hangala Prescient Absolute Balanced (-0.24%); while Allan Gray (-3.94%) takes the bottom spot. For the 3-month period, Investment Solutions takes top spot, outperforming the ‘average’ by roughly 1.94%. On the other end of the scale Nam Asset underperformed the ‘average’ by 2.15%. It’s the dog that wags the tail - how the US economy impacts SA (and Namibia) The US Repo rate is currently 2.25%.While the US annual CPI has steadily been creeping up from around 0% in January 2015 to 2.95% at the end of July, it has been on the decline again since then, contrary to the Fed’s expectation, to reach 2.18% at the end of November. This means that any US citizen investing in US treasuries is now for the first time since November 2015, earning a positive real interest rate. If this trend continues, the appetite of US investors for equities is likely to wane, removing the underpin of equities in the US and globally. The declining inflation in the US is probably also at least part of the reason why the Fed has no raised the repo rate at its last sitting, contrary to a general expectation that it would. The US needs inflation to deflate its huge debt burden and expected quantitative easing to do this job. It seems though that this strategy has not worked and the risk of deflation is on the rise. This may present major structural challenges and may result in us treading a very uncertain path and in increased market volatility. A negative real interest rate is clearly not sustainable and is the cause of artificial imbalances in asset valuations that are due to correct once the situation returns to normal as we are starting to see now. The US repo rate should be around 1.5% higher than US CPI, going by historic evidence stretching back to 1988 and up to the onset of the global financial crisis. Based on current US CPI of 2.2%, the US repo rate should be around 4%. Once the repo rate offers a real return of 1.5% or reaches 4% under current inflationary conditions, it would indicate a normalised interest rate environment. At the more recent rate of upward adjustment of the US repo rate and the state of the global economy we are once again looking at around 3 to 4 years now until we reach this point given that we saw 6 increases of 0.25% each over the past 4 years. This of course assumes that the global economy will pick up at the speed it has over the past 4 years, whereas at the moment it could go in either direction. So where will this leave SA? Read part 6 of the Monthly Review of Portfolio Performance to 30 November 2018 to find out what our investment views are. Download it here... The mainstay of pension investments is failing its duty! Equities are the mainstay of pension fund investments and comprise the bulk of the investments of the typical prudential balanced portfolios. Equities are expected to return around 6% before asset manager fees. However, when we consider graphs 1.1 to 1.10 in the Monthly Review of Portfolio Performance to the end of October 2018, covering various periods from 20 years to the latest month, it appears that other than the 15 and the 20 year periods, equities have not been able to achieve their expected real return. Adding dividends of around 3% to the returns reflected in these graphs, equities will also have achieved their goal over the 10 year period, the point at which equities had 10 years ago just recovered the losses sustained as the result of the global financial crisis. For all other periods, equities have fallen severely short of their return expectation. Fortunately the prudential balanced portfolio managers move pension fund investments between asset classes by buying in market troughs and selling when markets peak. Looking at the same graphs again it will be noted that the average prudential balanced portfolio has in most instances returned more than inflation plus dividends of around 3% p.a. Still the average prudential balanced portfolio did not return inflation plus 6% for any period up to and including the past 5 years. It will be no secret to most that the poor performance of prudential balanced portfolios over the past 5 years is the result of the slow unwinding of the global low interest rate environment, which in turn was the result of quantitative easing through large scale asset purchasing programmes of the main central banks in the world. These programmes are being phased out now as the result of which we will see a normalization of the interest rate environment. Interest rates will go up until they represent a fair risk adjusted return relative to equities. In this adjustment phase global equities will remain under pressure. Looking at various economic metrics it seems like global equity markets have run way ahead of themselves since the global financial crisis and that there is certainly lots of room for adjustment. Graph 1  Graph 1 clearly shows that the SA CPI adjusted ALSI has been at dizzy heights relative to its 30 year historic levels, even though it does depict sideward movement since 2014 and a sharp downward correction of late. From 1987 up until 2003 the market and the P:E ratio were very closely correlated and the gap between the two was small. The first run up to the peak of the financial crisis was caused by the commodity run that benefited earnings of SA equities significantly. The subsequent run up to another peak was the result of the low interest rate environment through which the high earnings of the commodity run were largely maintained. Furthermore, the price earnings ratio of 15.4 currently is also still above its long-term average of 14.7. This is the multiple of earnings investors are prepared to pay for a share. Earnings are still high with lots of room for correction while the price investors are prepared to pay for these earnings also implies room for a downward correction of around 5%. Will a recovery of global commodities be the saving grace for SA, offering an underpin to the Allshare Index? Now let’s look at some indicators that could provide an answer to this question. Graph 2  Graph 2 shows how closely correlated the oil price has been to the SA Allshare Index until the bottom fell out of the oil price and other global commodities simultaneously. Since then the gap between these two lines has closed, indicating that at the oil price as at the end of October, commodities and low interest rates provided support to the SA Allshare index. We know that the US Fed rate is on an incline while at the same time global growth does not show any signs of a synchronized global economic recovery and it is unlikely that global commodity prices will recover soon. SA Reserve Bank increased the repo rate by 0.25% in early November, while the oil price has also fallen sharply since end of October. Both indicators will put pressure on company profits thus offering no reprieve to the SA Allshare Index. Graph 3  Graph 3 depicts the same metrics in the US and it shows very similar trends. The 30 year average P:E of the S&P 500 is 22.3 which is above its current level of 19. In historic terms it seems that US investors are not as exuberant about US equities as SA investors are about SA equities but earnings are very high, representing the gap between the two lines that has really manifested itself since the introduction of quantitative easing. Again we know that US interest rates are on the rise, putting pressure on company earnings. At the same time it seems that the reduction in company tax rates and other fiscal measures taken by the Trump administration have been factored into share prices and offer no further support to US equities going forward. So the US market is similarly due for a correction. The question is whether a correction of the US market will impact SA equities. Graph 4  Graph 4 shows that US and SA equities are fairly well correlated. The divergence up to the middle of 200 it to be ascribed to the tech bubble in which SA equities did no really participate either on the up or on the down. Since that bubble burst the markets moved in tandem for a long time until the first utterances in 2014 of the phasing out of quantitative easing and the lifting of interest rates where US equities continued to steam ahead while SA equities limped along. The conclusion one may draw from this is that a correction of the US market will impact the SA market. Although one may expect that the US Fed will try to manage the US economy in such a way that there will not be any rapid correction, it cannot control events happening everywhere in the world that may lead to a panic reaction and a rapid correction of markets. The Fed rate is at the core of the future movement of global equities until all measures that have been placing a cap on global interest rates have been removed from the system. The US Fed rate is currently at 2.25%, while US CPI has steadily been creeping up to 2.52% at the end of October. Long-term statistics indicate that the Fedrate should be roughly 1% to 2% higher than CPI. Based on current CPI, a US Repo rate of around 1.5% above CPI, or around 4% would indicate a normalised interest rate environment. At the more recent rate of upward adjustment of the Fed rate we are still looking at around 2 to 3 years now until we reach this point. Let’s continue keeping an eye on this. Comments on proposed changes to the Income Tax Act Inland Revenue recently circulated proposed changes to the Income Tax Act to various industry bodies and invited comments from these bodies. The principle of inviting comments on proposed Income Tax Act changes can only be welcomed. We have submitted the following comments. Readers should be able to deduce from these comments what the proposed changes entail and what they do not entail.
An explanatory memorandum to the proposed changes can be downloaded here... Pension fund governance - a toolbox for trustees The following documents can be further adapted with the assistance of RFS.
News from RFS The RFS team in festive mood Some action photos from the 2018 year-end function / family day:  Impatiently waiting for the action to start.  Powder coated  Father Christmas on his rounds  Attentively listening to the formal parts before lunch  The social 2018 committee arranged the day  The 2018 ‘RFS Fairy’ for assisting colleagues beyond the call of duty – Milton Mentile! News from NAMFISA Tabling of FIM Bill postponed? Microlending legislation was to be overhauled by the FIM Bill, as will many other non-banking financial services laws. However due to it having been considered more urgent than the other financial services laws, it was removed from the FIM Bill and was promulgated separately on 31 July 2018 and commenced on 15 October 2018. We understand that industry stakeholders are challenging the Microlending Act and certain principles on the basis of them being inconsistent with the Namibian Constitution. Since the same principles are at play in the other financial services laws contained in the FIM Bill it appears that the Minister of Finance may after all not table the FIM Bill in parliament until the current legal challenge of the Microlending Act has been resolved by the court. How long this case will take to be resolved cannot be foreseen at this stage. Legal snippets Unclaimed benefits and the Prescription Act An opinion by Andreen Moncur The Prescription Act is applicable to retirement fund benefits and not the Administration of Estates Act. Sections 37B and 37C of the Pension Funds Act respectively expressly provide that a pension benefit is not an asset in a member's insolvent or deceased estate. The Act also expressly exempts registered funds from the provisions of the Trust Moneys Protection Act, 1934. Where lump sum death benefits are dealt with under section 37C, there can be no unclaimed moneys remaining in a pension fund after completion of the 37C process, as all moneys must be paid either to an identified dependant and/or nominee or to a nominee and/or the deceased member's estate or to the Guardian's Fund. The Administration of Estates Act specifically deals with deceased estates, the administration of testamentary trusts and the administration of the property of minors and other persons under curatorship. Said Act does not deal with pension benefits. More specifically, section 93 of said Act does not apply to retirement funds as a pension benefit is not trust property held by the fund in terms of a mandate from a deceased person. A retirement fund is not an executor of a deceased estate, nor a trustee of a testamentary trust, nor a curator or tutor of a minor or other person under legal disability. Furthermore, until a benefit from a fund has actually prescribed in terms of the Prescription Act, it cannot be said to be an unclaimed benefit. In terms of the Prescription Act, a beneficiary's claim against a retirement fund for a benefit accruing to such beneficiary from the fund prescribes 3 years after the date on which the benefit became payable. However, in terms of Common Law and more recently in the light of the Constitutional requirements of equity and administrative fairness, a benefit prescribes 3 years after the date on which the beneficiary became aware or ought reasonably to have become aware of his right to such benefit. There are numerous SA adjudicator examples of condonation of late claims, especially where the claimant is situated in a rural area or has a low level of formal education. For the reasons set out above, I usually draft fund rules to provide that moneys (other than death benefits distributed under section 37C remaining unclaimed after 3 years from date of falling due for payment must be paid to the Guardian's Fund administered by the Master of the High Court for the account of the relevant beneficiary. This means that if there is a claim after 3 years but before 30 years has elapsed, the beneficiary will be able to access their benefit. After 30 years, the benefit will revert to the State. Benefit prescription practice and principles While we are on the topic of unclaimed benefits and the Prescription Act (refer preceding article) Personal Finance magazine had an article on this topic that also makes for interesting reading. Here are the key principles revealed in the article:
News from the market Allan Gray explains its disappointing returns Allan Gray delivered very disappointing returns of minus 3.6% over the 12 months and minus 7.6% over the 3 months to 30 November 2018. Find an explanation by Andrew Lapping, chief investment officer, here... Media snippets (for stakeholders of the retirement funds industry) How to improve SA’s pension system In last month’s newsletter we referred to the Melbourne Mercer Global Pensions Index report that rates South Africa fairly low and although not listed, Namibia would be rated even lower due to a substantially lower social pension. Here are a few recommendations on how SA can improve its pension system, all of which are equally relevant to Namibia and should be taken to heart by ‘the powers that be’:
Does the way we think about retirement still make sense? “The traditional concept of retirement – where people save for several decades, retire at 60 and die a few years later – is being turned on its head by increases in longevity and the growing medical needs associated with it. Many people do not have enough money to maintain their standard of living in retirement and although they may still like to work, they may not have the opportunity to do so. Sunél Veldtman, CEO of Foundation Family Wealth, says the western way of thinking suggests that people only have financial independence if they can look after themselves. “The fact is that in the future, that picture of retirement also will change. Very few people will be able to look after themselves from what I’ve seen out there,” she told attendees at Moneyweb and Liberty’s Retire Well Masterclass… “I’m dealing with this every single day in my office. Real problems that clients have is: ‘My children want to start a business.’ ‘My wife’s sister needs an urgent back operation. She is not on medical aid.’ Those are the real questions that people have that really impact their retirement.”…“Why can we not design a retirement product which creates an annuity flow for a group of people, because that is how it has always been. Why must retirement focus on the individual? Why can we not have a family retirement policy?...” Read the full article by Ingé Lamprecht in Moneyweb of 26 November 2018, here... Media snippets (for investors and business) Rational investors can benefit in times of panic “I recently came across an article in a local newspaper titled ‘JSE nears worst monthly performance in 10 years’. When headlines like this start appearing, I always think of the cycle of irrational panic that times like these trigger among those investors who succumb to emotions. Generally, significant price declines trigger fears in investors. They are unable to think rationally, to the point where they will happily avoid any possibility of further loss – so they sell low. However, this point, when the fear is at its strongest and prices are at the bottom of the cycle, is exactly where the potential upside is the greatest… Intelligent Investors stick to timeless investment principles that underpin sustainable, long-term returns. These investors:
Read the article by Kokkie Kooyman in Moneyweb of 23 November 2018, here... Why we all make bad investment “…Most investors will probably react to a market crash with a mixture of fear and panic. In fact, many will sell out of their holdings, locking in the losses that have just occurred. Yet history has repeatedly shown that the periods after big market downturns can be the most rewarding… Behavioural biases Logically, if you can buy shares at heavily discounted prices, your potential future returns must be much higher. For most investors, however, the focus is on what just happened, rather than its implications for what is likely to happen next… Two systems “We really have two selves,” Kemp explains. “Two processes. Two patterns of thought.” Unimaginatively, Kahneman calls these ‘system one’ and ‘system two’. When operating in system one, we are entirely responsive, selfish and even instinctual. In system two we are logical, thoughtful and slow-moving. While it might seem that system two is always preferable, they actually both have their place… Having a plan It might be easy to say that all you have to do is block out the noise, but that’s almost impossible in a modern world where information is so pervasive. You won’t be able to escape the news or the social media posts or the talk around the office, so you need to have a plan for how you will stop yourself from reacting to it. Kemp recommends starting off by having a set of investment principles that must guide every decision you make. If these are sound and reasonable, they will stand up even when markets turn against you. It’s also important to think about how you are looking at the data you have. If a market falls significantly, expected future returns must go up. Which side of that equation are you paying more attention to? A checklist can also be incredibly powerful. When making any investment decision, go through your checklist to see if it meets the criteria you set out – such as whether they reflect your principles, are they long-term focused, and are they valuation driven…” Read the full article by Patrick Cairns in Moneyweb of 23 October 2018, here... And finally... Stats of the day  From Capricorn Asset Management Daily Brief of 13 November 2018. |
|||||||
2018-11
| In this newsletter: Benchtest 10.2018, Government should lead by example, smoothing investments returns and more... |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Important notes and reminders
The Payments Association of Namibia has announced that cheques will be phased out as a payment instrument by 30 June 2019. If you overlooked the announcement, download it here... FIM Bill – Are you ready to comply? Marlene Miller Compliance Practitioners will be hosting a seminar on the FIM Bill at NIPAM, Paul Nash Street Olympia, on 29 November from 09h00 to 13h00. The objective of this seminar is to better your understanding of future regulatory requirements in preparation for compliance. Download the advertisement here... Inland Revenue Communique w.r.t. tax administration matters ICAN representatives attended a meeting with the Directors and Regional Managers of Inland Revenue Department (IRD) on 13 September 2018 to discuss the ICAN letter that was sent to the Minister of Finance regarding tax administrative challenges most often encountered by taxpayers and tax practitioners. During that meeting the IRD mentioned that they also experience problems with the returns and supporting documentation submitted by taxpayers/practitioners. The Communique to Tax Payers received from the IRD, outlining the most common problems experienced by the IRD, thereby contributing to the administrative challenges experienced by the IRD, taxpayers and tax practitioners. Find Inland Revenue communique here... VET levy exempted organisations defined Paragraph 4 of the notice issued under the VET Levy Act 2008 was replaced and the exemptions granted under paragraph 4 of the notice issued are now defined in a new Schedule C introduced by government notice 290 of 2 November 2018, published in government gazette 6760 of 5 November 2018. All organisations falling into any of the below categories are well advised to study the definitions in order to establish whether they may now be exempt or may no longer be exempt and may have to amend their constitution or have a constitution adopted in order to claim exemption (note that paragraph 4 provides for any other organisation to apply for exemption):
Newsletter Monthly Review of Portfolio Performance to 31 October 2018 In October 2018 the average prudential balanced portfolio returned -2.53% (September 2018: -2.00%). Top performer is Investment Solutions (-1.66%); while Prudential (-3.51%) takes the bottom spot. For the 3-month period, Investment Solutions takes top spot, outperforming the ‘average’ by roughly 1.67%. On the other end of the scale Nam Asset underperformed the ‘average’ by 2.09%. The mainstay of pension investments is failing its duty! Equities are the mainstay of pension fund investments and comprise the bulk of the investments of the typical prudential balanced portfolios. Equities are expected to return around 6% before asset manager fees. However, when we consider graphs 1.1 to 1.10 in the Monthly Review of Portfolio Performance to the end of October 2018, covering various periods from 20 years to the latest month, it appears that other than the 15 and the 20 year periods, equities have not been able to achieve their expected real return. Adding dividends of around 3% to the returns reflected in these graphs, equities will also have achieved their goal over the 10 year period, the point at which equities had 10 years ago just recovered the losses sustained as the result of the global financial crisis. For all other periods, equities have fallen severely short of their return expectation. Fortunately the prudential balanced portfolio managers move pension fund investments between asset classes by buying in market troughs and selling when markets peak. Looking at the same graphs again it will be noted that the average prudential balanced portfolio has in most instances returned more than inflation plus dividends of around 3% p.a. Still the average prudential balanced portfolio did not return inflation plus 6% for any period up to and including the past 5 years. It will be no secret to most that the poor performance of prudential balanced portfolios over the past 5 years is the result of the slow unwinding of the global low interest rate environment, which in turn was the result of quantitative easing through large scale asset purchasing programmes of the main central banks in the world. These programmes are being phased out now as the result of which we will see a normalization of the interest rate environment. Interest rates will go up until they represent a fair risk adjusted return relative to equities. In this adjustment phase global equities will remain under pressure. Looking at various economic metrics it seems like global equity markets have run way ahead of themselves since the global financial crisis and that there is certainly lots of room for adjustment. Read part 6 of the Monthly Review of Portfolio Performance to 31 October 2018 to find out what our investment views are. Download it here... Regulator costs in perspective In Benchtest 09.2018 we dwelled on the onslaught on the pension industry. Amongst others, we referred to two matters of concern, being the possible establishment of an umbrella fund for SOEs and the establishment of the GIPF under its own law. These ideas are promoted by various influential persons who seem to be keen on an umbrella fund for SOE’s. If the GIPF were to be established under its own law, it will of course no longer be subject to the Pension Funds Act and will most likely not be regulated by NAMFISA anymore. It is highly likely that it will also be moved out of the claws of the proposed National Pension Fund. While this may be a welcome reprieve for Government that would in any event most likely be unable to shoulder the additional mooted contribution burden of somewhere between 10% and 14% of salaries, it does not bode well for the private sector that will be left with little leverage when negotiating its interests in such a scheme. We might as well write off the principles of fairness and efficiency, that the FIM Bill is aspiring to as it will not be possible to realise these should the GIPF and SOE’s no longer be subject to the same rules that apply to the rest of the pensions industry! If GIPF were to be established under its own law it would only be consistent for its promoters, to also establish the umbrella fund for SOE’s under its own law. These moves would result in the pensions industry currently comprising of roughly 330,000 members and assets of N$ 140 billion, being reduced to 180,000 members and assets of N$ 27 billion. Excluding retirement annuity policies administered by insurance companies, what will be left of the industry is an inconsequential 110,000 members and assets of N$ 21 billion. This will very likely lead to the demise of any effective market mechanism, particularly in the private fund segment. It will be outrageous if Government were to be the only employer not subject to the laws generally applicable to commerce and industry, specifically with regard to retirement funding. Prudential balanced or smooth growth portfolio – what should you expect the difference to be? Smooth growth portfolios are notorious for the lack of transparency. For the employer or individual investor it is really difficult to ‘get a feel’ for the characteristics of these portfolios vis-à-vis financial markets. Most of us have ‘a feel’ for and follow financial markets to the extent that one would know whether financial markets are flying, diving or limping along. An investor would understand his portfolio doing badly when markets have tanked. An investor would start getting disorientated and concerned when his portfolio is doing poorly despite flying markets. Some investors at times believe there are investment products around that defy the ‘laws of gravity’. Typically the smooth growth portfolios sometimes portray themselves and are seen as being such type of product. Of course thinking rationally about it, no one would really believe anything on earth can defy the laws of gravity. What goes up will come down again! The fundamental principle of every pension fund investment portfolio is that it invests in mostly conventional and publicly priced asset classes, i.e. equity, property, bonds and cash. The parameters are defined in sections 12 and 13 of part 7 of the schedule of regulations, recently promulgated under the Pension Funds Act (previously referred to as regulation 28).
The table above sets out the returns of the Old Mutual AGP (Stable) portfolio, as the most popular smooth growth portfolio, the average prudential balanced portfolio, for the sake of our Benchmark members the Default portfolio and the Allshare Index over various periods as also displayed in graphs 1.1 to 1.7 above. It is to be noted that the OM AGP has not been around for 10 years yet. A few interesting conclusions can be drawn from this table.
 Conclusion Understanding the characteristics of the smooth growth portfolio should make it easier for the investor to decide whether he should invest in a prudential balanced portfolio or a smooth growth portfolio and to then also be comfortable with the results in terms of the portfolio’s performance relative to the market and relative to the typical prudential balanced portfolios without continuously looking over his shoulder and getting uneasy about any under-performance of his portfolio, which is certain to happen from time to time. So which portfolio should one expect to produce higher returns in the long-term? The old adage of higher risk, higher return will apply, not necessarily to you as an investor because of the fact that timing plays an important role and can distort the results for you. Evidently, a portfolio that does not produce negative returns, presents a lower risk to the investor than one that does and hence should produce lower returns. Now, if the investor is faced with a lower return in one portfolio, it means his counter party is assuming this risk. Given this wisdom, the counter party (Old Mutual, in the case of the AGP portfolio) will charge a premium for assuming this risk. Again in your particular case you may have paid a premium without having had the benefit or vice-versa. That is what insurance is about. You cannot have your cake and eat it, be happy that life treated you well in terms of investment returns and do not expect to get back your premium! The smooth growth portfolio through ‘manipulation’ of investment returns exposes itself to ‘mispricing’ when prospective returns are likely to be higher or lower than a market value priced portfolio. This is particularly important when the investor considers moving from one type of portfolio to the other. It affords the investor to exploit any mispricing. Smooth growth product providers are quite aware of this risk and have built in contractual terms that try to reduce this risk. In the light of our expectation of markets limping along for quite some time to come, smooth growth portfolios will have little opportunity to prop up returns and to absorb severe negative movements from accumulated reserves. They are thus more likely to track the performance of prudential balanced portfolios, minus the risk premium for some time to come. Investment choice or investment return smoothing - the chickens are coming home to roost! In the ‘good old days’ life was still plain and simple, and so were pension funds. Funds did not offer investment choice but managed investment returns through investment smoothing and investment reserves. These reserves allowed funds to maximise investment returns by investing with maximum risk, or the highest possible equity exposure. These portfolios were as good for the new fund entrant as they were for the pensioner. There was no need to be concerned about volatile markets particularly at the most inopportune time for the prospective retiree. There was no timing risk of moving from a high risk to a low risk portfolio just after the market has tanked. But then came the good years when it seemed that investment markets only move in one direction namely upwards with double digit returns over many successive years. Investment smoothing and investment reserves now fell out of favour and many clever operators realised that the liquidation of the fund’s investment reserve would give their retirement investment a welcome additional boost. This also offered a great opportunity to product providers and advisers to introduce new products and choices to members, at the cost of the member but without really offering the member a better retirement regime. In actual fact members will have most probably been worse off with hindsight, simply on the basis of the principle that their average equity exposure over their working life would not have matched the average equity exposure of funds employing investment smoothing and investment reserves. Those closely following developments in the SA pension funds industry will be aware that more recently the whole industry is abuzz with a ‘new trend’ towards portfolios offering capital guarantees, or ‘smooth growth’ portfolios. These portfolios were the default many years ago before the move to free-standing private funds. This type of portfolio is conceptually no different to investment smoothing as was employed by all funds in years gone by. Except that these are products offered by insurance companies – at a cost of around 2% per annum, to the member of course, because the member insures against the risk of market volatility which is transferred to the insurance company offering the capital guarantee products. The same can be done within a pension fund at a substantially lower cost. At the same time the fund can invest up to the maximum in equity, the member needs not be confronted with taking an investment decisions on where to invest their retirement capital from time to time and members do not face the timing risk of switching to the right investment portfolio at the wrong time or vice-versa. To prove the point, one of our ‘old fashioned’ client funds over the period we are able to measure, being 1 May 1998 to 31 December 2017, was able to allocate an average annual return to its members, of 16.2% for a real return of 9% per annum! The average prudential balanced portfolio only managed to generate 13.3% over this period and that does not even account for the likelihood of members having down-scaled risk into lower equity portfolios over this nearly 20 year period, if they were in an investment choice regime! Only one manager actually managed to generate a higher return over this period. Another ‘old fashioned’ fund awarded an average annual return to its members, of 15% over the 22 years from1 July 1996 to 30 June 2018, for a real return of 8% per annum! This takes us back further than what our Namibian investments data base does but I strongly doubt that any member in Namibia in an investment choice regime would have earned anywhere close to this return. We are probably looking at a difference in investment returns of at least 2% per annum which translates to a difference in terminal value for a member earning N$ 200,000 per year of close to N$ 1 million, or one-third more, over a 20 year period! Pension fund investment regimes are probably no different from fashion. What used to be flavour of the day once will resurrect again at some point in future. If it was left to the trustees, I guess many funds would have been back in the ‘old fashioned’ investment smoothing regime. What should trustees do if the rules provide for alternative benefits To say that a pension must be managed strictly in accordance with its rules is stating the obvious. It is probably sometimes not obvious to trustees though, that they cannot make decisions that are not provided for by the rules, either explicitly in terms of specific provisions, or implicitly in terms of general provisions. If neither exists in the rules, trustees would act ultra vires and may be held accountable for any loss the fund or its members may suffer as the result of such action, even in their personal capacity. But what do trustees stand to do where the rules provide for alternative benefits without giving guidance under what conditions to employ the one as opposed to the other alternative? An example we have recently had to deal with is where the rules in the event of death of the member or pensioner, provide for a member’s or a pensioner’s remaining capital to be paid as a lump sum in terms of Section 37C of the Pension Funds Act, alternatively in the form of a pension to a dependant or dependants of the member or pensioner. No indication is given on any particular priority or preference. In such instance the rules provide discretion and it is the trustees that need to apply this discretion being the party charged with managing the affairs of the fund. This means that they have to apply their mind before they take a decision they believe to be in the best interest of the beneficiary/ies. To be able to apply their mind with due care, they need to get as much information as possible on dependants and nominated beneficiaries as they would do in the event of being required to decide on the distribution of a lump sum death benefit. Consulting the dependants and beneficiaries becomes an essential element of the information the trustees need to obtain. When they come to the point of deciding whether to pay the capital in a lump sum or as an income to a beneficiary/ies, Section 37C must first be ignored and must be ‘replaced’ with their discretion that will lead to a rational and defensible decision. However, if the decision is taken that payment as a lump sum is in the best interests of the beneficiary/ies, the requirements of Section 37C now have to be observed. Pension fund governance - a toolbox for trustees The following new documents are now available:
The Benchmark Retirement Fund - Flagship of umbrella funds in Namibia By Paul-Gordon, /Guidao-Oab, Benchmark Product Manager Can you afford to be invested in the money market? Investment markets again seem to be at the crossroads where many investors will be asking whether they should remain invested or should move to a secure investment portfolio, after the JSE Allshare index tanked by a cumulative 10.1% (before dividends of 3.7%) over the six month period from 1 May to 31 October and the average prudential balanced portfolio returned exactly 0%! In the June 2017 performance review we tried to explain how difficult it is to get the timing right for switching to either more conservative, or to more aggressive portfolios and back. Take the last 3 months as a point in case. In August the average prudential balanced portfolio returned a whopping 3.66% for the month! Had you at the time been in the cash portfolio, your return for the 3 months to October would have been 1.9% while the average prudential balanced portfolio would have returned just below 1%. Had you taken the great return for August as your prompt to switch to the average prudential balanced portfolio, you would have sacrificed a cash return over the subsequent 2 month period of 1.2% while the average prudential balanced portfolio would have given you a negative return of 2.9%. So instead of earning 1.9% in the cash portfolio, you will now only have earned minus 2.2%, a difference of 4.1% for switching one month to late. Just missing one month can clearly make a large difference to the outcome and the more often you switch the higher the risk of picking the wrong month and just further adding to your woes! Switching investments because of last month’s poor or good returns is clearly not the answer. One needs to have a goal and a strategy how to get there. Much like what is implicit in a business’ vision, mission and philosophy. In terms of retirement investment, pension funds are actually structured around the implicit vision that a person should be able to replace his or her income at a rate of 2% of remuneration for each year of fund membership – referred to as income replacement ratio. Empirical evidence suggests that an income replacement ratio of 2% should support a reasonable life style in retirement at a reasonable cost where cost is the contributions required to be made to get there. This replacement ratio is critically dependant on two factors, firstly the net contribution rate towards retirement by employee and employer and secondly, the investment returns earned over the working life. The following table illustrates the interdependency of these two factors. Assumed NET contribution towards retirement i.e. AFTER all costs for risk and administration etc (as % of pensionable salary) Assumed net investment return for 30 years before retirement
The greyed blocks indicate where these two factors produce the implicit vision of retirement saving, namely a replacement ratio of 60% after 30 years of service. Prudential balanced portfolios aim to return inflation plus between 4% and 5%, after fees, in the long-term. The table shows that between you and your employer a net contribution rate towards retirement of 12% is required. It also shows that a money market portfolio which is expected to return inflation plus between 1% and 2%, will only get close to the vision if the net contribution towards retirement is raised to at least 16%. So, if you are prepared to pay an additional 4% plus of remuneration towards your retirement fund, you can afford to reduce your investment return objective to inflation plus 2%, i.e. you can afford to move your investment from the prudential balanced portfolio to the money market portfolio and avoid the pain of negative market returns. To put it differently, if your retirement investment has achieved more than inflation plus 5%, do not take that for granted but work on a reversion of returns to the norm. If your retirement investment has achieved inflation plus 2% or less, you will not be able to retire in comfort. If you have been so fortunate to have accumulated enough capital over 25 years of your working life to secure an income replacement ratio of 3%, you should not be too concerned about the replacement ratio possibly reverting to the norm of 2% over the last 5 working years as this would still be consistent with your initial vision. Yes, it is painful to experience negative investment returns, but if your vision is still on track, the mere prospect of negative investment returns should not seduce you to deviate from your long-term vision and possibly end up having got your timing wrong and having done more harm than good to your long-term vision. And remember, retirement is not the end of your journey. Once you do retire you will still live for many years to come, for a long-term in terms of pension fund philosophy, so no need to be overly concerned about a down turn in investments markets. When you are in the market you will experience pain and you will experience pleasure but when you are out of the market you will miss opportunities while you may avoid pain. We live in volatile times. We have seen central banks venture into untested and unprecedented monetary experiments without any idea how they will pan out eventually. We will probably still live to see the outcome. We also live in politically turbulent times, so volatility will be around for a while. However we also live in exciting times in terms of the increasing pace of technological advancement. This ‘cocktail’ however will offer many, many opportunities as well – it will not be all doom and gloom but one needs to be versatile and able to adapt quickly. For some qualified corroboration of our view in this context, refer to the article of 22 November ‘Is Cash King’ by Catherine Robberts of Allan Gray, here...
News from RFS The RFS team – the recipe for success! A pension fund has a life much, much longer than a human being. As service provider to a pension fund, corporate memory of a service provider vis-à-vis the fund can make an important contribution to the management of the fund. RFS appreciates the importance of this differentiator and therefor makes a point of building and maintaining corporate memory on behalf of our pension fund clients. In this regard a conducive office atmosphere and environment and conducive policies support our effort to retain our staff which is essential in this endeavour. In addition RFS differentiates itself by the depth of its staff with pension fund relevant qualifications and experience. The following table presents these key differentiators in figures:
We are proud of this record and extend our sincerest gratitude to those staff members who have faithfully served the company and its clients over more than 10 and more than 15 years and express our sincere gratitude to each one of them for their dedication and commitment to our cause: Staff with 10-years’ service
Pension fund industry meeting of 17 September 2018. An interesting observation on the attendance at this meeting is that 12 (one half of RFS client base) out of 18 funds (20% of all private funds) represented at the meeting are RFS clients. It is also interesting to note that some of RFS competitors were not represented at all. Does this indicate that RFS takes greater interest and is more successful in mobilising its clients, on matters affecting their funds and the industry? Following are the more noteworthy matters that arose at the meeting:
NAMFISA awaits passing of FIM Bill with optimism “Namibia Financial Institutions Supervisory Authority (Namfisa) senior officials are confident that the long-awaited Financial Institutions Markets Bill (FIM Bill) will clear a lot of grey areas in the regulation of the non-banking financial sector. The FIM Bill seeks to consolidate and harmonise laws regulating financial institutions and markets in Namibia. It is also expected to introduce a Financial Services Adjudicator, who will settle disputes between consumers and service providers. NAMFISA CEO, Kenneth Matomola, explained to the Windhoek Observer that the current legislative instruments are old and ineffective to support the efficient, fairness and orderly operation of the country’s financial system.” – Windhoek Observer News from the market Melbourne Mercer Global Pension Index – Chile’s DC system ranks amongst the highest in the world! This 2018 Melbourne Mercer Global Pension Index (MMGPI) was recently published. The Index measures the retirement income systems for 34 countries against more than 40 indicators. These include sub-indices measuring the adequacy, sustainability and integrity of the retirement system. South Africa’s index value currently stands at 52.7, a slight increase in comparison to its rating of 48.9 in 2017. The country’s index rating falls within the range of developing countries including Brazil, Indonesia and Malaysia as well as developed countries like the USA, Austria, Spain and Italy. By far the highest rated pension systems are those of the Netherlands with a rating of 80.3 and Denmark with a rating of 80.2. The lowest rating of 39.2 is that of Argentina. The purpose of the index is to provide a benchmark against which countries can measure their retirement income systems. Every country has its own unique economic, social and political circumstances. Nevertheless, every country can take action and move towards a better system. In the long-term, there is no perfect pension system, but the principles of ‘best practice’ are clear. Interestingly, in the light of the reported dogmatic views of adviser of the Minister of Labour, against a defined contribution system, Chile, which in fact only offers a defined contribution system has a rating of 69.3 which places it in the second best category together with countries like Singapore, New Zealand, Sweden and Germany. Download the executive summary of this report here... Although Namibia has a very similar system to SA, the SA social pension is significantly better that Namibia’s and Namibia can hence be expected to be rated worse than SA. The price of fuel – do you know what you pay for? The latest fuel levy was set in Government Gazette 6762 of 7 November 2018 and reflects an interesting composition of the price of fuel as per below table. The total for Namibia is based on an estimated annual consumption of 1 billion litres of fuel in Namibia.
Media snippets (for stakeholders of the retirement funds industry) How South Africans perceive their retirement This article reviews a study based on face-to-face interviews with 345 South Africans between the ages of 55 and 85 living in major metropolitan areas. It was conducted in July and August. Sixty-one percent of respondents were still working while 39% were retired. Here are some interesting findings of the study:
Mass resignation of board members not an admission of guilt The resignation of half the board of trustees of the Private Security Sector Provident Fund was the result of an instruction by the North Gauteng High Court. The instruction by the court was the result of the FSCA had been investigating allegations that the fund was being mismanaged and that the policy of a per-meeting fee was being abused by some trustees which resulted in heavy financial losses to the fund. It was found that some trustees were being paid R7900 for attending a single board meeting and R5768 for a subcommittee meeting. The FSCA added that there were more actual meetings than the ones planned. In June 2017 there were 19 planned meetings, when it fact 66 were held, resulting in one trustee pocketing R190000 in that month alone. As a result of this and other financial mismanagement issues, the FSCA launched a court application to have the fund put under administration. Read the article by Lindile Sifile in IOL of 31 October 2018, here... Investors have given up on the JSE – does that mean it’s time to get in? “To the end of September this year, just six companies in the FTSE/JSE Top 40 had made any gains in 2018. Five of those are resource counters, responding to a single theme. The sixth is Investec, which has gone up on the back of the announcement that it will be unbundling its asset management business. Overall, that makes for a pretty dismal market, and it doesn’t get any better if one looks more broadly. According to analysis by Denker Capital, almost 40% of stocks in the FTSE/JSE All Share Index (Alsi) are currently trading at prices below where they were five years ago… given how much prices have come down, there is more value across the market than… seen for over half a decade. The projected return on our portfolio is the highest today it has been at any point in the last six years… And this is a fundamentally-driven return, coming from dividends and earnings.” Read the article by Patrick Cairns in Moneyweb of 29 October 2018, here... Media snippets (for investors and business) Where to find investment growth in the current economy “...You can’t just deploy your assets offshore and think the job is well done,” says Natalie Phillips, deputy managing director at Investec Asset Management South Africa. Neither is merely diversifying into another currency... Investors need to consider their situation holistically when deciding how to complement their South African investments with an offshore component...
Should you consider a testamentary trust? “...For some, a testamentary trust could be a considerably more effective estate planning tool, which Fourie feels is much neglected despite that it can achieve most of the normal estate planning goals like safeguarding the future of family members, minimising a tax burden or planning for the incapacity of elderly persons or children with disabilities. So, should you consider it for your own estate planning?
Bear in mind that the article makes reference to SA tax law that is different in Namibia and estate duty that does not apply in Namibia. Some of the principles covered in the article however are relevant to any person in Namibia. And finally... Stats of the day (Will we see an orange fill within the Namibia borders soon?)  From Capricorn Asset Management Daily Brief. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2018-10
| In this newsletter: Benchtest 09.2018, the role of RFIN, cost of regulation, powers of the regulator, impact of investment regulations and more... |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Important notes and reminders
Newsletter
Tilman Friedrich's Industry Forum Monthly Review of Portfolio Performance to 30 September 2018 In September 2018 the average prudential balanced portfolio returned -2.00% (August 2018: 3.75%). Top performer is Investec (-1.45%), while Nam Asset (-2.97%) takes the bottom spot. For the 3-month period, Investment Solutions takes top spot, outperforming the ‘average’ by roughly 1.15%. On the other end of the scale Momentum underperformed the ‘average’ by 1.40%. Investment regulations reduce your prospective pension by 27% Namibian pension funds seem to have a serious problem and are unlikely to meet the implicit expectations of the retirement benefit one should expect them to provide. Typically pension funds are expected to produce an income replacement ratio of 2% per year of service. After having worked for 40 years, the expectation is that the fund member would receive a pension before commuting any portion of the retirement capital of 80% of the salary he earned just prior to retirement. To achieve this implicit salary replacement ratio, pension fund assets should return roughly 6% above inflation, before asset manager fees. To achieve this return, it is assumed that funds would in practice invest around 75% in equity. The balance of the funds’ investments would be invested in other conventional asset classes (property, bonds and cash) in varying proportions depending on investment market conditions. We know that investment regulations place certain constraints on asset managers and this may impact investment returns. Namibian funds are for example required to have invested in Namibia at least 45% of their assets by 31 March 2019, with a maximum of 10% that may be invested in dual listed shares. In practice this means that managers will invest around 48% plus in Namibia just to make sure that they do not expose their fund clients to any risk of penalties for being below 45%. Similarly, investment managers would in practice not invest more than 70% in equities in total to avoid any penalty for exceeding this cap. History corroborates this modus operandi of asset managers, who had on average invested 41% in Namibia at a time when the minimum was still set at 35%, given that an increase to 40% was anticipated already. The constraints placed on asset managers may produce lower returns on the various typical asset classes investment managers invest in, as they cannot freely invest in the highest yielding assets that may globally be available. Assuming Namibian investment managers were to maintain maximum equity exposure of 72% as the highest yielding asset class, so as not to fall foul of the 75% cap too easily and assuming the asset classes would generate the returns they did from 1900 to 2016 (source – Prudential Investment Managers), table 1 shows that the managers should be able to generate a return of 6.3% before asset manager fees, typically around 0.8% or 5.5% after asset manager fees thus meeting the implicit return expectation of the traditional pension fund model. Table 1  If we now use the above table but bring in the minimum Namibian exposure of 47.6%, so as to not fall foul of the 45% minimum Namibian allocation, apply the average asset allocation of Namibian asset managers to Namibian equities and allocate the balance in accordance with the spread across all other regions and asset classes that the average manager currently applies, this will reduce investment returns by 21%... To get the impact of the full story, read the Part 6 of the Monthly Review Portfolio Performance to 30 September 2018. Download the review here... Regulator costs in perspective In previous newsletters we expressed our concern about the cost of regulatory supervision and its consequence for retirement savings of pension fund members. Having raised this with NAMFISA, NAMFISA undertook a great effort to compare Namibian levies with those of Botswana, the UK and SA concluding as follows: Botswana – N$ 1.73 per member, per month, but does not take into account government subsidies. South Africa – N$ 1.82 per member, per month. Namibia – N$ 2.85 per member, per month. United Kingdom – N$ 3.17 per member, per month. As NAMFISA pointed out, smaller countries do lack the economies of scale of larger countries. Furthermore, mandates of regulators and their cost recovery formulas differ, making it very difficult to compare like with like. The question that needs to be asked is how much the costs of a regulator should be relative to its country’s economic parameters. To explore this perspective we reported on a desk study of the regulatory costs in Australia compared to the Namibian regulatory costs in Benchtest newsletter of September 2018. We have also carried out a desk study of the regulatory costs in the United Kingdom. The table below reflects the results of our desk studies.
We acknowledge that the above comparison of regulatory costs is quite simplistic as it does not take into account the fact that NAMFISA regulates other non-banking financial institutions such as medical aid funds, insurance companies, stock exchanges and asset managers that the other regulators do not regulate. We believe that it does give an indication of the relative proportions regulator levies represent in these countries though. The table contains indicators that the cost of regulation in Namibia appears out of line with that in Australia and the UK. Given the likelihood that the cost of regulation in Namibia will increase further with the introduction of the FIM Act, the concern is warranted that this will have a negative impact on a pension fund member’s retirement outcome and the competitiveness of the Namibian economy. Can NAMFISA CEO delegate powers to a staff member under the Pension Funds Act? Stakeholders will have experienced NAMFISA staff sending out e-mails containing demands for action or information within normally pretty tight deadlines. Our reader who enquired how legitimate such demands and directives are, will undoubtedly not be the first and the only one to whom this occurred. In this context it may be worth taking note of the following provisions of the Pension Funds Act: 1. Section 3, registrar and deputy registrar of pension funds: “The person appointed in terms of section 5 of the NAMFISA Act, 2001, as the chief executive officer of the NAMFISA shall be the registrar of pension funds.” 2. Section 3A, delegation of powers and assignment of duties: “The registrar may, subject to such conditions as he may determine, delegate or assign any power or duty assigned to him by this Act, to an officer or employee in the public service but shall not thereby be divested or relieved of a power or duty so delegated or assigned. NAMFISA employees are not in ‘public service’ and it is hence our understanding that they cannot assume any powers or duties assigned to the registrar in terms of the PF Act. What penalties may the registrar hand down under the Pension Funds Act? Following a reader’s question concerning the legitimacy of penalties, the following should be noted:
The Benchmark Retirement Fund - Flagship of umbrella funds in Namibia By Paul-Gordon, /Guidao-Oab, Benchmark Product Manager Benchmark welcomes African Selection Management and PAAB African Selection Management and the Public Accountants and Auditors Board will join the Benchmark Retirement Fund as from 1 November 2018. We express our sincere appreciation to these institutions for the trust and confidence in our ability to serve their staff as custodians of their retirement savings for many years to come! We heartily welcome African Selection Management and the PAAB and their staff and look forward to live up to our reputation and credo by administering your life savings in a manner that lets you sleep in peace!
News from RFS RFS team visits Oude Rust Oord As in previous years, a team of staff members visited the Oude Rust Oord for senior citizens on 1 October, international day of the aged and 55th anniversary of Oude Rust Oord, to hand out small food hampers to each one. It was quite emotional, sincere joy and appreciation exuding from many a resident’s face.    News from RFIN, the Retirement Funds Institute of Namibia RFIN Annual General Meeting RFIN held its annual general meeting and conference at The Dome in Swakopmund on 17 and 28 September. For those who missed the conference, RFIN prepared a synopsis of the papers that were delivered and panel discussions (the panel discussion on the FIM Bill was unfortunately not covered) that can be downloaded here... News from the market Head of NMG Namibia office resigns Gert Grobler, general manager of NMG Namibia office resigned at the end of September to take up a senior position at Liberty Life Africa. Hein Klee, not unfamiliar investment expert at NMG will take care in Gert’s absence as acting general manager for the time being. For those who may have missed the NMG news circular, download it here... Staff changes at Alexander Forbes After the recent resignation of Ramon Hansen, head of administration and consulting at AFFS, it was announced earlier this month that acting CEO will leave Alexander Forbes at the end of October. These resignations follow of the wake of the termination of the service of Jan Coetzee, previous CEO in July of last year. For those who may have missed the Alexander Forbes news circular, download it here... Legal snippets May the registrar refuse to register rules or amendment? May death benefits be distributed later than 12 months after death? In this case, PFA/WE/280/98NJ the complaint was by JH Jacobs, the executor of the deceased’s estate against Central Retirement Annuity Fund (the Fund) and Anne Satterwhite, spouse of deceased. JH Jacobs laid claim to the death benefit from the Fund comprising of a lump sum and an amount that was to be applied to purchase a 10 year pension. An attorney acting on behalf of deceased’s wife Satterwhite lodged a claim for spouse’s maintenance against deceased’s estate. The executor thereupon requested the Fund to pay over the death benefit proceeds to the estate in order to consider the claim of the wife, which the Fund refused. Following an investigation by the Fund into dependants it decided to award the full benefit to the deceased’s wife. The fact of this case were as follows:
With reference to Dobie vs National Technikon Pension Fund, the adjudicator concluded that -
“The Private Security Sector Provident Fund is taking the owners of a Cape Town security company to court over a payment dispute. The case will be heard at the Western Cape High Court on September 13. Several former employees of Proexec Security Network say they were cheated out of their hard-earned money. They are now relying on the fund to help them get justice. Until around September 2017, Proexec Security Network employed over 200 guards at buildings and apartment blocks in the Sea Point area. In May 2017, GroundUp spoke to a handful of workers who discovered that the company had not been paying their provident fund for several months. This despite the company making monthly deductions from the workers' salaries...” Read the report by Barabara Maregele in News24 of 22 October 2018, here... Media snippets (for stakeholders of the retirement funds industry) How to plan for dreadful retirement “Regulation 28 is costing you 10% per annum” writes Magnus Heystek in this article. He coincidentally addresses the same concern we have raised in this newsletter of last month under the topic “Pension funds quo vadis?” Above, we continue dwelling on this topic expressing concern about the investment return eroding impact of regulation 28 in Namibia, as much as it seems to do in SA. And that is only the ‘tip of the iceberg’. Our FIM Bill in all its consequences will accelerate the erosion of pension savings and we agree with Magnus Hesytek’s conclusion “...So if you want your retirement to have any chance of being ‘carefree’ and ‘happy’ I suggest you urgently move what you can away from Reg28 funds in order to get a better chance of growing your retirement capital. Your current investment strategy of residential property and Reg 28 controlled pension funds is not going to end up well.” Read the full article by Magnus Heystek in Moneyweb of 22 October 2018, here... The biggest challenges to SA’s asset management industry “...At the Morningstar Investment Conference in Cape Town on Thursday, a panel of senior industry executives discussed the biggest challenges in ensuring that this responsibility is met. Their views reflected an industry that is thinking critically about its future. Longevity risk For Sangeeth Sewnath, deputy MD at Investec Asset Management, one of the greatest unknowns is how to deal with people living longer. He points out that British gerontologist Aubrey de Grey is predicting that some people alive today might live to be 1 000 years old... Trust The South African corporate sector has been damaged by a number of recent scandals, with Steinhoff and VBS being the most prominent. The MD of Nedgroup Investments, Nic Andrew, says that the asset management industry has to be critically aware of how these kinds of issues impact on investor trust... Regulatory uncertainty The financial services industry has been the focus of a great deal of new regulation since the global financial crisis. In South Africa the new Twin Peaks regulatory regime has just been introduced, and the Retail Distribution Review (RDR) will have a meaningful impact on asset managers. For Tamryn Lamb, head of retail distribution at Allan Gray, it is a concern that uncertainty is created by how long it takes to roll these out. In addition, there is the risk of unintended consequences if the cost of complying with regulations makes it difficult for independent financial advisors to remain in business... Transformation Looking at the long-term development of the industry, the CEO of RMI Investment Managers, Alida da Swardt, believes that its slow progress in terms of transformation is a substantial challenge. “When you look at the industry you are struck by the very low number of females and people of colour who are portfolio managers and investment professionals in general,” she points out. ..” In Namibia, we are in a very similar situation and our industry faces very similar challenges, only with tons less capacity and capability to address the challenges. Read the article by Patrick Cairns in Moneyweb of 19 October 2018, here... SA investor’s growing love affair with offshore but pay attention to fees At the Morningstar forum for advisers, Victoria Reuvers said that “South Africans have had a fascination with offshore investing for decades, and this is likely to continue as investors become more comfortable investing offshore. Since 2001 the amount invested offshore has increased from R56 billion to R518 billion. While political uncertainty has played a role in accelerating the flow of funds out of South Africa, the relaxation of exchange controls and the amnesty has had a material impact, says Victoria Reuvers, a senior portfolio manager with Morningstar Investment Management. Investors, too, are simply broadening their investment horizons... In a world of Trump economics, rising interest rates, trade wars, Brexit and rising populism, volatility is inevitable. “Focus on what you can control, not on what is out of your control,” says Reuvers. “This means focusing on company fundamentals. There are opportunities available – economic growth is still positive and inflation is manageable.” On the other hand, valuations in the US are at all-time highs. In fact valuations on US companies are now higher than they were prior to the global financial crisis.  Source: Morningstar “There is a lot of optimism priced into the US market right now,” she adds, pointing out that there are other opportunities. “Regions marred by uncertainty – Japan, emerging markets, the UK – are less crowded and thus more attractive at the moment. The trick is not to follow the herd.” Read the article by Sasha Planting in Moneyweb of 19 October 2018, here... Media snippets (for investors and business) Namibia and SA budgets in a nut shell If you are interested in a one-pager mid-term budget review of the Namibian Minister of Finance, download it here... If you are interested in a one-pager mid-term budget review of the SA Minister of Finance, read the article by Ingé Lamprecht in Moneyweb of 25 October 2018, here... How to wipe your personal information from Google, Facebook and Twitter Facebook revealed last week that hackers got access to the sensitive personal information of as many as 30 million users, causing many to rush to delete their accounts and protect it from any further breaches. But Facebook is definitely not the only website on the internet that has a chock-full of data stored on you. Even if you were one of the lucky Facebook accounts to be spared (you can check if you were affected here), it's possible that any of the other major websites, apps, and services - Amazon, Apple, Google, even Snapchat - could be next. The only way to ensure your sensitive data can't be compromised is by removing your information from the internet entirely. In other words, if you're really worried about protecting your data from any future hacks...now is the time to delete your account. Here's how to delete your accounts for many of the major websites, apps, and services:  By deleting your account, you will remove everything you've ever put on Facebook- profile information, photos, status updates, timeline posts - but it doesn't include messages sent via Facebook Messenger. The photo sharing app does have an option to "temporarily disable" an account, but that option isn't a middle step before deletion like on other social media platforms. In other words, if you opt to temporarily disable your account, you can pick it up again later at your pleasure.  WhatsApp may be owned by Facebook, but it has a totally different way to delete your account. You can delete your WhatsApp account through the messaging app itself on your phone. Under "Account" in the Settings tab, you can delete your account easily by typing in your phone number. You can request a report of your account information, which takes about 3 days for WhatsApp to prepare. You should wait to actually receive your report before deleting your account, just to be sure. Read how to delete your personal information from other platforms like Google, Snapchat and Twitter in this article by Palge Lesking in Business Insider of 18 October 2018, here... Six low impact workouts that burn a ton of kilojoules Low-impact training is a training or exercise method that minimises risk for external pounding, shearing, or jarring forces upon the body's joints," Taylor Hynes, a certified strength and conditioning coach and director of Player Performance and Wellness for the FC UNITED and Team ONE lacrosse clubs, told INSIDER. The good news? Hynes said low-impact does not mean low-intensity. Hynes added that everyone can benefit from low-impact exercise, but that it's also important for people to incorporate high-impact workouts into their routine in order to maintain overall fitness. "The primary drawback to low-impact training is that it is incomplete in the whole human athletic range of abilities," she said. "Only training one way reduces the body's intelligence in other areas. Your healthiest body can respond to all demands and recover to 100% without issue." But Hynes said that it's a myth that high-impact workouts burn more kJs than low-impact ones. "
And finally... Stats of the day  From Capricorn Asset Management Daily Brief of 10 October 2018. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2018-09
| In this newsletter: Benchtest 08.2018, a special edition devoted to the FIM Bill and other developments threatening the survival of the pensions industry |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Important notes and reminders
Newsletter Monthly Review of Portfolio Performance to 31 August 2018 In August 2018 the average prudential balanced portfolio returned 3.75% (July 2018: 0.15%). Top performer is Investec (4.86%); while Hangala Prescient (2.31%) takes the bottom spot. For the 3-month period, Investec takes top spot, outperforming the ‘average’ by roughly 0.94%. On the other end of the scale Hangala Prescient underperformed the ‘average’ by 2.07%. Prudential balanced or smooth growth portfolio – what should you expect the difference to be? Smooth growth portfolios are notorious for the lack of transparency. For the employer or individual investor it is really difficult to ‘get a feel’ for the characteristics of these portfolios vis-à-vis financial markets. Most of us have ‘a feel’ for and follow financial markets to the extent that one would know whether financial markets are flying, diving or limping along. An investor would understand his portfolio doing badly when markets have tanked. An investor would start getting disorientated and concerned when his portfolio is doing poorly despite flying markets. Some investors at times believe there are investment products around that defy the ‘laws of gravity’. Typically the smooth growth portfolios sometimes portray themselves and are seen as being such type of product. Of course thinking rationally about it, no one would really believe anything on earth can defy the laws of gravity. What goes up will come down again! The fundamental principle of every pension fund investment portfolio is that it invests in mostly conventional and publicly priced asset classes, i.e. equity, property, bonds and cash. The parameters are defined in sections 12 and 13 of part 7 of the schedule of regulations, recently promulgated under the Pension Funds Act (previously referred to as regulation 28). Read part 6 of the Monthly Review of Portfolio Performance to 31 August 2018 to find out what our investment views are. Download it here... Pension funds quo vadis? In this newsletter we will focus on the severe onslaught on pension funds. At the risk of being accused of exaggerating and being alarmist and at the risk of undermining our own business interests we will call a spade a spade. We sound a serious warning that Namibia is about to kill the goose that lays the golden eggs! With everything in the pipeline for pension funds one gets the clear impression that government for some inexplicable reason considers this pot of gold a national resource and its property. Fact of the matter is that pension funds were created and up to now carried and underwritten in all respects by employers. Government merely created a favourable tax regime and a secure savings regime. We are now about to dismantle just about every reason for having a pension fund as we will explain further on. This is not only about your pension fund and your employees’ retirement nest-egg. It is about your business and the Namibian economy at large! Trustees, employers and employees must act now! Regulator levies in perspective In previous newsletters we expressed our concern about possible over-regulation that will substantially raise the cost of regulatory supervision and its consequence for retirement savings of pension fund members. We believe in a free market economy it is important that regulators must make every effort to benchmark their costs in an effort to ascertain that they are fair and justifiable. We recently came across a report in this link setting out the latest levies introduced by the Financial Sector Conduct Authority (FSCA), the SA NAMFISA equivalent. Levies on pension funds are set at R 1,206 per fund plus 14.27 per member with an absolute maximum levy per fund of R 2,764,018. The NAMFISA levy on pension funds is calculated at 0.008% of total fund assets. There is no minimum or maximum levy. In our opinion regulatory effort is not linked to fund investments at all. It is rather linked to two main cost drivers. Firstly, every fund requires regulatory effort independent of its size. Secondly, regulatory effort is linked to fund membership as membership size will determine the number of complaints the regulator will receive and the transaction volumes the regulator will have to subject to audit. The SA levy structure in our opinions more appropriately recognises these two main cost drivers, incorporating a fixed levy applicable to every fund, independent of size and a variable levy that is membership based. NAMFISA however argues that the asset based levy is more equitable, because members on the higher end of the income spectrum with higher retirement savings will pay a higher levy than members on the lower end of the income spectrum with lower retirement savings. I guess this is a philosophical question that those affected may not necessarily agree with. NAMFISA also justifies this levy with its ease of administration. Simpler administration will mean lower cost of administration, something I believe most fund members would support. It should nevertheless fairly reflect regulatory effort as corroborate by the fee recovery policy of the Australian regulator, referred to below. We have applied the latest FSCA levies set out above to all Namibian pension funds, excluding underwritten retirement annuity funds. The FSCA would collect a total levy on pension funds of roughly N$ 4 million per annum. The pension fund levy currently paid by all Namibian pension funds amounts to approximately N$ 11 million. NAMFISA in this regard pointed out that the mandates of the different regulators vary and that the levies are consequently difficult to compare. In the case of Namibia the levy makes provision for the cost of the pension fund adjudicator and of supervising administrators, while in SA a separate levy is raised for these purposes. Adding the separate levies for the adjudicator (R6.05 per member p.a.) and on administrators (R 600.29 per fund and R 0.73 per member p.a.), NAMFISA arrives at total Namibia equivalent levy in SA of N$ 7 million or N$ 1.82 per member per month in SA versus N$ 2.85 per member per month in Namibia. NAMFISA points out that in this comparison it needs to be borne in mind that Namibia does no offer the economies of scale as SA does. We coincidentally came across a publication by the Australian equivalent of NAMFISA, the Australian Prudential Regulation Authority, that explains in great detail the rationale and methodology for setting its levy. In contrast to NAMFISA, it also regulates deposit taking institutions, in Namibia the domain of Bank of Namibia. Australia has a separate complaints tribunal that raises separate funding of its activities. Interestingly, the Australian Prudential Regulation Authority Act (APRA Act) permits APRA, by legislative instrument, to fix [such] charges. The APRA Act provides that a charge fixed under subsection 51(1) must be reasonably related to the costs and expenses incurred or to be incurred in relation to the matters to which the charge relates, and must not be such as to amount to taxation. I suggest that here in Namibia similar parameters should be legislated. APRA has developed a sophisticated model for determining levies it is to raise to recover its operating expenses. Although it appears that APRA has a similar mandate to that of NAMFISA and also has a very similar supervisory approach. I found that comparing levies will not be very meaningful due to not only different mandates but also due to different levy structures. It is nevertheless interesting to compare supervisory and regulatory costs. In the following table I am taking a different approach in looking at the total expenditure budgets of the two regulators and relating these to a few key indicators. Adjustments were made for apparent difference in mandates where in Australia the mandate includes deposit taking institutions but excludes the cost recovery of the complaints adjudicator.
Given the likelihood that NAMFISA levies will increase further with the introduction of the FIM Act, the concern is warranted, firstly, that the Namibian industry may be overregulated and secondly, that the high cost of regulation may have a negative impact on the competitiveness of the Namibian economy and adds to the number of nails in the coffin of our pensions industry. Anyone interested in the ‘Industry Fees and Levies’ publication produced by the Australian Prudential Regulation Authority can access it here... The FIM Bill - born to die with the pensions industry? It has taken more than 10 years and an investment of probably many millions to get to a new era with the impending implementation of the FIM Bill and of course, once effective, many more million will be spent between the regulator, funds and service providers at the cost of pension fund members, to raise the new statutory and regulatory regime to the level the Pension Funds Act regime once had reached. In the meantime, the GIPF is rumoured to clamour for exclusion from the new retirement funds regime and be established under its own law. That is half the industry in membership and 70% the industry in assets. In essence this implies that the service provider industry and with it NAMFISA, would have to shrink by more than 50%! A prospective nail in the coffin of the industry, the FIM Bill and its regulator too, is a notion by senior government authority to establish a fund for all state owned enterprise sponsored pension funds. This represents another 20,000 members and N$ 13 billion investments. If government is happy to set up the GIPF under its own law, it makes absolute sense to do the same with this umbrella fund, alternatively, why should government not do this to get full and unfettered control of its retirement savings pool? This represents another substantial portion to be severed from the industry, the auspices of the FIM Bill and its regulator. Another nail in the coffin will be the National Pension Fund that will have its own law and will thus fall outside the industry the FIM Bill and its regulator. Although it is very difficult to quantify the possible impact on the NPF on the existing industry we have estimated the impact. The following tables show the impact of these 3 nails in the coffin: 1. Current status
2. GIPF and SOE’s severed
3. Compulsory National Pension Fund (rough estimate of 50% membership and 30% asset loss)
Clearly, the remnants of the ‘private retirement funds industry’, after the government initiatives will hardly be worth any economic interest! The largest umbrella fund currently administers more members than are likely to be left over in the existing umbrella funds market segment. On the private funds side there will be hardly room for one administrator and there will be no room left for competition. The table assumes that the Retirement for Local Authorities will be part of the SOE net, but should this not be the case indeed, the result will be marginally better for the ‘private retirement funds industry’.
Note that there is no reference to the interests of the employer or fund sponsor who has been the sole driving force behind pension funds and their tremendous growth to date unlike Australia for example that has compulsory contributions by employers and employees and that prides itself of owning the world’s 4th largest pension pot after the US, UK and Japan.
Many of us may very soon become criminals on the basis of the numerous criminal offences the FIM Bill contains for administrative failings. We will then have a criminal record and will be precluded from serving in any fiduciary position. Since many of the trustees and service providers are senior officials of one or other company this may in no time create a serious problem for the Namibian economy. Has anyone spent any thought on what these draconian measures may imply for the Namibian economy?
Now, trustees and principal officers, please see for yourself, follow links below:
The above regulations were covered in the Benchtest 2018-02 newsletter issued in February. Standards:
In the Benchtest 2018-03 newsletter we addressed RF.S.5.11.
The Benchmark Retirement Fund - Flagship of umbrella funds in Namibia By Paul-Gordon, /Guidao-Oab, Benchmark Product Manager Annual member meeting Members of the Benchmark Retirement Fund were updated on latest developments within the fund, on its financial position and on investment portfolios and returns at the recent annual member meeting. Fund auditor Robert Grant of KPMG presented an overview of the financial position and results for the year ended 31 December 2017. Kai Friedrich, principal officer provided a summary of the actuarial findings of SAPN, actuaries of the fund. Hein Klee of NMG presented on the fund portfolios, returns and the philosophy of the Benchmark Default portfolio as investment consultant to the fund. Finally Günter Pfeifer presented developments within the fund with regard to product and rules. Proceedings were led professionally and efficiently by Master (or should it be Madam?) of Ceremonies, Afra Schimming-Chase who also serves on the board of the fund.  Guest speaker, Brett St Clair spoke on ‘The Era of Digitalism’.  The audience listening attentively to the speakers. Download the annual report, here...
News from RFS RFS client function RFS once again hosted a client function on 5 September at ‘de Kayak’, a very nicely prepared venue that can only be recommended. Catering was exceptional and the evening was certainly a pleasant experience! Guest speaker Sophia Amoo-Chimunda, former head of prudential institutions at NAMFISA spoke on the implications of the FIM Bill and key differences between it and the Pension Funds Act and Brett St Clair speaking on ‘Digital Transformation – the Path to Innovation’. Going by the feedback below, the audience was generally appreciative and enjoyed the evening. A pity for the relatively large number of confirmations that did not manage to attend. We believe you missed something and trust that we will have the pleasure of your company at our next client function!  A glimpse of the audience.  Our guest speakers, Brett St Clair and Sohpia Amoo-Chimunda being handed tokens of appreciation by Managing Director Marthinuz Fabianus. And here is some client feedback... “Thank you for the effort in organising and hosting the event. The presentations done were all very interesting and value adding. The hosting was also done very well, and I can assure you myself and my colleagues enjoyed the evening and the interactions.” (S Pienaar, Pupkewitz group) “Thank you for the comprehensive feedback from our Fund as well as the very interesting talk by your "Nowist", Brett St Clair who tried to get the old pensioners into the 21st century. It was interesting and thought provoking, if not scary to try to stay ahead. The social function was also a very enjoyable time to meet up with old colleagues and friends from our working lives. Keep up the good work at our own three letter "RFS", which at least speak of Solutions without having to curse to get to the Future.” (W vd Vyver) “I wish to thank the entire RFS team for the –
“It was a great event, congratulations!” (A Evrard, NUST) “Baie dankie ook vir die AGM aand. Die aanbieder was briljant maar nogtans raak ‘n mens bekommerd oor die toekoms. Alles elektronies??? Ek weet nie so mooi. ” (H Engling, DELK) “Trust you are well. The event was very well organized. Unfortunately, the main speaker did not impressed me at all. Thank you for the invite!!!” (D Sem, Namcor) “Thank you once again for inviting me, it was a really interesting discussion. One bit of advice: for everyone to be at the venue at 17:15 may have been a bit ambitious. This probably led to a delay in the program’s commencement. Apart from that, a really great event.” (A Westraadt, Pupkewitz group) News from NAMFISA NAMFISA industry meeting NAMFISA held a pension funds industry meeting on 17 September. The agenda covered the following topic –
Legal snippets May the registrar refuse to register rules or amendment? May the registrar refuse to register an amendment providing for off-setting of housing loan balance in the event of default? In last month’s newsletter we reported on a South African matter between Securities Employees’ National Provident Fund and the Registrar of Pension Funds and another party heard by the Appeal Board of the Financial Services Board in case A 11/2016. Find the full text of the case, here... We now experienced a similar situation in Namibia. NAMFISA recently returned rule amendments to the rules of participating employers in an umbrella fund that intended to allow the fund to offset any outstanding housing loan it had granted to the member against the member’s fund credit in the event of default. NAMFISA argued that the member can pledge his benefit or his right to the benefit but it can only be attached once the benefit event happens, i.e. retirement, death or resignation. In the first instance the main rules of the umbrella fund do make provision for the offsetting of an outstanding balance against fund credit in the event of default. These rules were registered by NAMFISA. Secondly, Section 37D has sub-clause a and b. Sub-clause b is very specific in terms of the timing when the benefit can be reduced but sub-clause a is not. Sub-clause b refers to a situation where the employer has granted or guaranteed a loan and is calling up the outstanding balance in case of the employee’s default. This makes sense as it is in the employer’s control to continue deducting the monthly repayments thus obviating any need to call up the loan while the employee is still in the employer’s employ. Sub-clause a deals with a loan granted by the fund or any other person, typically a bank. It does not refer to termination of membership as a pre-condition for claiming the outstanding loan balance. This substantiates that the legal drafters have specifically left this open to allow the benefit to be reduced even if the member has not resigned, retired or died yet where the loan was granted by the fund or another person. The Pension Funds Act in section 12(4) requires that the registrar must register a rule amendment if it is not inconsistent with the Pension Funds Act and is financially sound. This was confirmed by the Appeal Board of the Financial Services Board in case A 11/2016, in the matter between Securities Employees’ National Provident Fund and Registrar of Pension Funds and another party. Media snippets (for stakeholders of the retirement funds industry) Dividends can be sexy “...In general, investors underestimate just how significant dividends can be. As Paul Stewart, head of fund management at Bridge Fund Managers, points out, over long periods of time earning and reinvesting dividends produces a growing portion of a portfolio’s total return. “For example, if you deconstruct the performance of the Old Mutual Investors Fund, which has the longest track record of any equity fund in the South African market, 60% of its long term total return comes from dividends and growth of dividends over time,” he says. “The longer you invest for, the more important the dividend element becomes. “In the short run, over the first five years of an investment, the capital return will far outweigh the dividend,” he says. “But over very long periods of time, 30 years or more, the dividend you receive plus the growth in that dividend is what drives the total return...” Read article by Patrick Cairns in Moneyweb of 20 September 2018, here... A will: the most important document you’ll sign “...Without a will a person will die intestate and then how an estate devolves is out of their hands and left to legislation. That is the Intestate Succession Act, which may not match all their wishes for their loved ones, who they intended to benefit. A person can also die partly intestate when they do not bequeath all the assets in their will or if part of their will is actually invalid. If you’re a single individual with no children or surviving parents, your entire estate may then go to an estranged blood relative who you barely know, but the well-loved friend or charity then gets nothing from your estate. If you don’t have any blood relatives your assets will be forfeited to the state, without your closest friends or favourite charitable causes benefitting or supported...” Read the article by Primesha Naidoo in Moneyweb of 20 September 2018, here... Skyscrapers, art and financial bubbles “Over the past few decades, Sotheby’s stock price has gone through various cycles of peaks and troughs. Mansharamani says these peaks are “very curious” to someone who studies financial bubbles. Three months after Sotheby’s stock price peaked in 1989, the Nikkei crashed and it has not returned to that level since. Why is that? It turns out that Japanese buyers were paying world record prices for art at that point, he says. “Their confidence in the future of the world indicated a bubble.”... “More recently, we’ve had world record prices paid by Middle Eastern buyers. [It is a] point of caution.” Towards the end of 2017, Leonardo da Vinci’s Salvator Mundi was sold for a record $450 million to a Saudi Arabian buyer, probably the crown prince Mohammed bin Salman. “It is a concern. [We] have to watch it. [It] indicates overconfidence in the world.” Mansharamani says the world’s tallest skyscrapers can also be an indication of a bubble brewing. Around 1929, 40 Wall Street, the Chrysler Building and the Empire State Building were competing for the world’s tallest tower status, before the Great Depression ensued...Within weeks of global equity markets peaking in 2007, the Burj Dubai (later renamed the Burj Khalifa) took the title of the world’s tallest freestanding structure, even before it was completed. “Shortly thereafter, we had the global financial crisis.” Mansharamani says the indicator works for three reasons. Skyscrapers are always built with borrowed money, indicating easy money conditions in the world. They are built by developers hoping to attract tenants – making it a speculative investment...” Read the full article by Ingé Lamprecht in Moneyweb 20 September 2018, here... And finally... Residents celebrate as Western Cape municipal dam overflows Residents of Ceres in the until recently-parched Western Cape celebrated this week when the town’s Koekedouw dam overflowed for the first time since 2014. This as a three-year drought – the worst in a 100 years – is broken by good rains in the Western Cape. Watch the video clip in Business Insider of 19 September 2018, here... See also: Stunning time-lapse images show how Cape Town's biggest dam has filled up. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2018-08
| In this newsletter: Benchtest 07.2018, message from Managing Director, pension or provident fund, risks of dismissal, conferences and more... |
|||||||||||||||||||||||||||||||||||||||
|
Important notes and reminders
Newsletter
Tilman Friedrich's Industry Forum Monthly Review of Portfolio Performance to 31 July 2018 In July 2018 the average prudential balanced portfolio returned 0.15% (May 2018: 2.45%). Top performer is EMH Prescient (0.88%); while Allan Gray (-1.12%) takes the bottom spot. For the 3 month period, Stanlib takes top spot, outperforming the ‘average’ by roughly 1.15%. On the other end of the scale Namibia Asset Management underperformed the ‘average’ by 1.43%. The prudential balanced portfolio – the best choice for an investment horizon of 3 years and longer Graph 1.7  Graph 1.8  Graphs 1.7 and 1.8 above depict the 5 year and the 10 year returns of prudential balanced portfolios to the end of July 2018, as blue bars. An article by Patrick Cairns in Moneyweb of 8 August 2018, shows the SA top-performing world-wide flexible funds for these periods to the end of July 2018. The table below sets out a comparison between the SA and Namibian funds
Interestingly, the Namibian funds have stood their own very well despite the fact that the SA universe of available funds is so much larger that the Namibian universe. The Namibian top performing fund was just slightly behind the top performing SA fund over 5 years and over 10 years. The worst performing Namibian fund outperformed the worst performing SA fund by nearly 2% per annum over the 5 year period as well as over the 10 year period. The Namibian category average also outperformed its SA equivalent over both periods. The JSE Allshare index returned a mere 1.7% above inflation over the 5 year period and 2.2% above inflation over the 10 year period. This is pedestrian performance indeed. Fortunately dividends of around 3% per annum contribute to total return on equities and raises the near zero real return to close to 5% over 5 years and just above 5% over 10 years. These returns are of course before portfolio management fees of around 0.75% on the typical pension fund portfolio. This would produce a real return after portfolio management fees of 4% over 5 year period and 4.5% over the 10 year period on the typical Namibian pension fund portfolio. In the wake of the financial crisis that slashed the SA Allshare by 33% from 27,720 in July 2008 down to 18,465, pension fund members should be quite comfortable with the investment returns they have earned. Read part 6 of the Monthly Review of Portfolio Performance to 31 July 2018 to find out what our investment views are. Download it here... Pension or provident fund, lump sums or pensions – where to from here? Making adequate provision to retire with dignity is not so easy to achieve in the first instance, and there are a number of pitfalls that will prevent you from achieving this ideal - early withdrawal, poor investment returns, high management costs, too low basis for setting a contribution rate, too low contribution rates. Of course government doesn’t want end up bearing the responsibility for persons that have made inadequate provision for their retirement. The proposed National Pension Fund is one policy measure government is considering in order to ascertain that all citizens will eventually have provided adequately to retire with dignity. Clearly there is serious and justified consideration how to go about this national objective. And it does not take much grey matter to appreciate that the approach must be two-pronged, one being to ascertain that everyone contributes adequately, the second one being to plug the holes in the system that cause leakages as we will deal with further on.
Conferences, seminars, workshops – are they worth our while? Most professional bodies nowadays require their members to obtain an annual score for continuing professional education. Many entrepreneurs have pounced on this business opportunity by offering conferences, seminars and workshops. I am sure not to be the only one totally irritated by the unsolicited calls one receives virtually daily and the flood of invites filling up one’s Inboxes. Worst of all is the fact that one receives numerous calls from different sales people for the same conference, who all drive a hard sale to boost their commission income. The cost of these events is in many instances exorbitant, considering that one would typically pay as much for about 10 days’ conferencing as one would pay for a whole year university tuition, or more! Some organisers even have the audacity to cost their conference in one or other foreign currency! The programmes typically comprise of an array of speakers, wisely picked between a few experts and a string of people whose only purpose is to present themselves in all their glory and eloquence. Often these events are poorly organised, studded with sub-optimal speakers and poor attendance, and at times one may even get trapped by a fly-by-night who offers great early-bird discounts just never to be seen or heard again (speaking of experience)! But to be honest, what can you learn by listening to six or eight 45 minute talks throughout the course of a day, depending on how long the tea and lunch breaks are drawn out, even if it were the best possible speakers? It can only be but an appetizer here and there for topics one may want to delve into more deeply in a more dedicated manner. Isn’t it time for this industry to become regulated? We love regulators so here is another opportunity for controlling an awful waste of resources. New regulations and standards: comment on RF.S.5.17 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:
The above regulations were covered in the Benchtest 2018-02 newsletter issued in February. Standards:
In the Benchtest 2018-03 newsletter we addressed RF.S.5.11. This standard requires every pension fund to now report on a quarterly basis to members, pensioners, employers, labour unions, fund bankers, fund investment managers, fund actuary, fund auditor, NAMFISA, the Financial Intelligence Centre and “…any other party who may have a similar interest…” [to these parties]. This report is to be in a standard tabular form setting out extensive detail on contributions due and paid.
The Benchmark Retirement Fund - Flagship of umbrella funds in Namibia By Paul-Gordon, /Guidao-Oab, Benchmark Product Manager Annual report 2017/2018 reveals growth of 27% As at 31 December 2016 the Benchmark Retirement Fund was the 4th largest fund in terms of assets and the 6th largest fund in terms of membership in Namibia, and that includes the ‘almighty’ GIPF! By 31 December 2017 the Fund’s assets grew by a further 27% reaching N$ 2.7 billion while its membership increased by 16% to just over 10,000 members. This is a remarkable achievement considering that Benchmark was only established at the beginning of 2000 and its growth can primarily be ascribed to word of mouth marketing. The Benchmark Retirement Fund is a unique fund of Namibian origin that caters for just about any need with regard to retirement provision, be it for employees of very small groups, SME’s and even large funds whose trustees do not want to be sucked into the maelstrom of the FIM Act and all its standards and regulations, for retirees, and for their minor and adult dependents. Download the annual report, here...
News from RFS Staff movements We are pleased to announce the appointment of Monika von Flotow as Manager: Projects. Monika is a Namibian by birth and she matriculated at Deutsche Oberschule Windhoek. She started studying at the University of Stellenbosch after school and obtained a B.Com degree in management accounting in 1997. She worked in the finance department of Cape law firm, Cluver Markotter Inc, for 3 years before she joined PWC in Windhoek in the audit department. While employed by PWC she obtained an Honours degree in Accounting Science (UNISA 2004), a Post-graduate Diploma in Auditing (RAU 2005) and qualified as chartered accountant in 2007. She left PWC in 2010 to join the Development Bank. Monika also completed a number of other professional and managerial courses during her career while serving in various positions at PWC and DBN. We extend a hearty welcome to Monika and look forward to her bringing her expertise to bear on the services and products of RFS and the Benchmark Retirement Fund! We are furthermore pleased to advise that Stefanus Morris rejoined the Benchmark team as client manager at the beginning of June after a short absence of 6 months to pursue an opportunity close to his heart, namely to serve his community through and NGO. This unfortunately did not turn out the way Stefanus had hoped. We are very happy to have him back serving a portfolio of Benchmark employers and look forward to having him around for many years to come! Long service awards complement our business philosophy RFS philosophy is that its business is primarily about people and only secondarily about technology. We know that as a small Namibia based organisation we cannot compete with large multinationals technology wise because of the economies of scale that global IT systems offer. To differentiate us we need to focus on personal service and on the persons delivering that service to get customer acceptance and service satisfaction. With this philosophy we have been successful in the market and to support this philosophy we place emphasis on staff retention and long service. The following staff members recently celebrated a work anniversary at RFS. We express our sincere gratitude to these staff for their loyalty and support over so many years: 15 year service awards (in our 18 year history) A total of 9 staff of our complement of 67 have passed this milestone. 10 year service awards
5 year service awards
News from NAMFISA NAMFISA investments exposed - correction Our readers’ attention is drawn to the fact that the article from The Namibian in last month’s newsletter under this heading grossly overstated NAMIFSA’s total assets as being N$ 1.46 billion. NAMFISA’s annual report for the year ended 31 March 2017 in fact reflects its total assets as N$ 190 million, down from N$ 228 million the previous year. Legal snippets May the registrar refuse to register rules or amendment? In this SA matter between Security Employees National Provident Fund (appellant) and the Registrar of Pension Funds and another fund for security personnel (new fund) as respondents, this question was considered by the Appeal Board of the Financial Services Board. The precursor to this case was a determination by the Minister of Labour under the Basic Conditions of Employment Act that provides for the establishment of the new fund and to make membership of that fund a condition of employment for private security sector workers. As the result of this determination the appellant fund submitted amendments to employer special rules, firstly to make existing employers paid up who discontinued their contributions to participate in the new fund and, secondly, to make provision for compulsory membership and contributions by employees of any employer who chooses to continue active membership of the appellant fund. The Registrar upon submission of the special rule amendments requested proof that those employers who chose to continue active membership had obtained exemption from participating in the new fund as is required in terms of the determination by the Minister of Labour. Appellant informed the Registrar that she did not have the legal power to refuse registration of the rule amendments on the basis of the information requested by the Registrar. Appellant argued that the Registrar had refused to register the amendments it submitted, even though the Registrar argued that she had merely requested additional information as she was entitled to in terms of the Act, and consequently referred the matter to the appeal board. The appeal board dismissed the appeal with costs. The following interesting conclusions can be drawn from the arguments presented in the matter by the parties and the appeal board:
Media snippets (for stakeholders of the retirement funds industry) Have balanced funds changed the mind of investors “South African investors have had to deal with very muted returns for the better part of the last five years. Between July 1, 2013 and June 30 2018, the average return from unit trusts in the South Africa multi-asset high income category was just 8.2%. This was a mere 2.8% ahead of inflation for this period. Given that these balanced funds would ordinarily be expected to produce returns of at least CPI + 5% over a five-year period, this is obviously disappointing. What is notable, however, is that despite this situation investors have continued to favour these strategies. The latest statistics from the Association for Savings and Investment South Africa (Asisa) show that multi-asset high income funds continue to be the main savings vehicle for most people invested in local unit trusts…” Interestingly, in Namibia, the average prudential balanced (multi asset) pension fund portfolio returned 10.9% nominal and 5.4% real, thus outperforming the SA equivalent unit trust by 2.6% per annum over a 5 year period! Read article by Patrick Cairns in Moneyweb of 7 August 2018, here... Security Sector Provident Fund defends trustees’ exorbitant fees “...The Financial Sector Conduct Authority (FSCA) accused the Private Security Sector Provident Fund of paying its trustees "exorbitant" fees. In its court application the FSCA, formerly the Financial Services Board (FSB), said trustees’ fees had topped R25m a year, while total administration expenses had rocketed to R353.8m for the R6.23bn fund, equivalent to a staggering 5.6% of its total asset value…. Trustees were entitled to be paid R7,900 per board meeting and R5,768 per subcommittee meeting, but "neither of these rates conformed to the rates specified in the fund’s trustee remuneration and allowance policy", said the FSCA… The FSCA also accused the trustees of being unable to justify their high rate of remuneration, "but tried to do so by indicating that the two section 26 trustees appointed by the registrar (out of a board of 12) were receiving over R500,000 a month…" Read the article by Julietta Talevi in BusinessDay of 12 June 2018, here... 7 financial must haves for women in retirement “Recent Statistics South Africa figures reveal that, on average, women outlive men by nearly a decade or 9.3 years. And this means that it is absolutely vital for women, if they haven’t already, to take an active role in managing their finances rather than relying on a spouse or partner, because they will need the skills at some point in their lives, says Citadel Advisory Partner Kerry King… It’s crucial that you feel confident enough to do what needs to be done to ensure that your income will last your entire lifetime, and that you can enjoy your retirement years in comfort.” Here are the 7 financial must haves for a woman in retirement:
Media snippets (for investors and business) Fitness tips that are doing more harm than good “Because there's so much conflicting health and fitness advice out there, we've outlined all of the biggest workout myths and misconceptions and countered them (where possible) with truth. Use this as a guide to get fit in the most efficient way possible…”
How should 23-year-olds invest their money? “…A budget tells your money where to go instead of you wondering where it disappeared to. It also tells you how much you need every month to live the lifestyle that you choose. This amount will guide you during the planning process. Once you know what amount you need every month, the next step is to set up a reserve or emergency fund. The funds should be available on short notice as emergencies usually arrive without notice! The amount that you should have available in an emergency fund is three to six times the amount that you need according to the budget that you have set…You should therefore be able to hold sufficient funds in a reserve fund without having to pay tax thereon. Once you have a reserve fund, you can start to invest. Tax-free savings accounts and retirement annuities are both excellent investment vehicles as both are exempt from income and capital gains tax on the investment returns earned…Contributions to a retirement annuity can be deducted from your taxable income… Because you are building wealth, you should also draft a will and get into the habit of reviewing it annually when you review your investment portfolio as personal and financial circumstances do change.” Read the full article by Angélique Visser in Moneyweb of 31 July 2018, here... Take note though that in Namibia the tax deductible maximum towards all retirement vehicles is N$ 40,000 p.a. while only interest on TB’s and certain Post Office savings are tax free but without any limit. See the salary increases SA can expect - PWC “The following rise in costs seen by the PwC report over the past nine years:
According to the PwC, around 560 participants in its REMchannel online salary database reported budgeted increases ranging from 0% to 10% for the next 12 months. Their online database contains more than 520 participating companies and 85% of these include the top 100 companies in South Africa. The following results on salary increases were shown:
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:  |
|||||||||||||||||||||||||||||||||||||||
2018-07
| In this newsletter: Benchtest 06.2018, are we ready for the FIM Act, RF.S.5.20, RF.S.5.22 and RF.S.5.23 analysed and more... |
|||||||
|
Important notes and reminders
VAT registration and refunds – press releases We believe Namibia is not geared and we still have serious concerns about a number of matters, including more prominently, the following:
Namibians generally seem to be in the habit of failing to maintain and repair their capital assets and rather build a new replacement asset at a high capital outlay and great cost to the economy. I am sure this frequent phenomenon has caught the eyes and attention of many alert observers. One argument in support of this of cause can be that it will increase the velocity of money flow, which is at the core of economic growth. This argument however will not be valid if much of the capital outlay leaves the country. Witness all the construction activities that have gone on over the past number of years, and are still going on in Namibia, largely undertaken by foreign contractors who leave very little of their earnings in Namibia. So where the taxman has a hand in every transaction where money is passed between two Namibian taxpayers, the moment the money leaves Namibia this chain breaks and no further taxes will be collected on that money. Furthermore, building new and discarding the old that could have still represented a productive asset, necessarily entails wastage of resources and a cost to our economy. Such wasted costs only contribute to the uncompetitiveness of the Namibian economy. The FIM Bill is a point in case. Namibia has a Pension Funds Act since 1956 (and other financial services laws) and it has been built by our courts over the past 60 years. Possibly because it was seen as Apartheid era legislation, the Pension Funds Act never really received much attention since Independence, as the result of which it was not really maintained and underwent very few repairs. We rather preferred to build a new law to replace the Pension Funds Act and a number of other financial services laws. With this new law, unlike an asset, we will discard all the established expertise and experience that was built over 60 years. It is not possible to quantify the economic value that will be thrown out the window, but it will be many, many millions, no question being raised about this wastage of very scarce resources. Also, as for many of our infrastructure projects that were undertaken by foreigners, this new law was largely the product of foreign experts. Their remuneration too, will have left Namibia breaking the tax collection chain at that point. If Namibians were not technically capable of building this ‘aeroplane’, will we depend on foreigners to ‘fly, maintain and repair this aeroplane’ now and perhaps forever? New regulations and standards: comment on RF.S.5.20, 5.22 and 5.23 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:
The above regulations were covered in the Benchtest 2018-02 newsletter issued in February. Standards:
In the Benchtest 2018-03 newsletter we addressed RF.S.5.11. The rules of every fund and its code of conduct must provide for (s 2) -
Our comments:
RF.S.5.22 No transfer of benefits and corresponding assets and liabilities may be made, if (S 2) –
If applicable, following reports must be appended to transfer agreement upon submission to NAMFISA (S 5) –
Our comments:
RF.S.5.23 Copies of documents to be provided free of charge (S 2) -
Copies of documents to be provided for a reasonable fee (S 3) –
Our comments:
The following documents can be further adapted with the assistance of RFS.
News from RFS Former managing director hands over the baton Here are a few photos from our internal handover function:  Tilman Friedrich handing over a ceremonial axe, symbol of authority to Marthinuz Fabianus, the company's new MD.  The RFS family assembled for a goodbye and welcome back picture. (Tilman Friedrich remains Chairman of the Board.)  The new Board of Directors of RFS (fltr): Louis Theron, Marthinuz Fabianus, Rauha Hangalo, Günter Pfeifer, Sharika Skoppelitus, Tilman Friedrich, Kai Friedrich, Festus Hangula. Staff movements We are pleased to announce that Valerie Mudisie has joined our permanent staff establishment as from 1 August 2018. Valerie joined us in February 2018 from Alexander Forbes Financial Services where she last held the position of team leader. Valerie is a born Namibian from Okahandja. She is married and the mother of three kids (1 girl and 2 boys). She matriculated at Jan Möhr Secondary school in 2003. She started her career in 2004 with FNB as an admin clerk. After 5 years in the banking industry she joined Alexander Forbes as a Senior Fund Administrator. She was promoted to the position of team leader in 2014. Valerie gained valuable experience in our industry during the 8 years she worked for Alexander Forbes. She is a member of the Benchmark team serving a portfolio of participating employers as a Fund Administrator. Her 8 years’ fund administration experience no doubt stands her in good stead to promote our slogan ‘rock solid fund administration that lets you sleep in peace’ amongst her clients! We extend a hearty welcome to Valerie and look forward to her being a key ‘player’ for many years to come! RFS and the Benchmark Retirement Fund welcome Namib Lead and Zinc We are excited to advise that Namib Lead and Zinc just informed us it will be joining the Benchmark Retirement Fund as a participating employer. We sincerely appreciate this gesture of confidence and trust in RFS, as fund administrator, and the Benchmark Retirement Fund and extend a hearty welcome to the company and its employees to the fold of the Benchmark Retirement Fund. Our business model is not to dominate the market through a low-cost proposition. We focus on transparency, exceptional reporting and superior service. This should support and promote sound industrial relations and the employer’s employment philosophy and policy of attracting and retaining the best staff. If these are objectives important to your company and close to your heart, we should be your ideal partner in the provision of retirement benefits to your staff. This appointment takes editor down memory lane to the 1970’s when he used to audit the books of Namib Lead and Zinc's predecessor mine! News from NAMFISA NAMFISA launches whistleblowing hotline As reported in The Sun The Namibia Financial Institutions Supervisory Authority (Namfisa) board chairperson Gerson Katjimune has officially launched the Namfisa whistleblowing hotline. RFS and the Benchmark Retirement Fund support this initiative whole-heartedly and encourage any stakeholder of the industry in general, but of RFS and the Benchmark Retirement Fund specifically, to make use of this new hotline to report any fraud, bribery, corruption and suspicious transaction without delay. NAMFISA investments exposed The Namibia Financial Institutions Supervisory Authority has investments of N$527.9 million outside the country, according to its 2017 fourth quarter statistics bulletin. The report released last week shows that this is as decrease from N$552.6 million recorded during the third quarter of 2017. However, the amount was lower than the N$928.1 million invested within the country. Meanwhile, the company’s total investments during the period under review stood at N$1.46 billion in the third quarter of 2017. According to the bulletin, cash outside Namibia stood at N$41.5 million, compared to equities and shares outside Namibia standing at N$155.2 million. – The Namibian. Media snippets (for stakeholders of the retirement funds industry) Inside the mind of a balanced fund manager “For quite a few years, analysts and market commentators have warned that investors should expect returns to be lower going forward. But the lack of investment returns over the past three years has been worse than many have anticipated and has caused alarm among local investors. Over the past three years the median return of a local multi-asset high equity fund – the typical unit trust investors use to save for retirement – was a mere 4.8%. Many of these funds have not kept up with inflation. During the period, the local equity market has largely moved sideways and after the rand weakened significantly at the end of 2015, the local currency has strengthened again. This meant that many funds could not fully benefit from the international stock rally...” What is the general expectation of balanced fund managers of equities, as typically the largest asset class holding in a balanced portfolio, going forward? Download this cross-section of investment manager views by Ingé Lamprecht in Moneyweb of 24 July 2018, here... Safeguarding the elderly from financial abuse “Dissect some of South Africa’s most controversial investment schemes and you will come across groups of pensioners who invested after they were lured with empty promises of great returns. In light of the country’s poor savings culture and socio-economic challenges, only about one in ten people are in a position to maintain their standard of living in retirement. Desperate to supplement a meager savings pot, it is not difficult to see why many retirees become victims of too-good-to-be-true money-making schemes. But financial abuse is not limited to having your money pilfered. It can also involve fraud or pressure to part with money or other assets, or having these misused by a loved one or acquaintance…” As pensioners grow older, health is likely to fail and often they will no longer be in a position of evaluating the financial advice they receive from a financial adviser and to take a rational decision. So how do you protect the pensioners’ life savings? Read the article by Ingé Lamprecht in the Moneyweb Investor of 24 July 2018, here... Foreign equity transactions on the JSE As equity investor one is competing with other equity investors for the best buys available. Often the buys everyone is piling into becomes expensive, being chased by high demand, with concomitant poor future growth prospects. Foreign investors represent a pool of investors on the JSE and their investment calls may assist you in deciding where to buy and where to sell. SBG Securities produced an interesting analysis of what equities foreigners bought and sold on the JSE during June 2018. Download it here... Media snippets (for investors and business) A huge storm may be looming for investors Window-dressing - Why the market rallies at quarter end “We are officially halfway through 2018 and it’s a good time to reflect and look at what’s happened so far this year. We compared the performance of the 100 largest shares on the JSE over different time periods and summarised the worst and best performers in the two tables below. Immediately we can note the 3.5% jump the Top40 Index experienced on 29 June, which accounted for all of the month’s 3.6% return. It was also the last trading day of the second quarter and the rampant one-day rally improved the picture substantially for those three months, returning 6.2% instead of 2.7%. The improvement was felt across the board with most shares posting a strong final day of the quarter. It may seem like an odd coincidence that the last day of the quarter sees this anomaly, but those in the asset management industry are well aware of this occurrence near quarter end. The phenomenon is called ’Window Dressing’ where fund managers change their positions and ’dress’ their funds to look more attractive at the end of a quarter (usually the period for reporting to clients). They may also try to increase the value of their funds in order to gain the maximum possible management fee (in cases where monthly or quarterly values are used to calculate the fee). The result is substantial buying support in the market which pushes up share prices…” Read the full article by Joani van Wyk in Sharenet of 3 July 2018, here... Where to invest - Comparing US and SA market valuations If you are contemplating to invest in shares, should you invest in SA rather than the US or vise-versa? Analysing these markets on the basis of the CAPE (Cyclically Adjusted Price Earnings) Ratio tells an interesting story that may give you pointers where to look for opportunities. The next article (‘Mobius says there’s a 30% correction coming for US stocks’) dwells on the same topic and should also be referred to. Download the full article by Ruan Koch of Laurium Capital in Moneymarketing of June 2018, here... Mobius says there’s a 30% correction coming for US stocks Mark Mobius, the 81-year-old investment guru, believes the U.S. stock market is set for a 30% correction that would essentially wipe out the gains of the last two years. The renowned fund manager…said “all the indicators” point to a large fall in the S&P 500… The market looks to me to be waiting for a trigger that will cause it to tumble. You can’t predict what that event might be — perhaps a natural disaster or war with North Korea…” Read the full article in Marketwatch of 21 April 2018, here... Interesting statistics  From Capricorn Asset Management Daily Brief of 25 July 2018. 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:  |
|||||||
2018-06
| 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: Regulations:
The above regulations were covered in the Benchtest 2018-02 newsletter issued in February. Standards:
In the Benchtest 2018-03 newsletter we addressed RF.S.5.11. RF.S.5.18
Our comments:
RF.S.5.19 Communications with active members, retired members and deferred members must be clear, complete and accurate and provided at least annually.
Our comments:
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... 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:
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:  |
|||||||
2018-05
| In this newsletter: Benchtest 04.2018, s14 and unclaimed benefits, levies on long-term insurers, RF.S.5.14 and RF.S.5.15 analysed and more... |
|||||||
|
Important notes and reminders The following regulations and standards were issued and covered in the process: Regulations:
The above regulations were covered in the Benchtest 2018-02 newsletter issued in February. Standards:
In the Benchtest 2018-03 newsletter we addressed RF.S.5.11. RF.S.5.14
Requirements applicable generally
Our comments:
RF.S.5.15
Requirements applicable generally
Requirements applicable to defined contribution funds –
Requirements applicable to retirement funds other than defined contribution funds –
Our comments:
The following documents can be further adapted with the assistance of RFS.
News from RFS  Carmen Diehl C.A. (Namibia) matriculated at DHPS in 2000. She obtained a B. Accounting (Honours) degree in 2004 at University of Stellenbosch. She started her articles with KPMG in 2005 and moved to EY in October 2006. She completed her articles with EY in 2008 and qualified as a Chartered Accountant (CA). She joined Bravura Namibia Trading in 2008 as Financial Manager. From 2009 until 2012 she was employed by the O&L group as Group Financial Manager: Corporate Finance, whereafter she joined Ohorongo Cement. Carmen is certainly best qualified and destined to promote our slogan ‘rock solid pension fund administration that lets you sleep in peace’! Staff movements We are pleased to announce that Karin Douglas has joined our permanent staff establishment as from 1 May 2018. Karin joined us in November 2017 from Alexander Forbes Financial Services where she last held the position of administration supervisor. She completed her schooling at Windhoek High School. Karin obtained a diploma in financial management from Damelin Management School and underwent a number of pensions related training courses at Alexander Forbes. She started off her career in various accounting and retail positions to eventually enter the world of pension fund administration in 2006. Karin serves a portfolio of Benchmark employers and her 12 years’ experience no doubt stand her in good stead to promote our slogan ‘rock solid fund administration that lets you sleep in peace’ amongst her clients! We extend a hearty welcome to Karin and look forward to her being a key ‘player’ for many years to come! On a sad note, we announce that Alida Venter will be leaving RFS at the end of May. Alida was no stranger to the founders of RFS, when she joined RFS in November 2005, having been employed by UPA as part of the same team before. Alida has been responsible for the administration of a number of our largest pension funds over the 13 years she has been in RFS employment. Alida stood out with her friendly and helpful demeanour. She will be remembered fondly by those she has been serving over the years and will be missed dearly by her colleagues at RFS. Alida will be emigrating to SA. We thank Alida for her contribution to the success of RFS and wish her all the best in her future endeavours! News from NAMFISA Stakeholder engagement session – directors and trustees NAMFISA hosted a stakeholder engagement session for boards of trustees and directors of fund sponsors and financial institutions, on 19 March. We provided our notes of the proceedings in our previous newsletter. NAMFISA has now circulated the minutes of the meeting. Download the minutes here... Media snippets (for stakeholders of the retirement funds industry) Could this be ‘the single most important chart’ when it comes to managing money? “Warren Buffett once said, “wide diversification is only required when investors do not understand what they are doing.” The knock on spreading funds across a variety of assets has traditionally been that such a composition saps a portfolio’s power. The upside, of course, is it limits risk exposure, which is particularly compelling during times like these…In fact, according to Mark Rzepczynski, of advisory firm AMPHI Research, if properly constructed, there’s actually more upside to a globally diverse, multistrategy, multiasset class portfolio. He used this illustration from Adam Butler of ReSolve Asset Management to show the power of low correlation. Rzepczynski describes it as “the single most important chart for any portfolio manager or investor”… Read this short article by Shawn Langlois in Marketwatch of 17 May 2017, with a very revealing graph depicting the benefit of diversification, here... Media snippets (for investors and business) Jim Rickards on the next financial crisis In the link below is a very interesting interview with Jim Rickards who predicted the great financial crisis, a ‘must read’. Although slightly dated it is still very relevant and anybody following John Mauldin’s commentaries will be aware that he too currently emphatically warns of another financial crisis. Jim Rickards, the author of "Currency Wars", "The Death of Money", "The New Case for Gold" and most recently "The Road to Ruin" is no stranger to financial meltdowns. As general counsel for the hedge fund Long-Term Capital Management (LTCM), he had a front row seat as dozens of Wall Street institutions worked to bailout the firm with a $3.6 billion recapitalization.
The power of praise “There's a movement afoot that says year-end performance reviews don't provide the frequency of feedback people require to understand and act on their professional development needs early enough. Ditch the year-end performance review, and instead provide regular, on-the-spot feedback, goes the thinking... A recent article by Rabbi Jonathan Sacks, the former Chief Rabbi of the United Kingdom, tells the remarkable story of Lena Rustin, a woman who discovered--and deployed--the power of praise to positively transform behavior. Most speech therapists focus on speaking and breathing techniques, and on the individual child...Lena did more. She focused on relationships and worked with parents, not just children. Her view was that to cure a stammer, she had to do more than help the child to speak fluently. She had to change the entire family environment. The answer, Lena discovered, was praise. She told the families that every day they must catch each member of the family doing something right and say so specifically, positively, and sincerely. Every member of the family, but especially the parents, had to learn to give and receive praise… Through his work filming Rustin, Rabbi Sacks realized she had discovered a solution not just for stammering, but for group dynamics as a whole…” Read the full article by Glenn Leibowitz in Linkedin of 9 May 2018, here... Best paid listed insurance execs and the Gini coefficient How about earning R 44 million per year? Outrageous most would say. Is this capitalism at its worst? Most of us will not be able to accumulate that figure in wealth over his or her entire working life. Although we do not have the insight, we doubt that any Namibian earns even 10% of that amount. On the other end of the income scale, there is likely not much difference between SA and Namibia yet in accordance with the UNDP country comparison of Gini coefficient of 2013, Namibia’s coefficient at 63.9 is worse than SA’s at 63.1. Can any reliance be placed on these indicators? Have insight into the full list of the best paid insurance executives in SA by Hilton Tarrant in Moneyweb of 18 May 2018, here… Interesting statistics  From Capricorn Asset Management Daily Brief of 24 April 2018. 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:  |
|||||||
2018-04
| In this newsletter: Benchtest 03.2018, trustee term of office, RF.S.5.12 and RF.S.5.13 analysed and more... |
|||||||
|
Important notes and reminders The following regulations and standards were issued and covered in the process: Regulations:
The above regulations were covered in the Benchtest 2018-02 newsletter issued in February. Standards:
In the Benchtest 2018-03 newsletter we addressed RF.S.5.11. RF.S.5.12 The conditions pursuant to which a fund may be exempted from Chapter 5 or from any provisions of Chapter 5 A fund may, subject to certain conditions, apply to NAMFISA for exemption from certain sections of Chapter 5 (Retirement Funds) of the FIM Act. Note that the section references below reflect the sections in the Final version of the FIM Bill issued in 2017 while the standard itself still contains references to the 2o13 version of the Bill.
Our comment:
RF.S.5.13 Requirements for a communication strategy This statement applies to –
The strategy must be in clear, simple, non-technical language and must
A communication strategy must provide –
A communication strategy must offer access by members, unpaid beneficiaries, deferred pensioners and pensions to the latest auditors and valuator’s report Requirements for preservation product providers and retirement income providers:
Our comment:
The following documents can be further adapted with the assistance of RFS.
News from RFS  Lilia Cabatana, Senior Manager: Systems, Training and Development, initially joined us in 2003, fulfilling duty outside RFS for a period of about 2 years but returning again after the two brief service interruptions. Lilia started her career with auditors KPMG in 1995 in the bookkeeping department. She then moved into auditing completing her articles and gathering 6 years’ experience, amongst other audits, also in pension fund audits, where she developed her interest in the pensions industry. Lilia is our core resource on the MIP project overseeing the development of MIP for RFS requirements, testing, implementation, conversion from Com_Pen, procedures and staff training. News from Namfisa Stakeholder engagement session – directors and trustees NAMFISA hosted a stakeholder engagement session for boards of trustees and directors of fund sponsors and financial institutions, providing an overview of:
Legal snippets Trustees ordered to obtain information from executors and another fund and to then review allocation of death benefit (case ref PFA/GP/00025441/2016/MD) In the case of AWL Kew and another as complainants vs Allan Gray RAF and it administrator as the respondents, an amount of R 5.7 million was available for distribution by the trustees of respondent from the deceased’s retirement annuity fund with Allan Gray. In a preliminary allocation communicated to all parties concerned, the respondents proposed to allocate a significantly smaller portion to the life partner and minor son of deceased. To this proposed allocation the life partner objected in response to which respondents requested and obtained additional information from the major son and the complainants. As the result of the additional information, the respondents resolved to significantly increase the allocation to around one-third each to the deceased’s life partner and his minor son, to essentially retain the allocation to his major son, while the allocation to deceased’s mother and his sister (the complainants) was reduced significantly. Respondents argued that they had applied a calculator to arrive at the allocation. The calculator uses a real discount rate of 3%, a standard SA mortality table and it assumes that the deceased member’s income would have dropped after retirement to 66.7% of his pre-retirement income. With these assumptions a gross need was calculated and the net need, after deducting the amount of other cash benefits received as the result of the member’s death. Respondents provided a very detailed calculation of the respective net needs of the beneficiaries showing the term of dependency of each one, the cash benefits each one received as the result of the death of the member. Respondents acknowledged that the deceased’s estate appears to have assets of around R 20 million and were informed that the winding up of the estate was far from complete due to on-going litigation/ mediation. Respondents acknowledged that in the final allocation they had not taken into account the value of any inheritance as this would have reduced the life partner’s needs to zero Respondents’ arguments submitted to the adjudicator were that they took into account the age of the dependants, their relationship with the deceased, the extent of their dependency and the wishes of the deceased, pointing out that the deceased had not nominated the complainants as beneficiaries. They argued that the trustees had considered only relevant factors and ignored irrelevant factors, that their decision was justified, was not taken in an arbitrary manner and that they did not fetter their discretion. They pointed out to the adjudicator that the adjudicator’s role is not to decide what the fairest and most generous distribution is but rather, the test in law is, to determine whether the trustees acted rationally and arrived at a proper and lawful decision. Between the complainants and the life partner various arguments were raised against their respective claim that they were in fact dependants, the life partner making reference to the complainants owning significant assets, and the complainants making reference to the deceased having ended his relationship with the life partner 4 years prior to his demise, removed her as a beneficiary in his life policies and ceased paying for her car instalments, not being married, and having kept separate bank accounts. The fact of the matter was though that both continued to live under the same roof and shared their household, they have a minor son, had joint businesses and the life partner remained a beneficiary of his estate. The complainants further averred that the trustees failed to consider that other dependants may be allocated a death benefit amount to R 1.8 million from another fund. The adjudicator accepted that the all parties were factual dependants of the deceased. With regard to the status of the life partner it was pointed out that “the test of dependency was... whether the parties lived in a relationship of mutual dependence and ran and shared a common household. A relationship of mutual dependency involves, amongst other things, an emotional and intimate bond.” It did not express a view on whether the life partner was a legal dependant. The adjudicator found fault with the fact that the respondents had not taken into account an amount of R 4 million the life partner was due to receive from deceased’s estate nor had they taken into account the benefits arising from another fund. The respondents were thus ordered to obtain information from the other fund of which deceased was a member and from the executors of deceased’s estate to determine who was paid how much from those sources for the purpose of reviewing the allocation of the death benefit from the respondent fund. Our comment: The adjudicator instruction to respondents, to obtain information from the other fund before distributing the benefit from the fund in case creates quite a dilemma for trustees. It presents a ‘chicken and egg’ situation. The other fund should thus also wait for the distribution of the fund in case before it distributes the benefit – who is to be first and who last? Media snippets (for stakeholders of the retirement funds industry) It’s a crime for employers not to pay your pension fund “If your employer fails to pay your retirement fund contributions into your fund, it is a common law crime and you have a right to know and to expect the fund's trustees to do all they can to recover the money. But, while this theft is common, there are no reported cases of company directors, members of closed corporations or those in charge at companies being held personally liable for the failure to pay contributions. The issue of outstanding contributions is bigger than the one of unclaimed retirement benefits, Muvhango Lukhaimane, the Pension Funds Adjudicator, said...” In South Africa the Pension Funds Act was amended in 2014, adding provisions that make controlling shareholders, members of close corporations, company managing directors, trustees and partners personally liable for an employer's failure to pay contributions. They can be fined up to R10-million or imprisoned for up to 10 years. In Namibia, section 270 (10) of the FIM Bill contains similar sanctions holding personally liable every director and the person regularly involved in the overall management of the financial affairs of a corporate body, or where the employer is not a corporate body, every trustee or partner who directs or instructs the governing body of the employer. Any unpaid contributions will constitute a first charge against the estate of the employer. In Namibia the fine for failing to pay over the contributions will be up to N$ 2.5 million or 5 years imprisonment or both. Read the full article by Laura du Preez in Sowetan of 8 March, here... Once invincible Tencent joins ranks of internet mortals “Tencent Holdings may not be a superhero after all. Revenue at the Chinese social media company missed estimates by the largest margin in more than three years, user growth slowed and margins are under pressure. It’s about to get worse...By stripping out the entire “other gains” category — which I think should be reported under non-operating items anyway — I found that rather than climbing, operating margin slid from 29.4% a year ago to 26.8% in the most recent period. When revenue jumps 51% but operating margin slides, you start to realise that economies of scale aren’t quite what you imagined. Investors should be concerned.” Tencent of course has been the driving force behind Naspers and Naspers has been the driving force of the JSE making up around 20% of its market capitalisation. Some asset managers have benefited greatly by this stellar performance of Naspers. For interest sake, here are the holdings in Naspers of some of the main asset managers’ prudential managed portfolios: Allan Gray– 5.1% Investec – 5.2% NAM Cor Bal Plus – 3.9% Old Mutual Prof Pinnacle – 9.7% Prudential – 5.3% Read the full article by Tim Culpan in Moneyweb of 12 April 2017, here... Media snippets (for investors and business) Do investors care about governance when there is money to be made? “While investors tend to pay lip-service to environmental, social and governance (ESG) factors at the firms they invest in as long as returns are favourable, recent corporate scandals at Steinhoff and Tiger Brands have highlighted how serious the damage can be when safeguards fail. Research conducted by Bank of America Merrill Lynch shows that companies that are well-run from an ESG perspective, typically have much lower drawdowns than companies that are not. Alex Tedder, head of global equities at UK-based asset manager Schroders, says it seems obvious that a well-run business would pay attention to ESG factors, but it is not the way a lot of companies or investors think yet. “I think they will do, but it is [at a] very early stage. In the United States for example ESG is not really a factor right now. A lot of the investors don’t really look at it... Tedder says ESG considerations can’t protect investors against corporate failures such as Steinhoff as these events are very difficult to predict. “If a manager is lying, it is very difficult to assess that and you’ll always have situations that you get wrong – every investor has that, but our view is simply that you have got to be systematic about it... It [ESG considerations] has to be integrated into your process and there has to be a trade-off between risk and return...” Read the full article by Ingé Lamprecht in Moneyweb of 18 April 2018, here... There is more to diversification than not having all eggs in one basket “The old cliché is don’t have all your eggs in one basket, but you also need to understand that you can’t only have eggs, Philip Bradford, head of investments at Sasfin Wealth, says. What Bradford is referring to is the importance of understanding the interplay between various asset classes in a multi-asset portfolio. Although investors ideally want to ensure that all the building blocks in their portfolio do well in the long run, they don’t want to be in a position where all assets are struggling at the same time... In the local market, if you can currently get inflation plus 4% or 5% out of bonds – which are actually going to protect you when the equity market falls – what it does allow you to do is to dynamically move between those asset classes when equities underperform. Bonds are essentially like an insurance policy that instead pays you a premium... When you are looking at equities I think you do need to look at things with very much a global mind set and be aware that the vagaries and movements of currency markets will impact those returns, but over time I do believe there are opportunities out there that you can’t get on your doorstep in South Africa... The argument for going offshore and investing in cash or bonds for me is a very weak one, particularly at these sorts of levels and the kind of yields that are available... However, other local asset classes like fixed income and local property offer very high yields compared to the global market. Local property offers a very high rental yield because the escalations in leases are linked to inflation and are much higher than in developed markets. ” Read the full article in Moneyweb of 17 April 2018, here... These 7 disruptive technologies could be worth trillions of Dollars “Scientists, technologists, engineers, and visionaries are building the future. Amazing things are in the pipeline. It’s a big deal. But you already knew all that. Such speculation is common. What’s less common? Scale. How big is big?...” Here are these 7 technologies:
Interesting statistics  From Capricorn Asset Management Daily Brief of 18 April 2018. 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:  |
|||||||
2018-03
 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 The following regulations and standards were issued and covered in the process: Regulations:
The above regulations were covered in Benchtest 02.2018 newsletter issued in February. Standards:
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
Our comment:
The following documents can be further adapted with the assistance of RFS.
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.
News from RFS  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.
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:
Note, in our 18 year history of our 67 staff:
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:
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:
(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.
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:
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:
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:  |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2018-02
| In this newsletter: Benchtest 01.2018, employer participation in different funds, new FIM regulations analysed and more... |
|||||||||||||||||||||||||||||
|
Important notes and reminders
Conclusion:
Standards:
We will be placing focus on these below and in the next few newsletters. RF.R.5.3 Terms & conditions on which a board may distribute some or all of an actuarial surplus pursuant to section 260(8) (Note: reference should probably read ‘section 268(8)’)
It would appear that this regulation is primarily addressing surplus distributions by a defined benefit fund. In a defined contribution fund, a surplus typically represents unallocated investment returns that should not be subject to this regulation when allocated to members and pensioners in the form of an additional interest allocation. Therefore if it is an additional interest allocation care should be taken to determine the additional allocation by means of an interest accumulation calculation. 2. 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) (Note: This reference should refer to section 270(9)(c).)
The following documents can be further adapted with the assistance of RFS.
Gunter Pfeifer's Benchmark Notes
Does a combination of manager address all these risks?
The Benchmark Retirement Fund Flagship of umbrella funds in Namibia By Paul-Gordon, /Guidao-Oab, Benchmark Product Manager The problem with pension backed housing loans In last month’s newsletter we informed participants in the Benchmark Retirement Fund that the trustees resolved to discontinue bank funded pension backed housing loans, also referred to as indirect loans. This decision was taken because of the risk the fund faces where a member has tax debts. The Benchmark Retirement Fund does not offer a housing loan arrangement as a business proposition but is willing to assist employers who want to offer a housing loan arrangement to its employees. As an alternative to indirect loans, the trustees resolved to rather facilitate a loan arrangement at the request of a participating employer by way of direct loans where the fund does not face the risk of being unable to recover a loan balance as the result of the borrower’s tax debts. In this instance the borrower effectively ‘calls up’ a portion of his/her retirement benefit and cedes that portion of the benefit to the fund. In the event of a default by the borrower, the fund can simply repay the loan with a portion of the member’s retirement benefit. Unfortunately, however, some of the requirements of the Pension Funds Act with regard to housing loans cannot be enforced, policed or managed by the fund and the fund cannot grant loans that place such obligations on the fund unless this responsibility is borne by the employer and backed by an indemnity by the employer to the fund. For example, the Benchmark Retirement Fund does not have the resources or expertise to inspect and evaluate any work done under a loan. Where a loan is requested to purchase a property in a proclaimed municipal area, it is not very onerous to ensure that the requirements of the Pension Funds Act have been met. There is a very formal process to transfer the property into the name of the borrower and this can easily be properly substantiated by way of deed of transfer or title deed. Paying the transferring attorney is also a secure process and does not expose the fund to the risk of misappropriation of loan funds. In conclusion, the Benchmark Retirement Fund is willing to facilitate a housing loan arrangement in respect of the purchase of property in proclaimed municipal areas. Any building loans or loans in unproclaimed areas will only be considered if the employer is prepared to enter into an agreement with the fund that obliges the employer to ensure that the requirements of the Pension Funds Act are met.
RFS in action Corporate governance a key pre-requisite for peace of mind! To strengthen the internal controls, RFS recently introduced a full-time audit, compliance and risk management function. Mrs Carmen Diehl, our manager: internal audit, compliance and risk management is a chartered accountant. Her work is peer reviewed by Mr Schalk Walters, a chartered accountant and independent corporate governance expert. In the following newsletters we will be briefly looking at the three areas of corporate governance, namely risk management, compliance management and internal audit. Internal audit The board of RFS is ultimately responsible for overseeing the establishment of effective systems of internal control in order to provide reasonable assurance that the company’s financial and non-financial objectives are achieved. Executing this responsibility includes the establishment of an internal audit function. Internal control is understood to mean the processes aimed at achieving reasonable assurance about the realisation of the following objectives:
News from RFS Mens sana in corpore sano! So the old Latin saying goes – a healthy mind requires a healthy body! For probably as many years as RFS has been around, we have been participating in the Volleyball-for-All tournament that takes place on the first Saturday of every February at DTS sport grounds. Thank you to Bianca Busch who has arranged our participation for the past so many years! Here are the players and some action photos of this year’s occasion.  Above, the RFS team at the event.  Above, the RFS team in action.  Paul-Gordon /Guidao-Oab joined RFS as Manager: Audit and Compliance in May 2016 and then moved into the position of Benchmark Product Manager. Paul holds a B Compt degree from Unisa and has completed his articles with SGA.. Study achievements To provide our clients with exceptional service, experience and qualifications are essential attribute of our staff. To support the initiatives by staff to advance their qualifications, RFS sets aside annually an amount equivalent to 0.5% of payroll over and above the obligatory VET levy. We congratulate Nicolo Benade for having obtained a National Diploma in Accounting and Finance through part-time studies, a noteworthy achievement for a father with two young children. Here is a summary of the qualifications and experience of our staff:
Long service awards complement our philosophy RFS philosophy is that its business is primarily about people and only secondarily about technology. We know that as a small Namibia based organisation we cannot compete with large multinationals technology wise because of the economies of scale that global IT systems offer. To differentiate us we need to focus on personal service and on the persons delivering that service to get customer acceptance and service satisfaction. With this philosophy we have been successful in the market and to support this philosophy we place emphasis on staff retention and long service. The following staff members recently celebrated a work anniversary at RFS. We express our sincere gratitude to these staff for their loyalty and support over so many years: 15 year service awards in our 18 year history
10 year service awards
5 year service awards
News from Namfisa Minutes of the industry meeting of 30 October 2017 It is quite disappointing to note that by our rough count only about a quarter of the 87 registered, active funds attended the meeting and the largest fund by far had no representative attending! The regulator must be asking itself why the attendance by registered funds is so low. We can only suggest that there is 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 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 that are likely to raise their stress and anxiety levels about ever increasing demands. Here are a few salient points from the minutes:
Download the minutes here... Legal snippets Determination in T Jacoby vs Metal Industries Pension Fund and Metal Industries Benefit Fund Administrators In this case the deceased nominated two adults as his beneficiaries. Deceased who passed away on 17 February 2015, was married but his wife passed away on 30 September 2013. The complainant who was one of the nominated beneficiaries was in a relationship with deceased from February 2014 until his death. Complainant claimed to have been a dependant of the deceased and complained about the decision of the fund to pay the total benefit to the estate of the deceased. The administrator of the fund had requested evidence from complainant that she had been dependent on the deceased but such evidence was not submitted. It was also established that deceased was an orphan, had no children and no surviving siblings. The deceased was the only member on the medical aid. As usual in such complaints the adjudicator had to establish whether the trustees failed to carry out their duties in terms of section 37C of the Pension Funds Act. These duties are to identify the beneficiaries and to apply their discretion on the proportions and the manner of distribution of the benefit. The trustees are required to give recognition to relevant factors and ignore irrelevant factors. The trustees may not unduly fetter their discretion by following a rigid policy that does not take into account the personal circumstances of each beneficiary. In considering the definition of ‘dependant’ and ‘spouse’ in the Act, the adjudicator concluded that the complainant objectively does not meet the definition of spouse and would thus have to be considered under the definition of ‘dependant’ as a factual dependant. The adjudicator stated that in order to constitute maintenance, the deceased need to have made regular payments to the beneficiary. Such payments cannot be once-off and should have been made till the end of the deceased’s life. Applying these measures, the adjudicator concluded that the deceased was not a factual dependant. Arguing further on the basis of section 37(1)(b), that deals with a situation where there are no dependants but nominated beneficiaries, the adjudicator concluded that the benefit must be distributed in accordance with the beneficiary nomination form, to the extent that the benefit is not required to be paid into the estate to make good a shortfall in the estate between the aggregate amount of debts and the aggregate amount of assets. She also pointed out that a payment to nominated beneficiaries can only be finalised after 12 months and after the solvency of the estate has been confirmed. The adjudicator determined that the trustees had incorrectly applied section 37C(1)(b) of the Act by having resolved to pay the full benefit to deceased’s estate. She directed the trustees to establish the solvency of the estate and to pay any residue after any shortfall in the estate to the nominees in the proportions as per the nomination form. Media snippets (for stakeholders of the retirement funds industry) Are you giving up returns by investing in a balanced fund? “Local investors by far prefer using multi-asset funds, whereas the rest of the world makes far greater use of equity portfolios. This move into multi-asset, or balanced, funds in South Africa has been pronounced over the last ten years. At the end of 2007, only 25% of money in locally-registered collective investment schemes was in these kinds of portfolios, but they have attracted by far the majority of inflows since then. Conventional thinking would suggest that this means that South African investors are giving up some of their returns. Equity funds should deliver the best performance of any category over the long term, and therefore investors using multi-asset funds are going to end up worse off. There are however two reasons why this argument is not as clear cut as it may seem…” Read the full article by Patrick Cairns in Moneyweb of 19 February 2018, here... My fear is not when SA runs to the IMF... it’s about hands in the pension pot In our Benchtest 10.2017 we raised the question whether it still makes sense to invest in a pension fund in the light of the continually rising costs imposed upon and arising from pension fund investments as the result of regulation. In our Benchtest 12.2017 we also suggested one should consider managing your investments yourself to circumvent the ever increasing cost burden on pension fund moneys. The following article expresses very similar sentiments from an SA perspective. “The fear I have is not that the forecast comes true, but if it doesn’t. I can hear the eyebrows lift and see the “you’re crazy” stares pierce the screens...There is a worse fate that awaits South Africans than government running to the IMF to bail out Eskom; Transnet or even worse, government itself…The fear I have is that they use our pension fund savings. South Africa has the fifth-largest pension fund savings in the world as a percentage of GDP…You have to have 25% in interest-bearing investments, and all this is called Regulation 28. The law is on the books, and the regulation can change without parliament even voting on it. If government needs to issue more bonds at lower yields, it simply changes Reg 28. It can probably expand it to enforce say 50% of pension assets into bonds or banks and only 50% equity. Offshore investments could be stopped too if the SA government needed the money. No laws need to be changed, and one can just implement Reg 28 to living annuities and other forms of long-term retirement investments. It’s so simple and fast.” Read the full article by Mike Schüssler in Moneyweb of 7 February 2017, here... Three retirement myths busted “Risk and investment planning are often regarded as two separate conversations, but in many respects the objective of both these conversations is exactly the same – protecting your income. “We view risk planning as protecting you from the risks that prevent you from being able to earn an income, allowing you to create the wealth that you need. Investment planning is around helping you grow that wealth so that one day you can replace the income when you no longer need to or want to work… Both of them have exactly the same objective…” The problem is that both risk and investment planning are driven by conventional wisdom, which in many cases is no longer true. Myth 1: You will earn a continuous, steadily increasing stream of income until retirement – The reality is obviously far from that. Seven out of ten people are going to have at least one injury or illness in their working lives that will prevent them from earning an income. What is even more scary is that once it has happened to you once, it is probably going to happen again… Myth 2: You know exactly how much you’ll need to retire - This is often driven by two rules of thumb – that investors need 75% of their final salary as an income in retirement (a 75% replacement ratio) and that 20 times that amount is a sufficient lump sum to invest at retirement. But the 75% replacement ratio likely won’t be enough where retirees still have debt and/or dependents. Healthcare costs and medical inflation can also have a significant impact on the amount of money they’ll need… Myth 3: You will retire at 65 and live until 90 - life expectancy has increased significantly. Work gives people a sense of purpose. People are 30% more likely to die in their first year of retirement than in their last year of working. In England and Wales, the older-than-90 population increased by 33% between 2002 and 2012…” Read the full article by Ingé Lamprecht in Moneyweb of 20 February 2017, here... Media snippets (for investors and business) Behavioural finance: traps to avoid “Economic theory assumes that investors behave in a rational manner, but unfortunately this is far from the case in real life. Behavioural finance attempts to understand and explain how human emotions influence investors in their decision making. Below we have a look at the most common behavioural biases. Regret theory - Investors can become emotionally attached to the price at which they bought a share, and then avoid selling at a lower price. Mental accounting - Mental accounting occurs when investors are willing to take more risk with money that they inherited (as an example) than money they earned through work. Prospect/loss-aversion theory - For example, investors experience more angst about potential losses than the joy they would feel from an equal potential profit. Recency bias - Investors tend to chase performance, and usually buy shares just as they are peaking Over- or under-reacting - Investors become overly optimistic when markets go up and overly pessimistic when they go down. Overconfidence - People tend to overestimate their own abilities (how many men think they are above-average drivers?), thinking they have superior knowledge. Confirmation bias - Investors normally gravitate more towards information and sources that confirm or validate their personal beliefs. Herd mentality - This occurs when the individual doesn’t want to be left out and follows the masses, instead of focusing on what would be in his/her best interest. Read the full article by Stephan Maritz in Moneyweb of 12 February 2018, here... Warren Buffet – the prime example of the failure of American capitalism ‘Warren Buffett should not be celebrated as an avatar of American capitalism; he should be decried as a prime example of its failure, a false prophet leading the nation toward more monopoly and inequality.’ “That hot take comes from David Dayen, ripped from a deep dive published on Thursday in the Nation headlined “The dirty secret behind Warren Buffett’s billions.” Not quite the fawning media coverage of the Berkshire Hathaway boss you’ve probably come to expect.” Read the full article by Shawn Langlois in Marketwatch of 17 February 2018 here... Healthiest office snacks as chosen by nutritionists “When your stomach starts grumbling during a midmorning meeting or when you're stuck at your desk without a break in sight, what is the most satisfying and healthy snack to grab? To answer this question, I asked 10 nutritionists what their favorite go-to nosh is during a busy workday. Below, their responses...”
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: |
|||||||||||||||||||||||||||||
2018-01
| In this newsletter: Benchtest 12.2017, rather manage your own investments, SSC benefits and tax and more... |
||||||||
|
Important notes and reminders The following documents can be further adapted with the assistance of RFS.
The Benchmark Retirement Fund
RFS in action Compliance Management Compliance management aims to ascertain that all employees or RFS adhere to the requirements of laws, industry and organisational standards and codes, principles of good governance and accepted community and ethical standards. This process entails the establishment of compliance procedures, the identification of laws of relevance to RFS’ operations, the execution of regular compliance reviews and the maintenance of a compliance register. These laws prominently include the Pension Funds Act, the Income Tax Act, the Financial Intelligence Act, the NAMFISA Act as well as a number of other laws. Each law is assigned to an executive director for the purpose of monitoring on-going compliance by RFS. News from RFS  Hannes van Tonder heads up our Benchmark Retirement Fund administration services, systems and procedures and in-house umbrella fund administration training. He can call on 20 years pension fund administration experience. He holds a B Com degree from Unam and an honours degree from Unisa. Furthermore, he obtained an IISA Licentiate (Retirement Fund Management) conferred by the Insurance Institute of South Africa. New staff join our permanent staff complement Riduwone Farmer joined our permanent staff complement on 1 January 2018. He was born at Walvis Bay and matriculated at Jan Mohr Secondary School. Riduwone is well-known in the retirement funds industry. He started his career at UPA in 1998 which was later acquired by Alexander Forbes. He gained experience in almost all administration related fields over a period of 15 years with Alexander Forbes. He resigned from AFFS in May 2013 to join his wife who had accepted a diplomatic posting to Lusaka. Riduwone enrolled for a Bachelor Degree in Business Administration and wrote his last exams at the end of last year, currently awaiting the results. We extend a hearty welcome to Riduwone and his family to the RFS family and look forward to him serving his Benchmark client with passion, diligence and conviction for many years to come. Information and correspondence to take note of Duplication of NAMFISA levies on certain investments In a previous newsletter, we pointed out that the regulation in terms of which a new NAMFISA levy structure was to be introduced with effect from 1 November 2017, has resulted in a questionable layering of levies on the same assets and has created uneven playing fields depending on what investment vehicles are employed to invest a fund’s assets. The most inequitable layering appears to be where a fund invests in an insurance policy. These assets are levied in the fund. The monthly cash flows into the investment policy are then levied as an insurance policy premium. The insurer who manages these assets is then once again levied on the same assets. If these assets were managed either in a unit trust or in a segregated portfolio, they would ‘only’ be subjected to the fund levy and the levy applicable to asset managers or to unit trust management companies as the case may be. We have taken this up with all insurers and enquired what they intend to do about this patently inequitable treatment of assets invested through an insurance company. One insurance company responded as follows: “We take note of your concern regarding the implication of fees being levied twice. We have been in discussions with the Regulator for quite some time, and the below concern has been discussed at various forums within the company. The Regulator is of the opinion that the act is very clear on this matter. At this point we are seeking for a solution to this problem by either seeking for exemption or by looking at ways to restructure our products, but careful consideration needs to be given at all the different levels to account for the full impact at client level. Unfortunately this is quite a tedious process as we need to constantly engage with the Regulator on this matter as well. T did meet with them again yesterday and the discussions are being held at the highest level with the Regulator as a matter of urgency.” Another insurer responded as follows: “A correspondence on behalf of our company requesting that in instances wherein pension/retirement funds invest through insurance policies, such assets be exempted from the long term insurance policies and it be levied as pension/retirement funds only, thereby negating the double levy impacting upon pension/retirement fund members has been drafted and will be sent to NAMFISA this week. Our company is of the opinion that failing this, pension funds, provident funds, preservation funds and retirement annuity funds will be double levied, in the first instance as part of gross written premiums in the life company and in the second instance, in their own capacity. Prior to the legislative amendment the life company was permitted to deduct the assets of the pension funds, provident funds, preservation funds and retirement annuity funds, as these assets would already have been levied in their singular capacity.” News from the market Establishment of Namibian Revenue Agency The Namibia Revenue Agency Act, Act 12 of 2017 (“the NRA Act”) was gazetted on 12 December 2017. The NRA Act provides for the establishment of the Namibia Revenue Agency (“NRA”), the powers, functions and management of the NRA. The NRA will be headed by a Commissioner. The Minister of Finance appoints the Commissioner for a period of 5 years. The Commissioner may not be appointed for more than 2 terms. The NRA Act will only become effective on a date determined by the Minister of Finance by notice in Government Gazette. Read EY Namibia Tax bulletin 1/2018 here... Media snippets (for stakeholders of the retirement funds industry) A retirement rule of thumb is not for everyone “A rule of thumb widely used in the retirement industry suggests that you should aim to save enough money to earn a gross retirement income equal to 75% of your final gross income immediately prior to retirement. While working, a person’s gross income is used for consumption, to save (mostly for retirement) and to pay tax. Targeting an income replacement ratio of 75% in retirement (instead of 100%) is premised on the assumption that a retired individual will stop saving for retirement and pay less tax. However, this is a fairly crude target that may not be appropriate for everyone and may be difficult to understand… Using a consumption replacement ratio (consumption in retirement as a percentage of consumption prior to retirement) is a better measure of financial readiness for retirement. It is individualised for the person, takes into account how much they are actually saving and how much tax they are actually paying instead of crudely assuming that everyone is the same, she says….” Read the full article by Ingé Lamprecht in Moneyweb of 21 November 2017, here... Getting the most out of annuities “Anyone who has saved money in a pension fund or a retirement annuity has to make a decision when they reach retirement age. At least two thirds of the money they have saved has to be used to secure themselves a monthly income. This must be through a living annuity, or a guaranteed annuity. However, it’s important for investors to understand that they are not restricted to choosing one or the other. It is possible, and even often advisable, to use both. As an individual, your lowest-risk annuity choice is always buying a guaranteed annuity that starts off providing you with the amount of money you need and escalates every year with inflation. Then, no matter how long you live, you should always meet your income objectives. But while that is a great idea, some people can’t afford that from day one, because the guaranteed income that they can purchase doesn’t meet their needs…” Read the full article by Patrick Cairns in Moneyweb of 7 November 2017, here... The no 1 financial fear of rich people should have you seriously concerned “Even the richest Americans are worried about having enough for retirement. 51% of affluent investors — defined as those who have total investable assets of $500,000 or more — say they are concerned about being financially secure in retirement. That’s according to a survey from Personal Capital in conjunction with ORC International, which asked 1,000 affluent Americans what concerns they have about financial planning…” Read the full article by Sally French in MarketWatch of 20 December 2017, here… Media snippets (for investors and business) How I paid off my house in under 5 years First off, however, accept and understand that paying off a mountain of credit card debt or a car or even a house in an aggressive timeframe is not impossible! This has been done before (and there are no penalties for doing it)... To many, the mechanics of how to pay extra are a mystery. This really ought not to be. Simply transfer/pay extra money into your loan accounts as if you were moving money between a current account and a credit card. It is really that simple... Adjust your lifestyle (downwards!) When I decided to attempt to be debt-free by age 35, the most important philosophical change I had to make in life was to live below my means. This ought to be the case in all your spending, but is especially true in the two largest purchases you’ll likely ever make: your car and your house. Very simply, buy below what you can afford... Get a grip on your spending Budgeting is something I learnt before trying to prove that I could pull this off. But, the detail and discipline had to be taken to another level entirely. First, track every cent that comes into or leaves your bank accounts every month. Categorise this into useful buckets such as food, fuel/transport, discretionary, etc... Get rid of ‘bad’ debt When you’re tackling a large amount of long-term debt, short-term debt gets in the way. It is not logical to try pay off a bond while juggling car repayments, credit card bills and other loans... Save, save, save Figure out how much extra you’re able to put into your bond every month, and use this as a minimum target. Don’t stop there. Set an aggressive one as well... Extra cash Put any unexpected windfalls (the obvious one is an annual bonus) into your bond and try hard not to adjust ‘into’ your annual increase... Once it’s done Here’s the kicker: once your house is paid off – much like your car – forgo the temptation to upgrade thereafter. In fact, make a deliberate decision to not move into something bigger and better once your property is paid off. I’m finding this harder than expected. Rather, use the runway over the next five to ten years to build some wealth... Read the full article by Hilton Tarrant in Moneyweb of 24 November 2017, here... Three powerful public speaking lessons from ‘Dutch directness’ “If you’re someone who struggles with confidence and authority in your speaking, then Dutch directness is your friend. Here are three important lessons to learn that'll turn directness to your advantage. Be honest… Whether in a board room or on stage giving a talk, instead of cushioning facts and hiding problems, tell them what the problem is, and then show the path and solution ahead. It will earn you tremendous trust. Embrace giving feedback… Feedback done wrong can be costly for the company- negative relationship with managers is one of the biggest reasons for promising employees leaving their jobs…Be factual, don’t get personal… By being factual and away from personal attacks, you'll be able to establish yourself as a leader whose words command respect. Be light-hearted… Note- don't go overboard with pulling people's leg and becoming rude, that destroys relationships. Measure your words well...” Read the full article by Sangbreeta Moitra in LinkedIn of 8 January 2017, here... The 8 signs of a bad leader “It's an interesting conundrum. Say you're a manager, a senior-level executive, or a human resources employee; your job is to be a leader, yes, but also to pick out leaders, to select who will be promoted, given extra responsibility, head up a project or team. How do you know who will make a great leader in a given circumstance? There are loads of articles floating around about attributes that make great leaders great, but what makes a poor leader? We can all pick them out after the fact (hindsight is 20/20 after all), but what traits set these people apart even before they assume a leadership role? Any one or more of the following traits would be a red flag that a person might not be ready for a leadership position:”
From Marketing Insight. And finally... Did you ever wonder why? WHY: Why do men's clothes have buttons on the right while women's clothes have buttons on the left? BECAUSE: When buttons were invented, they were very expensive and worn primarily by the rich. Since most people are right-handed, it is easier to push buttons on the right through holes on the left. Because wealthy women were dressed by maids, dressmakers put the buttons on the maid's right! And that's where women's buttons have remained since. |
||||||||
2017-12
|
||||||||
| In this newsletter: Benchtest 11.2017, Christmas greetings, NAMFISA levies, NAMFISA circulars, FIM Bill training, do we need a National Pension Fund, rule amendments and affidavits, and more... |
||||||||
|
Season's greetings!
Thank you sincerely for your valued support! We look forward to being at your service in 2018, and beyond. The following documents can be further adapted with the assistance of RFS.
The Benchmark Retirement Fund
RFS in action Corporate governance a key pre-requisite for peace of mind! To strengthen the internal controls, RFS recently introduced a full-time audit, compliance and risk management function. Mrs Carmen Diehl, our manager: internal audit, compliance and risk management is a chartered accountant. Her work is peer reviewed by Mr Schalk Walters, a qualified chartered accountant and independent corporate governance expert. In the following newsletters we will be briefly looking at the three areas of corporate governance, namely risk management, compliance management and internal audit. Risk management The board of RFS views a robust and effective risk management process, based on the NamCode, as a necessary and integral part of the day-to-day operations and acknowledges that its board holds ultimate risk management responsibility. Risk management activity is aligned to corporate and business plan objectives and priorities and is aimed to embed risk management at RFS into its daily operations. It encompasses strategic and operational risks that may prevent RFS from achieving its objectives. Risk management criteria in terms of impact and likelihood have been established covering financial, legislative and reputational risks. Risk review meetings of the executive directors are held every two months while the agenda of quarterly meetings of the board of directors includes risk management. News from RFS  Rauha Hangalo started her career in retirement funds management as fund accountant at UPA in 1996, and joined RFS in July 2002. Rauha now heads up our Benchmark client services team while also providing client services to a portfolio of our prime private funds. Rauha obtained a BA (Business Administration) from Thiel College in the US. She holds an Advanced Postgraduate Diploma in Financial Planning (Employee Benefits) from University of Free State, the Certificate of Proficiency from Insurance Institute of South Africa and has completed a Programme in Retirement Fund Management through UNISA (IISA Licenciate). She also successfully completed the Programme in Advanced Insurance Practice from IISA and is now an Associate member of IISA. In her 20 plus years in the retirement fund industry, Rauha gained very broad experience to all areas of fund management from fund accounting, fund administration and client servicing and is well placed to guide her pension fund clients wherever assistance may be required. RFS staff in festive mood RFS kids year-end party As is the case every year the RFS social committee laid on a kids party that was thoroughly enjoyed by the RFS kids, their mummies and their daddies.     RFS staff year-end function The year-end function for RFS staff with the theme of Gatsby was a singular occasion on a high level that will still be spoken about for some time, as the following pictures reveal:    RFS Readers’ letters One Chart of Accounts Reporting A trustee of a medical aid scheme comments as follows: “In general it should be pointed out that:
A trustee of a pension fund that received an ‘off-site inspection report’ on service provider familiarity and trustee rotation commented as follows: “This Monday morning I respond like someone who got out of bed with the wrong foot. The trigger in this instance is the assumption made by NAMFISA with their off-site inspection that familiarity is a major risk and that we need to do something about it. I just now went back to my MBA handbooks, as I am not so well versed in articulating my understanding of risk. “Fundamental of Corporate Finance” – 3rd edition (Firer, Ross Westerfield and Jordan) describe risk in the following words: “The unanticipated part of the return, that portion resulting from surprises, is the true risk of any investment. After all, if we always receive exactly what we expect, then the investment is perfectly predictable and, by definition, risk-free. In other word, the risk of owning an asset comes from surprises - unanticipated events”. A systemic risk is described “ as a risk that influences a large number of assets, also called a market risk” , they describe “GDP, interest rates, or inflation” as examples of systemic risks. Added to this is the standard deviation of an investment and the diversification of a portfolio that primarily manages risk. For NAMFISA to now claim that familiarity is a risk, while not proven by factors such as significant changes in the standard deviation of our portfolio, is to question the integrity and intelligence of our team. Furthermore is the specialist knowledge of our service providers. Should familiarity have become a risk, it would have shown in the figures, which it does not. The transparency needed in the management of our pension fund is indeed in place and managed through policies, and proven through the adherence as displayed in minutes. The unsystematic risk however that has shown itself on the horizon over the last three years, is the continued increase in fee’s set by NAMFISA. The observation of this risk I believe has indeed been recorded in the minutes of Trustee meetings...” News from NAMFISA False statements made under oath in statements required by NAMFISA – PI/PF/Circ/02/2017 Above circular was issued by NAMFISA on 14 December 2017 “…by virtue of …[its] functions and powers in terms of the Namibia Financial Institutions Supervisory Authority Act…and is applicable to all pension funds. This circular serves to advise funds that making false statements in any affidavit constitutes a criminal offence. News from the market Prudential loses Melanie Allan Prudential Portfolio Managers announced the resignation of Melanie Allan effective 1 January 2018. BIPA no longer accepts revenue stamps The Business and Intellectual Property Authority recently announced that it no longer accepts revenue stamps for fees payable under the Close Corporations Act and the Companies Act. Only payments made in the form of cash, electronic bank transfers or direct deposits will be accepted as from 30 November 2017. For more detail download the advertisement that appeared in local newspapers, here... Steinhoff debacle likened to Enron and Abil In the aftermath of the Steinhoff debacle that resulted in a drop in its share price of 90% following the shock resignation of CEO Marius Jooste, we made enquiry with asset managers about any exposure to Steinhoff. By the time of ‘going to press’ we received the following responses:
(for stakeholders of the retirement funds industry) Pensions and politics are in an uneasy mix the world over “I recently participated in a panel discussion of the International Pension & Employee Benefit Lawyers Association in Prague under the topic: “Pensions Crises: Many jurisdictions report that significant percentages of their populations are unable to retire with the level of dignity they would have liked and that future prospects for many fund members appear to be weakening.” High-level participants agreed on certain conclusions: The jurisdiction with the best results have:
Board ordered to re-exercise its discretion in terms of section 37C In this case T Norris, friend of late S Roche who was employed by the University of Kwazulu-Natal, was the only person nominated by deceased on her beneficiary nomination form. The board of trustees of the fund resolved to allocate the full death benefit to deceased’s mother. Deceased’s friend complained to the Adjudicator about the fact that no allocation was made to him arguing that Mrs Roche senior was not a dependant of deceased and that he took care of deceased when in hospital making him his next of kin while deceased made him his sole nominee in turn. The administrator of the respondent pension fund argued that it had carried out an investigation into the facts of this case on behalf of the pension fund. During this investigation it interviewed friends of the deceased and his mother from which it became clear that deceased’s friend Norris was not a dependant of deceased. It was also established that deceased was not married and had no children. Deceased had 2 siblings who had their own children to look after and were living outside South Africa. The allocation was then made on the basis that deceased’s mother was living in an old age home and was in poor health and that she would have become a dependant of deceased in time to come as her savings would run out. Deceased siblings would not have been able to support their mother while deceased’s mother would then have become a dependant of deceased. The adjudicator agreed that T Norris was not a dependant of deceased and also agreed that Mrs Roche senior would have resorted to deceased if she could not take care of herself anymore and would the become a dependant. The adjudicator thus rejected the assertion of the complainant that deceased’s mother was not a dependant. She did point out though that the extent of dependency was purely speculative and had not been established by the fund. She pointed out that the siblings of deceased would have had an equal obligation to support their mother and that the fund had not established whether the siblings would fall short of their obligation to support their mother. By ignoring the other sibling’s equal obligation to support their mother on the basis of the fact that they had their own children to care for, the board totally misdirected itself. Ms Lukhaimane thus ordered the board of the pension fund to re-exercise its discretion in terms of section 37C of the Act. Read the full report in Insurance Gateway of 20 November, here... Method of paying a benefit when a member dies after accrual date but before the benefit can be paid Another interesting discussion in the ‘Member Community Digest’ of the Financial Planning Institute of Southern Africa reflects on what a fund should do when the beneficiary dies after a benefit became due to him or her but before the benefit was paid: Question: “When a member of an approved retirement fund exits the fund as a result of resignation, dismissal, retrenchment or retirement, the benefit accrues i.t.o. of the fund rules. Should the member die after the date of accrual but before the benefit can be paid, according to [SA] … Information Circular PF No. 2 of 2010, the provisions of Section 37C of PFA do not apply. Which law becomes applicable for the payment? If it is payable to the estate and taking the quantum of the benefit in mind, would there not be double taxation? What are the other viable ways of paying the benefit in order to avoid this double taxation?’ Answer: “This is an interesting situation you are asking about. I do not think it is really double taxation. Let's see what would have happened if the member withdrew from the fund, received the funds and then passed away thereafter. Client withdraws from fund
What I would question is, if the member's last day is let's say 31 October, he or she completed the withdrawal forms on 15 October and submitted it to the administrator, but passes away before his last day, then I am of the opinion that no right would have been created, as the lump sum only becomes due on the last day of membership. In such a scenario, Section 37C should still apply.” Media snippets (for investors and business) What should you expect of your personal financial adviser? An interesting discussion in the ‘Member Community Digest’ of the Financial Planning Institute of Southern Africa reflects on the approach to personal financial advice: “There are many "old school" type businesses who operate in the traditional way where they see themselves as fund pickers for their clients who ad value by switching portfolio's every year, in my opinion this practice will generally detract value to the client rather than add. The newer type of Financial Planner is one who is focused on the client, helping them budget, set lifestyle goals and deal with transitions in their lives all the while helping them stay focused on their long term investment strategy. This I believe is where we can add real value and justify whatever fee we charge. At the end of the day value is in the eye of the beholder in this case the client. It is up to the Financial Planner to show how he or she adds value equal to what they charge their clients.” The quieter you become the more you hear “Norwegian explorer and author, Erling Kagge, is someone who knows a thing or two about silence. In his insightful book, Silence, Kagge unpacks the power and importance of silence in an increasingly noisy world… Here are three experiments that you can try in order to ‘engage the silence’: Experiment #1 Quit all social media for a month. Yes, a full month! Keep a daily journal as to what it was like – here would be some helpful questions for your consideration.
And finally... Something to smile about This is from a book called 'Disorder in the American Courts', consisting of things people actually said in court, word for word, taken down and now published by court reporters who had the torment of staying calm while these exchanges were actually taking place. ATTORNEY: Now doctor, isn't it true that when a person dies in his sleep, he doesn't know about it until the next morning? WITNESS: Did you actually pass the law exam? |
||||||||
2017-11
 |
||||||||||||||||||||||||||||||||
| In this newsletter: Benchtest 10.2017, new reporting, new levies, a new law for administrators and more ... |
||||||||||||||||||||||||||||||||
|
Important notes and reminders
The input that will be required to be captured and submitted to NAMFISA on a quarterly basis by industry service providers and institutions, covers some 15,761 lines of data. According to NAMFISA this “…will revolutionise the manner in which [it] collects data and the statistics and information [it] can gather about the industry as a whole...” Unfortunately the Government Notice is ambiguous and it is left to a pension fund to interpret the requirements of this Notice. Firstly the Notice does not define ‘total assets’ which is the basis for calculating the levy. Secondly the Notice withdraws all previous Notices in terms of which levies were paid hitherto but does not provide for transitional arrangements. What does ‘total assets’ mean? The levy on pension funds is to be calculated at 0.008% of the pension fund’s total assets as reflected in the accounting records of the fund and is effective from 1 November 2017. ‘Total assets’ is not defined and is open to different interpretations. One can argue that total assets should be the aggregate of total non-current assets plus net current assets. Any operating entity holds current assets to cover current liabilities, in other words it holds cash to pay its obligations. To argue that the cash balance that has been provided for to pay for the fund’s obligations should be added to the fund’s non-current assets but that the obligation that will be paid with the cash balance cannot be offset against the cash balance is flawed at best. We all know that typically current liabilities are accounted for at month end to be paid soon after month end. Trustees need to take a view in this regard and instruct their administrators accordingly No transitional arrangement provided for The new levies are effective from 1 November 2017. The gazette setting out the new levies replaces its predecessors on 1 November 2017. As from 1 November 2017, “Every pension fund…, excluding retirement annuity funds…must pay an annual levy equal to 0.008% of the pension fund’s total assets in the following manner (a) a first provisional levy payment calculated at 0.008% of the pension fund’s total assets as reflected in its accounting records at the end of the first six months of its financial year on or before the 25th day of the month following the end of the first six months after the commencement of the [pension fund’s] financial year…(b) a second provisional levy payment calculated at 0.008% of the pension fund’s total assets, after deduction of the first provisional levy payment, on or before the 25th day of the month following the end of the [pension fund’s] financial year …and (c) a final levy payment or refund claim calculated at 0.008% of the pension fund’s total assets at the end of its financial year less the collective provisional levies already paid during that financial years within 12 months after the end of the [pension fund’s] financial year. Up until 31 October 2017 Government Notice 78 of 1 April 2003 directed that “Every pension fund,…must pay the following levies [in respect of the levy year, meaning the period from 1 April of each year to 31 March of the next year] a basic levy of N$ 250 [and] an additional levy for each member.. and for each person who receives a regular periodic payment [as at the end of the year preceding the levy year]…[of] N$ 12. These levies “…must be paid in two equal instalments, the first one due on 30 September [2017]…to be paid not later than 31 October [2017] and the second instalment due on 31 March [2018] not later than 31 April [2018].” It is to be noted that the previous levy dispensation was linked to a ‘levy year, being the year from 1 April of any year to 31 March of the following year and not to the fund’s financial year, while the new dispensation is linked to the fund’s financial year. It is to be noted further that the second levy payment does not specify a date to be used for calculating ‘total assets’ and this is thus left to the discretion of the pension fund. However, any growth in assets of more than 11% from the end of the first six months of the fund’s financial year to the end of fund’s financial year would attract a penalty calculated on 20% of the difference between what 90% would have amounted to and what was paid in aggregate by way of the first and second levy payments from the 25th of the month following the fund’s financial year until date of payment of the final levy payment. In a declining market, or in case of declining membership, a pension fund should not top-up the first levy payment while in a growing market, or in case of growing fund membership, it should top-up the first levy payment to at least 90% of the levy due for the full financial year. It goes without saying that contributions also need to be taken into account One can argue that the last levy payable under the ‘previous dispensation’ was the first instalment due on 30 September 2017, for the levy year that commenced on 1 April 2016 and ended on 31 March 2017, the ‘levy year’, based on the pension fund’s membership at the end of 31 March 2017, the end of the year preceding the current levy year. Since legislation generally cannot be backdated unless it specifically states so, I would further argue that the levies due under the new dispensation that came into effect on 1 November 2017 can only start applying to the fund’s first financial year that commences on or after 1 November 2017. By way of an example, if a fund’s financial year ended on 31 August 2017, it only needs to start paying under the new dispensation for the financial year starting 1 September 2018. The first instalment then would be due on 25 March 2019, the second instalment on 25 September 2019 and the final levy on or before 31 August 2020. NAMFISA intends to apply the new levy structure pro-rata from 1 November. Based on client correspondence for a fund with a June 2017 year end, the first levy payment in respect of 2018 will be due for the 2 months from 1 November to 31 December 2017 and is to be paid by 25 January 2018. The second levy payment will be due for 8 months from 1 November 2017 to 30 June 2018 and is payable on 25 July 2018. The same principles will be applied to funds with other year ends. Since this matter is not been properly defined in Government Notice 265 the manner in which NAMFISA intends to apply the government notice is not necessarily the correct way. Namfisa levies – some anomalies to be aware of In the previous newsletter we provided a summary of the new levy structure that became effective 1 November 2017. We also pointed out that the same assets will be subjected to various levies. NAMFISA explained that it is required to regulate each financial services industry separately warranting the imposition of a levy on each. This creates un-level playing fields disadvantaging smaller funds that have to channel their assets through a pooling vehicle. For example where a fund invests its assets through a unit trust, NAMFISA has to regulate and levies the pension fund where the assets originate, it regulates and levies the unit trust companies that pool the assets for investment and it regulates and levies the investment managers/unlisted investment managers who invest the assets. Similarly where a fund invests through an insurance policy, it regulates and levies the pension fund where the assets originate, it regulates and levies the insurance company that pools the assets in a policy and it regulates and levies the investment manager who manages the investments in the policy. Where a fund invests in a LISP (e.g. SP²), NAMFISA regulates and levies the fund where the assets originate, it levies the LISP that administers the investment platform, it regulates and levies the unit trusts that pool the investments and it regulates and levies the investment manager that manages the investments of the unit trust. Interestingly, LISPS typically invest in local and foreign unit trusts. Since the foreign unit trusts and their investment managers are not regulated by NAMFISA, NAMFISA will and cannot levy the foreign unit trusts and foreign investment managers. So investing in local unit trusts will attract higher aggregate levies than investing in foreign unit trusts. Finally where a fund invests in a segregated portfolio that is managed by an investment manager, NAMFISA once again regulates and levies the fund but in addition only the investment manager is regulated and levied. A Namibian model for improving reporting efficiencies by regulated financial institutions Up to now NAMFISA has always been arguing that it is only regulating pension funds and that these are required to comply and to report. With the advent of the FIM Act and the introduction of a new chapter 8 that now brings fund administrators into the ambit of the Act, NAMFISA is certainly in a position to improve the efficiency of reporting and its cost that will be borne by the fund member. As things currently stand, reporting is the obligation of pension funds. Since all operational functions of all pension funds but the GIPF are executed by independent service providers, funds currently have to approach each of its service providers to provide the relevant parts of the total report for which the service providers are responsible. The different parts provided by the service providers then have to be consolidated into a single report. This means that each one of around 20 asset managers, 5 administrators and 4 insurance companies have to provide the required information to around 90 funds. Between these parties about 120 administration platforms have to be customised for NAMFISA reporting. While 30 service provider IT platforms have to be customised for the information that the service provider has to submit, each fund has to arrange with one of its service providers to customise its IT platform to compile the consolidated report. It also means that NAMFISA will receive 90 reports. If the reporting requirements were re-engineered by NAMFISA to place the reporting obligation on the service provider for the information it holds on behalf of its pension fund clients, there is firstly no need for consolidating information at fund level. Secondly, NAMFISA would receive industry focused reports from 20 service providers instead of 90 funds. Many funds in Namibia are very small and the reporting requirements will be very onerous and very costly. Our suggestion would provide for the costs being determined on an industry basis rather than a fund basis. If the reporting and compliance obligation were to be moved from the fund to the service provider, being a trustee of a fund will be substantially less onerous. For every one of the existing 90 boards of trustees to assume responsibility for work done by a service provider can only be achieved indirectly and is evidently not practical as their expertise is usually not pension fund management. Holding the service provider directly responsible and accountable to the regulator is more appropriate, more meaningful and should also be more cost-effective. With this model risk based supervision can be applied much more efficiently ‘at source’ so to speak across the industry. Of course this model will require a fresh look at the FIM Bill and all standards and regulations that have been drafted thus far. Pension fund governance - a toolbox for trustees The following documents can be further adapted with the assistance of RFS.
The Benchmark Retirement Fund
News from RFS  Sharika Skoppelitus started her career in retirement funds management at UPA in 1996, ‘fresh’ from Unam with a B Econ degree, as a fund administrator. However before she got too deeply involved in fund administration, her communication and people skills afforded her the edge to move into employee benefits consulting under the wings of Tilman Friedrich, general manager of UPA at the time, ending up as lead consultant on a number of the large clients of UPA. With the departure of Tilman following Alexander Forbes’ buy-out of UPA in 1999, Sharika was no longer comfortable in her new environment and took the first opportunity to find a new home when she joined her former UPA colleagues Marc Nel and Trevor Colmer in newly founded employee benefits consultancy, Elite consulting in 2006. In 2007 Sharika joined RFS as client manager and is today responsible for many of our largest retirement fund clients using her people and communication skills to the benefit of her clients. Over the years she progressed to head of client services, became a member of our executive committee and a director of the company in 2016. News from NAMFISA Abdication of powers, duties and responsibilities of trustees - Circular PI/PF/CIR/01/2017 NAMFISA issued above circular on 27 October 2017 “…by virtue of …[its] functions and powers in terms of the Namibia Financial Institutions Supervisory Authority Act…and is applicable to all pension funds. This circular serves to advise funds that no Board of Trustees is permitted to abdicate any of its powers duties or responsibilities… in the process of outsourcing certain function so service providers…The Board of all Funds are further advised that they will be held fully responsible for action taken by a service provider or other person on behalf of the Fund.” Interpretation of regulation 29(14)(b) – Circular Reg29/CIS/02/2017 NAMFISA issued above circular on 16 N9vember 2017. In this circular NAMFISA expresses its interpretation of regulation 29(14)(b) that “The draw down period in respect of a pension fund investor cannot exceed 24 months. Any amounts which are not transferred from a pension fund investor to the SPV within the aforementioned period is no longer subject to such [contracted] transfer. In order to extend the draw down period, in respect of a pension fund investor, the fund and the SPV must firstly agree and thereafter, the extension must be approved by the Registrar.” More regulations and standards issued under FIM Bill The following new draft regulations were issued for public commentary by 18 December 2017:
Head of FNB Home Loans retires Long serving Danny Titus, head of FNB Home Loans retired on 31 October 2017. Stakeholders were advised to contact National Sales Manager Home Loans, Magda Talbot, at 061-299 8623 or Anthea Ross, Team Leader Home Loans Business Development at 061-299 7150 Drafting of AFS Historically, auditors used to prepare the annual financial statements of entities for whom they also carried out the statutory audit. For reasons of professional independence, auditing firms are now prevented from preparing annual financial statements of entities for which they carry out the statutory audit. Pension funds are thus required to arrange for the preparation of their annual financial statements by someone other than their own auditor. Preparation of annual financial statements has become quite a specialist function nowadays as the result of stringent International Financial Reporting Standards also referred to as IFRS. We were recently made aware of a person who offers these specialist services of preparing annual financial statements. Funds who are interested in this service are welcome to contact Mrs Debbie Smit of Aurora Consulting Services at This email address is being protected from spambots. You need JavaScript enabled to view it.. The price of fuel – do you know what you pay for? The latest fuel levy was set in Government Gazette 6461 of 1 November 2017 and reflects an interesting composition of the price of fuel as per below table. The total for Namibia is based on an estimated annual consumption of 1 billion litres of fuel in Namibia.
Media snippets (for stakeholders of the retirement funds industry) Death benefits and S 37C, when do you have to pay In a technical guide on the distribution of death benefits, the author, Liz del la Harpe makes a few important points that are overlooked too easily, regarding the time frames for the payment of death benefits in case of each of the 5 different scenarios envisaged in section 37C:
A debt becomes due when the duty to pay arises. Where a debtor’s liability is dependent upon the performance of certain conditions, the debtor will not be in mora until a duty to pay arises, e.g. all dependants of a deceased needed to be and then have been determined. Mora can arise where the debtor’s need is urgent and the creditor’s delay is unreasonable. The common belief that a fund’s duty to pay is contingent upon the expiry of the 12 month period referred to in Section 37c is not correct. The duty to pay is not dependent on this but rather whether the trustees are satisfied that they have investigated and considered with due diligence and are in a position to make a decision. Other questions addressed are :
Hack your way to retirement You can play with that [retirement] calculator as much as you like, there are only two levers that can impact your retirement:
The scary aspect of a retirement calculator is that it almost definitely shows that you’re never going to be able to retire… on your current expense base. I asked some of the top financial planners and personal finance speakers in the industry for a few hacks to get your expense base down and this is what they suggested:
Most retirees risk running out of money “Many people in living annuities have not considered the long-term implications of how much they are drawing from their savings. They are therefore taking unsustainable incomes and eating into their capital, with the inevitable consequence that they risk running out of money. This situation is also made worse by the likelihood that South African investors are moving into what is likely to be a sustained period of low returns…” Read the full article by Patrick Cairns in Moneyweb of 14 November 2017, here... Patience is a virtue “For retirees in living annuities, the three years to mid-2017 was a very tough period. A conservative balanced-type strategy delivered roughly 6% per annum over the period and a meagre 4% over one year. Inflation likely ate away at portfolios even before drawdowns were taken into account. Why subject yourself to the volatility associated with share exposure, if you can do better investing in a money market or income-type fund, many asked? Even outside the retirement universe, some investors became frustrated and nervous. Elize Botha, managing director of Old Mutual Unit Trusts, says following the axing of former finance minister Pravin Gordhan in March, the firm saw a lot of activity across its unit trust book and significant outflows. But patience is a virtue. Fast-forward four months and by end October, investors who remained invested in the same conservative balanced fund-type strategy would have seen returns recover to roughly 11% over one year and 8% per annum over three years. Trying to time the market is a mug’s game. A well-known JP Morgan study shows that the top ten trading days in the US market over a 20-year period were responsible for roughly half the overall return, but six of the ten best days occurred within two weeks of the ten worst days.” Read the full article by Ingé Lamprecht Moneyweb of 13 November 2017, here... Grandparents risk health of grandchildren “Figures from the Avon Longitudinal Study of Parents and Children (ALSPAC) found that 44 per cent of children are now regularly cared for by grandparents, with children spending an average of 10 hours a week with them. But the new review found that grandparents were often having an negative impact on their grandchildren’s health, especially in areas of weight and diet, through ‘treating’, ‘overfeeding’ and not encouraging physical activity… Researchers also found that many older people were still smoking in the presence of their grandchildren, increasing their risk of lung cancer and heart problems, and raising the risk that youngsters will also take up the habit. Professor Linda Bauld, Cancer Research UK’s prevention expert, said: “Children should never be exposed to second-hand smoke. But it’s also important for children to maintain a healthy weight into adulthood, and in today’s busy world it's often the wider family who have a role to play in keeping youngsters healthy…” Read the full article by Sarah Knapton science editor, The Telegraph of 14 November 2017, here... Media snippets (for investors and business) Best dividend payers on the JSE AECI, KAP, MondiLTDP, Remgro, Adapit, HCI, Bluetel, Remgro, Firstrand, Nedcor, PSG” Read the full article by Dwain van Vuuren in Sharenet of 14 November 2017, here... Cryptocurrency madness “The week before last, out of the blue I was bombarded with simultaneous questions about bitcoin by friends and 'Breaking the Code of History' readers, some on behalf of their children. They all announced that they were proudly mining coins and what did I think? Naturally, I looked at the price history shown below; the price was 7500 at the time. I responded that it was a bubble and most likely the bitcoin price had made a blow off high following which the price would decline significantly back to the 3500 level. Not a prognosis that was particularly welcome!...” Read the commentary by David Murrin here… Expert has dire warning about not getting enough sleep “People dramatically underestimate how much sleep is linked to all the diseases killing us. We know a lack of sleep is linked to numerous forms of cancer—bowel, prostate, breast cancer. They may not understand how little sleep reduction it takes. For example, if I put a somewhat healthy individual who has no history of diabetes on one week of five to six hours of sleep, by the end of that week their blood sugar is disrupted so profoundly that they would be classified by their doctor as pre-diabetic. You don’t need to be going for one week on six hours—all it takes is one hour across one single night… There are also five things people can do to improve their sleep, not unique to any one condition—anyone can do them. They are principles I adhere to as well.
And finally... Something to smile about This is from a book called 'Disorder in the American Courts', consisting of things people actually said in court, word for word, taken down and now published by court reporters who had the torment of staying calm while these exchanges were actually taking place. ATTORNEY: Were you present when your picture was taken? WITNESS: Are you serious? |
||||||||||||||||||||||||||||||||
2017-10
|
||||||||
| In this newsletter: Benchtest 09.2017, tax and the state old age pension, death benefits outside a fund, service provider rotation and more... |
||||||||
|
Important notes and reminders
Unfortunately the risk was not defined nor are we aware of any official guidelines. However in the relevant correspondence with funds, this risk is linked to the period for which service providers have been providing services to the fund. The correspondence insinuates that service provider rotation mitigates this risk. Let’s speculate and look at what this could possibly refer to and investigate each scenario.
Service provider rotation will result in ‘short-termism’. ‘Short-termism’ has been shown to produce undesirable consequences in many walks of life. It can lead to a laissez fare attitude by employer and employee, fund and service provider, particularly when it comes to intangible or unquantifiable elements of service delivery and it can lead to arbitrage where the quantifiable elements are misused to divert the focus and measurement of intangible and unquantifiable elements. In the case of pension fund administration, loss of information and of fund and member history normally occurs when a new administrator is appointed as the fund and member history is usually too extensive to be moved to the new administrator. Loss of fund history and information is also a serious risk when changing other service providers but mostly not as acute as in the case of the administrator. This risk is a lot more serious than changing your bank, car mechanic or your doctor as a fund has an infinite life and entails the history of many people. In all cases history and information will be lost and this could be very costly and even deadly, for an individual as much as for an organisation! Dependence of one person on another person may well restrain the dependent person in freely expressing an opinion on the other person. The audit profession is the profession where the discussion on familiarity and the possible threat this may pose to the auditor’s judgement has become topical internationally. In the narrow sense of the word, an auditor is not a service provider as it is a statutory appointment with a public attestation function that a business is obliged to make. Internationally however, there is no consensus yet whether auditor rotation should be enforced. Some countries such as Australia and China have introduced obligatory auditor rotation. Others, we believe, like the US and England have stopped efforts to introduce obligatory auditor rotation while yet others like the Czech Republic who had introduced auditor rotation have removed this obligation. There has to our knowledge not been any discussion of the rotation of an audit firm where is serves a company in an advisory capacity only, serving a similar role to that of the consultant on a pension fund. Finally, King IV, the ultimate measure of good corporate governance makes no reference to service provider rotation in the sector supplements for retirement funds. Conclusion: Although we evidently have a personal interest as a service provider to pension funds, we are convinced that service provider rotation with regard to non-statutory appointments of pension funds is ill-conceived. These appointments are not required to express an opinion on the fund they are servicing. Rotation will add no value, in fact it will add to the direct costs and indirect cost through loss of knowledge, information and history. It goes without saying that the application of good corporate governance principles by trustees must be the core of managing their funds. As long as these are observed in the course of appointing and reviewing service providers, the trustees have done their job and need not fear any intervention by the regulator.bbb Pension fund governance - a toolbox for trustees The following documents can be further adapted with the assistance of RFS.
The Benchmark Retirement Fund
The re-balancing of the investment portfolio was done in mid-October 2017.
News from RFS  Letters from our readers A reader wrote... Hi Tilman Thanks, the latest issue of Benchtest is once again well written and covers a number of relevant topics. I also do appreciate your comments re familiarity & that trustees spend less time on your administration reports. Just to let you know that I do, at least on a quarterly basis, read through the monthly administration report to get that “comfort feeling” that all is still OK. I, however, can’t vouch for the rest of the trustees and I will talk to this at the next trustee meeting.” Another reader comments on “If government was serious about promoting economic development”... “Thanks a very good article.” Thank you for your feedback – always good to read how readers receive our newsletters. News from NAMFISA New NAMFISA levies to be introduced A revised structure of levies payable to NAMFISA by regulated financial services industries were announced in government notice 265, to become effective 1 November 2017. This notice provides for the following levies that are to be borne by pension fund members directly and indirectly:
Read the gist of the changes, here... The FIM Bill - an overview NAMFISA presented an overview of the FIM Bill at the RFIN conference that took place in Swakopmund during September. Download the presentation here... News from the market Old Mutual staff movements We were recently informed that Vaughan Petersen and Melissa Ramsamy-Agapitus will be leaving Old Mutual at the end of the month. Vaughan will join Standard Bank corporate finance team while Melissa will be transferred to Old Mutual Johannesburg office. Warren Kozonguizi will take over from Vaughan while Patricia Olivier will take over from Melissa. Media snippets (for stakeholders of the retirement funds industry) Is your house part of your retirement plan? “One thing many people in this country have in their favour, however, is that we have a love of physical property. Owning their own home is a priority for a lot of South Africans. What this means is that upon reaching retirement many people may find that while their pension savings may have fallen short of what they need, they have significant additional value in their homes. In some cases where a house has been owned for many years, the asset they are living in may be worth more than all their other assets combined. Freeing up this value potentially offers at least a partial solution to their retirement funding problem. However, it is one that has to be very carefully considered, because, of course, they still need somewhere to live.” Read the full article by Patrick Cairns in Moneyweb of 9 October 2017, here... Why medical underwriting in retirement is a good idea “Retirees draw down a higher percentage income from their living annuities because they are struggling to make ends meet, according to the Association of Savings and Investments of South Africa (ASISA). If however they are medically underwritten at retirement they may qualify for a higher monthly income especially if they suffer from a disease such as breast cancer. During breast cancer awareness month in October, women are reminded to consider the financial implications of the disease, especially in their retirement years when the prevalence of the disease increases. The cost of a mastectomy can be approximately R400 000...” Read the full article by Justine Wyatt in MoneyMarketing of 11 October 2017, here... Media snippets (for investors and business) Offshore investing: How do I navigate will and tax? “Are there issues with foreign investments in the event of one’s death regarding separate wills and executors, estate duty, and insurance wrappers? Whether to have a foreign will or not depends on your individual circumstances and it is a personal decision for many clients. In the event that you only have an offshore investment portfolio and no other immovable assets, like property, a local will would be sufficient for the winding up of your estate. It is also easier for the family to deal with only the local executor, instead of an unknown one, in a foreign country. When there are immovable assets one would need to look at drawing up a global will as well. The arguments in favour of having separate wills for different jurisdictions include using experts in the jurisdiction where property is situated. This is to apply their expertise to ensure that the will is drawn up according to the laws of that jurisdiction and allowing the administration processes in the different jurisdictions to run independently of one another…” Read the full article by Suzean Haumann in Moneyweb of 5 October 2017, here... Truth, lies and Bitcoin “In the South African asset management industry you would struggle to find three people more experienced and more straight-forward than Louis Stassen, Sandy McGregor and Dave Foord. The three have each spent decades at their respective firms – Coronation, Allan Gray, and Foord Asset Management – and have seen the sector develop from its early years into the significant player in the economy it is today. Stassen, McGregor and Foord shared a stage at the Morningstar Investment Conference in Cape Town on Thursday, and delivered some fascinating insights into issues facing the asset management world, and their lives in the industry.” Read the full article by Patrick Cairns in Moneyweb of 13 October 2017, here... Asset prices are high across the board. Is it time to worry? “Asset-price booms are a source of cheer, but also anxiety. There are two immediate reasons to worry. First, markets have been steadily rising against a backdrop of extraordinarily loose monetary policy. Central banks have kept short-term interest rates close to zero since the financial crisis of 2007-08 and have helped depress long-term rates by purchasing $11trn-worth of government bonds through quantitative easing. Only now are they starting to unwind these policies. The Federal Reserve has raised rates twice this year and will soon start to sell its bond holdings. Other central banks will eventually follow. If today’s asset prices have been propped up by central-bank largesse, its end could prompt a big correction. Second, signs are appearing that fund managers, desperate for higher yields, are becoming increasingly incautious…” Read the full article in The Economist of 7 October 2017, here... And finally... Something to smile about This is from a book called 'Disorder in the American Courts', consisting of things people actually said in court, word for word, taken down and now published by court reporters who had the torment of staying calm while these exchanges were actually taking place. ATTORNEY: She had three children, right? WITNESS: Yes. ATTORNEY: How many were boys? WITNESS: None. ATTORNEY: Were there any girls? WITNESS: Your Honour, I think I need a different attorney. Can I get a new attorney? |
||||||||
2017-09
| In this newsletter: Benchtest 08.2017, regulation hindering the ease of doing business, regulators putting established service providers’ business in jeopardy and more... |
||||||||
|
Important notes and reminders
The RFIN Conference at the Dome in Swakopmund
From the panel discussion, Ms Mungunda intimated that the NPF is now imminent and may come into operation as soon as 2018. Although this sounded a bit optimistic considering that the process of crafting new legislation can be awfully long, it did provide an indication that the NPF may come into operation possibly in the next 2 years.
News from RFS New appointments Ashley Thlabanello joined out team during March from Lady Pohamba Hospital and has already endeared himself with his super friendly demeanour to all his colleagues and not doubt to those of our clients he has visited. Ashley is our friendly interface with the outside world in his capacity as company driver responsible for the timely and smooth transition of documents and information between our clients and other stakeholders and the company. We extend a hearty welcome to Ashley and look forward to enjoy his warm-heartedness and effectiveness for many years to come! Bonita Uris joined us from Old Mutual in April, where she served in various pensions related positions since 2006. She obtained a B Admin degree from UNAM in 2004 and now takes care of a portfolio of free-standing funds. Her friendliness will undoubtedly serve her well with her clients and take her a long way in her career. We welcome Bonita and look forward to her making her mark in the pensions industry with RFS! Andrea van Wyk joined us in April as a trainee administrator in the Benchmark department. After she had temped for RFS for a short while, we realised that she had just the right personality and demeanour to fit perfectly into our team and to make in-roads in pension fund administration. We welcome Andrea and wish her well in her future career with RFS. RFS visits Oude Rus RFS recently visited Oude Rus Old Age Home in Windhoek to distribute gifts to the elderly.  Above, two elderly residents receive gift packages.  Nobody was excluded. Above, RFS Director Frieda Venter had a chat with staff of the home.  Above, the RFS team on the visit to the home. The visit is an annual highlight on the RFS social responsibility calendar. Letters from our readers Where is the pension funds industry heading? In the previous newsletter I expressed my personal reservations about the future of retirement savings in the light of government increasing the minimum local investment and the impact of this on future investment returns. Here is a letter in a similar vein from a principal officer of a retirement fund that ‘the powers that be’ should not simply ignore. “I’m also very much concerned regarding the future of pension funds in Namibia, and regulation is not making it easier or perhaps I’m paranoid but the fact that everybody wants something out of the Funds is scary and more than ever should we unite and stand our ground. The bigger part of the annual conference just focused on how the government and entities can get pension fund money for every project that they want, I’m scared, worried to the extent that I even want to quit my current position because I will not be able to tell the members, “your money is gone”, there is nothing!.” Thank you to the principal officer for raising your concerns through this letter! We would also like to encourage all readers to voice their opinions on pension fund matters so that we can use this newsletter to give at least some publicity to well-founded concern. Reader’s comment on the Benchtest 07.2017 newsletter “This newsletter, once again, packed with valuable information. It is a paradise for a trustee and Principal Officer who has no choice but to share this information with colleagues, even with friends. Hence, why I usually make use of Benchtest when compiling member communiques because the information shared with us by RFS is just too valuable not to be shared. Kindly note the feedback regarding NAMFISA’s last meeting held on 28 July 2017 on the proposed amendments to Regulation 29 under the Pension Funds Act (PFA). Unfortunately, I was not one of the only 3 or 4 pension fund representatives. Thank you Marthinuz for giving us detailed feedback. Take a kit-kat break and start reading...” Thank you principal officer for your feedback – always good to read how readers receive our newsletters. Media snippets (for stakeholders of the retirement funds industry) Why is it so difficult to pick a winning fund manager? “Past performance is not necessarily an indication of future success, or so the disclaimer warns. And yet, it arguably remains by far the most important factor many investors consider when they choose a fund manager. Research conducted by Fundhouse shows that of those South African General Equity Funds that managed to outperform over a ten-year period, only one in five (21%) were able to do so over the following five-year period. Twenty-four percent outperformed during the following ten years. The main reason for that (when you go and dig behind it) is change – that the manager or the business or the circumstance that led to this ten-year of out-performance is no longer there. Stats lie. Don’t use past performance alone to select funds…” Read the full article by Ingé Lamprecht in Moneyweb of 1 August 2017, here... Your tolerance for investment risk is probably not what you think “Anybody who has ever been to a financial adviser knows the drill. The adviser begins by asking you to fill out a questionnaire, aimed at getting at a key measure: your appetite for risk. By knowing how much risk you’re able to tolerate, the adviser knows how much you’re willing to lose to get where you want to go. The adviser can then construct a portfolio that reflects your risk tolerance. Pretty simple, no? If only….” Read the full article by Meir Statman in Wall Street Journal of 10 September 2017, here... Media snippets (for investors and business) The secret dangers of sitting at your desk all day “Keith Diaz, an assistant professor of behavioral medicine at Columbia University Medical Center, and colleagues at five other institutions, somehow managed to convince 7,985 people aged 45 and older to wear an Actical accelerometer which measures physical movement and energy expenditure—on their right hips for more than 10 hours a day over a stretch of at least four days. After a median four years of post-study follow-up, those in the least sedentary quartile (sitting a mean 649 minutes a day in typically 6.5-minute bouts) had a dramatically lower rate of death from all causes than those in the most sedentary group (835 minutes at rest, in periods of relative motionless averaging just under 20 minutes each). Not surprisingly, those who were more active also tended to be younger, have less body mass, and have fewer health issues (diabetes, hypertension, cardiovascular disease) in general…” Read the full article by Clifton Leaf in Fortune of 12 September 2017, here... JP Morgan slams Bitcoin as a fraud JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said he would fire any employee trading Bitcoin for being “stupid.” The crypto currency “won’t end well,” he told an investor conference in New York on Tuesday, predicting it will eventually blow up. “It’s a fraud” and “worse than tulip bulbs.” If a JPMorgan trader began trading in Bitcoin, he said, “I’d fire them in a second. For two reasons: It’s against our rules, and they’re stupid. And both are dangerous.” Read the article by Hugh Son, Hannah Levitt and Brian Louis, in Bloomberg on 13 September 2017, here... And finally... Something to smile about This is from a book called 'Disorder in the American Courts' and are things people actually said in Court, word for word, taken down and now published by Court reporters that had the torment of staying calm while these exchanges were actually taking place. ATTORNEY: This myasthenia gravis, does it affect your memory at all? WITNESS: Yes. ATTORNEY: And in what ways does it affect your memory? WITNESS: I forget. ATTORNEY: You forget? Can you give us an example of something you forgot? |
||||||||
2017-08
| In this newsletter: Benchtest 07.2017, housing loan interest rate declines, Benchmark breaches N$ 2 billion and more... |
||||||||
|
Important notes and reminders
Kai Friedrich's Administration Forum
News from RFS New appointment We are pleased to announce that Carmen Diehl was recently appointed to our permanent staff complement as Manager: Internal Audit, Compliance and Risk Management. Carmen matriculated at DHPS in 2000. She obtained a B. Accounting (Honours) degree in 2004 at the University of Stellenbosch. She started her articles with KPMG in 2005 and moved to EY in October 2006. She completed her articles with EY in 2008 and qualified as a Chartered Accountant (CA). She joined Bravura Namibia Trading in 2008 as Financial Manager. From 2009 until 2012 she was employed by the O&L group as group financial manager: corporate finance, where after she joined Ohorongo Cement. We extend our sincere welcome to Carmen and look forward to her contribution for the benefit of the company and our clients for many years to come! News from NAMFISA Update from meeting with NAMFISA held on 28 July 2017 By Marthinuz Fabianus Proposed amendments to Regulation 29 under the PFA The meeting was attended by mostly representatives of unlisted investment managers. There were only 3 or 4 pension fund representatives. Purpose of meeting was to find common ground on matters requiring further deliberation per Table B of latest NAMFISA notice letter of 14 July 2017.
Media snippets (for stakeholders of the retirement funds industry) PFA orders fund to pay compensatory damages In this case (M Mhlanga vs Mineworkers Provident Fund) the younger brother of a deceased member of the fund complained to the Pension Fund Adjudicator (PFA) on 10 May 2016 that the fund had not paid out any death benefits to him as he had to take care for the maintenance of the children of the deceased who passed away on 11 August 2014. He had informed the fund of the demise of his brother in October 2014. The fund initially claimed that the deceased was not entitled to a death benefit but only to a resignation benefit and that the resignation benefit was paid. On 27 July 2016, the fund realised that the payment made was in respect of a housing loan and that there was indeed a death benefit still payable. It requested the complainant to provide certain specific documents to the fund for the purpose of considering the allocation of the death benefit and that it will attend to the allocation of the benefit upon receipt of these documents. The Pension Funds Act requires of the fund to identify the dependants of the deceased, allocate and pay a death benefit within 12 months, i.e. by 11 August 2015. The PFA found that as the result of the fund’s dilatory conduct, the deceased’s dependants suffered prejudice in that they have potentially been denied access to benefits which may have become available to them had the investigation been completed on time. As the result of the fund’s failure to carry out its duties in terms of section 37 C of the PF Act the PFA ordered the fund to collect the required documents from the complainant, within 2 weeks from the date of the determination, to investigate and proceed with the allocation and distribution of the death benefit together with 10% compensatory damages within 8 weeks of the determination and to submit a prescribed report on the allocation of the death benefit to the PFA and the complainant within 2 weeks of payment of the benefit. Read the PFA determination, here... Retirement is not what it used to be The increased use of living annuities has brought about huge challenges. This article is a must read for anybody contemplating his or her options at retirement and considering to invest in a living annuity in particular. Investing in a living annuity presents risks to the annuitant arising from the investment portfolio/s chosen by the annuitant that he or she must be aware of and must know how to manage. “The greatest risk that investors in living annuities face is the possibility that their money will run out. If they don’t even know that they face this threat, they are unlikely to be managing their investments properly. A living annuity needs to pay an income, and it needs to grow that income above inflation. To do that, you either have to keep growing the capital faster than you are paying it out, or you have to start giving capital back. That is a very difficult thing to manage over 30 years. On the other hand, investors who do recognise this problem may be so fearful of losing capital that they invest too conservatively. This means that they end up drawing income faster than they are growing their assets, ultimately leading to the same outcome.” Read the full article by Patrick Cairns in Moneyweb of 10 August 2017, here... 6 Things you must get right at retirement “For most people, reaching retirement will be the biggest financial event of their lives. It is a big jump from receiving a regular salary and the benefits that come along with that, to living off what you have saved. The risks of getting this wrong are severe. Making a mistake at this point could jeopardise all the years of hard work that have led up to it. There are essentially six important decisions that need to be made at retirement, and they are all inter-related.
Media snippets (for investors and business) 10 qualities of superior leaders Thousands of articles and books have been published describing what it takes to be a superior organizational leader. Some researchers and authors claim a superior leader possesses certain traits or abilities; others say it's all personality. Still others maintain it's the behaviors - not necessarily the intentions or thoughts -that are crucial. Whatever your viewpoint, it boils down to this: successful leaders share the following characteristics or views: Mission: A superior leader has a well thought out (often written) mission describing the purpose of the organization.
Cutting through the Bitcoin and Blockchain hype By now most people would be aware of these new concepts in the world of finance, but do we understand what it entails? Read part 1 of a series of 3 articles by Raymond de Villiers in Tomorrowtoday of 17 August 2017, here... And finally... “Nothing strengthens authority so much as silence.” ~ Leonardo da Vinci |
||||||||
2017-07
| In this newsletter: Benchtest 06.2017, will Namibia attract foreign investors, tax and payment to an estate and more... |
||||||||
|
Newsletter
Kai Friedrich's Administration Forum
Considering these key risks a service provider presents to a fund, it is quite evident that the risks referred to will not be addressed through rotation of service providers.
News from RFS Our staff – the recipe for our success! One of our ardent readers noticed that this article omitted our managing director designate from the list of long serving staff. Thank you for that Wessel! Marthinuz Fabianus commenced service on 1 November 2001 and will celebrate his 16th anniversary at RFS this year! Apologies to Marthinuz for this oversight and thank you for 16 years of commitment and dedication to the cause of the company! RFS sponsors beach volley ball tournament  Pictured above: Ladies teams in action at the RFS Winter Classic.  Pictured above: RFS hands over the sponsorship. From left to right: James Verrinder, Coach, Timeout Beach Volleyball Academy, Kyara Leuschner, Mirko Kriess and Günter Pfeifer, representing RFS. Omnitel joins the Benchmark Retirement Fund We are proud to announce that Omnitel Namibia has decided to join the Benchmark Retirement Fund as from 1 October and will transfer its business from the Orion Pension Fund. We extend a hearty welcome to Omnitel and its staff and look forward to serving you beyond expectation in the years to come. News from NAMFISA Proposed amendment to regulation 28 NAMFISA laid on a meeting for 11 July to discuss proposed amendments to various regulations, but more importantly to the investment regulations under the Pension Funds Act (regulations 28 and 29), the Long-term Insurance Act, the Short-term Insurance Act and the Medical Schemes Act and to discuss feedback received from industry participants on practical difficulties experienced with the application of these regulations. A very well attended congregation was first introduced to the objectives of government with regard to the financial sector in particular and the development of the economy in general, by Mrs Erica Shafudah from the Ministry of Finance. Various NAMFISA officials then dealt with different areas on which comments were received from industry participants and NAMIFISA’s responses to these. As committed stakeholders of the industry we have always been making our contributions and providing our comments when invited to do so by NAMFISA. However more often than not the responses have been a lapidary ‘do not agree…’. The question that has crossed our minds regularly was whether NAMFISA was sincere about wishing to consult. That perception was also mirrored in the comments of some participants of the consultation meeting. And yes, there was quite lively debate on various issues, but such a forum is simply inappropriate as a consultation forum. Sincere consultation requires a different approach and it may mean that the time frames NAMFISA sets itself may not always be achievable, but what is more important – a solution that meets the expectations of all or a solution that meets NAMFISA’s time frame? The comments by industry participants and NAMFISA’s responses can be accessed here… The following recommendations were accepted by NAMIFSA and should end up in the regulation: -
Top management changes at Alexander Forbes It has been confirmed by informed sources that former MD Jan Coetzee has quit his job at Alexander Forbes Financial Services. He has not been replaced officially yet but rumour has it that Dietrich Schrywer is acting in his position. Media snippets (for stakeholders of the retirement funds industry) FSB asked to act against errant fund administrator. In this complaint to the SA Adjudicator, a former fund member authorised the administrator and the fund to deduct an amount due by the member to his former employer in respect of a performance bonus that the member had to refund to the employer when he resigned. In her determination, the adjudicator said Section 37A of the Act provided that pension benefits can only be attached if the requirements set out therein have been met, namely; a member must have caused damage to the employer by reason of any theft, dishonesty, fraud or misconduct and in respect of which a member has admitted liability or where judgment has been obtained against the member. She concluded that the fund acted unlawfully in deducting the refund from the benefit and ordered the fund to pay the amount deducted to the former member together with interest. Read the full article in FA News, here... PFA dismisses complaint based on greed In this case the trustees distributed the death benefit to the life partner, two biological children and the mother of the deceased. The life partner of the deceased was unhappy with the allocation to the other beneficiaries and wanted the full benefit to be allocated to her arguing that she was 57 and was approaching retirement. Following are interesting outflows from this case that can serve as precedent for trustees considering such scenarios when allocating a death benefit.
Can you commute an annuity upon emigration In this article the author refers to the definition of ‘annuity’ in the SA Income Tax Act. This restricts the amount that may be commuted at retirement. Other than this provision in the Income Tax Act, an annuity cannot be commuted upon emigration. The Namibian Income Tax Act contains very similar provisions, meaning that the conclusion is also relevant to Namibia. Read the article by Lize de la Harpe, legal adviser at Glacier by Sanlam in Insurance Gateway here... Fund ordered to review distribution of death benefit In this case the complainant, who was the mother of a child of the deceased fund member, approached the adjudicator to consider the allocation of the death benefit as well as the payment of the benefit for the dependent child into a pre-determined beneficiary fund. The deceased’s mother and his daughter were the only nominated beneficiaries in the event of his death. The deceased and his mother passed away in a motor vehicle accident on 7 April 2013. On 1 August 2014 the trustees resolved to allocate 70% of the benefit to the deceased’s child and 15% each to two brothers of the deceased. The basis for allocating a portion to the two brothers was an affidavit submitted by them to the fund in which they claimed to have been unemployed and partially dependent on the deceased at the time of his death. The benefits were paid on 6 August 2014. The complainant raised her objection to the allocation to the two brothers in January 2015 as both were employed, one being an admitted attorney, the other a well-known businessman. This information was provided to the fund by the complainant after the fund informed her of the brothers’ affidavits it had received. The complainant also was dissatisfied with the decision that the benefit due to her daughter was to be paid to a beneficiary fund administered by the administrator of the fund of which deceased was a member. In the course of the arguments by the defendants, the following less commonly known principle was confirmed and trustees should take due cognisance thereof when dealing with the distribution of death benefits:
Read the full determination in this link… Media snippets (for investors and business) If you permit it, you promote it “If you permit it, you promote it” is 100 percent appropriate for managers and leaders no matter their rung on the executive ladder….you know that employee who always shows up at least 17 minutes late, completely oblivious that an apology and/or explanation is common courtesy? Yes, that one, the one who answers everything with “no problem,” though in fact there are tons of huge problems created by him and his cavalier attitude.” Here are some rules that need to be observed in managing unwanted behaviour:
5 Key factors for creating a culture of engagement As a leader, the engagement level of your people often comes down to how you interact with them, and how you support or hinder their development. I have noticed that great leaders, no matter their level in an organization, ensure that 5 key issues are addressed and necessary programs are in place to foster a culture of engagement. Here are the 5 key elements (‘STAR’) for you to consider as you assess your current performance:
And finally... “Pleasure in the job puts perfection in the work.” ~ Aristotle |
||||||||
2017-06
| In this newsletter: Benchtest 05.2017, Sanlam Benchmark survey, sharing annuity with a child, the future of provident funds and more... |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Newsletter
Here are some of the more interesting findings of this survey in respect of union and stand-alone funds:
Can you request that your children share in your annuity?
Is there a future for provident funds in Namibia?
Kai Friedrich's Administration Forum Implications of SA staff participating in a Namibian fund Namibian employers often overlook the implications of starting up a branch or a subsidiary in SA as far as pension fund membership of the SA staff is concerned. Generally it is not a good idea to have SA employees be members of the Namibian fund, primarily because these employees could be subject to both SA and Namibian income tax on any benefit payable. In as much as the Namibian Pension Funds Act prohibits any person to undertake pension fund business in Namibia that is not registered in terms of the Pension Funds Act, the same principles apply in SA and employers who allow their SA employees to participate in their Namibian fund without registering the Namibian fund in SA as a foreign fund are contravening the SA Pension Funds Act and expose themselves to statutory sanctions. Members of a Namibian pension fund who are employed by an SA entity would not be allowed to deduct their contributions to a Namibian fund. Of course, SA revenue authorities may not always realize that these contributions were made to a Namibian fund and may have erroneously allowed these to be deducted. SARS may at any time it becomes aware of this error re-open previous tax assessments, disallow such contributions with arrears effect and may go as far as adding penalties and interest. Where any benefit becomes payable to any of the SA members, it would be taxable both in SA and in Namibia in the first instance. The Double Taxation Agreement between SA and Namibia would avoid double taxation only in respect of a pension payable and/or the one-third pension commutation. SA legislation provides for a deduction from a taxable benefit, any contributions made that were not tax deductible, or were never deducted for tax purposes in SA. This allowance would not apply to these members where the contributions were indeed deducted for tax purposes in SA. The Namibian Income Tax Act does not have a similar provision as the result of which any taxable benefit would be fully taxed in Namibia, whether or not the member concerned ever deducted any contributions to the fund for Namibian tax purposes. If the fund credit of the SA members were to be transferred from the Namibian Fund to any other fund approved for tax purposes in Namibia at the instance of the member, such transfer would not be taxed in Namibia based on the concession granted in terms of section 16(1)(z) of the Namibian act. Such transfer, however, would in the first instance be taxable in SA, as a benefit has accrued to the member and as SA taxpayers are taxed on the basis of residence rather than source, as is the case in Namibia. The fund credit of the member could also be transferred to an SA pension fund approved for tax purposes in SA, or to another person such as an SA insurance company, at the instance of the Namibian fund, by means of a 'section 14 transfer'. In terms of the general principles of the Namibian Income Tax Act, such transfer should not be taxable in Namibia in the hands of the member as no benefit has accrued to the member. By the same principles, the Namibian tax authority could argue that an income accrues to the SA person from a Namibian source and that the amount is subject to income tax in Namibia. In the instances where such transfers have been affected by us in the past, however, Inland Revenue has never issued a directive to deduct tax. Where neither the members concerned nor their employer ever had the benefit of deducting their contributions for income tax purposes in Namibia, our tax authority should also find it difficult to argue that the amount to be transferred should be taxed in Namibia. Where an employer intends to transfer the SA members of the Namibian fund to SA, the employer and the members concerned need to settle the arrangement concerning the disposal of the members' fund credit in the Namibian fund either, by transfer to an insurance policy in SA, or by transfer to an approved pension fund in SA, or by payment in the form of a cash benefit subject to income tax in Namibia. If the benefit is N$ 40,000 or less the provisional tax rate will be 18% and will be applied by the administrator without being required to obtain a tax directive. If the benefit is larger than N$ 40,000, Inland Revenue should theoretically also issue a tax directive applying a provisional rate of 18%, since these members were never registered for tax purposes in Namibia. To avoid unnecessary delays in obtaining a tax directive in Namibia, the employer should issue a letter to Inland Revenue confirming that these members were never registered for tax purposes in Namibia as these members never earned any taxable income in Namibia. This letter should then be submitted together with the request for a tax directive to Inland Revenue. The benefit should be reflected by these members on their SA tax returns and will then be subject to SA income tax as well, to the extent that they are not covered by the Double Taxation Agreement between SA and Namibia.
News from RFS Transition to MIP We have now been running 3 funds parallel for close to a year in the process of adapting the MIP system to our requirements and the Namibian environment. We have approached the point where we believe that we should be able to run these funds on MIP only. The target date is 1 July and 1 October, respectively. From there on we will continue the process of transitioning our other clients in a controlled fashion and envisage that this process should take around 2 years, provided that we are comfortable that all complexities offered by our various clients can be managed by the MIP system to our satisfaction. Unfortunately the process is taking a lot longer and our development costs are consequently significantly higher than what we anticipated. However, we are utterly convinced that the future of retirement fund administration lies in web-based administration and are therefore comfortable to invest heavily in this transition for the benefit of our clients. Staff donate to charity  RFS staff recently showed warmth in the middle of winter, with a donation from staff to three charities. The charities were Hugs 4 Christ, Prayer House Ministries Orphanage and Hospice of Hope Our staff – the recipe for our success! A pension fund has a life much, much longer than a human being. As service provider to a pension fund, corporate memory of a service provider vis-à-vis the fund can make an important contribution to the management of the fund. RFS appreciates the importance of this differentiator and therefor makes a point of building and maintaining corporate memory on behalf of our pension fund clients. In this regard a conducive office atmosphere and environment and conducive policies support our effort to retain our staff which is essential in this endeavour. In addition RFS differentiates itself by the depth of its staff with pension fund relevant qualifications and experience. The following table presents these key differentiators in figures:
We are proud of this record and extend our sincerest gratitude to those staff members who have faithfully served the company and its clients over more than 10 and more than 15 years and express our sincere gratitude to each one of them for their dedication and commitment to our cause: Staff with 10-years of service
Industry meeting of 13 March 2017 For trustees and principal officer who have missed the NAMFISA circular distributing its presentation at the industry meeting of 13 March, you can download the presentation here... And if you missed the minutes of that meeting click here... NAMFISA quarterly report Q 4 2016 NAMFISA released its latest quarterly report for quarter 4 of 2016. Here is a summary, values given in N$ millions:
If you are interested in key information and statistics on the non-banking financial services industry, click here... News from the market The price of fuel – do you know what you pay for? The latest fuel levy was set in Government Gazette 6325 of 7 June 2017 and reflects an interesting composition of the price of fuel as per below table. The total for Namibia is based on an estimated annual consumption of 1 billion litres of fuel in Namibia.
Media snippets (for stakeholders of the retirement funds industry) The pension problem – too many complexities leave members with poorer outcomes The products themselves have also grown very complex, which isn’t necessarily to the benefit of members. Talking as a product provider, it’s very easy to put bells and whistles on everything to make it look sexy and smart, but is that always in the best interests of the member?...I think we need to go back to simplicity, and standardisation so that at the point of retirement members know what they are getting. Read the full article by Patrick Cairns in Moneyweb of 9 June 2017, here... Median p:e and forward 10 year returns In last month’s newsletter we presented an article headed ‘The p/e explained’ with two graphs. The first reflected the growth of the S&P 500 from around 80 in 1965 to its historic high of 2,363 by the end of December 2016. That’s a nominal growth of around 7% per annum. The second graph S&P 500 median price: earnings ratio which stood at 24.1 at December 2016 compared to the median of 17, and thus being currently in expensive territory. So what can this tell us about the US market? “Median P/E can help us predict what future 10-year annualized returns are likely to be for the S&P 500 Index. Will your future burgers be pricey or cheap? The price at which you initially buy matters. Here is how you read the following chart. (Data is from 1926 through 2014.):
 With a current median P/E for the S&P of 24, we find ourselves firmly in quintile 5.That tells us to expect low returns over the coming 10 years. Though it appears that most investors are expecting 10% from equities, history tells us that the market as a whole will have a hard time growing much faster than our country’s GDP does. Note that 4.3% returns are the average of what happens when stocks are purchased in the top 20% of valuations. That forward return number goes down considerably if we are in the top 10% or top 5%, which is where we are today.” Read the article in Thoughts from the Frontline by John Mauldin, here... The everything bubble And following from the previous article, here is another article that should make every reader concerned about his or her investments. “It wasn’t always this way. We never used to get a giant, speculative bubble every 7-8 years. We really didn’t. In 2000, we had the dot-com bubble. In 2007, we had the housing bubble. In 2017, we have the everything bubble. I did not coin the term “the everything bubble.” I do not know who did. Apologies (and much respect) to the person I stole it from. Why do we call it the everything bubble? Well, there is a bubble in a bunch of asset classes simultaneously, like:
Media snippets (for investors and business) 7 Timeless lessons from Vanguard founder John Bogle Bogle neatly distills his life's work into seven timeless lessons:
The Gini Coefficient – what does it mean? Namibia is pilloried regularly for its poor Gini Coefficient. But do we know what this is actually all about? Here is a definition: “Gini index measures the degree of inequality in the distribution of family income in a country. The more nearly equal a country's income distribution, the lower its Gini index, e.g., a Scandinavian country with an index of 25. The more unequal a country's income distribution, the higher its Gini index, e.g., a Sub-Saharan country with an index of 50. If income were distributed with perfect equality the index would be zero; if income were distributed with perfect inequality, the index would be 100.” For interest sake the below table puts the Namibian Gini Coefficient into a bit broader perspective:
Evidently Namibia has a high Gini Coefficient relative to Norway (and many European countries for that matter). However, relative to our neighbouring countries (and many other African and developing countries for that matter), we actually have a better Gini Coefficient than most. Why you might want to disinherit your kids “How would you react if I told you that your children would never speak to each other again because you left your three kids your house? What if the son you designated as your executor or trustee seized control of your assets and was sued by his brothers and sisters? What if the family business you built during your life dismantles the family after you depart? But you say, “No! Not my family!” To the contrary. In my 35 years of managing wealthy families every day, the incident of permanent damage occurring to a family is most of the time.” Read the interesting short article by Richard Watts in Marketwatch of 14 June, here... Preserve your retirement savings Most people choose the cash option and have their retirement savings paid out when they leave their employer. “Like Bob, they ask for the value of the fund. In Bob’s case, it is R100,000. He may compare that to the potential R3,100,000 that he could have had after 40 years and think that R100,000 is worth nothing in comparison to the potential end value. He may think that if he takes the R100,000 after the first ten-year period it won’t make much difference, as he plans to carry on saving R500 per month for the next few decades. But Bob is missing an important point. He will in fact not continue saving at the same rate the next few decades as he has to repeat the first ten-year period. This means that he is not cutting the first ten years of compounding off his money, he will be cutting off the last ten years. In those last ten years the value of his money grows from R1,100,000 to over R3,100,000. This is a difference of R2,000,000. By spending the R100,000 after ten years, he is fact not losing R100,000 – he is losing the R2,000,000’s worth of growth that he could have had.” The lesson from this is example is that whenever Bob changes jobs, he should do what he can to preserve his retirement savings. Read the insightful article by Paul Leonard, Citadel, in Cover magazine, June 2, 2017, here... And finally... “I’ve learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel.” ~ Maya Angelou |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2017-05
 |
|||
| In this newsletter: Benchtest 04.2017, switching at quarter ends, RFS staff movements, status of chart of accounts project and more... |
|||
|
Newsletter
Kai Friedrich's Administration Forum
News from RFS New members appointed to the RFS team Veueza Virginia Kangueehi joined our permanent establishment on 15 February 2017 as an Accountant in the Benchmark accounting department. Veueza joined us from Alexander Forbes where she served in the capacity of bookkeeper for 2 years before joining us in September 2016. She completed her school career at Mariental High School and holds a B Tech Accounting degree from NUST. We welcome Veueza and wish her an interesting and challenging career at RFS! Zulene Bio joined our permanent establishment on 1 May 2017 as an Administrator in the administration team of the Retirement Fund for Local Authorities. She joined us from Old Mutual where she served in various administrative capacities in the employee benefits arena from 2002 until 2013, to then serve in administrative capacity for the Old Mutual Foundation. Zulene completed her school career at Academia High School and went on to obtain a B Comm Marketing Management degree from MANCOSA. She offers her clients extensive relevant experience stretching over more than 15 years. We welcome Zulene and look forward to her applying her knowledge and experience for the benefit of her portfolio of local authorities and their staff! Paul-Gordon Guidao-oab joined our permanent establishment as Benchmark Product Manager on 1 May 2017, after having served in the position of Manager: Internal Audit, Risk and Compliance since May 2016. Paul joined us from Magnet Bureau de Change where he held the position of Audit and Risk Manager. He completed his school career at Windhoek High School, went on to obtain a B Compt degree from Unisa and competed his articles after a 5 year stint at SGA Chartered Accountants and Auditors. Paul brings a wealth of experience to his new position and will be in an ideal position to further develop the Benchmark Retirement Fund, this flagship of umbrella funds in Namibia. We welcome Paul and look forward to a long mutually beneficial relationship! Staff who crossed the 5-year service mark The following staff members have this year completed their 5 years’ service with RFS:
Staff who crossed the 10-year service mark This year, the following staff members have completed their 10 year service with RFS:
Staff departures After a 3-year stint with RFS, Justine Shipanga regrettably moved on for greener pastures. We wish Justine well with her future endeavours and that she may realise her aspirations and dreams! News from NAMFISA The One Chart of Accounts project Asset managers will have to carry the brunt of the new reporting that NAMFISA proposes for the financial services industry that is to replace the current SIH reporting. Besides numerous comments on the content of the ‘chart of accounts’, asset managers have noted the absence of guidance on the classification of instruments as one major concern. This would lead to inconsistent classification which in turn narrows the usefulness of the information provided to NAMFISA and impairs the conclusions NAMFISA can draw from the data submitted. Furthermore the urgency of implementing this proposal was questioned as asset managers envisage that it would take up to 1 year to adapt their systems to meet the requirements of this report. Concerns were raised about the additional cost burden this would present to members of pension funds as it would require the entry of specialist intermediaries to compile the reports. Consensus amongst asset managers is that they are not able to provide any cost indication or time frame until a number of questions have been answered by NAMFISA. New NAMFISA levy structure: fund members to pay N$ 340 p.a. Extensive comments were provided to NAMFISA on the proposed levy structure by various stakeholders including RFS. NAMFISA arranged a meeting to discuss these proposals for Tuesday morning 16 May. On Friday 12 May at 17h01, NAMFISA circulated a document containing its responses to the comments that were submitted by various industry stakeholders. From this document as well as the feedback received from a very well and widely attended meeting it seems that the new levy structure was a fait accompli even before it was circulated to industry stakeholders. It should have been obvious from the start that industry stakeholders would have serious concerns about the new levy structure due to the radical changes it envisages. At the end of the day, pension fund members will contribute the major portion towards funding of NAMFISA activities. Their direct contribution will be in the region of N$ 85 million per year. Indirectly pension fund members will make a further contribution via the levy on long-term insurers, short-term insurers, stock brokers and stock exchanges. As such members will contribute a significant portion of a total contribution towards NAMFISA costs by these institutions estimated to be in the region of N$ 50 million. Each member and pensioner will thus contribute directly at the rate of approximately N$ 240 per annum plus potentially another say N$ 100 per annum in respect of indirect levies. To put this figure into some perspective, the average fund administration fee that every member and pensioner currently pays is estimated to be in the region of N$ 1,000 per annum. Download the RFS comments and questions, and the NAMFISA responses, here... Media snippets (for stakeholders of the retirement funds industry) Review of pension fund trustee decision Do you know which benchmark your equity fund manager is using? And does it matter? “Every unit trust in South Africa has to publish a fund benchmark. In the case of equity funds, this benchmark is usually market index, which indicates the standard against which the fund should be measured. “The benchmark is there so that you know what the fund manager is trying to achieve,” explains Morningstar investment analyst Gerbrandt Kruger. “It gives you an idea of their objective”… Figures from Morningstar show that active managers in the South African general equity category are using 14 different benchmarks between them… So should it matter to investors what benchmark is being used? Pieter Koekemoer, the head of personal investments at Coronation says that the answer really depends on its purpose. If the manager uses a ‘clean slate’ approach, which means that they pay no attention to the benchmark when picking stocks, then the benchmark is only there to help you evaluate whether you are receiving value for money. If however the manager is charging performance fees for outperformance, then it becomes more important…” Read the full article by Patrick Cairns in Moneyweb of 9 May 2017, here... The p/e explained in lay man’s terms “Think of the P/E like this. Your business has 10,000 shares outstanding, and your current share price is $10. That means your company is worth $100,000 (10,000 x $10). Now, let’s say your company earned $20,000 over the last 12 months. That works out to $2 in earnings for every share of outstanding stock ($20,000 in earnings divided by 10,000 shares). So if your stock price is $10 and your current earnings per share is $2, then your stock price is trading at a P/E of 5 (or simply $10 divided by $2 equals 5). It is simply a metric to see if your “hamburger” is pricey or cheap. Note, this P/E calculation is based on your previous year’s earnings, not your estimated next year’s, or forward, earnings. If you expect to make $25,000 next year, then your forward P/E ratio is 4. As we will see later, optimistic earning projections can make valuations appear much better than they are. It’s like the old warning: “Objects in the mirror may be closer or larger than they appear.” With the P/E calculation as a basic starting point, we can see if your hamburgers are expensive or inexpensive. We can look at the S&P 500 Index (a benchmark of “the market”) and we can measure what the average P/E has been over the last 52 years – call that “fair value” or a fair price for a hamburger. What we see is that a P/E of 5 is a really cheap hamburger. Now, I believe in you, and I believe you can grow your company’s earnings over the coming years; but, wow, if I can buy your great company at a low price, odds are I’m going to make a lot of money on my investment in you. And if I really think you’re going to grow your earnings by 25%, that could make you a bargain. We can look at the market as if it were a single company and gauge how expensive stocks are now. Over the last 52.8 years, the median fair value for the S&P 500 is a P/E of 17 (we define what we mean by median below). That means a fair price for your company would be the $2 in earnings we already calculated, times 17, or $34 per share. If I can buy your stock for $10 per share instead of its fair value of $34, good for me. Investors who use this approach are called value investors. I should note that, relative to the actual performance of the market, value investors have been severely underperforming for the past four or five years. They have been punished by seeing assets leave their funds and go to passively managed funds that have shown much better performance at much lower fees. (Note from John: In a few weeks I’m going to talk about the source of this underperformance and what you can do about it. This is a very serious investment conundrum.) But what if you earn $2 per share and your stock is trading today at $48 per share, or 24 times your earnings? Well then, I’m buying a very expensive burger. So price relative to what your company earns is a good way for us to see if we should sing or weep.” What the p/e tells us about the state of the US stock market “Here is how you read the following chart (from Ned Davis Research):
 One last comment on the chart. At the very bottom of the chart, Ned Davis states that the market is now 7.9% above the level at which it is considered to be overvalued.
Read the article here... Media snippets (for investors and business) Busting post downgrade myths “While SA's double-whammy of downgrades has certainly made its mark, the assumption that it has killed SA as an investment destination seems tenuous. This week, COVER brings you the latest news on how SA may still be alive and kicking - from a top-four FDI rating to significant new offerings on the JSE, and practical tips for clients on how to retire post-downgrade. Read on, and feel proudly South African - We will survive.” From Monday edition of Cover Magazine of 24 April. A lesson in leadership: control your emotions The first step in controlling your emotions is to understand that there are 7 different intelligences as Howard Gardner, Professor at Harvard has identified:
You certainly need intra- and interpersonal intelligence if you wanted to successfully jettison your anger and control your emotions to become more positive. Here is a simple two-step method to achieve this: STEP ONE: Jettisoning anger
STEP TWO: Controlling the emotions To control your emotions, do the following.
Read the interesting short article by Yoshito Hori in Linkedin of 18 May, here... And finally... “Whenever you find yourself on the side of the majority, it’s time to pause and reflect.” ~ Mark Twain
|
2017-04
|
|||||||||||||||||||
| In this newsletter: Benchtest 03.2017, NAMFISA levies to increase 2,400%, trustees and corporate governance and more... |
|||||||||||||||||||
|
Important notes and reminders Are your service providers registered?
The information is available on the NAMFISA website although it would appear that the information is not fully up-to-date. For your convenience find the lists here...
Conclusion
Trustees are required to manage the affairs of their fund in the best interests of their members. As a trustee there are many areas one needs to consider and measure your fund to understand whether you are doing good, bad or indifferent. Commonly for example, trustees measure the performance of the investments of the fund. The investments being the biggest asset of the fund, the performance can fortunately be measured against readily available benchmarks and trustees will at all times know how they are doing and when they may expect to face head winds from their members if they are not doing that well. So that area is covered pretty well provided trustees have applied care, skill and good faith in appointing the asset managers they did appoint.
Pension fund governance - a toolbox for trustees The following documents can be further adapted with the assistance of RFS.
Be in touch with members of your fund!
Kai Friedrich's Administration Forum
News from RFS The RFS / SKW youth soccer tournament 2017 RFS once again sponsored the RFS / SKW youth soccer tournament that took place at SKW Soccer fields from 21 to 24 April.  Above: Kai Friedrich hands the RFS sponsorship to Mr Vincent Molzahn, Chairman of the SKW soccer division.  Above: Kai Friedrich hands the trophy to the captain of Kaizen Football Academy youth team, winners in the under-17 category.  Above: the winning under-17 team of the Kaizen Football Academy. News from NAMFISA Industry meeting of 13 March 2017 You should take the trouble to read the notes of the latest pension funds industry meeting held on 13 March 2017 for insight into the goings on at NAMFISA. Our staff attended this meeting and prepared notes for the convenience of clients and readers that you can download here... Media snippets (for stakeholders of the retirement funds industry) Review of pension fund trustee decision This case (Maphoyisa v Municipal Gratuity Fund and Sanlam Life Insurance Limited or Maphoyisa case) is about the prescription of a claim of a minor beneficiary after reaching age of a majority. In SA age of majority was changed from 21 to 18. The same is due to happen in Namibia. The Child Care & Protection Act was promulgated in Gazette 5744 of 29 March 2015 and sets the age of majority at age 18. At this stage the Act has not commenced yet. A complaint was lodged by a person who claimed to have been dependent on the deceased and should have been considered for an allocation of a portion of the death benefit. The Fund did not deal with the merits of the complaint. Instead the Fund relied on the Prescription Act 1969 (which also applies in Namibia) which stipulates that if the creditor is a minor the period of prescription will not be completed before a year has lapsed after the day he ceases to be a minor. The Fund argued that the complainant was out of time to lodge a complaint as his claim prescribed on 10 November 2016 (1 year after he turned 18) and the complainant only lodged the complaint on 22 November 2016. The PFA then referred to a Supreme Court of Appeal finding which essentially provided that legislation cannot have retrospective effect, unless the new legislation expressly states it applies retrospectively (where it impairs a vested right acquired under existing legislation). In light of this, the PFA reached the conclusion that since the Children’s Act did not state it applied retrospectively and the new majority age would impair the rights of the complainant, the majority age of 21 must apply to the complainant. As such the complainant’s claim had not prescribed as he was only 18 years old when the complaint was lodged. His claim would only prescribe on 10 November 2019, one year after he turns 21. The trustees’ decision that was taken 12 years before the complaint was lodged, was set aside and the trustees were ordered to re-apply their discretion. Presumably by now the moneys would have been distributed so if the trustees then arrive at a different allocation, any underpayments must be made good while the fund would sit with the challenge whether or not to recover any overpayments. Read the full article by Gennel Chettiar of Norton Rose Fullbright in Insurances Gateway of 21 March 2017, here... What to do when the market drops “Often when the market dips, even slightly, people’s first reaction is to act hastily, this can only be to the detriment of your investments. While the ultimate goal of investing is to realise growth on investments, there’s an element of risk that is innate to investing, especially in stock markets. It is therefore important for investors to understand the market risk to ensure an appropriate response in the event of a temporary drop in the market.” In order to see your investment grow, follow this advice:
Investment choices: cash or balanced fund “The answer is: it depends , but probably a balanced fund.” Here is the answer to why it depends, derived from a study carried out by the author over a period including the market crash in 2008/9. “...in the worst case scenario an investor into a balanced fund could have experienced a drawdown of 20% over a period of nearly 1.5 years, still been negative after nearly 2.5 years, and only overtaken the worst case experience right at the end of the 5 year period! More realistically, the average fund investor would have generated a return some 4% pa better than the average cash investor, despite investing through the 2008/9 crash! It is also evident that an investor with a shorter investment horizon (i.e. 1 year or 3 years) should probably be investing into a lower risk option – potentially even cash!” Read the article by Mike Browne of Seed Investments in Sharenet of 20 April 2017, here... A blueprint for financial survival The preceding two articles essentially cover the same topic namely how South Africans should go about managing their investments under current circumstances, but proposes much more radical answers. Magnus Heystek, a well-known commentator and investment strategist at Brenthurst Wealth takes a very dim view on SA’s economic prospects and based on these makes some radical suggestions as to what you should do. Read the interesting article in Moneyweb of 24 April 2017 here.... Media snippets (for investors and business) Namibians are the 3rd wealthiest people in Africa An interesting finding, and if you are interested to read more about it, read the short note in IJG Daily 240117, here... Bonuses at Amazon for not calling sick Employers undoubtedly sometimes wonder about the legitimacy of doctors’ certificates for sick leave of their staff. From personal experience doctors normally prescribe some medicines and that’s it. Others enquire whether you want to be booked off. Amazon in Germany has introduced a controversial bonus scheme paying between 6% and 10% of the employee’s salary for using few paid sick days. It has also designed the scheme to apply peer pressure on employees not to call sick. Of course one must be aware that this coin too has two sides that one should consider. In cases of infectious diseases one probably would not want the employee to call for duty. Read the interesting short article in Quartz Media, here... And finally... “Retired is being twice tired, I've thought. First tired of working. Then tired of not.” ~ Richard Armour
|
2017-03
|
|||
| In this newsletter: Benchtest 02.2017, consequences of PN 5 of 2003, does your fund provide adequately and more... |
|||
|
Career opportunity
Trustee training 4 and 5 April on fiduciary duties and fund governance
Trustees are advised to ascertain that the resolutions for the disposition of lump sum benefits upon death of a member of their pension fund per Section 37 C of the Pension Funds Act are consistent with above ITA interpretations.
Does my employer pension fund provide adequately for me?
News from the market
The case of the member related to breach of his employment contract. In her ruling the Adjudicator ruled that “In the present case, the deduction relating to a breach of contract is not permissible in terms of the categories of section 37D of the Act. Furthermore, the fact that the third respondent has instituted civil action against the complainant does not justify the withholding of the complainant’s withdrawal benefit. This Tribunal notes with concern the passive role adopted by the administrator of the umbrella fund by failing to request reasons or documentary proof for the withholding of the benefit. If the fund made this simple request at the onset, it would be in a better position to assess the claim based on the merits, thus preventing the complainant from incurring prejudice. In the present case, the deduction relating to a breach of contract is not permissible in terms of the categories of section 37D of the Act. Furthermore, the fact that the third respondent has instituted civil action against the complainant does not justify the withholding of the complainant’s withdrawal benefit.”
Read this interesting article by Dawie van Vuuren in Sharenet of 22 February 2017, here… |
