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