In this newsletter:
Benchtest 01.2012, Namfisa wants more reporting of the same, Allan Gray Namibia Investment Trust to be converted, Switching is bad for you and more...

Dear reader

In this newsletter, we update you on developments at RFS, we urge trustees to consider carefully the implications of the new reporting demanded by Namfisa, Allan Gray updates us on what its intentions are regarding its Namibia Investment Trust, there is some advice ‘from the horse’s mouth’ on findings regarding members’ investment switching and there are a few links to very interesting articles that recently appeared in various media.

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Tilman Friedrich

Tilman Friedrich's Industry Forum

Benchtest Monthly 01.2012

In January our average prudential balanced portfolio returned 2.93% (December minus 0.14%). Top performer is Investment Solutions Multi Manager (3.74%), while Allan Gray (1.31%) takes bottom spot.

At this point we do not see much excitement coming from our local financial markets over the next year or two, although an expected continuation of foreign portfolio flows, as the result of the fiscal easing in the Eurozone, is likely to ensure that this asset class should outperform other asset classes. Diversifying offshore, more specifically to the US would appear worth a consideration for the investor with a time horizon of 3 years and longer. European markets also offer great opportunities if you are brave and if you can be patient. In the short term, local equity markets may well still outperform offshore markets over the next 3 years.

further analyses and our views download the report, here...

RFS company news

New staff appointments

The growth in our client base does not go without growth in our staff complement. This time we would like to extend a hearty welcome to Nicolene Loubser and to Timothy Wallenstein.

Nicolene Loubser joined us from Spes Bona Motors on 1 November 2011, as a member of the Benchmark administration team to help us cope with the constant stream of employers joining this popular fund. She holds a COP in long-term insurance. At Spes Bona Motors she was responsible for the selling of Optimum insurance products such as credit life, warranties and short-term insurance. She gained 9 years of banking experience with FNB and Standard Bank before she joined the insurance industry in 2004 as a supervisor with Metropolitan.

Timothy Wallenstein joined us early December last year, from G-Tech Equipment where he was employed as a sales representative since July 2011. He is well known in the pension fund industry as he started to work in the industry at the end of 2005 as an administrator with Alexander Forbes. He later joined Old Mutual in December 2007 as a fund administrator and worked for them since September 2009 as a fund accountant. At Old Mutual he was responsible for accounting services to a portfolio of large pension fund clients. Timothy has enrolled through Politech for a diploma in Accounting and Finance and completed all his first year subjects.

Volleyball for all

Some of the Retirement Fund Solutions and Benchmark Retirement Fund recently tool part in the Volleyball for All tourney in Windhoek

Volleyball for all
Above: Put a tiger in your... pension fund investment. The participating players in the team.

Volleyball for All 2
Above: We came. We saw. We didn't conquer, but we had a lot of fun. Team action on the lawn.

News from Namfisa

More reporting demanded

We have informed all our clients by way of separate newsletter, about yet another report Namfisa wants all retirement funds to submit. It was intimated that this will become a quarterly requirement. In response to a question on the reason for this at Namfisa’s last ‘industry meeting’, Namfisa offered following explanation: firstly this should assist the regulator to answer frequent enquiries about investment opportunities in Namibia and secondly, all other financial institutions are reporting quarterly and hence there should be no reason why pension funds should not also be reporting quarterly. What makes it worse of course, is the fact that this information is now required starting 2007. Namfisa proclaimed to be moving from compliance based supervision to risk based supervision. It is not clear to us how all of this will help Namfisa on this course. Spokespersons of the industry expressed their concern about what may be perceived to be a ‘high handed’ approach by our regulator in that no consultation took place before launching such a requirement.

Concern is generally also expressed about the mounting costs of reporting and of regulation and supervision, which members have to bear and which will result in their retirement benefits continuously being eroded. Regulation 29 and the new Financial Institutions and Markets Bill are of course still on their way and will come at a substantial cost to retirement fund members.

Has Namfisa ever tried to establish what the impact on retirement savings has been of the levies that were imposed to fund its operations and of the domestic investment requirements and what economic benefits these measures have generated? Is it unreasonable to expect our regulator to protect the interests of the investing public against being overburdened by costs, that may not be justifiable, at the expense of their retirement benefits?

Trustees are urged to carefully consider how to deal with this new requirement. First and foremost we believe, it is essential that funds ensure that they are members of the Retirement Funds Institute of Namibia, that they actively support and participate in this organisation and that it be effectively employed in protecting and promoting the interests of funds and their stakeholders.

News from the market

Allan Gray comments on the legal status of AGNIT and on SA withholding tax on dividends

The Allan Gray Namibia Investment Trust was not registered by Namfisa in terms of the Unit Trust Control Act. Consequently, when Namibia introduced withholding tax on interest, interest earned by AGNIT was reduced by the 10% withholding tax, as this vehicle was not recognised by the Income Tax Act as a unit trust. Unit Trusts are exempted from withholding tax on interest earned by pension funds and hence they can pass on gross interest income to their Namibian pension funds while AGNIT could not do this.

The Unit Trust Control Act was amended at the end of last year and as per letter from Allan Gray in this link the previous investment restrictions no longer apply. Allan Gray now wants to establish a pooling vehicle/s that would allow it to enter the retail market and to use their SA systems and platforms to offer its retail products to Namibian investors.

In the letter Allan Gray also reports on withholding tax on interest at a rate of 10%, due to be introduced in South Africa that is likely to affect most Namibian pension funds who invest in SA equities.

Law and legal snippets

Income Tax Amendment Act –
Act 15 of 2011, Gazette 4864 of 30 December

Withholding Tax on Services Payments to Non-residents
- How will all of this work in practice though?

Latest information is that Namibians employing foreign services (entertainment services, management services, consultancy services or services as director) must register. Application forms for this purpose can be obtained from Ms E Le Roux, room 516, 5th floor, as from 29 February 2012. Your income tax reference number will reflect an 8 instead of the 1 as last digit. Remember that the first payment is due 20 March 2012.

This Act is effective 1 January 2012 for companies and 1 March 2012 for taxpayers other than companies, except certain changes to the regime with regard to withholding tax on interest, which is deemed to have come into effect on 1 March 2009.

Interesting media snippets

The coming collapse of the Chinese economy

China has become an important factor in the global economy and global financial markets that investors cannot ignore without exposing their investments to a significant risk.

In this article in Kitco by Gordon Chang, some sound investment advice is given in view of the state of the Chinese economy.

Switching your investment portfolios is bad for you

The latest edition of Personal Finance, First Quarter 2012, features an interesting article by John Anderson, national head of consulting strategy of Alexander Forbes. He concludes in this article that you are generally better off doing nothing with your retirement investment than changing to a safer option when markets go haywire.

The following excerpts from the article are of note:

Alexander Forbes studied the behaviour of more than 700,000 members over a 3 year period to 31 August 2011. There were some 27,000 switches, of which, it was found, some 9,000 were active investment choices by some 7,000 members. They found that 17% of these members switched more than once over this period, 5.3% switched at least 3 times. 53 member switched at least 6 times over this period and, as they found, mostly to their detriment. It was also found that the vast majority of members simply relied on the default options provided by the trustees. In this article John Anderson concludes that in times of volatility the obvious answer for retirement fund members is to simply ignore what markets are doing and this is what more than 85% of members are doing.

John Anderson cautions trustees to ascertain that –

  1. Any investment options are appropriate for the membership profile;
  2. Members must be provided with education and advice to take decisions based on the right reasons;
  3. Only members within 5 to 10 years from retirement should consider reducing risk;
  4. Members should align pre-retirement investment strategy with post retirement income requirements.

These conclusions corroborate our conclusions based on a desk study we undertook covering a period July 2005 to June 2010 (‘life stage model stress tested’). We concluded that the maximum period preceding retirement to be allowed for members to switch is 5 years, in the case of cash preferably 3 years, and it should only be allowed for the reason that the member wants to align his/her pre-retirement strategy with post retirement income.

We believe that the only meaningful alternative at that point would be a cash portfolio, as it unlikely that a member’s post retirement income requirements will be best aligned to a low equity investment portfolio. This membership group relative to overall membership is typically very small. Limiting choice to such a small group and to only a meaningful alternative will substantially reduce the the cost and the need to offer education and advice, at the employer’s cost, to the vast majority of members who are not going to take their own investment decisions.

How I am easing into retirement

As I am approaching retirement a few years down the track, it now starts dawning on me slowly what should be going through people’s mind who are in the same life stage. I am sure you will be aware of cases where someone retired and then passed away within a short time. To what extent would psychological factors have contributed? Should and can you do something to prepare yourself for retirement? Read the short article in this link for some good advice by Kathy Frederick in CNNMoney, about how she eased into retirement.

In this context, you may be interested to know that Mrs Birgit Hoffmannn of Ubuntu Consulting CC has recently established her private practice, offering pre-retirement coaching. Mrs Hoffmann is a chartered public relations practitioner, a communications and marketing expert, a human resources practitioner and a trained industrial psychologist.

Is it safe to resume ignoring the prophets of doom?

Prophets of doom such as Nouriel Roubini and Richard Wolff predicted the bursting of the US housing bubble and the resulting financial crisis long before they happened. Many of those same Cassandras now believe, for different reasons, that we are on the brink of another catastrophe. Read more about these prognostications in this article in New York Times by Adam Davidson.

Sanlam calls for a sea change in retirement industry

Most recent research has allowed Sanlam to take a retrospective look at retirement in South Africa over the past 30 years. This has revealed that changes made in the 1990s to shift the risk and responsibility of retirement savings from the employer to the employee, have left many employees worse off. This, and other key findings, have pointed – in Sanlam’s opinion – to the need for an industry sea change in order to ensure more compatibility with the needs of today’s consumer. Read the full article here...

tilman-friedrichTilman Friedrich is a qualified chartered accountant and a Namibian Certified Financial Planner® practitioner, specialising in the pensions field. He is a member of the marketing committee of ICAN and a member of the legal and technical committee of RFIN. Tilman is co-founder, shareholder and managing director of RFS.


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