In this newsletter:
Benchtest 01.2013, RFS earns PMR award, what to consider before you restructure your fund and more...

Dear reader

RFS earns PMR Diamond Arrow

As a small, local ‘player’ we never thought that we could be in contention for a PMR award, much less the Diamond Arrow. To our surprise we were informed that we received highest marks in our category, and that we were in fact amongst the five top rated winners in Namibia.

The ratings are assigned by research conducted among business leaders, so we are deeply appreciative of the high estimation that we received. Thank you.

Receiving the PMR Award

Tilman Friedrich and Marthinuz Fabianus, directors and shareholders of the company, jointly received the award at the hand-over ceremony.

In this newsletter, we provide thoughts on the topical subjects of

  • the ‘life stage’ model and
  • on the debate of pension versus provident fund

We also give some practical guidance to Principal Officers with regard to the future quarterly reporting template issued by Namfisa and offer links to a few interesting articles that appeared in the media recently.

As always, your comment is welcome, so open a new mail and drop us a note!


Tilman Friedrich

Tilman Friedrich's Industry Forum

Benchtest Monthly 01.2013

In January our average prudential balanced portfolio returned 3.98% (December 1.24%). Top performer is NAM Prudential Managed (5.69%), Old Mutual (1.41%) takes bottom spot.

The past year to end January, for the first time in a while saw some foreign equity indices outperforming the SA ALSI. In this category fell the Nikkei that produced 26.5%, the DAX produced 20.4% versus the SA ALSI at 19.8%, not far behind the DAX, while the Rand depreciated by 14.4%. Together these two elements would have produced a return of 47.8% and 40.7%, respectively, for an SA investor in the Nikkei, respectively in the DAX, returns that compare favourably with the top performing sectors of the FTSE/JSE. Foreign investors in the SA ALSI in contrast, would have had a return of 2.6% (US investor) and minus 2.9% (Euro investor).

This no doubt hurts when viewed in the context of what a foreign investor could have earned in their local bourses. Foreign portfolio flows into SA equity appear to mirror this disappointment of foreign investors. Since the SA Reserve Bank kept its repo rate unchanged in February, SA also no longer offers such an attractive investment opportunity for foreign investors in SA bonds, who would in fact have experienced negative returns over the past year in most instances. Another factor that has been benefiting SA was the huge demand for its natural resources but with the steep decline in global consumer confidence and consumption, it will take some time before the consumption driven demand for our commodities will recover again.

The question is whether these trends will continue? Our expectation is that they will. This should continue to dampen the enthusiasm of speculative foreign investors as will the continuing negative inflation differential between SA and its major trading partners and the fact that SA Reserve Bank kept the Repo rate unchanged. Foreign investment flows are likely to subside and this should impact negatively on our local equity and bond markets. We therefore expect continued Rand weakness and upward trending inflation that should in time to come lead to inclining interest rate levels locally.

For further analyses and our views download Benchtest 2013-01, here...

Pension or provident funds, lump sums or pensions – where to from here?

‘Leakages’ in the pensions system are an issue that policy makers, employers and fund trustees alike should be seriously concerned about, and lump sum benefits represent one of the most serious leakages in the system. After all, the purpose of a pension fund is primarily to provide for the needs of members upon retirement and for dependents of members in the event of death of a member.

Barring a few exceptions, the vast majority of pension fund members will not be able to purposefully apply a lump sum benefit to meet their and their dependents’ needs for as long as they may live.

In an opinion piece published in May 2010 we addressed this topic. Read the full article, here...

RFS company news

"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, 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 reference to the costs and that the contractor then informs you only upon completion, what the actual cost is. At this stage 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.

Compliment from an HR officer

"I also want to take this opportunity to thank all at RFS for your excellent customer service throughout the year, and it is especially the working relationship with you Santhea and Hannes, that I value more than words can convey." (Dated 11 December 2012.)

News from Namfisa

The latest template for future quarterly reporting comprises of 5 ‘parts’ for which the information to be recorded needs to be obtained from different sources by funds:

  • Part 1 (collated) – presumably this is information that will automatically be drawn from other parts and requires no input.
  • Part 1 (Principal Officer) – this information is likely to be provided by the administrator and for our part we will prepare to be able to provide this information.
  • Part 1 (asset manager) – we urge Principal Officers to arrange via their consultant or directly with their fund’s asset managers to commit to providing the information required in this section.
  • Part 1 (single issuer) – at this stage we presume that this information should also be provided by the fund’s asset manager but we do not understand how this part is to be distinguished from to Part 1 (asset manager). We urge Principal Officers to arrange via their consultant to establish how this part is to be seen vis-à-vis the ‘asset manager’ part.
  • Part 2 (administrator) – we will prepare to be able to provide this information. However, any fund benefit paid directly by an insurer is obviously not recorded by us. We urge Principal Officers to arrange via their consultant or directly with their fund’s insurer/s to commit to providing the required detail on all benefits paid directly to beneficiaries on behalf of the fund.
  • Part 2 (claims) - we will prepare to be able to provide the information.
  • Part 3 (housing loans) – we will prepare to be able to provide the information on direct in-fund housing loans. We urge Principal Officers to arrange via their consultant or directly with their fund’s bank to commit to providing the information required in this section with regard to housing loan guarantees per paragraph 2.
  • Part 4 (membership and fund info) – we will prepare to provide the information required in this part. However, funds need to mandate us to maintain records of beneficiaries and need to arrange with the employer/s to obtain and provide beneficiary information from fund members. This section also requires information from the fund’s actuary (paragraphs 15 to 17) and this needs to be arranged by the Principal Officer with the actuary.
  • Part 4 (Principal Officer) – we will prepare to provide the information required in this part. However, the information about complaints required in paragraph 6 will have to be provided by the Principal Officer.
  • Part 5 (trustee declaration) – this will have to be arranged by the Principal Officer.

News from the market

Before you restructure your fund, consider this truly independent advice

Richard Morris, associate director of PWC offers some prudent advice which trustees should carefully consider when restructuring their fund:

  • Pursue economies of scale. “In general retirement fund members do not achieve optimal retirement funding targets.” “Industry in SA tends to offer products that are unduly complex or at a cost that is too high…”
  • Avoid complex services of doubtful value and focus on retirement not risk benefits. Members happily “tend to stick to the trustee default options…typically 80% to 90% or more do this.” “Industry cautions members against the dangers of trying to time the market, but it might be more effective simply to remove the means to do so.” “It is unfortunate that the sharp focus is on retirement date and the life stage models are put in place merely to provide a more certain result at this date. This is hardly the point.” “…life stage models meant more complex member record platforms, many more transactions…and substantially higher fees.”
  • Seek to avoid fruitless costs on acquiring an annuity outside the fund on retirement. Members “effectively turn their benefit into cash to purchase…a annuity outside the fund. The irony is that the bulk of cash is promptly converted back into…equities and bonds…” “Net replacement values have sagged…This is because…longevity increased sharply in line with the drop in yields in…bonds.” This funding gap… has only recently started to receive attention.” “In view of
    • the high costs of retiree obtaining an annuity
    • the complexity of selecting an appropriate annuity, and
    • the opportunity cost of being in unduly conservative investments…”
  • Conclusion: Adequate scale, simplification and streamlining for cost reduction.

To read the full article, follow this link…

Interesting media snippets

The ANC’s plans to tap pension capital could be a win-win

The ANC’s plan to tap retirement funds to finance state enterprises and development finance instruments to aid the long-term funding of its R3,2-trillion infrastructure initiatives, has been met with much criticism from the industry. However, it might not necessarily be a bad idea. Read more here...

Investment expectations in 2013

The investment landscape in 2013 poses various challenges as well as some opportunities. Marriot Asset Management provides us with their thoughts on how to navigate through this tough environment, where it sees investment opportunities in 2013 and where it cautions on specific asset classes. Read more here...

Decline in future expected returns leads to decline in projected retirement benefits

The Alexander Forbes Pensions Index has shown that members of Defined Contribution retirement funds continue to face significantly lower projected retirement benefits than what was expected at the start of 2002, according to John Anderson, Head: Research and Product Development at Alexander Forbes. The Alexander Forbes Pensions Index tracks how projected retirement incomes have changed. Read more here...

Davos leaders concerned over glut of ‘easy money’

The world is awash in easy money, with consequences that are starting to worry some central bankers and business leaders at the Davos World Economic Forum (WEF), though so far inflation fears seem overdone. Read more here...

And finally...

Good judgement comes from experience, and a lot of that comes from bad judgement.”

This relevant wisdom is also ascribed to  Will Rogers, one of the greatest political sages America has ever known.

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 legal and technical committee of RFIN. Tilman is co-founder, shareholder and managing director of RFS, retired chairperson, now trustee, of the Benchmark Retirement Fund.


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