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In this newsletter:
Benchtest 02.2013, RFS and Benchmark reach billion dollar milestones, what to consider before you restructure your fund and more...

Dear reader

Our niche is now valued in billions!


In the course of the last 14 days, we announced that RFS now has more than N$ 10 billion under administration, and that Benchmark has more than N$ 1 billion under administration. We opened our doors expecting to be a 'niche player' with a small core of excellent customers, and never expected to grow this much.

The secret to competing in a niche is to provide excellent service to excellent clients. We believe that our clients are excellent and we always try our utmost to do our best. We haven't abandoned this philosophy, so all we can say is that the niche has grown far larger than we expected it to be.

We deeply appreciate your confidence in RFS and Benchmark, value your excellence and promise to continue to provide niche service, no matter how large the niche grows.


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

  • a review of investment markets;
  • dismissal, a major risk for employers;
  • RFS company news;
  • the status of quarterly reporting, regulations 28 and 29 and the FIM Bill; and
  • retirement fund reform in SA.

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

Regards

Tilman Friedrich


Tilman Friedrich's Industry Forum

Benchtest Monthly 02.2013

In February our average prudential balanced portfolio returned minus 0.12% (January 3.98%). Top performer is Namibia Asset Management (0.31%), Momentum (minus 1.10%) takes bottom spot.

In February key foreign bourses continued to out-perform the SA Allshare Index, the Nikkei being best performing index seemingly achieved by a mere comment by newly elected Japanese PM Abe that the Bank of Japan needs to relax fiscal policy. Since the beginning of 2012, the Nikkei produced 36.7%, and the DAX 31.3% versus the SA ALSI at 24.2%. Over this period the Rand depreciated by 10.3% against the US$ and by 11.1% against the Euro.

Together these two elements would have produced a return of 56% and 49.8%, respectively, for an SA (US Dollar) 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 11.4% (US investor) and 10.4% (Euro investor) since the beginning of 2012.

Foreign investors in SA bonds and other fixed interest instruments would have earned negative returns since the beginning of 2012. The attractiveness of borrowing cheap money offshore to benefit from higher interest rates in SA is therefore no longer an argument unless the investor were to hope for the Rand to strengthen again which appears unlikely at this stage. In the light of these developments, a declining trend in net bonds purchases by offshore investors is not surprising.

Despite these negative developments for foreign investors in SA, total foreign portfolio flows are currently still at a fairly high level of over R 100 billion measured over rolling 12 month periods, still providing support to the Rand. We would expect the influence of foreign portfolio flows on our local financial markets to slowly fade away.

Local fundamentals and investor sentiment should in time, however, become a much stronger determinant for our local financial markets. Consensus amongst equity investors seems to be that SA equities are not cheap by historical measures and in relative terms when compared to other African and offshore investment opportunities. Such foreign investment opportunities are therefore likely to be pursued with more vigour by local investors going forward, which also will impact negatively on local equity markets.

A changing tide of portfolio investment flows out of  SA, the continuing negative inflation differential between SA and its major trading partners, negative SA current account data and the fact that SA Reserve Bank in March once again kept the Repo rate unchanged, is likely to weaken the Rand further and dampen the interest in local bonds. A weaker Rand is likely to lift the inflation level. This environment is bound to lead to an increase in the Repo rate in the next 12 to 24 months and to higher interest rates generally.

For further analyses and our views download Benchtest 2013-02, here...


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. 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.


RFS company news

Kai Friedrich joins RFS & succession plans

As the generation that has founded Retirement Fund Solutions in 1999 is approaching official retirement age at a frightening pace, we can assure our clients that we have a solid succession plan in place. A future organisational structure is to be implemented in the course of the next 3 years. We now have a team of capable young people in service, representing the next generation that should be able to secure the future of our business for the next 30 years.

In this context we are pleased to advise that Kai Friedrich joined the company on 1 March from PricewaterhouseCoopers. Kai matriculated at Delta Senior Secondary School. He then enrolled at University of Stellenbosch where he obtained a Bachelor of Accounting (Honours) degree in 2008. He served his articles with PricewaterhouseCoopers, qualified as Chartered Accountant (C.A. Nam/SA) at the beginning of 2012 and advanced to the level of audit manager. Closer to home he obtained the Post Graduate Diploma  in Financial Planning and is one of four staff in service who should qualify for the Certified Financial Planner ® designation that is conferred by the Financial Planning Institute. He is currently enrolled at University of Free State for the advanced post graduate diploma in employee benefits in 2013. He holds certificates for a variety of short courses completed over the past few years. We extend a hearty welcome to Kai and look forward to his contribution to uphold our reputation through service excellence, dedication and commitment.

Compliment from an HR Manager

"Ek wil my dank uitspreek vir die wyse waarop jy die Fonds en alles wat daarmee gepaard gaan , hanteer het. Die spoedige afhandeling van eise (bedankings en aftredes) asook alle kwotasies vir huislenings en ander navrae. Party kere het dit maar woes gegaan, maar jy het dit baie goed hanteer. Dit is vir my ‘n riem onder die hart en ek wil die vertroue uitspreek dat ons in 2013 net so lekker sal saamwerk.” (Dated 27 November 2012.)

Read more comments from our clients, here...

News from Namfisa

An industry meeting with stakeholders of the pensions industry was arranged by Namfisa on 18 March 2013. Main topic once again was the future quarterly reporting.

Two sections were added to the report, one dealing with section 14 transfers while the other will require trustees to disclose their involvement on other boards, service providers and even shareholding in entities not related to retirement funds. Trustees will also have to provide details about their qualifications.

Reporting on fund investments is to dovetail with the reporting requirements in terms of regulation 28 to avoid duplication. Consolidation of the investment information where a fund utilises more than one asset manager will have to be done at fund level.

A misconception concerning the definition of ‘beneficiaries’ was cleared up when Namfisa confirmed that this does not refer to nominated beneficiaries but rather to persons who were paid a benefit by the fund.

Each page of the report is due to be signed off by fund officials. It is understood that reporting will be done in the same way as the current annual reporting is done, using Namfisa’s ERS system. The ERS system is in the process of being adapted to provide for the new reporting requirements. Whilst the current annual report will be replaced by the quarterly reports in future, certain ‘static’ information will only need to be reported annually.

No indication was given regarding the expected date of completion of the process. Historical data will have to be submitted 9 months after the directive to comply has been issued by Namfisa.

It was made clear that no further comments by stakeholders would be entertained but a final Excel version will be made available while Namfisa is busy to update their ERS system. This should allow funds to start to adapt their systems to collect the required information.

Concerning the FIM Bill and regulation 28 and 29, the Minister of Finance reported as follows in her recent budget statement”

“Together with Namfisa, we have gone through an arduous but rewarding exercise to overhaul and modernize the regulatory apparatus governing the non-bank financial sector.

Because of the voluminous nature of these Bills and their relative significance, we have decided to undertake consultative workshops with Members of Parliament to familiarise the Honourable Members with the principles and content of the Bills prior to their tabling.

We have also finalized amendments to regulations relating to domestic asset requirements. Regulation 28, Regulation 15 and a new Regulation 29 are with the legal drafters for clearance before gazetting. The amended rules will serve as important instruments for mobilizing domestic savings to finance development through minimum local investment thresholds and help stem excessive capital flight.”

Namfisa indicated that regulations 28 and 29 are due to be promulgated within the next month. No indication could be given on the likely timeframe for concluding the FIM Bill.


News from the market

Retirement fund reform in SA

For pension funds trustees in Namibia, it should always be good to look over their shoulder to see what big brother down south is up to. Often developments in SA are a precursor of what will come in Namibia too, be it at the instance of the regulator or of service providers. National Treasury in SA published retirement reform proposals for further consultation with the industry on 27 February 2013. Some of the envisaged reforms deal with the following:

  • employer contributions will be taxed in the hands of the employee in the first instance, but the employee may deduct total contributions of up to 27.5% from his/her taxable income;
  • strengthening fund governance through professionalising trusteeship;
  • improving the level of preservation of withdrawal benefits, by defaulting a resignation benefit into a preservation fund;
  • compulsory provision of pensions upon retirement, which will be the end of provident funds as we knew them; and
  • tax-preferred non-retirement savings.

Read more about these proposals here…

Interesting media snippets

One in three probability of SA credit rating being downgraded

Sharenet reports there is a one out of three probability that Standard and Poors may lower SA’s credit rating in a year or two. This probability may well advance an increase in SA interest rates, also favoured by other conditions referred to in our commentary on the Benchtest monthly 02.2013, here...

Umbrella funds: should we be concerned about governance?


In this article that appeared in FANews, Fiona Herbst looks at some governance issues concerning umbrella funds, in SA nowadays made out to be the future of retirement provision for any group smaller than 3,000 members. Read more here…

Employers reneging on pension payments


In this article in Personal Finance, Laura du Preez takes a look at what is in the offing in SA for employers who fail to pay pension fund contributions in time. This is a problem not foreign to Namibian funds either. Does our regulator need to follow the SA precedent? Read more here...

Uranium falters on Japanese nuclear delays

Namibia being one of the largest uranium exporters, developments in the global uranium market will impact on our economic performance. As this article in Bloomberg points out, “…A delay in the resumption of nuclear plants would be a blow for uranium producers from Australia to Namibia, while boosting natural gas exporters such as Qatar, which helped plug Japan’s power deficit after the March 2011 meltdown at Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant.” Read more here…

Five reasons to invest offshore

In this article in Fin24, the important point is made that the investor must be sure to understand why he/she wants to invest offshore, because if you are not, you may be disappointed with the results. These reasons are: -

  • to match your assets with your liabilities;
  • for tactical reasons;
  • risk diversification;
  • access to unrestricted currency; and
  • sovereign risk.

Read more here…

And finally...

“If you're riding' ahead of the herd, take a look back every now and then to make sure it's still there.”

This 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.

 

Retirement Fund Solutions

Managed by Namibians. Trusted by Namibians.

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