In this newsletter we provide the usual extract of our commentary on investment markets and a few company news items. We examine the question whether retirement capital can be transferred from a retirement annuity fund to a pension fund and also comment on Namfisa’s latest mission to inspect funds.
For those who take an interest in the pensions industry we also provide links to a few interesting articles.
Our new mobile site
For the convenience of readers using smart phones with small screens we have developed a brand new mobile website. Try it out on your mobile at www.rfsol.com.na and let us know if you like it – and also if there is additional functionality that you want.
As always, your comment is welcome, so open a new mail and drop us a note!
Tilman Friedrich's Industry Forum
Benchtest Monthly 03.2014
In March the average prudential balanced portfolio returned 0.86% (February: 2.06%). Top performer is Investment Solutions (1.92%), Metropolitan (-0.19%) takes the bottom spot. For the 3 month period Sanlam is top performer outperforming the ‘average’ by roughly 1.4%. On the other end of the scale Metropolitan underperformed the ‘average’ by 1.2%.
Interest rates in the US are still extremely low and money is still pumped into the system on a large scale through the Fed’s asset purchase programme, even though this has been reduced from a peak US$ 80 billion per month to now ‘only’ around US$ 65 billion. This is still a lot of money made available on excessively easy terms, representing around 5% of US GDP, for every 12 months it continues. To put this into a Namibian perspective, it would be like the Bank of Namibia pumping around N$ 7 billion into our financial system every 12 months, to raise its total assets by one third in the coming year!
Read our full commentary, find out how these and other developments impact on our investment views and download Benchtest 03.2014, here...
Can retirement capital be transferred from a retirement annuity to a pension fund at retirement?
This question is quite intricate, particularly in view of the fact that retirement annuity funds may only be offered by insurance companies even though a retirement annuity fund is a pension fund and subject to the Pension Funds Act. Because it is offered by insurance companies as an insurance product, both the Long-term Insurance Act and the Pension Funds Act apply to retirement annuity funds.
The Long-term Insurance Act does not specifically 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/policy of the product. The Act does prohibit the transfer of insurance business or a certain 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 policy 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 rules/policy of the product, these are to be considered a benefit paid by the product.
The Income Tax Act defines how benefits are to be taxed and prescribes what type of benefits an approved fund (retirement annuity fund, pension fund, provident fund and preservation fund) may offer. In the case of pension fund benefits, the Act allows for 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 definition of preservation fund prohibits a transfer of member’s interest between two preservation funds. The definition of retirement annuity fund allows for members’ interest to be transferred between approved retirement annuity funds. Such a transfer is not a benefit and is not 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 prior to retirement, is typically prohibited in terms of the product policy as the insurer is using actuarial calculations to determine premiums, guarantees and benefits that are 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. This would not constitute a benefit and is therefore not subject to taxation.
To accommodate above objective of allowing members of a retirement annuity to transfer their interest to another approved fund upon retirement is thus prevented by the definition of ‘retirement annuity fund’ in the Income Tax Act which means that this Act would have to be amended. To accommodate this objective prior to retirement, the product 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 be considered by insurers for any other type of product.
RFS supports Okanti Foundation
RFS has the philosophy to encourage the involvement of staff in the wider community at ‘grass-roots level’ through personal engagement. It is much easier to spend money on community projects than it is to apply one’s own time, dedication and commitment to such projects.
No community project can be successful without individuals that are prepared to apply their own time and to get their ‘hands dirty’.
The personal engagement by staff, together with the financial support of the company, should yield superior results for the wider community.
Günter Pfeifer, director of the company, has identified the Okanti Foundation as the project that he supports through personal involvement. Günter has acted as voluntary co-signatory since the first account for the Daniela Medical Trust was opened in 2005. He has quietly contributed to the foundation by offering advice, mainly of a financial nature, to the trustees and applying his critical mind to the issues at hand.
The Okanti Foundation offers marginalised patients and their families a support network and financial assistance, which they would not otherwise have in Namibia. Due to the rare nature of the diseases, families feel very isolated and medical aid benefits are generally not sufficient for the specialised care required. Financial problems, exacerbated by mothers mostly not being able to work, contribute to the families’ dilemma.
The Okanti Foundation is also lobbying for lower chronic medicine prices and for better medical aid benefits for organ transplant patients and other patients with rare diseases – thereby not only benefitting its beneficiaries, but the wider community in Namibia. The foundation promotes organ donation / transplant awareness through radio interviews and other media.
Since 2007, the Okanti Foundation has financially supported 4 Namibian youths before and after organ transplant, and 3 children with rare chronic diseases.
The trustees so far supported 12 other Namibian families with chronically ill children, or adults with terminal disease, or who needed an organ transplant, who did not apply or qualify for financial assistance, with advice, moral support and medical aid queries and negotiations.
Find the Okanti Foundation on Facebook, here...
Compliment from a financial adviser
Why are you working so late? Your work is highly appreciated, especially the effort that you putting into your work by going the extra mile for your clients.”
Read more comments from our clients, here...
RFS staff movements
For the benefit of those readers that missed our previous newsletter, please be advised that Mrs Lilia Cabatana has left our employ at the end of March. Your new contact person is Kai Friedrich, who has taken on the responsibility for our private funds administration team.
News from Namfisa
Namfisa on a new mission to carry out fund inspections
We have become aware that Namfisa has embarked on a project of carrying out on-site inspections at private pension funds. Typically notification to funds is very short and the list of documents and records to be provided to the inspectors is extensive. Principal officers are sensitised to this issue at an early stage as this matter will affect all funds in due course!
As one well respected business personality in Namibia and trustee of a pension fund recently commented – “Namfisa is now mirco-managing the industry”. Is this really the purpose of a regulator, particularly of a regulator who has set itself the goal of moving from rules based to risk based regulatory supervision? What is the purpose of funds incurring costs to engage auditors if Namfisa essentially duplicates the work done by the auditors, again at the cost of the pension fund member?
It is ironic that so much emphasis is placed on costs in our industry yet the regulator keeps piling costs upon pension funds without any reference to whether or not these are justifiable.
The statutory powers Namfisa is relying on to enforce such inspections are section 25 of the Pension Funds Act and section 3 of the Inspection of Financial Institutions Act, 1984.
The ‘powers of inspection’ granted by section 25 of the Pension Funds Act, are in this endeavour derived exclusively from section 3 of the Inspection of Financial Institutions Act, 1984. Section 3 of this Act, essentially grants powers of inspection in case of:
Failure to render a return required by the Pension Funds Act;
Failure to correct an incorrect return required by the Pension Funds Act;
Failure to furnish information required to be furnished in terms of the Pension Funds Act;
Failure to comply with a material provision of the Pension Funds Act;
Contravention of the provisions of the Insurance Act;
Suspicion that a person has an interest in the business of the pension fund;
The auditor or valuator having reported an irregularity or undesirable practice in terms of the Pension Funds Act;
An inspection for the sake of carrying out an inspection without reference to any of the above reasons is ultra vires. Unfortunately the ‘lonely’ fund being confronted with such very short notice is placed in a very difficult position.
Most funds would not be prepared to challenge Namfisa in their own capacity as such effort is typically not viewed favourably by the regulator and for fear of the regulator resorting to vindictiveness.
One of the most important objectives of the Retirement Funds Institute should be to assume responsibility for representing, defending and promoting the interests of its members, by for example, challenging a regulator who operates outside its mandate, so that the ‘personal’ element is removed from the individual fund.
Principal officers in unison should take this matter up with RFIN to define the way forward in this regard, whether or not your fund has already been served with an inspection order.
News from the market
RFIN offering trustee training
RFIN is offering a 2 day basic trustee training course on 6 and 7 May. Follow this link to register for the training. You can download registration forms directly from the site.
(for stakeholders of the retirement funds industry)
Do we need to rethink the concept of retirement
“Technological developments have proven that the impossible is in fact possible and medical advancements have made it possible to push the limits of the imagination. Because of this, we need to challenge our current thought patterns and ask ourselves if our current views are really becoming outdated; particularly when it comes to investment and saving towards retirement… It is expected that children who are born from 2033 could live beyond 400 years old. We have already identified more than 60 genes responsible for our aging, and there is enough evidence to suggest that living for thousands of years is possible… This poses a challenge financially and psychologically, and places a different perspective on how you plan your life. If we believe that retirement is invalid as a concept and that we should retire when we cannot work anymore, perhaps our planning process will change. How much we accumulate and need to accumulate changes and how we invest changes…”
Read this interesting article by Jonathan Faurie in FANews of 10 March 2014 here...
What to do when your retirement planning fails
Most South Africans (and Namibians) are facing retirement without sufficient savings. What can you do if you’re approaching retirement age and you haven’t saved enough?
Cut expenses as much as you can;
Get rid of debt;
Save as much as you can.
Read the full article by Felicity Duncan in Moneyweb of 10 April 2014 here...
Withholding pension fund withdrawal benefit
In this determination, the SA Pension Fund Adjudicator held that, “On a simple reading, the malicious or unlawful act must result in the damage or loss to the employer. In terms of the respondent’s submissions, the loss resulted from an employer - employee contractual agreement, in which the complainant failed to meet the required managerial standards.”
“This Tribunal is not convinced that the legislature intended the provision of the Act to extend to contractual disputes, including those of which the failure is concealed as submitted by the respondents.”
“In the event, it is this Tribunal’s finding that the damage suffered by the second respondent is not a damage as envisaged in section 37D(1)(b)(ii) of the Act and as a result, the first respondent can neither withhold nor deduct the complainant’s withdrawal benefit. Therefore, the complainant is entitled to payment of his withdrawal benefit.”
Read the full article in Insurance Gateway of 10 March 2014 here...
(for investors and business)
Top economists warn Germany that EMU crisis as dangerous as ever
“The Eurozone debt crisis is deepening and threatening to re-erupt on a larger scale when the liquidity cycle turns, a leading panel of economists warned in a clash of view with German officials in Berlin. Debts of above 13% of GDP for Italy and 170% for Greece are a recipe for disaster once we go into the next downturn…”
Read the full article by Ambrose Evans-Pritchard in The Telegraph of 23 April 2014 here...
Tips on creating a positive work environment
A new study reveals that the best workplaces embrace trust-driven employee engagement, making for a great place to work and, ultimately a profitable business. Here are the 5 best ways to make employees love their workplace:
Pay more attention to new employees
Show your employees you care
Invest in training and development
Offer flexible hours and the possibility to work from home
Commit to sustainability and corporate social responsibility
Read the full article by the Editor in Ventures Africa of 23 March 2014, here...
The ‘Warren Buffett indicator’ signals massive collapse
“We have no right to be surprised by a severe and imminent stock market crash,” explains Mark Spitznagel, a hedge fund manager who is notorious for his hugely profitable billion-dollar bet on the 2008 crisis. “In fact, we must absolutely expect it."
Unfortunately Spitznagel isn’t alone.
“We are in a gigantic financial asset bubble,” warns Swiss adviser and fund manager Marc Faber. “It could burst any day.”
Faber doesn’t hesitate to put the blame squarely on President Obama’s big government policies and the Federal Reserve’s risky low-rate policies, which, he says, “penalize the income earners, the savers who save, your parents — why should your parents be forced to speculate in stocks and in real estate and everything under the sun?”
Read the article, here...
""One funny thing about the stock market is that every time one person buys, another sells, and both think they are astute ."" ~ William Feather
Tilman Friedrich is a qualified chartered accountant and a Namibian Certified Financial Planner ® practitioner, specialising in the pensions field. Tilman is co-founder, shareholder and managing director of RFS, retired chairperson, now trustee, of the Benchmark Retirement Fund.