In this newsletter we provide an analysis of the tax implications of SA based employees participating in a Namibian fund, we draw attention to the Statement of Investment Holdings (SIH report) as at 31 March 2014 due to be submitted to Namfisa by 15 August, we provide an analysis of the more comprehensive quarterly ERS report that will replace the SIH report at a later stage, the usual extract of our commentary on investment markets, a few company news items and a unique product feature of the Benchmark Retirement Fund that may appeal to people employed on contract after official retirement.
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 04.2014
In April the average prudential balanced portfolio returned 1.36% (March: 0.86%). In a turn of tables, Sanlam, for once in a long time takes top spot (2.02%), while Namibia Asset Managers (0.73%) has taken up the bottom spot. For the 3 month period Metropolitan is top performer outperforming the 'average' by roughly 1.5%. On the other end of the scale Allan Gray underperformed the 'average' by 0.8%.
Our performance ranking for the 3 months ended 30 April displays a significant change of fortunes of the various managers from just 3 months ago. Under performing managers Metropolitan, Sanlam and Investment Solutions now take top spots while out performing managers Allan Gray and Namibia Asset Management take bottom spots. This begs the question - what has changed in the market?
As we commented in the previous newsletter, the uncertainty in global investment markets as a consequence of the policy of the US Federal Reserve, has subsided and it is now 'back to business' for the global investor community. The result of the turnaround in investor sentiment has evidently also resulted in the turnaround of fortunes of the various portfolio managers as depicted in the 3 month performance ranking graph.
The question now is whether the past 3 months are an indicator of what to expect over the next 12 to 36 months? Will we see the Rand strengthening further and interest rates declining as the result of foreign investment flows, inflation declining and equities continuing to steam ahead?
Read our full commentary, find out how these and other developments impact on our investment views and download Benchtest 03.2014, here...
Fund membership up to 75 with Benchmark
The rules of most retirement funds require their members to retire at age 65 or even earlier. Being required to retire at that age may be a nice thought, but can you really afford to do so at such 'an early age'?
The Benchmark Retirement Fund allows members to retire as late as 75 and it affords the facility to contribute to the fund even after the member has officially retired from the employer's fund and is still employed on a contract basis.
Life expectancy has increased by 20 years over the past 60 years. The assumptions underlying the contribution structures of today's pension funds are generally still based on life expectancies of the 1950's. For every 10 years' longer life expectancy, your pension will decline by roughly 30%. If the assumption then was that you should receive a pension equal to 2% per year of service, this pension will nowadays only be just over 1% per year of service.
Employers and employees alike would be foolish not to use the expertise built up over the working life of persons for their own benefit and the benefit of their organisation. This is particularly relevant in a country where skills are scarce, such as Namibia.
For more information contact Ms Bianca Busch or Mrs Annemarie Nel at 061-231590.
Implications of SA staff participating in a Namibian fund
Namibian employers often overlook the implications of starting up a branch or a subsidiary in SA as far as pension fund membership of the SA staff is concerned. Generally it is not a good idea to have SA employees be members of the Namibian fund, primarily because these employees could be subject to both SA and Namibian income tax on any benefit payable.
In as much as the Namibian Pension Funds Act prohibits any person to undertake pension fund business in Namibia that is not registered in terms of the Pension Funds Act, the same principles apply in SA and employers who allow their SA employees to participate in their Namibian fund without registering the Namibian fund in SA as a foreign fund are contravening the SA Pension Funds Act and expose themselves to statutory sanctions.
Members of a Namibian pension fund who are employed by an SA entity would not be allowed to deduct their contributions to a Namibian fund. Of course, SA revenue authorities may not always realize that these contributions were made to a Namibian fund and may have erroneously allowed these to be deducted. SARS may at any time it becomes aware of this error re-open previous tax assessments, disallow such contributions with arrears effect and may go as far as adding penalties and interest.
Where any benefit becomes payable to any of the SA members, it would be taxable both in SA and in Namibia in the first instance.
The Double Taxation Agreement between SA and Namibia would avoid double taxation only in respect of a pension payable and/or the one-third pension commutation. SA legislation provides for a deduction from a taxable benefit, any contributions made that were not tax deductible, or were never deducted for tax purposes in SA. This allowance would not apply to these members where the contributions were indeed deducted for tax purposes in SA. The Namibian Income Tax Act does not have a similar provision as the result of which any taxable benefit would be fully taxed in Namibia, whether or not the member concerned ever deducted any contributions to the fund for Namibian tax purposes.
If the fund credit of the SA members were to be transferred from the Namibian Fund to any other fund approved for tax purposes in Namibia at the instance of the member, such transfer would not be taxed in Namibia based on the concession granted in terms of section 16(1)(z) of the Namibian act. Such transfer, however, would in the first instance be taxable in SA, as a benefit has accrued to the member and as SA taxpayers are taxed on the basis of residence rather than source, as is the case in Namibia.
The fund credit of the member could also be transferred to an SA pension fund approved for tax purposes in SA, or to another person such as an SA insurance company, at the instance of the Namibian fund, by means of a 'section 14 transfer'.
In terms of the general principles of the Namibian Income Tax Act, such transfer should not be taxable in Namibia in the hands of the member as no benefit has accrued to the member. By the same principles, the Namibian tax authority could argue that an income accrues to the SA person from a Namibian source and that the amount is subject to income tax in Namibia. In the instances where such transfers have been affected by us in the past, however, Inland Revenue has never issued a directive to deduct tax. Where neither the members concerned nor their employer ever had the benefit of deducting their contributions for income tax purposes in Namibia, our tax authority should also find it difficult to argue that the amount to be transferred should be taxed in Namibia.
Where an employer intends to transfer the SA members of the Namibian fund to SA, the employer and the members concerned need to settle the arrangement concerning the disposal of the members' fund credit in the Namibian fund either, by transfer to an insurance policy in SA, or by transfer to an approved pension fund in SA, or by payment in the form of a cash benefit subject to income tax in Namibia. If the benefit is N$ 40,000 or less the provisional tax rate will be 18% and will be applied by the administrator without being required to obtain a tax directive.
If the benefit is larger than N$ 40,000, Inland Revenue should theoretically also issue a tax directive applying a provisional rate of 18%, since these members were never registered for tax purposes in Namibia. To avoid unnecessary delays in obtaining a tax directive in Namibia, the employer should issue a letter to Inland Revenue confirming that these members were never registered for tax purposes in Namibia as these members never earned any taxable income in Namibia. This letter should then be submitted together with the request for a tax directive to Inland Revenue. The benefit should be reflected by these members on their SA tax returns and will then be subject to SA income tax as well, to the extent that they are not covered by the Double Taxation Agreement between SA and Namibia.
RFS sponsors SKW Youth Soccer Tournament
The SKW sports club in Olympia hosted more than 1,000 young players from Namibia's next soccer generations at its annual SKW/RFS Youth Soccer Tournament, in the age groups under 7 to under 17, in the middle of April in over 200 team encounters.
Director Günter Pfeifer represented RFS who sponsored this tournament for the 6th consecutive year.
As the photos show, our young talent evidently enjoyed this tournament and we are proud of the trophies and medals won.
Compliment from a principal officer of a large fund dated 26 February 2014
“As my term as Principal Officer has come to an end, I would like to extend my sincere thanks to the whole team of RFS for their friendly and professional service. A special, big thank you to the portfolio managers, R... and I... who served me with excellence and dedication each day when I needed them. It was a great pleasure to work with RFS - from the receptionist right up to the management. All the best for the future and keep this reputation as you are the best service provider I have worked with.”
Read more comments from our clients, here...
RFS staff movements
We are pleased to announce the permanent employment of Sean Claasen. Sean joined us in November 2013 from Old Mutual where he was employed for the past year and a half as an accountant on the Protector fund as well as on some private fund funds. Prior to joining Old Mutual, Sean was employed at Alexander Forbes in various fund accounting capacities from 2006 till 2012. He is assigned to our private fund accounting team where he is responsible for a portfolio of private funds. He started his career at Ernst & Young in 2004 as a trainee accountant. We would like to extend a hearty welcome to Sean and hope to have him playing a key role in our client serving endeavours for many years to come!
News from Namfisa
Statement on investment holdings report - due 15 August
The information required is largely held by funds' asset managers and should therefore be submitted by the asset managers in the prescribed format. Following are urgent action items for Principal Officers:
Principal Officers are urged to liaise with their service providers as soon as possible should they require assistance to compile consolidated reports from the returns submitted by each of the fund's asset managers.
For the purpose of compiling the report we urge Principal Officers to arrange with their asset managers as soon as possible to submit a report in the prescribed format as soon as possible.
Funds' investment consultants need to advise their clients should any fund have any direct holding in any assets required to be reported on per Sheet QFR3 'Other Assets' and Principal Officers are urged to obtain confirmation from the fund's consultant in this respect.
Principal Officers' attention is drawn to the content of the covering letter 'Request for SIH Return 16 May 2014', in particular the arrangement for requesting extension (not less than 30 days prior to the due date), the penalty for failure to submit in time and the penalty for failure to comply with regulation 28(5).
Unlisted investments and quarterly reporting (regulations 28 and 29) - due from a date still to be announced
1. Unlisted Investments
On behalf of all our clients we have made enquiry with all asset managers, whether they foresee any obstacles in complying with the requirement to have invested a minimum of 1.75% of their client portfolios in unlisted investments by 31 December 2014. We have not received any concrete responses to this question yet. It seems. However, that Namfisa has not approved any Special Purpose Vehicle and its Unlisted Investment Manager yet. Asset managers are therefore not able to confirm whether they will be able to comply with the requirement to invest a minimum of 1.75% of fund investments by 31 December 2014, but consensus view is that it is unlikely they will be able to meet this due date in view of the fact that no SPV or its unlisted investment manager have been approved yet by Namfisa.
Principal Officers are advised to also make enquiry with your asset manager directly or via their consultant.
2. Quarterly reporting
The latest draft version of the quarterly reporting template was circulated to the industry during March.
2.1 Investment information
Sheets QFR1 (including schedule 1), QFR3 and AFR2
Third party asset managers are the custodians of the information required to be reported per these sheets. They are thus in the best position to provide this information to Namfisa on behalf of funds, provided the fund affords access to its asset managers as 'submitters' on the ERS system and makes such an arrangement with its managers.
On behalf of our clients we have made enquiry with all asset managers whether they foresee any obstacles in reporting directly to Namfisa should their pension fund clients prefer them to do so. We have not received any concrete responses to this question yet although one manager indicated it would prefer to provide a data dump to their clients for the client to submit the data.
We suggest that Principal Officers take this matter up with their asset managers to agree on who is to submit the data and on the format the information is to be submitted if funds prefer the information to be provided to the Principal Officer.
This information is retained in the fund's general ledger and the administrator is in the best position to provide this information.
This information needs to be submitted by the Principal Officer.
Principal Officers are advised to gear up to provide this information.
2.2 Administrative information
Sheet QFR4, QFR6 (para 6 to 8),
This information needs to be submitted by the Principal Officer.
Principal Officers are advised to gear up to provide this information.
Sheet QFR5 (including schedule 2), QFR6 (para 1 to 5), QFR7, QFR8, QFR9, QFR10, and QFR11
The administrator is the custodian of much of the information in these sheets. Some information will have to be sourced from other parties through the Principal Officer, such as banks that provide indirect loans and the actuary in respect of the basis of valuation.
Principal Officers are advised to take up this reporting with the administrator of their fund to ensure that the administrator will be able to provide the information, to establish the time the administrator will require to gear up for this task, and to negotiate with Namfisa to provide sufficient time for the fund to provide this information.
3. RFS status of preparation
RFS is liaising with its software vendors to provide reporting as required in respect of the information that is in its custody. Since Namfisa has still not provided a final version of its reporting requirements RFS' programmers are unable to commence programming. It goes without saying that they will require a reasonable notice period from receiving the final version of the reporting requirements to finalising the required programming.
We will keep clients informed of further developments and timelines once Namfisa has provided the final version of its reporting requirements.
We suggest that Principal Officers liaise with Namfisa regarding the issuing of the final version of its reporting requirements and regarding a reasonable timeline for their system programmers to do the necessary programming. This is suggested to be not less than 6 months.
(for stakeholders of the retirement funds industry)
Sanlam pushes to extend retirement age
"Measures such as extending retirement age or limiting incentives to retire early should be urgently considered as longevity is the key risk affecting the financial security of retirees, a Sanlam survey has found.
Experts said on Tuesday at a media briefing ahead of the launch of the Sanlam benchmark survey on May 29 that a delay in retirement of six years could double retirement pots in South Africa. A 10-year delay could triple the amount. The experts said life expectancy globally is up 20 years since 1950!"
Read the article by Evan Pickworth in Business Day of 14 March 2014 here...
Pension fund board slammed by PFA for acting on unapproved rules
"The board of a pension fund has been slammed by the Pension Funds Adjudicator for ignoring registered rules when computing a withdrawal benefit. Ms Muvhango Lukhaimane condemned the conduct of the board of the Municipal Employees Pension Fund which paid a withdrawal benefit as per an amended rule that had been submitted to the Registrar of Pension Funds for approval instead of abiding by an existing approved rule. TS Raboshakga of Pretoria complained that he was paid the amount of his contributions plus interest in respect of his pensionable salary multiplied by 1.5 - instead of it being multiplied by three."
Read the full article by in FANews of 9 April 2014 here... (linked to website)
Fraudsters out to steal your retirement benefits
Two cases of fraud are reported in this article. In the first case a person claimed to be the daughter of a deceased fund member, claimed to live with the deceased and produced a death certificate. After the fund interviewed the daughter the benefit was paid to her. Subsequently another person with the same name but a different ID number claimed to be the son of the deceased member and laid claim on the benefit. The adjudicator carried out an investigation and found that the benefit should have been paid to the son of the deceased and ordered the fund to pay the benefit a second time because the fund had paid the wrong person.
In the second case, the administrator was provided with an exit form reflecting ID number and bank account number of an exited member, but the member had not signed the form. The fund then received a facsimile copy of an exit form identical to the previous unsigned form, this time signed and reflecting instructions to pay into a different bank account, and a copy of an ID document with the same number as that reflected on the original exit form from the employer. Also attached was a bank account verification letter from the bank. The administrator consequently paid the benefit into that account. The fraudster apparently used a fraudulent ID document to open the 'new' bank account. The adjudicator found that the fund and the administrator cannot be held liable where, first, it has not been proven that the account into which the benefit was paid is fraudulent and, second, that they were acting in good faith and with diligence as expected of them.
Read the full article by Bruce Cameron in Personal Finance of March 2014 here...
(for investors and business)
Fraud and corruption - back to basics
Fraud and corruption is the silent killer, like cholesterol in the bloodstream. Entities tend to only take notice of fraud and corruption when it surfaces. Most entities still adopt a reactive approach to dealing with risks associated with fraud, corruption and other economic crimes proactively.
Here are a few steps to address this evil:
The tone at the top - management behaviour shapes an organisation;
Have appropriate and effective anti-fraud and corruption policies and procedures in place to mitigate the risk;
Communicate the entity's stance towards fraud and corruption clearly;
Have anti-fraud and corruption awareness training;
Monitor anti-fraud and corruption programmes;
Have a whistle blower mechanism in place
Read this short article by Keeran Modhav, director forensics at Mazars in Accountancy SA, April 2014 here...
Transformations of leadership
"Over the past 25 years, we and other researchers have administered the sentence-completion survey on thousands of managers and professionals between the ages of 25 and 55, at hundreds of American and European companies in diverse industries. What we found is that the levels of corporate and individual performance vary according to action logic. Notably we found that the three types of leaders associated with below-average corporate performance (Opportunists, Diplomats and Experts) accounted for 55% of our sample. They are significantly less effective at implementing organisational strategies than the 30% of the sample who measured as Achievers, only the final 15% of managers in the sample (Individualists, Strategists and Alchemists) showed the consistent capacity to innovate and to successfully transform their organisations."
Read the full article on influence leadership in Accountancy SA of April 2014, here...
Understanding personal risk and unit trust risk
In this first in a series of advice columns from senior financial planners and wealth managers, Alan Wellburn of Citadel Wealth Management tackles two important questions on how individuals understand risk -
What is 'personal risk profile' and how do I know what mine is?
Unit trusts show some indication of how risky they are - usually something like aggressive being high risk and cautious being minimum risk. What does this mean and how do they calculate this?
Read the article by Patrick Cairns in Moneyweb of 25 April 2014 here...
"The way you see people is the way you treat them and the way you treat them is the way they become." ~ Johan Wolfgang von Goethe
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.