Dear reader

In this newsletter we comment on Inland Revenue practice to have pension fund administrators reduce pension fund benefits in contravention of the Pension Funds Act; a short note that the increase in the repo rate will raise the housing loan interest rate; we reflect on some key findings about the pension fund industry in SA as revealed by Sanlam’s 2014 benchmark survey; Namfisa reporting on investments now needs to be set up; we provide  the usual extract of our commentary on investment markets and links to a few interesting articles that appeared in various media.

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!

Regards

Tilman Friedrich

Tilman Friedrich's Industry Forum

Benchtest Monthly 05.2014

In May the average prudential balanced portfolio returned 1.52% (April: 1.36%). Top performer is Namibia Asset Managers (2.74%); Investment Solutions (0.75%) takes the bottom spot. For the 3 month period Investment Solutions is top performer outperforming the ‘average’ by roughly 0.6%. On the other end of the scale Investec underperformed the ‘average’ by 1.2%.

At this stage local and offshore equity may be expected to remain the best performing asset class for the next 12 months as the result of monetary stimulus measures being maintained globally, despite the fact that markets are already expensive. There is a chance of interest rates being raised in the US later this year although the US government will not really be able to shoulder anything but a minute increase in interest rates due to its high indebtedness, unless this was accompanied by increasing inflation. 

Local interest rates may well be increased again soon by the SA Reserve Bank particularly in view of the down grading of SA’s credit rating by Standard & Poors to BBB-, one level above junk, while Fitch lowered the outlook on its BBB grading from stable to negative. This will impact negatively on returns on interest bearing investments and on property but will lend support to the Rand. It is therefore likely that the Rand will maintain its current position and may be expected to move sideways for the next 12 months.

Read our full commentary, find out how these and other developments impact on our investment views and download Benchtest 05.2014, here...

Recovery of tax debt from pension benefit

As administrator of pension funds, we are obliged to obtain tax directives in respect of benefits due to be paid to former members and beneficiaries under certain circumstances. In response to the administrator’s request for a tax directive, issues a ‘Notice to Agent’ to us, Inland Revenue regularly issues a ‘Notice to Agent’ requiring the administrator to recover tax arrears that are totally unrelated to the tax payer’s pension fund benefit.

We believe the attempt by Inland Revenue to recover tax debt by way of section 91 of the Income Tax (‘Notice to Agent’) is ultra vires the powers of Inland Revenue. Instead Inland Revenue should apply section 83(1)(b) to recover any tax debt, effectively by way of a civil judgement. Obliging the administrator to deduct income tax debt from a members benefit contravenes the principle of administrative justice.

Section 37A of the Pension Funds Act prohibits the reduction, transfer, cession, pledging, hypothecation, attachment, execution under a judgement or order of a court of law, of any benefit, “Save to the extent permitted by…the Income Tax Act...”

It is our opinion that a tax debt is to be dealt with by Inland Revenue in accordance with section 83(1)(b), i.e. effectively by way of civil judgement, as directed in this section. It cannot be recovered in accordance with section 91 of the Income Tax Act. Consequently, the debt is not recoverable from the member’s benefit in terms of section 37A of the Pension Funds Act, as the section specifically prohibits the reduction of a benefit by means of execution under a judgement or order of a court of law. The proviso in this section then clearly refers to PAYE applicable to the benefit, as an amount due under a civil judgement, and it is thus no longer an amount “…permitted by… the Income Tax Act…” as contemplated by Section 37 A of the Pension Funds Act.

We have taken this rather complex topic up with Namfisa with SA FSB and with a local tax consultant. We have not received any conclusive and clear response to this. We have taken this matter up with Inland Revenue, suggesting that it is in the wrong applying section 91 to recover tax arrears but have not had any response to date.

Beneficiaries aggrieved by such an instruction to the administrator by Inland Revenue should consider putting Inland Revenue to the test on this.

Sanlam benchmark survey 2014

Sanlam recently published the results of its annual survey. 100 principal officers of stand-alone retirement funds were interviewed for this purpose. Here are some of the more interesting findings of this survey in respect of stand-alone funds:

• SA treasury proposed that funds put default annuities in place for fund members. 90% of trustees are in favour of default annuities being offered by their fund.
• The average employer contribution rate (non-unionised funds) for medium sized funds (501 – 5000 members) is 10.27% (9.7% is allocated towards retirement and 3.6% towards costs);
• The average member contribution rate (non-unionised funds) for medium sized funds (501 – 5000 members) is 6.52%;
• The average cost structure is as follows –
  • Death benefits cost 1.6%, cover is 3.4 times annual salary, less than 20% of funds offer dependants’ pensions, only 16% offer flexible risk benefits;
  • Disability benefits cost 1%, cover is 2.4 times annual salary but mostly in the form of an income benefit;
  • Administration and operating costs are 1% (63% of funds allow for additional billing).
  • More funds apply a fixed cost per member to recoup admin fees, the cost of member choice on average is R 2.75 per member per month;
• Normal retirement age is 62;
• Targeted net replacement ratio is typically set at 70% of pre-retirement income.
• More funds have implemented default investment strategies, 44% of these have a life stage strategy, the less volatile phase starting between 5 and 6 years before retirement (this has decreased from 6.1 years);
• Average age of starting to work is 22, yet contributions only start at 26;
• 50% of funds have a formalised strategy for rendering financial advice;
• 54% of funds are considering to transfer to an umbrella fund;
• One in 5 pensioners supplements his retirement income with part-time work, mostly out of necessity;
• 38% of pensioners deplete their retirement lump sum early on in retirement, on average within 2.4 years after retirement.

Bank of Namibia raises housing loan interest rate

The Bank of Namibia issued a press release on 18 June advising that the repo rate is raised with immediate effect from 5.5% to 5.75%.

The interest rate on direct housing loans granted by funds to its members will thus increase from 9.5% to 9.75%.

RFS team building

RFS believes that the motivation of its staff is one of the key reasons for its success, not just the individuals, but also team morale. With this in mind the company held team building exercises to build morale and to have a bit of fun.


Pictured above, one of the teams toys with the idea of ballooning wealth.


Pictured above, one of the teams learns how coordinated a hands-on approach has to be.


Pictured above, Marthinuz Fabianus demonstrates how much client support is appropriate.

RFS staff movements

We regret to announce those of our clients who have been dealing with Elbie Taljaard and who know her personally, that Elbie has left us. Elbie has been with us for close on 14 years and it is sad to have to bid her farewell. We wish her well in her future endeavours.

Losing long serving staff is something we try to avoid at all cost but it is unfortunately not always possible. The fact that 3 of our former staff were subsequently re-engaged shows that the grass is often not in fact greener on the other side of our fence.

At the same time we are pleased to advise that Esmé Mouton will re-join us on 1 July. Esmé has previously been with us for 8 years. She left our service at the end of last year to realise her long harboured dream of teaching but found her dreams not to come true.

We also welcome Milton Mentile who joined us form Alexander Forbes and Sharita Visser who joined us from Prosperity Insurance. Both joined us in January of this year. Sharita serves as an accountant in the Benchmark division while Milton has assumed responsibility for a portfolio of private funds. We hope that both will be around for many years, will enjoy every day at the office and will extend service excellence to their clients!

News from Namfisa

Statement of Investment Holdings

On behalf of our clients we have written to all institutions managing assets on behalf of our clients. We requested these institutions to advise us by not later than 13 June should any of these institutions foresee any difficulty to provide the information required by the Statement of Investment Holdings in exactly the format set out in the template. We have not received any response and therefore presume that managers will be able to provide the information in the required format. This should enable us to compile the consolidated report from the reports provided by funds’ individual managers if we are requested to do so by any client.

We have also suggested to our clients to obtain written commitment from their asset managers to provide the information as required. It is to be noted that policies of insurance issued to a fund by a long-term insurer, are deemed not to be assets of the fund and need not be reported on. It is also to be noted that any transgression of the investment limits set out in regulation 28 are liable to be penalised at a rate of N$ 1,000 per day of transgressing. Principal Officers are advised to draw their investment managers’ attention to their obligation to observe the limits set out in regulation 28.

Clients and asset managers are reminded that the first report for the quarter ended 31 March 2014 is due by 15 August 2014 and that we require the investment managers’ reports by not later than 25 July 2014, where we are required to compile the consolidated report.

Media snippets
(for stakeholders of the retirement funds industry)

Retirement funds strategic matters and remuneration survey

PWC recently published its latest survey. “This report offers a benchmark against which trustees can compare various aspects of their fund’s governance and strategies with those of their peers. It presents the views of 183 participants representing a total asset base of R592 billion across a range of funds of diverse types and sizes.

Areas covered in the report:

• Trustees: remuneration, qualifications and on-going training
• Principal officers: remuneration, qualifications and on-going training
• Factors driving remuneration levels
• Regulatory matters and retirement reform

Download the survey here...

PFA says onus is on employee to check loan deductions made

“In her determination, Ms Lukhaimane [SA Pension Fund adjudicator] said by accepting the housing loan, the complainant accepted that the primary responsibility to repay the loan was his. It was the complainant’s responsibility to check his salary slips and ensure that amounts were being deducted. Thus the respondent could not be faulted for the employer’s failure to effect the said deductions.

She said the first and second respondents could not be ordered to write off the arrear interest levied on the outstanding amount, nor could they be ordered to write off the outstanding housing loan. In order for the complainant’s claim to succeed, it must be proved that the respondents committed an intentional or negligent act or omission. The employer was responsible to deduct this amount from the complainant’s salary. Thus, the respondents had not committed any act or omission as a result of which the complainant suffered loss.

In dismissing the complaint, Ms Lukhaimane said the complainant received monthly salary advices from the employer, which would have reflected whether or not any housing loan repayments were made. The complainant failed to prove he had suffered any loss.”

Read the full article in Insurance Gateway, here...

Media snippets
(for investors and business)

Six signs your boss is a coward

• He has others fire his direct reports.
• She will make a decision in private, then fail to protect her people in public if it does not work.
• He tells each person in private what the person “wants to hear,” which means he’s delivering different messages to each.
• She will not have face-to-face meetings to resolve conflicts.
• He slips in a negative comment about one of your colleagues in every conversation.
• She really never says anything personal about herself.

Read this short article by Rob Wyse, Managing director, New York at Capital Content, in Linkedin of 6 June 2014, here...

Fitch and S&P’s credit rating downgrades of SA

S&P cuts SA’s credit rating to BBB- and Fitch downgraded the outlook from stable to negative.

This is not good news for SA and will no doubt affect the exchange rate and consequently too, the interest rate outlook.

Read the full article by Renee Vollgraaff, Bloomberg, in Moneyweb of 13 June 2014, here...

Inflation to rise, growth to slow – Sarb

“This necessitates higher interest rates”

Here are some of the key observations in this article:

• Inflation breached the SARB’s 3% - 6% target range in April, reaching 6.1%. It is expected to remain outside the target range until the second quarter of 2015, with risks tilted towards higher inflation.
• Two major domestic risks highlighted by the MPC are an unreliable electricity supply and labour relations, which undermine investor confidence and drive unemployment, an economic indicator that rose to 25% in the first quarter of 2014.
• Internationally, the South African economy remains vulnerable to changing global expectations of US monetary policy and investors’ appetite for risk.
• In addition to global monetary policy and risk appetite, softening commodity prices (caused by slowing Chinese growth) and a large current account deficit drive rand depreciation further.

Read the full article by Hanna Barry in Moneyweb of 4 June 2014, here...

Financial advice every married couple should read

“We recently got married, and although we signed an ante-nuptial contract we never really discussed finances. I presumed it was something we would agree on as we went along. But already it is the thing we argue about the most.”

Read some good advice in this article by Patrick Cairns in Moneyweb of 11 June 2014 here...

The top 5 investment mistakes millionaires make

“It’s a funny thing to think about, but millionaires are human beings, and like any human beings, they make mistakes. And, like us ordinary mortals, their mistakes are not limited to failing to get a pre-nup signed before walking down the aisle; they make investment mistakes too, just like we do.”

Here are the top 5 mistakes, ranked:

1. Failing to adequately diversify;
2. Investing without a plan;
3. Making emotional decisions;
4. Failing to regularly review your portfolio;
5. Focusing too much on the history of an investment’s return.

Read the full article by Felicity Duncan in Moneyweb of 17 June 2014 here...

The top 100 scarce skills in SA

A list containing the top 100 occupations in South Africa that are in short supply has been released for comment by the SA Department of Higher Education and Training. This list, which will be updated every two years, will be used to inform South Africa’s human resource planning and funding allocation, programme development, and immigration strategies. This list should no doubt be of interest to parents and school leavers in Namibia too as a guide to choice of career.

The provision of education and training in South Africa has not been aligned with the needs of the economy and that of society. South Africa’s growing skills crisis has been highlighted in many publications and this has been identified as an impediment to growth and development, as well as service delivery.

The purpose of the top 100 list is to inform:

• human resource planning and development;
• resource allocation and prioritisation;
• the development of relevant qualifications, programmes and curricula; and
• international recruitment strategies.

Top 10 scarce skills list in South Africa

• Electrical Engineer
• Civil Engineer
• Mechanical Engineer
• Quantity Surveyor
• Programme or Project Manager
• Finance Manager
• Physical and Engineering Science Technicians
• Industrial and Production Engineers
• Electrician
• Chemical Engineer

Read the full list in the Government Gazette on the SA Department of Home Affairs website, here...

And finally...

""Money has never made man happy, nor will it, there is nothing in its nature to produce happiness. The more of it one has the more one wants." ~ Benjamin Franklin

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.