In this newsletter we comment on the global investment markets, look at pension fund death benefits and beneficiary trusts, disposition of trust capital upon death of the beneficiary, provide more news from Namfisa, give a technical analysis of the draft FIM Bill regulations and provide a number of links to interesting and relevant articles in various news media.
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Tilman Friedrich's Industry Forum
Benchtest Monthly 02.2015
In February the average prudential balanced portfolio returned 2.56% (Jan: 1.69%). Top performer is Stanlib (3.59%); while EMH Prescient (1.22%) takes the bottom spot. For the 3 month period Investec takes top spot, for the fourth consecutive month, outperforming the ‘average’ by roughly 2.1%. On the other end of the scale Allan Gray underperformed the ‘average’, for the fourth consecutive month, by 1.8%.
I have started to read the book ‘Currency Wars’ by James Rickards. I did not get very far yet but the message is clear and frightening for me as an investor. It makes one realize how vulnerable the investor is, not to the market forces but really to the goings on behind the scenes – or is this just being naïve to believe that there is anything else but economic interests and power play using the political system to advance these interests. Hasn’t this been with human beings ever since they have been around on this globe? Currency wars are part of economic warfare, which in turn is part of asymmetric warfare where all warfare is aimed at control of resources.
The relevance to me as an investor is that I should understand what the strategies of the warring parties are to know how this will impact on investment markets and on my investment decisions, besides also taking cognisance of the impact of domestic, and more particularly the US domestic, economic necessities on these markets.
Of course us mortals will never be in the position of understanding and knowing. We can speculate and hope that we are right and have consequently taken the right decisions regarding the investment of our hard earned savings.
Read our full commentary in part 6 of the Benchtest 01.2015 newsletter, find out how these and other developments impact on our investment views and download Benchtest 02.2015, here...
Can you request that your death benefit be paid into your testamentary trust?
An article that appeared in ‘Pensions World’ magazine of September 2010, deals with payment of a lump sum death benefit by a fund to a testamentary trust. Where member directs payment of death lump sum to his/her testamentary trust, the trust deed must provide for the following:
It must make provision to receive money from a retirement fund.
It must provide for fund benefits to be dealt with by the trustees of the trust, in the manner directed by the fund.
Capital must be ring-fenced, capital and income must vest in the designated beneficiary and may not be redistributed.
Disposition of capital of deceased beneficiary in beneficiary trust
When disposing of the death benefit of a deceased fund member, trustees commonly direct that the capital allocated to minor beneficiaries be paid into a trust for the benefit of the minor beneficiary until the beneficiary reaches majority. Section 37C of the Pension Funds Act defines the trustees’ obligation with regard to the disposition of a death benefit. It is clear from this section that the trustees are obliged to apply their discretion in allocating capital to a beneficiary[ies] who has[ve] to be [a] natural person[s].
However under certain circumstances, a benefit can be paid to a trust. As explained in the preceding article ‘Can you request that your death benefit be paid into your testamentary trust?’ the trust deed must comply with 3 key conditions as set out. One of these conditions is that the capital must be ring-fenced and that capital and income must vest in the beneficiary and may not be redistributed. It follows that in the event of the death of the minor beneficiary prior to the ‘expiry date’ of his/her trust, any remaining capital, including interest must be paid to the deceased beneficiary’s estate.
If a retirement fund’s dependants trust deed does not make it categorically clear that a beneficiary’s benefit from the fund vests in the beneficiary for his or her sole and exclusive benefit, the trustees of the fund are well advised to ascertain that the trust deed is amended accordingly.
Thinking of moving assets between managers?
Much can go wrong at the expense of your fund when moving assets between managers, of which you may never be aware. If you do contemplate shifting assets, consider engaging specialist ‘transition management’. What is ‘transition management’ you may ask? Well it is a specialist service offered to funds that want to transfers asset from a manager/s to an/other manager/s.
Whenever your fund contemplates a significant restructuring of its investments, our best advice is to consider employing a transition manager. The minimum transaction such specialists would typically consider is a transfer of N$ 50 million plus. Their fees for such a service typically comes out of them earning brokerage on any buy and sell deals that will need to be made in the process. Effectively it would not cost the your fund anything extra. The process provides full transparency to you and the means to measure the efficiency of its execution.
The Benchmark Pension Fund Calculator
Forewarned is forearmed. If you want to assess what your retirement provision will mean to you in terms of prospective future income, download the Benchmark pension fund calculator, here...
Social responsibility in and for our communities
RFS sponsors Namcol achievers
RFS extended its sponsorship of Namcol achievers into 2015, with prize money totalling N$ 12,000. We would like to extend our sincere congratulations to Ashley van Wyk (best PETE student Yetu Yama) and Frieda Luaanda (best PETE Ongwediva), Kashala Samati (best PETE Otjiwarongo), Fredeick Basco (best PETE Rundu) and Gabriel Celestino (best PETE overall)– well done! With this level of dedication and commitment extended into their future career, these students no doubt will make great strides on their road to the top! Our congratulations of course also extend to Namcol as an organisation, and to its lecturers, for their laudable contribution towards education in Namibia!
Above, Rauha Shivute presents an award to best overall achiever Gabriel Celestino.
Above, Rauha Shivute presents awards to best achievers to Frieda Luaanda (best PETE Ongwediva), Fredeick Basco (best PETE Rundu) and Ashley van Wyk (best PETE student Yetu Yama).
RFS sponsors first ever indoor hockey schools league
Retirement Fund Solutions proudly sponsored Namibia’s first ever indoor hockey schools league from 13 to 15 March at Independence Hall, Windhoek Show Grounds. This was the project of Louis Theron, Director Support Services of RFS.
Compliment from a Principal Officer , January 2015
Your above letter: What a breath of fresh air of honesty in the current tornado of fraud / bribery / corruption on a daily basis. Indeed gives one much needed hope that small pockets of integrity still exist in our Country.”
Read more comments from our clients, here...
RFS staff movements
We would like to extend a hearty welcome to Nicolo Benade and Jo-Ann Klazen.
Nicolo joined us in July 2014 as Portfolio Manager from Old Mutual where he last serves as Remuneration and Benefits Consultant in the HR department. Nicolo requires one more subject for a National Certificate in Accounting and Finance from Polytechnic of Namibia and has also completed the Management Development Programme of USB. He is responsible for the management of a portfolio of prestigious pension funds.
Jo-Ann joined us from Liberty Life in September 2014. Jo-Ann started her working career in 2002 as a cashier at different retail stores to venture into financial services when she joined Liberty Life as an Administrative Assistant. During her 10 years of service with Liberty Life she served in various positions, last of which that of Group Assurance Consultant. Jo-Ann joined our Benchmark division as an Administrator where she has already made her mark as a valued member of the team and with her clients.
News from Namfisa
Namfisa meeting, 16 March 2015
Namfisa conducted an industry meeting on 16 March. Download the presentation given at the meeting, here...
Statement of investment holdings - Q1 2015
As things stand the SIH report as at 31 March is due by 30 April. We believe that this tight due date places undue pressure on those involved in compiling and submitting the report. There are typically at least 3 parties involved and the work required to be done cannot be executed simultaneously but rather one after the other.
From Namfisa’s perspective the consequences of placing such tight due dates on funds and their service providers may not be apparent. Namfisa may believe that the industry has shown it is capable of observing such due dates and may thus not be sympathetic. Fact of the matter however is that trustees’ governance and management priorities now have to be sub-ordinated to these statutory reporting dates.
We suggest that funds nevertheless apply for the due date to be extended to 60 days from quarter end.
Unlisted investments – February update
In a recent official communication Namfisa confirmed that the following SPV/UIM’s have been registered:
Tukuneni Capital Fund/ Omaanda Capital (Pty) Ltd
Stimulus Private Equity Fund/ Stimulus Investments Ltd
VPB Growth Fund Trust/ VPB Namibia (Pty) Ltd
Only the Tukuneni Capital Fund will be actively seeking investment capital while, we believe, Stimulus will not be raising investment funds at this stage.
In addition BFS NamPro Fund Manager (Pty) Ltd was approved as unlisted investment manager.
Since there are only 3 months left to the extended due date for compliance of 30 June 2015, we suggest that funds should now apply for extension of 6 months from the date on which at least 3 or 4 ‘accessible’ SPV’s and their UIM have been registered.
Namfisa issues new forms
Namfisa recently issued the following new forms that are to be used with effect from 13 February 2015:
Click on each of the links to download the forms.
Draft Industry Regulations
Namfisa recently circulated further draft industry regulations under the FIM Act for comment. The standards relevant to pension funds can be downloaded here...
Note: pension funds are ‘financial institutions’ as contemplated by the FIM Act and all reference below to ‘financial institutions’ should be read to be relevant to pension funds, their trustees and their service providers.
RF.S 5.8 Early withdrawal from a retirement fund
For members of funds this standard should be of particular interest as it proposes compulsory preservation of 75% of the member’s retirement capital, something the SA regulator has been trying to enforce for many years, without success so far. This standard also sets awfully complex conditions for funds to be allowed to ‘house’ preservation capital and, in respect of funds that prefer not to house preserved retirement capital, for their rules to direct that preserved retirement capital is to be moved to another qualifying fund.
RF.S 5.10 Exemption from actuarial valuation
A link to the following specific and general standards and regulations relevant to the retirement funds industry was provided in the Benchtest Newsletter of 12.2014. It may be of interest that regulations are issue by the Minister of Finance while standards are issued by Namfisa.
Draft Regulations RF.R
RF.R 5.1 Funds and classes of funds in the definition of ‘funds’
RF.R 5.4 Funds that may be exempted from requirement to have active members and pensioners elect trustees
Draft Standards RF.S
RF.S 5.1 Calculation of ‘actuarial surplus’
RF.S 5.3 Payment of contributions - minimum information
RF.S 5.4 Rules requirements
Detailed exposition of what fund rules should contain. Funds may wish to ascertain that future rule amendments or revisions comply with the anticipated new requirements. Funds will have 6 months after the promulgation of the Act and the issuing of the standard to comply.
RF.S 5.6 Termination & dissolution requirements
Detailed exposition of requirements and onerous conditions before a fund, or its participation in an umbrella fund, can be terminated.
RF.S 5.9 Beneficiary nomination form
Prescribed forms funds will have to use and description of processes funds will have to employ to obtain beneficiary nomination forms from its members annually.
Draft General Standards GEN.S
GEN.S 9.2 Fit & proper
Detailed exposition of ‘fit and proper’ requirements based on education and experience; competence and capability; honesty integrity fairness and ethical behaviour; and financial soundness with regard to all persons and institutions required to register under the FIM Act
GEN.S 9.8 Independence
Detailed exposition of requirements regarding the independence of individuals who are required to be independent in terms of the FIM act.
GEN.S 9.9 Code of conduct
Every financial institution and financial intermediary must have a code of conduct in place.
GEN.S 9.10 Outsourcing
Detailed exposition of requirements relating to a financial institution or financial intermediary outsourcing of a ‘material business activity’ and prohibits the outsourcing of any ‘primary function’ for which the entity has been registered by Namfisa. It is to be noted that privately administered or ‘stand-alone’ pension funds mostly outsource all their key business activities, such as fund administration and asset management to which this statement will presumably apply.
GEN.S 9.11 Investment policy statement
Detailed exposition of the content of an investment policy that every retirement fund must have in place and the matters that must be considered in its investment process.
GEN.S 9.12 Investment mandate
Detailed exposition of the content of an investment mandate that every retirement fund must have in place with its investment manager.
GEN.S 9.13 Payment of contributions
These standards appear to have been copied from text books teaching the ideal world.
They impose extensive requirements and excessively onerous obligations and responsibilities on funds, their officials and service providers.
They inhibit the free market mechanism.
No distinction is made on the basis of size of fund or the risk a fund poses to the financial system of Namibia.
It will raise the costs to funds significantly and will result in many small and medium sized funds no longer being viable.
The regulator will also be challenged to supervise the financial services industry and will have to expand its resources substantially unless the industry shrinks substantially, which it will.
These standards defeat the stated objective to move from rule based to risk based supervision and will require stakeholders to be totally rule focused.
Although never stated publicly, unlike the FSB in SA has, it appears that Namfisa too is on a drive to consolidate the industry, but since the Namibian industry (100 funds) and the average fund size is very small (10 funds with more than 1,000 members), in our case there will not be much left of this industry once all these requirements become law.
We have prepared a more detailed analysis that will be made available at request.
Regulations 1 to 7 under Part I of the Pension Funds Act Repealed
Please take note that regulations 1 to 7 under Part I of the Pension Funds Act were repealed per Government Notice no 38 effectiven 19 February 2015. These regulations fall under the heading “Manner in which and time within which appeals to the Minister are to be prosecuted under section three”.
These regulations were unexecutable as section 3 of the Act no longer refers to appeals to the Minister.
(for stakeholders of the retirement funds industry)
Addressing the retirement conundrum
In previous articles in Moneyweb, Patrick Cairns addressed the question of how much retirement capital you need and how long it will last. In this article in Moneyweb of 9 March, he explains how to make sure that you do not lose buying power over time.
Read the full article here...
The mystery of asset allocation
On a very similar topic as in ‘Addressing the retirement conundrum’, this article in MoneyMarketing newsletter of 5 March 2015 looks at how the investor should look at his investment objectives and the implications thereof for an appropriate asset allocation within his portfolio.
Read the full article here…
Bull and bear report quarter 1 2015
And while on the topic of investing and asset allocation in the previous two articles, the Bull & Bear report that is produced from a survey conducted by Sanlam's Glacier Research, collates the performance expectations of leading South African Asset Managers over the coming 12 months. Asset Managers are asked to comment on expected performance for various asset classes and sectors, currency levels, commodity prices and the performance of selected global markets. These viewpoints are subject to change in line with changes in economic and market conditions.
Download the article here...
(for investors and business)
Buying or renting a property
Most people assume that buying automatically works in your favour since you are paying off an asset, but is this necessarily the case?
Read the article by Ingé Lamprecht in Moneyweb of 11 March, here...
The best advice I ever received
In this article by Ed Hecht in Linkedin of 28 February 2015, the author list the following key attributes to being successful in life:
Do what you love
Pride in a job well-done
There are no short-cuts
Read the full article, here...
"If I had 6 hours to cut down a tree, I would spend 4 hours sharpening the axe."
~ Abraham Lincoln
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.