In this newsletter we comment on the global investment market, talk about anger rising in the pension funds industry, appealing decisions by Namfisa, give guidelines on what to consider and how to invest when you retire, note VAT and services to pension funds, provide RFS news, describe new reporting required by Namfisa as well as unlisted investments and what trustees have to do, and we 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 03.2015
In March the average prudential balanced portfolio returned 1.28% (Feb: 2.56%). Top performer is Investec (2.96%); while Namibia Asset Management (0.19%) takes the bottom spot. For the 3 month period Investec takes top spot, for the fifth consecutive month, outperforming the 'average' by roughly 3.5%. On the other end of the scale Allan Gray underperformed the 'average', for the fourth consecutive month, by 2.4%.
As the result of the strengthening of the US$ against most global currencies, the expansion of the US economy has lost some steam, expanding at only 2.2% over the third quarter of 2014, as opposed to 5% over the 3rd quarter. The following graph depicts this trend:
Conversely, the weakening of the Euro has aided the European economy, growing at 0.9% in 2014, compared to 0.5% in 2013, despite the negative impact of sanctions imposed on Russia in the earlier part of 2014.
US inflation, another key economic indicator for the determination of the US repo rate, besides the state of the economy, shows no clear trend despite an upturn since the beginning of the year as depicted by the following graph.
Based on these parameters, it seems that the US economy is not 'ripe' yet for an increase in the repo rate, there being neither a clear indication of a sustainable expansion of the economy nor of clear upward trend of inflation.
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 03.2015, here...
Anger rising in the pensions industry
As we report below, Namfisa issued a circular on 15 April, requiring pension funds to submit a totally new type of report by 15 May for the first quarter of 2015 - under threat of penalties for late or non-submission, of course. Its predecessor report, a much shorter version, was just submitted for the first time at the end of February for the 4 quarters of 2014, after having given the industry close to 3 months to prepare for that version.
The new report, which has to be manually entered into Namfisa's Electronic Regulatory System, comprises of no less than 53 pages of information and data plus another 7 pages per investment portfolio operated by a fund. An early version of this report, in Excel format was circulated to the industry in March 2014. At the time the industry expressed its concerns and reservations about this report. The cost of producing such an extensive report versus the benefits of having the information, the time it would take to program systems to record and produce the reports as well as the purpose and use of some of the information were questioned, without convincing response by the regulator.
When a new, much shorter report version was circulated later in 2014 the industry took comfort with this, because the investment related information was actually aligned with regulation 28, on which asset managers had to report for many years, while the other information, of a limited scale, by and large also already, had to be reported on for a couple of years.
During the regular 'industry meetings' arranged by Namfisa since the introduction of the abbreviated report version, the last of which was in March 2015, no reference was made to the fact that Namfisa's programmers were actually busy programming the Electronic Reporting System on the basis of the extensive report initially circulated in March 2014. Even upon a follow up with a Namfisa official on the status of the requirements for the first quarter 2015 report a few days prior to the latest version having been circulated, the official confirmed that there was no change to the reporting format.
What a surprise to all concerned to find a few days later that the report has now actually been expanded from 1 page of general information and 7 pages of information per investment portfolio to the monster referred to above.
To make matters worse, the circular was issued 2 days before the start of the school holidays with a due date in the middle of school holidays over a period covering 3 short weeks, due to public holidays.
The principal officer who asked whether the industry was intentionally kept in the dark all along may be forgiven.
Pension funds are now in the unenviable position that they are required to comply. Yet they will have to call on their service providers to assist while service providers will in most likelihood not be contractually obliged to meet this totally new requirement, and may in fact not be able to provide much of the required information due to the fact that their systems are not geared to capture, store and retrieve the information in the manner and format required. At best all parties involved will have to improvise and it may be expected that some of the information is not available or will be unreliable or inaccurate. How meaningful will such information be to the regulator?
Many pension funds have expressed their perception that the regulator is ruling autocratically, is exercising unreasonable pressure on their limited resources and is disregarding their concerns or suggestions. The concern was also expressed that funds are being systematically alienated through the approach of the regulator and that this will not be conducive to a spirit of mutual respect and co-operation.
Funds believe that the regulator does not appreciate the fact that the Namibian industry is totally dependent on layman trustees who are full time employees that are burdened with the additional responsibility of serving as trustee. Namibia has just over 100 registered funds with a membership of around 220,000. Eliminating the GIPF and umbrella funds, the average size of employer sponsored funds is around 500 members. For reference purposes it is relevant that the SA regulator takes the view that employer sponsored funds of less than 3,000 members are not viable on a stand-alone basis and should rather be accommodated in an umbrella fund. In terms of reporting though, even the SA regulator does not have such extensive requirements.
Ironically, NAMFISA seems intent on getting better insight on costs of managing pension funds and has given the impression that they may be concerned about these costs being too high.
To avoid alienation of pension funds and any confrontation, there is an urgent need that an independent and unbiased statutory mechanism is created under the Pension Funds Act that will objectively consider justified general concerns and objections of the pension funds industry and that has the authority to guide the regulator. Until such time, it will be purposeful for the Minister to play a role in introducing balance and fairness into the regulatory system.
What to consider and how to invest when you retire
Although every respective retiree is in a unique position as far as his retirement is concerned that should be properly analysed at retirement before taking any investment decisions, you should go through the following steps, preferably with the assistance of an expert:
Determine the monthly cash flow surplus or shortfall of your household, before you consider how to invest your available capital. This requires the following:
Prepare a detailed monthly budget of your normal cost of living and provide for any other exceptional or irregular costs such as known repairs and maintenance to your residence, your holiday house, motor vehicles, machinery and equipment, holidays and medical expenses that you may have to carry over and above what is covered by your medical aid.
Determine your expected income from your pension fund or funds, as well as your wife's pension, if relevant, after providing for income tax.
The difference between 1.a) and 1.b) will reflect either a shortfall or a surplus.
If the difference per 1.c) is a surplus, you will be more flexible as to how you can invest your available capital. If the difference per 1.c) is a shortfall, your focus should be how to invest your available capital so that it provides a stable and secure monthly income. It may also require you to reconsider your budget per 1.a) with the view to reduce your cost of living.
Having determined your household cash flow position as per 1.c) you now need to decide how to invest your available capital.
In case of a surplus per 1.c) you can invest your discretionary capital (cash from pension fund, retirement annuity fund, unit trust, term deposit etc.) more aggressively in an effort to achieve higher investment returns.
In case of a shortfall per 1.c) you need to invest your discretionary capital (cash from pension fund, retirement annuity fund, unit trust and term deposit) more cautiously in an effort to secure a stable and secure monthly income.
Ideally you should have funds that are readily accessible (money market, savings, call deposit etc.) to cover your expenses in 1.a) for at least the next 12 months. This may require you to invest your (and your wife's, if relevant) one-third from your pension- and/or your retirement annuity fund in such a manner. Alternatively, if your mortgage bond would allow you to take up money again without major effort, in case of an emergency, your (and/or your wife's) one-third can be used to repay the outstanding balance on the mortgage bond.
Paying back a mortgage bond with one-third pay-out from a pension/ retirement annuity fund (untaxed) is usually a sound investment decision, provided that you can draw on that mortgage bond again in case of an emergency as per 2.c).
Having your full pension fund capital paid out to be invested again is usually not a sound investment decision, besides the fact that the rules may actually not allow this. In the first instance you will be taxed on the full benefit. You now need to invest the balance elsewhere, after tax has been deducted. It will be very difficult to achieve competitive returns on such an investment for a similarly stable income, as the pension fund would offer. You would typically incur initial and ongoing fees on such investment, or would sacrifice investment returns, that would not be the case if you retained your capital in the pension fund to receive a monthly pension, if its rules allow you to do this.
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...
VAT and services provided to a fund
In terms of paragraph 2 of Schedule IV (Exempt Supplies) to the VAT act (Act No 10 of 2000), the following services are exempt:
"'financial services' means - ....
(g) provision, or transfer of ownership, of an interest in a scheme whereby provision is made for the payment or granting of benefits by a benefit fund, provident fund, pension fund, retirement annuity fund or preservation fund; or....
(i) the arranging of any services referred to in paragraphs (f) to (h), inclusive, or the management of any fund or entity referred to in paragraphs (g) and (h);..."
Although this is open to interpretation, particularly as regards consulting services (i.e. asset or benefit consulting services), our view is that the services to be provided by your consultant to your fund may well be covered by this definition and would then be VAT exempt. We are aware of a Practice Note issued by Inland Revenue with regard to medical aid funds, specifically excluding IT services provided under a separate agreement, but believe that this Practice Note (No 7 of 2000) is not necessarily to be seen as guidance in this context.
Funds that are not registered for VAT cannot claim input VAT. Paying VAT on services that may fall under the definition of sub-paragraph (i) of the definition of 'financial services' would unnecessarily add to the cost burden of members and should avoided.
Retirement Fund Solutions announces staff trust
Retirement Fund Solutions has established a staff trust, the RFS Staff Trust, which effectively holds 17,5% ownership of the company.
Speaking about the Trust, RFS Managing Director Tilman Friedrich said the company has a policy of empowerment from within. "We believe in recognising, rewarding and empowering the individuals who make our company a success, and that is actually everyone in the team" he said.
'With the RFS Staff Trust, we recognise each and every staff member who has assumed the responsibility for making the company the success it is," Friedrich continued.
He pointed out that RFS has built its business primarily on the qualities of its staff. He noted that the company enjoys a low staff turnover and that all staff members are highly experienced. Friedrich said that, in addition to numerous formal qualifications, the company has a policy of ongoing internal training to keep staff abreast of changes in the dynamic Namibian pension fund environment.
"We have a policy of recognising skills and personal development with professional responsibility. The Trust is an appropriate manner to recognise that our team takes ownership," Friedrich continued.
Asked about the impact of the Trust on formerly disadvantaged Namibians, Friedrich said formerly disadvantaged beneficiaries amounted to 15% of the 17,5% of shares allocated. He said this share was expected to grow to 17,5% and 20% respectively during the course of the year.
The allocation, Friedrich said, brought the total number of formerly disadvantaged beneficiaries of ownership in RFS to 36,25% at the Trust's inception.
RFS sponsors SKW youth soccer tournament
For the 9th year running Retirement Fund Solutions sponsored the highly popular SKW RFS annual youth soccer tournament that took place at the SKW from Friday 10 to Sunday 12 April, in the age groups under 7 to under 17. Well in excess of 1,000 young sportsmen displayed their fitness and soccer skills to a large spectator crowd.
Kai Friedrich handed over the symbolic cheque to Dr Anibal Rego chair of SKW soccer committee.
Sharika Skoppelitus, senior manager client services, handed over the plaque and trophy to Ramblers Lions, under 7 winners.
Tilman Friedrich, Managing Director, handed over medals to Ramblers, winners under 13.
Compliment from the pinnacle of Namibia's diplomatic protocol
I am a regular reader of your newsletter as I find it useful to understand what is happening in the market. I assume other readers also enjoy it for the same reasons as mine...”
Read more comments from our clients, here...
RFS staff movements
We would like to extend a hearty welcome to Erica Hipondoka and Terence Christian both of whom joined at the beginning of October 2014 from MMI Namibia and from Hamilton & Partners, respectively.
Terence joined us as a fund accountant in the Benchmark accounting team. He was born in Tsumeb and matriculated at Jan Möhr Secondary School in 2006. In his Grade 12 year he was a prefect and also the rugby captain of the school. After school he started with his studies at Unam where he obtained a Bachelor Degree in Accounting in 2010.
Before she joined us, Erica assisted MMI with the conversion of their fund administration on a contract basis and was with Old Mutual for more than 14 years. Her last position at Old Mutual was that of Team Leader in the technical team. Except for her systems knowledge she is also well experienced in pension fund administration. Erica was awarded many times for her dedication and hard work - she received the service excellence award 3 times, was crowned employee of the year twice and also received the MD award twice.
We extend a hearty welcome to Terence and Erica and look forward to them making their mark in client service excellence and supporting our team in its efforts to provide rock solid fund administration that lets clients sleep in peace!
RFS company news
RFS celebrates Namibia's 25th anniversary
Fostering team spirit is receiving much attention at RFS, the last occasion having been our celebration of Namibia's 25th anniversary. As usual staff make a huge effort to demonstrate their commitment to these 'fun occasions' in the same way as they serve our clients. Here are a few glimpses of these festivities portraying the prevailing spirit.
Our family day
The RFS social committee organised our first family day this year on 11 April in the form of a pootjie competition at Parkies school sports ground. As usual each team tried hard to win the competition amidst a huge effort. At the end of the day, there were no losers, only winners and all enjoyed a wonderful day.
RFS staff donate to World Autism Day
Staff members of RFS launched an initiative during April to support the World Autism day through the sale of lollies and were able to donate an amount of N$ 1,100 towards this worthy cause.
News from Namfisa
Statement of investment holdings - Q1 2015
Namfisa released a 'Notice of Delay in the First Quarterly Return on ERS' that was due to be submitted by 30 April 2015, advising that "...a new deadline will be determined timeously and communicated..."
On 15 April it issued a circular in terms of which a totally new ERS (Electronic Regulatory System) based report is to be submitted by 15 May 2015. This replaces the previous SIH report. It requires over 50 screens of fund static and financial information, plus another 7 screens of investment related information per portfolio. This is a costly and onerous requirement, particularly for smaller funds, that will now occur quarterly. Service providers who will have to provide most information will need to have their systems and its reporting functionalities adapted to collect, store and reproduce this information in the format required. Such programming can now only be commenced and will take some time before it is operational. Until then funds and their service providers will have to improvise as best as they can with the obvious result that the accuracy and reliability of information will be questionable. In view of this, the value of the exercise is doubtful.
Service providers will be forced to take their focus off those management functions they were appointed to execute by their pension fund clients, in order to assist their clients to now meet the due date of the new report. Effectively Namfisa is directly interfering in the management of pension funds in this manner, as trustees will have no choice but to suspend what they have considered important responsibilities of their service providers, to afford their service providers the opportunity to assist them with this report.
Unlisted investments - do trustees still have a choice?
In an unofficial communication from Namfisa dated 14 April 2015, Namfisa confirmed that there was no change in the status of registration of SPVs and UIMs. As per last communication the following SPV/UIMs are registered:
Tukuneni Capital Fund / Omaanda Capital (Pty) Ltd
Stimulus Private Equity Fund / Stimulus Investments Ltd
VPB Growth Fund Trust / VPB Namibia (Pty) Ltd
The Desert Stone Fund / Omaanda Capital (Pty) Ltd
In addition BFS NamPro Fund Manager (Pty) Ltd and Eos Capital (Pty) Ltd were approved as unlisted investment managers.
The Tukuneni Capital Fund is actively seeking investment capital. Stimulus is considering to offer existing investors the opportunity to increase their investment in Stimulus and is aiming to conclude the process by 30 June, subject to obtaining the required approval from its existing investors.
Due to the fact that there is only very little time left to achieve compliance in the face of limited or no choice between alternatives, some funds have applied for further extension.
In one instance Namfisa responded "...extension...will be granted to a fund if the fund can illustrate that it has performed a due diligence on the existing active SPV and UIM and the results of such review, with resounding reasons satisfying the Registrar, have rendered the existing SPV and UIM as not being suitable..."
It appears from this response that Namfisa has accepted a 2 month time frame is simply not enough for funds to pace through a process concluding with a signed subscription agreement with and SPV and that it has accepted that there is currently only one 'active SPV and UIM' that can be considered.
Funds are now faced with the alternatives of either investing in Tukuneni capital or trying to find 'resounding reasons' why Tukuneni Capital is unsuitable, risking though that these reasons may not satisfy the Registrar.
We believe that it will be very difficult to objectively conclude that Tukuneni Capital is unsuitable and that even if such conclusion were to be reached, it still may not satisfy the Registrar. The only conclusion this can lead us to is that funds now have no choice but to pursue the one 'active' alternative.
News from the market
Nedbank experiences challenges with new banking system
Nedbank recently implemented a new banking system. It is evident that the conversion to the new system posed and still poses significant challenges to the bank.
As administrator of a number of funds banking with Nedbank we are experiencing problems with electronic payments from Nedbank accounts that are not booked off the payor fund or are not credited to the payee's account. We also experience problems with bank balances that are incorrect which of course makes it very difficult for us to do the monthly bank reconciliations. These in turn are essential for us determining the amount that is to be invested for a month.
We sincerely regret any inconvenience this state of affairs may have caused or cause any of our clients or their business associates. Clients will appreciate that these problems are out of our control.
We trust Nedbank will resolved these problems soonest and that it will ensure our clients interests will in no way be compromised.
(for stakeholders of the retirement funds industry)
Is choice really your friend
In this article the message is that affording members choice, e.g. with regard to contributions, risk benefits and investment portfolios, members are often driven by short-term considerations, such as maximising take home pay or undue risk aversion, rather than taking their long-term needs, such as retiring in comfort into account. Members need to be supported in these decisions.
In one case study referred to in this article, the fund realised it had given members so much choice that it actually did not add value. It ended up removing all choice for new employees from a particular date. For existing employees, changes were introduced gradually with every increase.
Read the full article by Ingé Lamprecht in Moneyweb of 27 March, here...
7 Habits of financially healthy retirees
Sanlam's annual Benchmark survey found that the following 7 habits as critical to retiring in comfort: (numbers)
Save as much as possible
Don't rely on the company
Widen your nets
Leave your savings alone
Use the pros
Make sure your money grows
Find the diagram of these 7 habits and what is behind them, here...
Collation & inheritance
"SA (and Namibian) common law is unique in its principle that your children should inherit equally when you die, and this includes taking into account valuable benefits you may have given to some of your children while you were alive."
If you want to avoid collation in your estate you need to specifically exclude this in your testament. Download the article by Margie King in Pensions World Quarter 1 of 2015. Click here...
(for investors and business)
5 Statements successful people refuse to accept
Here are the 5 statements that successful people refuse to accept: (numbers)
I never get the right opportunities - "you don't need to wait for someone else to give you the opportunity." "Don't worry about the opportunities you need to be given; focus on the opportunities you need to take."
Someone is always holding me back - "When you fail always decide it was your fault. Not only is that a smart way to think, but it's also almost always true as well." "Embrace every failure. Own it, learn from it, and take full responsibility for making sure that next time you'll do what it takes to make sure things turn out differently."
I just don't have enough time - "Never think about how time controls you -- instead think of how you can best control your time."
Sure, I would do that... if I could be sure it would be worth it - "Successful people, in all areas of life, earn bigger "payoffs" by working incredibly hard well before any potential return is in sight; they earn their success through effort and sacrifice."
But there is just nothing special about me - "Never think about what you don't have. Focus on what you do have -- and more importantly, what you are willing to do that others are not."
Read the detailed article by Jeff Haden on Linkedin, here...
The 10 secret things of being the best boss you can be
Employees are not your friends - "They are your employees. The problem with socializing with your employees is that it makes it hard to be objective about their performance, and harder still to crack down on them if they're under performing.
Maintain a clear line of command - "In most of my endeavors, I've had a partner, and we've helmed our companies side by side. But I weigh in on issues that fall outside the realm of my command only when completely necessary."
Be accessible - "You're not building a fiefdom-you're building a company. Don't alienate, isolate, or separate yourself from your partners and top earners."
Delegate, delegate, delegate - "You cannot-nor should you-do everything."
Don't procrastinate - "When an employee is problematic, you must act. Now. Do it right. Do it by the book. But do it."
Never pass the buck - "Blame stops with you. It always stops with you. Even if you think you had nothing to do with the decision that got your company into trouble in the first place, you're wrong."
You're not their parent - "Employees will only bring their drama to work if you let them. If you don't want to be treated like a parent, don't act like one. If employees are having squabbles, let them figure it out among themselves."
Life's not fair - "Some people will simply make more money than others in the same job. Some people will work harder. Some will get higher sales."
The boss doesn't always make the most money - "Find stars and pay them well. If you want to attract those stars, you'll have to lure them with dollars."
The company comes first - "this is the most important tenet. Have a singleness of purpose-the health and welfare of the company-keeps things clean and clear."
Read the full article by Kevin O'Leary on Linkedin, here...
How to leave work at 5 p.m. and still get everything done
"It's a pattern with which most full-time professionals are familiar-you're spending increasing amounts of time at your desk, but it feels like you're getting less done. The hours stretch on, the to-do list grows, and you find yourself facing a future where you might let go of your apartment and just start keeping a toothbrush and slippers in your desk. Otherwise you'll never get it all done-right?"
In this article the unknown author provides some useful advice:
Figure out what you are actually doing
See what tasks make the short list - eliminate the rest
Break up with e-mail
Plan your work days 3 days in advance - including when you'll go home
Do not simply commit to an evening spent in the office
Build a dynamic life outside the office
"Work expands to fill the available space," says Vanderkam, "so treat the end of the workday as something that matters. The most efficient people I've seen have a reason they want to leave at 5 p.m."
Download the full article, here...
"If you look at what you have in life, you'll always have more. If you look at what you don't have in life, you'll never have enough."
~ Oprah Winfrey
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.