In this newsletter:
Benchtest 05.2015: investment commentary; the dilemma created for UIMs; the all new Child Care and Protection Act; reviewing the purpose of a pension fund; quarterly ERS reporting in question and more...
Dear reader

In this newsletter we comment on the global investment markets; we comment on the dilemma that UIMs find themselves in; an overview of the all new Child Care & Protection Act; we examine what employers and trustees should aim to achieve with their pension fund; we report on the recent AGM of RFIN; we provide an update on Namfisa activities and we provide a number of links to interesting and relevant articles in various news media.

As always, your comment is welcome, so open a new mail and drop us a note!


Tilman Friedrich

Tilman Friedrich's Industry Forum

Benchtest Monthly 05.2015

In May the average prudential balanced portfolio returned -1.01% (Apr: 2.36%). Top performer is EMH Prescient (-0.38%); while Metropolitan (-1.41%) takes the bottom spot. For the 3 month period EMH Prescient takes top spot, outperforming the ‘average’ by roughly 2.1%. On the other end of the scale Momentum underperformed the ‘average’ by 1.4%.

Life remains interesting as the banal saying goes. Not too long ago we first heard about the ‘peak oil’ theory and were made to believe that from now on the supply of oil will start to decline. This was of course supported with scientific analyses of the largest oil producing areas in the world. On 14 June 2015, Moneyweb posted an article ‘the world is facing its longest oil glut in at least 3 decades', vividly underpinned with colourful graphs, of course. Just using another source, the picture looks quite different. ‘Energy Briefing: Global Crude Oil Demand & Supply’ by Yardeni Research, Inc shows that there are different measures that produce different results. Measuring demand and supply on a 12 month average, rather than a monthly basis, as the latter report does, is a more convincing reflection. This does not really support the story of a huge oil glut. In fact it shows that there is still a small short supply on a 12 month average basis, given though that the gap between demand and supply has declined.

A few years ago global media focused our attention on the life threatening ozone hole. Have you heard anything about this phenomenon recently? The last I heard, as recent as last week, is that the ozone hole has virtually disappeared. Nowadays  the topic everyone talks about is climate change, caused by carbon emissions, and of course it is once again threatening the existence of mankind! I really became deeply troubled when I read this headline ‘A child borne today may live to see humanity’s end’. My goodness I thought to myself, I am O.K. but what about my grandchildren? Yes, the world is evidently experiencing climate change, just think how mild our current winter has been, so it can only go to support the apocalyptic prognoses that we are approaching the end of mankind. So do not worry to save up for retirement because you will not live to enjoy the fruit of your hard work!?

Well, what can we believe? Are we experiencing a media supported global strategy to unsettle mankind? Why do we experience an on-going war all around the Mediterranean? On the one side we are watching on-going wars waged for the sake of a better world, of good against evil of course - whichever side you take - that uproots millions of people and exposes them to untold hardship. At the same time we are witnessing European countries buckling under the siege of refugees uprooted in the war torn Middle East. Just a few years ago all these countries were peaceful. But in the eyes of some beholders, this was not the point. The point was that these did not have a democratic government, were ruled by oppressors and possessed weapons of mass destruction. Are the oppressed and democracy deprived better off today, would you want to be one of them? What has happened to our morals, if we support wars for the purpose of installing democracy, if we drag some leaders to the ICC for crimes against humanity while others of much greater relevance get away unscathed?

Now what does this have to do with investing and financial markets?

Read ‘Be on the winning side and keep out of the cross fire’ in part 6 of the Benchtest 05.2015 newsletter to find out how these and other developments impact on our investment views. Download it here...

The dilemma of unlisted investment managers

As the result of the stubborn insistence of the regulator that pension funds must comply with regulation 28 and 29, before it had registered and approved the first ‘wave of applications’ for approval of UIMs and SPVs, many funds were forced to choose between the first few entities approved, in an effort to comply with this statutory requirement by 1 July 2015. Entities who received their approval too late to still be considered by pension funds are now for all intents and purposes prevented from participating in the ‘first round’ of pension funds’ capital allocations to UIMs and SPVs, where it is unlikely that these funds will allocate further capital within the next year or more. For these UIMs and SPVs that have incurred significant costs and have gone through great trouble to obtain approval, this must border on ‘administrative injustice’ by the regulator!

Child Care and Protection Act promulgated

The Child Care and Protection Act, Act 3 of 2015 was promulgated in Gazette 5744 of 29 May 2015, to give effect to the United Nations Convention on the Rights of the Child, the African Charter on the Rights and Welfare of the Child and other international agreements binding on Namibia.
The Act will commence on a future date to be published by the Minister by notice in the Gazette. It provides for a penalty not exceeding N$ 50,000 or imprisonment not exceeding 10 years or both, for offences relating to abuse, neglect, abandonment or maintenance of a child. It also provides for the state paying a maintenance grant, a child disability grant and a foster parent grant, in an amount and frequency as determined by the Minister by regulation.

The Act aims to:
  • give effect to the rights of children;
  • set out principles relating to the best interests of children;
  • set the age of majority at 18 years;
  • provide for the appointment of a Children’s Advocate;
  • provide for the establishment of a Children’s Fund;
  • make provisions relating to children’s courts;
  • provide for residential child care facilities, places of care and shelters;
  • provide for proof of parentage and parental responsibilities and rights in respect of children born outside marriage and children of divorced parents;
  • provide for custody and guardianship of children on the death of the person having custody or guardianship;
  • provide for kinship care of children;
  • provide for prevention and early intervention services in relation to children;
  • provide for foster care;
  • provide for the issuing of contribution orders;
  • provide for the domestic adoption and inter-country adoption;
  • combat the trafficking of children;
  • provide for provisions relating to persons unfit to work with children;
  • provide for grants payable in respect of certain children; and
  • create new offences relating to children.
Once the Act commences the following laws will, amongst others, be repealed in the whole:
  • Children’s Act, 1960,
  • Children’s Status Act, 2006 and
  • Age of Majority Act, 1957

Once the Act commences the following laws will be amended:

  • the Combating of Domestic Violence Act, 2003,
  • the Combating of Immoral Practices Act, 1980,
  • the Liquor Act, 1998,
  • the Administration of Estates Act, 1965,
  • the Marriage Act, 1961; and
  • the Criminal Procedure Act, 1977
tilman-friedrichTilman 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.
Justine Shipanga elected to RFIN Board

RFS' Justine Shipanga has been elected to the Board of the Retirement Fund Institute of Namibia. at the RFIN AGM held on 10 June 2015.

Justine Shipanga joined RFS from Sanlam Investment Management Namibia at the beginning of May 2014. She holds a B Economics and a Post Graduate Diploma in Financial Planning and has completed a programme in investment analysis and portfolio management through Unisa. Justine takes responsibility for the technical services to a portfolio of participating employers in the Benchmark Retirement Fund, as well as a few private funds, and is also responsible for the Benchmark performance review.

Our congratulations go to her, and we are sure that she will make valuable contributions to the retirement fund industry.

Compliment from the principal officer

“Dear J
Thank you for the good service that I’m always receiving from you, honestly it is a privilege to work with you!”

Read more comments from our clients, here...

Kai Friedrich's Administration Forum

What your retirement fund should aim to achieve

Funds should provide adequately for retirement

Most trustees would probably know that the purpose of their fund is to provide adequately for retirement, perhaps for disablement and death as well. But, ‘to provide adequately for retirement, or disablement or death’ – what does this actually mean? Why do you actually need a fund for these purposes? We all know that we can individually make our own insurance and savings arrangements according to our own needs and requirements, without being ‘straight jacketed’ into the employer’s retirement fund.

Why have a pension fund?

Let’s revisit the main reasons for setting up a retirement fund to provide for retirement, disablement and death before we examine what ‘provide for’ means. Honing in on the many reasons, one needs to recognize the main stakeholder of retirement provision which are: firstly, the government, secondly the employer and thirdly, the member.

Government is a key stakeholder in retirement provision

Government clearly has an interest in its subjects providing for retirement, disablement and death to relieve the burden on the fiscus to look after those that can no longer provide for themselves and their families due to superannuation, incapacity or death. To encourage its citizens to make their own provision, government offers special tax incentives via the Income Tax Act, not availed to any other savings vehicle. In addition, government has thrown a special protective net over retirement fund savings via the Pension Funds Act that is not availed to any other savings vehicle.

The employer is a key stakeholder in retirement provision

Let’s now turn to the employer as another key stakeholder. Considering that there is currently no legal obligation on an employer to offer a retirement fund arrangement to its staff, the question begs to be asked, why an employer would have any interest in a retirement fund and why is it then that the majority of employers do actually burden themselves with the responsibilities and obligations linked to the introduction and maintenance of a retirement fund? Why does the employer not simply hand over the cash to the employee and let the employee care for himself? After all, they are all mature adults and the employer not their tutelage. Fact of life unfortunately proves these assumptions wrong! So the employer has to think long-term on behalf of his employees, a social responsibility that will allow the employer to sleep in peace. But this is not the only reason. In today’s competitive labour market, an employer who does not offer pension benefits, will be at a distinct disadvantage when it comes to attracting and retaining scarce skills, so market forces pressure the employer into offering pension benefits.

The employee is a key stakeholder in retirement provision

Where does the employee as third key stakeholder stand with regard to pension arrangements? As we just read, employees of course prefer to have the cash in their back pockets, at least while they are young, healthy and in a sound financial position. When any of these parameters change and as the employee gets older, starts thinking about his kids and their future and about his own old age, the perspective starts changing. Trying to make personal arrangements at this point would be either too late or one would be barred for reason of pre-existing conditions that no one in his right mind would be prepared to underwrite anymore.

Government wants the private sector to make provision for retirement
The long and the short of this is that government wants the employer and the employee to make provision for old age and other situations and offers very attractive incentives to the employees in particular. Employers feel a moral and competitive compulsion and employees are probably split equally on the issue.

‘To provide adequately’ – is it in the eyes of the beholder?

Having considered the reasons for retirement funds the next question to answer is what ‘to provide adequately for retirement, disablement and death actually means. Since all of us incur regular monthly costs to live that are related to our income, while we incur ad hoc outlays only infrequently. The main objective of a retirement fund should then be to replace one’s regular income come retirement. For retirement, an accepted international norm is to achieve an income replacement ratio post retirement of 2% per year of service. This means that you would only be able to replace your income before retirement one on one, if you have been employed for 50 years! Most of us won’t be in that category but would look rather at 30 or 40 years of service at best. Considering that the capital available at retirement is a function of contributions made and investment returns earned.

How much do I need to put aside to retire with dignity?

If we assume that when I retire at 60, the pension of 2% per year of service is to provide for my surviving spouse at a reduced pension after my demise and that this pension is to sort of keep up with inflation, I would need capital at retirement of around 7 times my annual cost of living at the time. To get to 7 times my annual cost of living, I would have to put aside a net 14% of my cost of living (or monthly income) earning a net 3% above inflation. If my money earns a net investment return of 5% net above inflation, I only need to set aside 10% net, or if I earn 7% net above inflation, I only need to set aside 7% net of my cost of living (or monthly income). Higher investment returns imply higher risk, but in the reasonable safety offered in the retirement fund environment, a return of 7% net above inflation can be achieved in the most aggressive pension fund portfolios. A note from the market here – in Namibia the average gross contribution towards retirement is in the region of between 10% and 11%, between employee and employer.

What you need to bear in mind in all of these calculations though is that you need to be a member of the fund when you enter employment until you reach retirement. The contribution towards the fund must be based on your total remuneration throughout, rather than perhaps just the cash component. When you change job you must preserve your accumulated capital for retirement. Given this, you should be able to replace your income before retirement at a ratio of 80% if you join the fund at 20, retire at 60 and maintained the appropriate contribution ratio, and achieved the required investment return throughout. Should you have joined the fund only at age 30, the replacement ratio would decline to 60%.

What about death and disablement?

So now you should have an idea what it means to provide adequately for retirement. What we have not looked at yet is what it means to provide adequately for the event of death or disablement. This we will be looking at in the next newsletter. Suffice it to point out here that this has a cost implication that would have to be added to what we have arrived at when considering retirement. And of course nothing comes for free, so on top of all these elements you will eventually also have to add the cost of managing such an arrangement.

RFS notes of RFIN AGM held on 10 June 2015

Download our internal notes on proceedings at the recent annual general meeting of the Retirement Funds Institute of Namibia, here...

The Retirement Funds Institute of Namibia "RFIN" is a non political body which represents and promotes the interests of the retirement industry in Namibia, to the ultimate benefit of the members of retirement funds. The most important function of RFIN is to represent the retirement industry in negotiations with government authorities, which would include commenting on legislation effecting retirement funds/pensioners etc. RFIN therefore depends on total support from all parties concerned with the retirement benefit provision industry.

kai-friedrichKai Friedrich Director: Fund Administration, is a qualified chartered accountant and a Namibian Certified Financial Planner ® practitioner, specialising in the pensions field. He holds the Post Graduate Diploma and the Advanced Post Graduate Diploma in financial planning from the University of the Free State.

News from Namfisa

Namfisa circulates draft directive on unclaimed benefits

Namfisa recently issued a draft directive on how pension funds are to deal with unclaimed benefits, for comment by stakeholders. We are concerned that this directive will make the management of unclaimed benefits unnecessarily complex and costly, at the expense of members.

We do not agree with the rationale Namfisa appears to have applied to arrive at the conclusions that have led to this circular.

Find our views here…

Namfisa issues clarification note on registration of agents and brokers

The insurance broking industry has been in a conundrum regarding who of their staff need to register as insurance agents or brokers in accordance with previous pronouncements of Namfisa. It would appear that this ‘clarification note’ has not really achieved the set objective of clarifying previous pronouncements in this regard. The potential implications of what Namfisa seems to require, however, are harsh for insurance intermediaries.

Find the clarification note here...

Registered entities

Pension fund trustees are encouraged to ascertain that any service provider their fund is contemplating to appoint is a registered entity, where registration is a requirement. Use the following links to check for registration.

Quarterly return – Q2 2015 due 30 July 2015?

Officially the ERS return for the quarter ended 30 June 2015 is due to be submitted by the principal officers of funds by 30 July 2015. It has been rumoured though that Namfisa will not require these quarterly reports for the remaining quarters of 2015 but that only the annual unaudited return will be required for the 12 months to December 2015. This rumour is still to be confirmed officially by Namfisa. It was also intimated that Namfisa may be re-considering the extent of the information it seeks to collect on a quarterly basis.

RFS has in the meantime sub-contracted a specialist service provider to compile the parts that report on the fund’s investments, previously known as the SIH report.

It is to be noted that extension was granted to most funds regarding investment in unlisted investments to 30 June 2015. Funds that have not yet invested in unlisted investment on 30 June therefore do not yet need to report on these. However, unless further extension has been granted to a fund, funds will be required to provided fairly extensive reporting on their unlisted investments as at 30 September 2015.

Namfisa ‘rules’ on unlisted investments in unit trusts

‘Hot off the press’ is Namfisa’s response to the asset management industry that a pension fund will have to own its unlisted investment exposure directly and will not be compliant if it relied on holding an indirect investment via a unit trust. This is a great pity as most trustees do not have the expertise in this specialist area and are now forced to manage an asset class which should have rather been left to be managed by their asset managers who are experts in this field. What is more important to Namfisa here – the rule that now allows funds to tick the box or the principle of promoting investment in Namibian start-ups?

Unlisted investments – update on registered institutions

As at 19 June the following SPV/UIMs are registered:

  • Tukuneni Capital Fund / Omaanda Capital (Pty) Ltd
  • Stimulus Private Equity Ltd / Stimulus Investments Ltd
  • VPB Growth Fund Trust / VPB Namibia (Pty) Ltd
  • The Desert Stone Fund / Omaanda Capital (Pty) Ltd
  • Allegrow Fund (Pty) Ltd Fund / Eos Capital (Pty) Ltd
  • Creo Assets (Pty) Ltd / Creo Investment Fund
  • Mergence (Pty) Ltd / Mergence Namibia Infrastructure Fund
  • Zillion Asset Management (Pty ) Ltd / Zillion Investment Fund
  • Hangala Private Equity (Pty) Ltd / Hangala Capital Fund (Pty) Ltd
  • Capricorn Asset Management (Pty) Ltd / Calibre Capital

Media snippets
(for stakeholders of the retirement funds industry)

Stand back: China’s bubble will burst

“The Shenzhen market is up almost 200 percent over the past year. Its price-earnings ratio stands at a little less than 80. (Standard & Poor's 500 Index is up 9 percent and has a ratio of 19.) Much of the demand for Chinese shares is credit-fuelled and comes from small investors new to the game. In one week in April, according to The Economist, Chinese investors opened 4 million new brokerage accounts -- and, by the way, two-thirds of the country's newcomers to investing left school before the age of 15.”

Being second largest economy in the world, the bursting of this bubble will have serious implications for global financial markets, if this prediction were to come true.  Read the full article by Clive Crook in Moneyweb of 22 June, here...

Radishes, onions and the stupidity of debt

This article raises some serious concerns about  the state US investors’ debt levels and of the US equity market. It makes the point that by a number of indicators it is in dangerous territory. “The stock market is roughly 40% above its historic average and more richly valued now than during 94% of its history.”

Read the full article by Toni Sagami here…

A note on recent market movements by CAM

Capricorn Asset Management recently issued an insightful ‘Adviser Newsflash’ to put recent negative market movements into perspective.
Download the newsflash here…

Media snippets
(for investors and business)

Should you invest in a segregated share portfolio or unit trust?

In this article by Patrick Cairns, that appeared in Moneyweb of 20 June, the author gives a valuable insight into the pro’s and con’s of the different methods of investing your spare capital as an individual.

Seven things that brand you unprofessional

“Sometimes when people say 'That's unprofessional' they mean that something you've done or said makes them uncomfortable. Whatever you did or said might be the most professional thing anyone in your company has ever done!

Professional doesn't mean stiff and staid. It means ethical. It means upright. A profession is a calling, not just a job. When you are professional, you act with the highest standards of integrity and regard for your organization's welfare, not to mention the best interests of its customers, employees and shareholders.”

Here are the 7 things you should avoid so as not to be branded unprofessional:

  • Dropping your commitments;
  • Blaming other people for your mistakes;
  • Attending professional events impaired;
  • Assaulting other people’s senses;
  • Throwing your co-workers to the wolves;
  • Cutting corners;
  • Badmouthing your employer or its associates;

Read the detailed article by Liz Ryan on Linkedin, here...

Critical habits of mentally tough people

“We all reach critical points in our lives where our mental toughness is tested. It might be a toxic friend or colleague, a dead-end job, or a struggling relationship. Whatever the challenge, you have to be strong, see things through a new lens, and take decisive action if you want to move through it successfully. It sounds easy. We all want good friends, good jobs, and good relationships. But it isn’t.”

  • They are emotionally intelligent;
  • They are confident;
  • The neutralize toxic people;
  • They embrace change;
  • They say no;
  • They know that fear is the #1 source of regret;
  • They embrace failure…;
  • yet they don’t dwell on mistakes;
  • They won’t let anyone limit their joy;
  • …and they don’t limit the joy of others;
  • They exercise;
  • They get enough sleep;
  • They limit their caffeine intake;
  • They don’t wait for an apology to forgive;
  • They are relentlessly positive.

Read the full article by Dr Travis Bradberry on Linkedin, here...

And finally...

"I've missed more than 9000 shots in my career. I've lost almost 300 games. Twenty-six times I've been trusted to take the game winning shot and missed. I've failed over and over and over again in my life. And that is why I succeed."
~ Michael Jordan


How much will you need when you retire and are you investing enough?
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