In this newsletter:
Benchtest 07.2015, investment commentary, housing loans present risks, payments of death benefits in a stalemate, Ms Skoppelitus joins RFS board, RFS Exco expanded, 6th annual member meeting of Benchmark coming up, SSC considering new social security benefits and more...
Dear reader

In this newsletter we comment on the decline of the Rand and the oil price, we draw attention to a number of risks relating to housing loans and what is to be done about it, we report on difficulties experienced with payment of death benefits, we welcome Ms Skoppelitus to RFS board and 4 senior staff to the RFS executive committee, we draw attention to the 6th annual member meeting of the Benchmark Retirement Fund, we report on plans of the SSC to introduce new benefits and provide links to a number of interesting and relevant articles that appeared 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 07.2015

In July the average prudential balanced portfolio returned 1.53% (June: -0.95%). Top performer is Stanlib (2.69%); while EMH Prescient(-1.18%) takes the bottom spot. For the 3 month period Stanlib takes top spot, outperforming the ‘average’ by roughly 1.5%. On the other end of the scale EMH Prescient underperformed the ‘average’ by 2.6%.

The tides have changed

Undoubtedly the two subjects that currently feature most prominently in financial circles, is the rapid depreciation of the Rand and the dramatic decline in the price of oil. For the investor, these are important indicators and the question begs to be answered whether we will see a reversal of these developments or whether these represent new norms.

The graph below depicts the depreciation of the Rand against the Euro, the British Pound and the US Dollar since October 2000. Over this period to end of July the Rand depreciated by 67% against the US Dollar, by 80% against the British Pound and by 117% against the Euro.

Read part 6 of the Benchtest 07.2015 newsletter to find out what our investment views are. Download it here...

Pension backed housing loans are risky business

Pension backed housing loans offered by commercial banks are typically based on an agreement between the bank the fund and the employer. The main responsibilities of the parties are as follows:

The employer is required to
  • assist the employee to complete the documentation required by the bank;
  • ascertain that the application is consistent with section 19(5) of the Pension Funds Act;
  • deduct the monthly loan repayment from the employee’s salary;
  • pay over to the bank its employees’ monthly loan repayments;
  • inform the bank of the termination of service of the employee.

The bank is required to

  • ascertain the affordability of the loan to the employee;
  • disburse the loan amount approved;
  • account for interest and loan repayments.

The fund is required to

  • ascertain that the loan applied for does not exceed the maximum loan as agreed between the parties;
  • record the fact that the member has taken a loan on the member’s record;
  • obtain the outstanding loan balance from the bank at the member’s date of exit when it is informed of the member’s exit from the fund;
  • pay the outstanding loan balance to the bank upon a member’s exit.

Since pension funds typically outsource the administration of their fund, the fund’s obligations in terms of the agreement with the bank and the employer will have to be transferred to the fund’s administrator.
The meticulous reader might already have realised from the above exposition that the fund is obliged to repay the outstanding loan balance to the bank. But what if there is a shortfall between the amount repaid to the bank and the member’s available capital? There are a few reasons for a possible shortfall, such as negative returns on the pension fund investment, arrears tax deducted from the benefit or the benefit having been paid out without having deducted the outstanding housing loan. This risk is borne by the fund!

There can be a number of reasons for the failure to have deducted the outstanding housing loan balance from the member’s benefit. The member record may not have shown this member to have had a loan. Since such entry on a member’s record is not the result of a ‘book entry’ by the fund, it is utterly dependant on manual intervention. A member’s details may have changed, either through marriage or because the member has two different identity documents, not such an unusual occurrence, or the identification number allocated by the bank was incorrectly recorded by the fund.

Another risk often overlooked in ignorance of the legal pre-requisites, is the fact that the Labour Act is pretty prescriptive and restrictive with regard to when an employer may make deductions from an employee’s salary and how much it may deduct, if anything. The fund may thus have happily entered into an agreement with the bank and the employer only to find that the employer is legally prevented from making the required deductions from members’ salary.

In an event where the fund incurred a loss because of a shortfall between the outstanding loan balance it was required to pay over to the bank and the available capital, the fund would have to make an attempt to recover the shortfall from the exited member. The prospect of success then depends on what agreement the fund has with the member and what recourse it offers the fund for such instance. In our experience, funds mostly do not enter into a separate agreement with their members who borrow for housing purposes and are reliant on the documents the bank has compiled in terms of the housing loan scheme. These documents are typically only concerned about the bank’s interests and offer little respite to the fund. Banks have also not been accommodative at all to fund’s requests for better protection of their interests.

Funds that grant pension backed housing loans are advised to ascertain that repayment deductions are permissible in terms of the Labour Act and to consider entering into a separate agreement with borrowers that will afford funds the necessary recourse for the event of a member or former member not repaying the outstanding housing loan balance.

Payment of pension fund death benefits frozen

Inland Revenue issued practice note 5 of 2003 that was to introduce a new regime for the taxation of death benefits paid by pension funds. This practice note was the result of Inland Revenue having come to realise that pension funds in many cases moved away from paying dependants’ pensions in the event of death of a fund member, to paying lump sums only or a paying combination of dependants’ pensions and lump sums. The requirement of the practice note was that funds paying lump sums only were to have changed their rules to the fund paying a minimum of 34% of the available capital in the form of an annuity to the beneficiary. The rationale for this requirement was based on the definition of ‘pension fund’ in the Income Tax Act.

Some readers may recall that the Retirement Funds Institute (RFIN) then immediately established a sub-committee to liaise with Inland Revenue with regard to above practice note. This all happened a long time ago and, although we were represented on the sub-committee we were not privy to all communication between RFIN and Inland Revenue. From our records, however, it appears that the due date for funds to have their rules amended, as envisaged by the practice note, was postponed indefinitely and that the practice note was also amended, but once again, our records to not provide sufficient detail.

Since this practice note was issued, and in consequence of the discussions and meetings between Inland Revenue and the sub-committee of RFIN, Inland Revenue, when determining the tax a pension fund administrator is to deduct from a death benefit payable to beneficiaries of a deceased member of a pension fund, has applied the practice of taxing 34% of the total lump sum payable to any beneficiary, where no part of the total capital is paid by way of an annuity. This practice has been applied consistently since 2004. According to one of the versions of the practice note, it would appear though that this formula for taxing the lump sum was to have been an interim arrangement until a date by which all funds were to have amended their rules.

It appears that the manner of taxing death benefits payable by a pension fund, has of late been changed suddenly. According to the latest practice of Inland Revenue, no tax is to be deducted from a pension fund death benefit on the basis of the assumption that 34% of the benefit will be taxed as an annuity. Since the requirement that pension funds amend their rules was evidently postponed indefinitely, pension funds still as a rule only pay lump sum death benefits and no dependants’ pensions. This means that 34% of the benefit, that is to be taxed as an annuity as per latest practice, cannot actually be paid as an annuity as the rules do not provide for this. This has now resulted in a stalemate situation where we as fund administrators cannot pay out the 34% that is to be taxed as an annuity, but is to be paid as a lump sum.

We have taken up this matter with Inland Revenue and the outcome of our deliberations is awaited in great anticipation. Beneficiaries currently find themselves in a destitute position as the death benefits cannot be paid out before a solution to the stalemate has been found. We will continue our efforts to find a way around this problem. Pension fund trustees and principal officers are welcome to contact us for a progress update.

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.
Compliment from the principal officer of a large fund

“Dear Mr. F,
I also wish to thank you, S, and H for all the advice, patience and assistance provided to me - I really appreciate it!”

Read more comments from our clients, here...

Kai Friedrich's Administration Forum

Handling of pension backed housing loans

The article ‘Pension backed housing loans are risky business’ (above) points out what can go wrong to lead to a fund incurring a loss as the result of a shortfall between the outstanding housing loan balance a fund was required to settle and the respective member’s available capital.

It was also pointed out above that the records we keep on behalf of a fund are prone to error and omission due to the fact that such loans do not initiate a ‘book entry’ in the fund’s records.

The employer, on the other hand, does have to make book entries on a monthly basis as it is required to deduct the loan repayments from the relevant members’ salaries and pay this over to the bank. The bank in turn should query any loan in respect of which it has not received a repayment. The employer payroll is thus a reliable source for confirming whether or not an employee has a housing loan.

To protect the fund against any losses as best as one can, it is essential that the employer diligently indicates on each member’s termination form whether or not the member has a housing loan by reference to the member’s last month’s salary record.

Given the ‘margins for error’ and to protect funds, we have in the past requested settlement balances in respect of all exits whether or not our record indicated that the member has a loan. Banks have now objected to this practice as it burdens their systems and delays the provision of settlement amounts.

To accommodate banks we will adopt the following procedure:

RFS will not request settlement amounts from the bank on termination of membership if, and only if:
  • The member record is not flagged on our system indicating that s/he has a loan; AND
  • The notification of claim form which the employer signs on termination of a member clearly indicates that the member does not have a loan.

Where the record is flagged on our system and/or where the claim form does not clearly indicate that the member does not have a loan, we still proceed to request settlement amounts from the Bank. It is therefore critical that HR officers complete the forms thoroughly and with due care.

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.

Company news

Sharika Skoppelitus appointed director of RFS

We are pleased to announce the appointment of Ms Sharika Skoppelitus to the board of Retirement Fund Solutions. Sharika plays a pivotal role in providing high level client service to a number of our largest pension fund clients. Sharika joined RFS in March 2007 but learnt ‘the ropes of our industry’ under the tutelage of Tilman Friedrich and Charlotte Drayer, when she joined RFS fresh from Unam with a B Econ degree. Sharika has been a member of RFS’ executive committee since 1 July 2014. On behalf of the board of directors we extend a hearty welcome to the board to Sharika and look forward to her contribution to the well-being of RFS, our staff and our clients!

RFS expands its executive committee

In line with our succession planning RFS has expanded its executive committee with four senior staff members. Victoria Nashongwa, (Senior Manager: Fund Administration), Sharika Skoppelitus, (Senior Manager: Client Services), Hannes van Tonder, (Senior Manager: Fund Administration and Frieda Venter, (Senior Manager: Fund Accounting) have accepted an invitation to assist our executive directors to shape the future of the company. We express our appreciation and extend a hearty welcome to these four new executive committee members!

RFS welcomes new staff

We are pleased to announce the appointment of Faith Gamxamus. Faith joined us from Old Mutual earlier this year. She joined the insurance industry in 2008 as a receptionist at Prosperity Life. In 2009 she moved to Old Mutual where she served in various positions, mostly in the employee benefits department. She has now taken up the responsibility for a number of local authorities as a member of the team managing the joint pension fund for local authorities.

RFS re-appointed as Bank of Namibia, NDC and Nampower fund administrator

We are proud to announce that RFS was reappointed by Bank of Namibia Provident Fund, Namibia Development Corporation Retirement Fund and Nampower Provident Fund for another term of office as fund administrator. This reflects the confidence, the peace of mind and the satisfaction we have been able to instill in the trustees of these funds during our previous term of office. We convey our sincere appreciation to the trustees of these funds and look forward to continuing our relationship with these funds.

RFS receives Momentum broker award

RFS recently received a broker award from Momentum Employee Benefit. Kai Friedrich attended the award ceremony on behalf of the company. He will no doubt have earned himself the accolade of having been one of the youngest representatives of any broker house represented. In the picture below he is handed a beautiful painting by Frikkie van Zyl, Head of Broker Distribution at Momentum.

RFS sponsors Okanti run

RFS was the main sponsor of the Okanti Foundation's 'Namibia Runs for Charity' event, held on 25 May 2015, to aid persons with major medical needs. Pictured at the announcement of the event, Michaela Tietz (second left), Founder and Executive Trustee of the Foundation, and Günter Pfeifer (far right), Director of RFS.

Benchmark sixth annual member meeting

The Sixth Annual Member Meeting of the Benchmark Retirement Fund will be held on Thursday, 8 October 2015 at 16h30 for 17h00 at the Protea Hotel Fürstenhof.

The keynote address will be delivered by Mr. Viresh Maharaj, Chief Marketing Actuary of Sanlam Employee Benefits in South Africa. He will talk about “Engaged Employerism”.

Mr. Danie van Zyl, Head of Guaranteed Investments of Sanlam Employee Benefits in South Africa, will talk about “Debt, the elephant in the Room”.

The fund will provide an overview of its financial results and the performance of its investment portfolios. This event should put fund members’ mind at ease that their retirement capital is safe-guarded and managed in accordance with unrivalled standards.

To book a seat, interested persons are requested to contact Mrs. Elaine Blom at Tel 231 590 or This email address is being protected from spambots. You need JavaScript enabled to view it. on or before 30 September 2015.

News from the market

SSC mulling over more social security benefits

The Social Security Commission has appointed a team of consultants to assist it with the design, funding and implementation of its proposed Return To Work programme. The work of this team will include aspects such as:

  1. developing the legal and policy framework;
  2. assessing the existing rehabilitation infrastructure and skills set;
  3. defining the financial structure and details for the programme;
  4. designing the required administrative infrastructure; and
  5. planning the pilot, implementation and roll-out phases for the initiative.

Besides the Return To Work programme, the SSC is also mulling over the introduction of an Unemployment Insurance Fund. The project is to investigate the foundation of a legal, administrative and financial framework, and a number of other issues, such as:

  • defining exactly which workers are included in the UI scheme;
  • the fit with existing social protection mechanisms, the SSC Development Fund, for example, the Employees’ Compensation Fund and social protection initiatives offered by the Ministry of Health and Social Services and other ministries of government;
  • options for the collection agency;
  • implementation of a monitoring and evaluation framework, along with a disciplined approach to the identification and management of risks within the UI scheme and its administrative structures; and
  • separate and special attention directed towards the promotion of youth employment.

News from Namfisa

It pays well to be a member of the Namfisa board

We found this news item in the Namibian of interest and worth sharing with stakeholders of our industry:

"The board fees are revealed in the 2014/2015 annual report released in Windhoek on Friday. Board members had a retainer of N$62,613 with chairperson Estelle Tjipuka getting a retainer of N$73,782. In total, Tjipuka earned N$150,431 as a board member of Namfisa during the financial year. Simeon Amunkete earned N$193,371, Gersom Katjimune earned N$185,398, Bonifatius Konjore earned N$127,842 while Malverene Theron earned N$137,453. The board met six times during the financial year." ~ The Namibian

Media snippets
(for stakeholders of the retirement funds industry)

Why only 6% retire comfortably

Speaking at a retirement round table hosted by the CFA Society South Africa, Wouter Fourie, CFP® and the Financial Planning Institute of Southern Africa’s (FPI) Financial Planner of 2015/16, said the reality is that debt is one of South Africa’s biggest problems. A recent World Bank report named South Africans the biggest borrowers in the world. Eighty-six percent of South Africans borrowed money last year, he said. Now we ask ourselves why don’t we have money? Why don’t we save money towards retirement? Because we don’t have money. We’re so in debt at the moment and servicing the debt levels that we’re not able to save. Only about 6% of South Africans can maintain their standards of living in retirement, he said.

Some of the reasons offered for South Africans not saving are –

  • The culture of no planning;
  • Retirement benefits not being preserved;
  • Inadequate exposure of retirement savings to growth assets;
  • Supporting parents and children to the detriment of own retirement savings;
  • Significant levels of unemployment.

To fix the problem this article offers the following suggestions –
Budgeting and understanding that you should not spend more than you earn;

  • Start paying off loans;
  • Gradually enforce retirement savings;
  • Education around retirement savings at school level;
  • Foster and incentivise entrepreneurship;
  • Address overregulation to make it easier to do business and to create jobs;
  • Encourage household savings;
  • Introduce default options in pension funds around investments and preservation;

All of this is as relevant to Namibians as it is to South Africans. In Namibia too personal debt levels have been a concern to the Bank of Namibia for quite some time, and we are probably not in a similar situation.

Read the article by Ingé Lamprecht in Moneyweb of 5 August 2014, here...

Don’t let fear ruin your retirement

“One of the most common questions asked during our radio call-in show, is whether a particular investment is safe. Investors are scared to lose money and in the short-term the risk of this happening in the stock market is high. But this fear should not deter investors from having a significant exposure to equities in the long run when saving for retirement, an educator argues. Of course, if retirement is on the horizon a very aggressive exposure to equities may not be in the client’s best interest (depending on the specific situation), but even in this instance, care should be taken not to be “recklessly conservative.”

Read the full article by Ingé Lamprecht in Moneyweb of 28 July 2015, here...

Media snippets
(for investors and business)

Strap yourselves in says SA Reserve Bank Governor

“The global economy is entering into new unchartered waters with the prospect of normalisation in the US and a slowdown in China, impacting on commodity prices," Mr Kganyago said. "The reality is that SA, along with other emerging market economies, is likely to face an increasingly turbulent time ahead." He reiterated that the rand exchange rate was one of the main upside risks to the inflation outlook, but added that the central bank did not target a level for the currency. The central bank's concern about the impact of US policy normalisation did not however mean it would simply follow global interest rates in conducting domestic policy.

Read the article in Investors Monthly of 11 August 2015, here….

SA is one of the riskiest places to invest in the world

South Africa is one of the highest-risk countries in the world when it comes to investment, according to new data from Bank of America Merill Lynch. The investment group published a map in its “Transforming World Atlas” report, showing how costly it is to insure investments in markets across the world. The map is based on sovereign credit default swap (CDS) prices, which is considered insurance against non-payments. The higher the cost, the higher the risk.

Read the article in BusinessTech of 16 August 2015, here…

Devaluation of yuan rattles African economies

The shock waves from China’s surprise yuan devaluation are ricocheting through African economies, sending currencies tumbling and stoking anxiety that the continent’s biggest trading partner might be losing its appetite for everything from oil to wine. The rand hit a 14-year low of R12.94 to the dollar on Monday, extending a 2% drop since August 10 and a 12% slide this year. Currencies in other African countries with close ties to China, such as Angola’s kwanza and Zambia’s kwacha, are also down sharply after Beijing unexpectedly cut the yuan’s value by 2% against the dollar last Tuesday.”

Read the full article by Patrick Mcgroarty and Martina Stevis Business Day Live of 18 August 2015 here…

And finally...

"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages."
~ Adam Smith


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