In this newsletter:
Benchtest 11.2015, Namfisa reporting deadlines, RFS safety net, fund governance and investment policy, dread disease cover, industry under pressure and more...

Dear reader

This newsletter is dominated by topics dealing with our Regulator. We reflect on how the industry feels in the face of ever-rising pressure being exerted, we provide some guidance on typical deficiencies the Regulator is lamenting on in pension fund governance, we contemplate on whether NAMFISA actually has the authority to raise penalties and we draw attention to reporting due dates coming up.

We also draw trustees’ attention to changes to the Pension Funds Act that relate to deductions from benefits emanating from the Maintenance Act, to dread disease benefits, a crucial benefit that should be offered by every fund, and to what RFS can offer in terms of peace of mind that your fund is in safe hands.

Of course as usual we also have links to topical articles from various media that reader should not overlook – they are carefully selected for the value they add to the financial well-being of pension funds and individuals.

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


Tilman Friedrich

Happy New Year from the Managing Director
To our clients - we are sincerely grateful for your loyal support over the past so many years! We hope that we have been able to let you 'sleep in peace' over your pension fund administration as we unrelentingly pursued our efforts to provide ‘rock solid fund administration’ to your funds. 

We hope that 2016 will be an excellent year for you, not just in terms of achieving resolutions and goals, but also in terms of being a stress-free year.

2015 was a year of growth for us. We strengthened our governance mechanisms, began the process of testing and implementing our new IT system, and our staff grew as well. All of this places us on an even better footing to give you the unrivalled service that lets you 'sleep in peace'.

Read the full review of RFS in 2015, here...

Tilman Friedrich's Industry Forum

Benchtest Monthly 11.2015

In November the average prudential balanced portfolio returned -0.32% (Oct: 5.23%). Top performer is Investec (0.39%); while EMH Prescient (-1.21%) takes the bottom spot. For  the 3 month period Allan Gray takes top spot, outperforming the ‘average’ by roughly 1.8%. On the other end of the scale EMH Prescient underperformed the ‘average’ by 1.6%.

Should your asset manager factor political considerations into an investment decision?

When you listen to money managers of pension fund investments, they say their investment horizon is the long-term and they will caution not to be overly concerned about the short-term. They will also tell you that in the long-term you should be invested in equity as equity has historically proven to outperform all other ‘conventional’ pension fund asset classes. But look at this table that reflects returns to 31 October 2015:

Worst performer
Best perfomer
JSE Allshare
3 months
6 months
Year to date
1 year
3 years
5 years
10 years
15 years

The interesting conclusion is that even the worst performing typical pension fund investment manager managed to outperform the JSE Allshare index over all periods barring the 3 months to 31 October where it underperformed and the year-to-date where it performed on par with the JSE Allshare Index. Does this prove the adage wrong that equities outperform all other conventional asset classes over the long-term?

No, it does not but what this does show is that by adapting the mix of asset classes in the pension fund investment portfolio in the light of changing market conditions, investment managers manage to outperform equities. How is this possible you may ask? Well the point is that there are the short- and the medium-terms when other asset classes outperform equities and if the investment manager does his job well, as it seems they generally do, he pre-empts swings in fortunes between the different asset classes by switching between these in good time. The best quality investment managers need to possess in this regard is discipline. Set your pointers when to switch out of an asset class and when to switch into an asset class and do this consistently and in a disciplined manner.

But what about the political environment? Can you divorce the political environment from the economic environment?

Read part 6 of the Benchtest 11.2015 newsletter to find out what our investment views are. Download it here...

Graph of the month

The oil price and its sudden collapse is undoubtedly the theme of the year as far as economic issues are concerned. The reason mostly offered for the collapse is the oversupply of crude to the world market. But is this true? Given that it is not easy to measure global supply or global demand, ‘Energy Briefing: Global Crude Oil Demand & Supply’, published by Yardeni Research Inc is probably as good a source as one can get.

Our graph of the month below reflects the crude oil demand/ supply ratio based on 12 month average demand and supply and clearly shows that there is currently still a short supply of crude oil.

An industry in the pressure cooker

As referred to in ‘News from NAMFISA' below , pension funds are now required to submit 2 reports  for periods ended 31 December 2015, by 31 January 2015. Last year’s reports were due only at the end of February 2015. This posture towards pension funds and their service providers really leaves one speechless. The fact that there are so many holidays in December and January and that this is the one time in the year where people take longer leave which obliges employers to work on skeleton staff is of absolutely no concern to the regulator. Yes, the regulator can argue that the challenges the industry may experience should not be of relevance to her but is it really in the regulator’s interests to alienate the industry to the point where there is no voluntary cooperation.

The trait of a good leader is to place higher demands on him than on your subjects and to lead by example. In this context, if our regulator is so demanding on her subjects we would expect him to be a good leader, to place higher demands on herself than on his subjects, to not work on skeleton staff over the festive season, to produce her reports in a shorter time than what a team of service providers of each fund has to achieve for 100 funds. It is noteworthy that the quarterly statistical bulletin for the 4th quarter of 2014 was released only on 5 May, more than 2 months after all supporting information was submitted by the industry in prescribed format having been granted only 2 months to do so. Bet you our regulator does not work on full staff complement, over the festive season? Bet you the quarterly statistical bulletin for quarter 4 of 2015 will not be released by end of February 2016?

We do not believe that there is any imperative to have set 31 January 2016 as due date for these two reports as no effort was made to explain the advancement of the due date from last year’s, that was already challenging to meet. The only conclusion one can make is that the regulator is intent on putting more heat on the pressure cooker in an effort to cook this industry soft before the cooker explodes.

Pension fund governance and generic investment policy

The regulator’s expectations of funds in terms of governance have been increasing steadily and it is exerting pressure on funds through its so-called enforcement ladder. This enforcement ladder has 5 stages of intervention:

  1. No significant problems;
  2. Early warning;
  3. Risk to viability or solvency;
  4. Future viability in serious doubt;
  5. Entity not viable or insolvency imminent.

Funds will be classified into a stage of intervention based on NAMFISA’s supervisory and regulatory activities, such as on-site inspections. Each stage of intervention envisages increasing levels of intervention and reporting and compliance requirements by Namfisa. Download the circular here…

In our experience from past on-site inspections the more common issues raised by Namfisa are:

  • Fund does not have an investment policy that makes provision for a strategic asset allocation;
  • Fund does not carry out trustee performance appraisals;
  • Fund does not have a code of conduct;
  • Fund does not have a risk management policy;
  • Fund does not have a conflict of interest policy;
  • Fund does not have a communication policy;
  • Fund rules do not set out how unclaimed benefits will be disposed of;
  • Fund rules to not provide for a term of office of the trustees;
  • Service provider agreements are not in place.

Do avoid being sucked further into NAMFISA’S enforcement processes. Trustees should ascertain that their fund meets at least all the above requirements.

In the next few newsletters we will assist trustees with generic document templates that can be adapted to meet their fund’s specific objectives. If you do not have any of the documents in place yet, please have your consultant assist you to adapt these documents to your circumstances and objectives.

To start off we provide a generic investment policy statement here…

Imposition of penalties – are we back in the dark Middle Ages?

During the dark Middle Ages robber barons used to put up their castles along busy trade routes to extort their tolls from defenceless people minding their business.

Being pounded with threats of penalties in every communication from NAMFISA one cannot help feeling like people living back in the Middle Ages must have felt when they had passed yet another one of these toll stations.

While regulation 26 of the Pension Funds Act was amended specifically to empower NAMFISA to impose penalties under prescribed conditions, NAMFISA has assumed the power to deem the submission of any report that contained incorrect information or was missing information as not having been submitted until it is resubmitted with all missing and with the correct information. From this ‘self-empowered deeming provision’ it then argues sequaciously that it can impose a penalty of N$ 500 per day of late submission in case the corrected version was not submitted in time.

We believe that raising of penalties under these circumstances is unlawful and that the regulator should be challenged on this.

Regulation 26 reads as follows:

Administrative penalties -

26. (1) Without derogating from section 37 of the Act, a person who fails to
make a return or to transmit or deposit a scheme, report, account, statement, other document or information within the time prescribed by the appropriate provision of the Act or the Regulations or within any extended period allowed by the Registrar in terms of sections 24 and 33(1) of the Act is still after such failure permitted -

(a) to furnish such return; or

(b) to transmit or deposit such scheme, report account, statement, other
document or information, subject to the payment of a penalty of N$500 for every day during which the person remains in default.”

Evidently the regulator can only impose a penalty if a respondent has not submitted the type of information referred to above, where the time is prescribed by the appropriate provisions of the Act or the regulation and has not been complied with. Any reports not prescribed in the Act or a regulation cannot be subject to the threat of a penalty for late submission, let alone for incorrect or incomplete information.

Attachment of pension benefits

Section 37 A of the Pension Funds Act was amended through the Maintenance Act, section 50(2) by replacing the reference to “…Maintenance Act, 1963 (Act No 23 of 1963)…” with Maintenance Act, 2003 (Act No 9 of 2003)…”

Section 28 (5) of the Maintenance Act stipulates “Notwithstanding anything to the contrary contained in any law, any pension, annuity or compassionate allowance or other similar benefit is liable to be attached or subjected to execution under a warrant of execution or an order issued or made under this Part in order to satisfy a maintenance order.”

Thus, an order made by a maintenance court, attaching any pension fund benefit of a member must be acted upon by a pension fund when we serve a warrant of execution. The question that begs to be answered though is whether this refers only to recurring payments, which we believe it does, or to lump sum pension fund benefits as well. Anyone prepared to venture an expert opinion?

Why should pension funds offer dread disease?

In earlier newsletters (2015-06, 2015-07) we dwelled on what the purpose of a pension funds is, namely to provide for the needs of its members. We suggested that the most important needs of pension funds members are –

  • Death;
  • Disablement; and
  • Retirement.

The name ‘pension fund’ in the first instance suggests that the fund should be about providing for a pension upon retirement. However the other two key needs that should be considered is death and disablement. Besides the fact that members and their beneficiaries are often seriously affected as the result of death or disablement of the member, employers also have a strong moral compulsion to ensure that provision is made for such life changing events mostly by means of the company’s pension fund.

Over the years, pension funds have evolved to provide for these key needs and employers who do not offer a pension fund or whose fund does not provide for these key needs are at a great disadvantage vis-à-vis those that do offer provision for these events in a competitive labour market.

What is a dread disease benefit? Essentially it provides for sickness conditions that cause the employee to be unable to follow his occupation. Conditions covered normally are stroke, heart attack, organ failure or transplant, blindness, paralysis, loss of limbs etc.

Usually the dread disease is an accelerated lump sum payment of the lump sum benefit payable in the event of death to assist the employee with the high costs typically associated with such a condition.

We believe that dread disease benefits are a key need of staff at all levels and offer an important competitive advantage to those employers whose pension fund offers these benefits to their employees. Employers whose fund does not offer the dread disease benefit should seriously consider introducing this benefit.

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 CEO of a pension fund sponsor

“Ihr nehmt uns viel Verantwortung und Arbeit von den Schultern und wir wissen dass wir bei euch gut aufgehoben sind.”
Translated - “You take a lot of responsibility and work off our shoulders and we know with you we are in good hands.”

Read more comments from our clients, here...

Kai Friedrich's Administration Forum

Our Safety Net – can any fund afford less?

For the peace of mind of trustees our safety net offers you:

  • Fidelity cover of N$ 5 million, excess of N$ 250,000 1 July 2015 to 30 June 2016, Western National Insurance Company;
  • Professional indemnity cover of N$ 50 million, excess of N$ 250,000 1 July 2015 to 30 June 2016, Western National Insurance Company;
  • Directors' personal liability cover of N$ 5 million per director, 1 November 2015 to 31 October 2016, Santam;
  • Full-time internal audit, compliance and risk management function supported by 2 independent chartered accountants on a part-time basis;
  • Off-site disaster recovery data centre;
  • Continuous data and system replication;
  • On-site back-up generator;
  • Secure IT production centre;
  • High availability virtual server environment;
  • 63 full-time staff focussed on fund administration only;
  • Average of 14 years relevant experience per employee;
  • 23 holders of a diploma or certificate;
  • 17 graduates;
  • 5 honours degrees;
  • 7 CFP® practitioners;
  • A track record second to none;
  • and more...

How much is good governance worth to you as a trustee – can you afford to pay less for compromising on any of these credentials?

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.

RFS executive committee

Kai Friedrich, Director of Operations (pictured above) joined us on 1 March 2013 from PricewaterhouseCoopers. Kai is a born and bred Windhoeker and matriculated at Delta Senior Secondary School. He then enrolled at University of Stellenbosch where he obtained a Bachelors of Accounting (Honours) in 2008. He served his articles with PricewaterhouseCoopers, qualified as Chartered Accountant (Namibia) at the beginning of 2012 and advanced to the level of audit manager. Closer to home he obtained the Post Graduate and the Higher Post Graduate Diploma  in Financial Planning and is a Certified Financial Planner® practitioner. He holds certificates for a variety of short courses completed over the past few years. After having been responsible for our retail clients and investment reporting, Kai has is responsible for our private fund administration and for private fund accounting.

News from NAMFISA

SIH return for 31 December due by 31 January

As per NAMFISA circular of 7 December, the Statement of Investment Holdings report for the quarter ended 31 December 2015 is due for submission 31 January 2016.

Annual ERS return as at 31 December due by 31 January

As per NAMFISA circular of 8 December, the unaudited annual ERS return for the year ended 31 December 2015 is due by 31 January 2016. Any request for extension due to exceptional circumstances must be submitted by 18 January 2016.
Notice of extension of unlisted investment compliance

On 14 December the industry was informed that the Honourable Minister has granted approval to extend the exemption period once again from 30 September 2015 to 30 December 2015. Fund’s compliance with regulation 28 (4) will only be assessed effective 1 January 2016.

This means that funds will have to be invested in or have committed to an SPV a minimum of 1.75% and a maximum of 3.5% on 31 December and will only be penalised as from 1 January 2016 in the event of non-compliance.

Download the circular here...

Pension funds industry consultation session of 2 December 2015

This industry meeting was attended by 33 industry representatives. Only 11 out of roughly 100 pension funds were represented, the balance being service provider representatives.

FIM Bill

  • Bill is with Cabinet Committee on legislation;
  • Government legal drafters submitted comments to NAMFISA , its responses still to be shared with Ministry of Finance;
  • Time frame for promulgation difficult to foresee at this stage.

SPV’s and UIM’s

  • Pension funds permitted to register their own SPV (is there any fund that can afford to do this other than the GIPF?)
  • 15 SPV’s and 18 UIM’s registered to date;
  • Good comments received for changes to regulation 28; still being considered by NAMFISA.

Circular on approved bonds

  • Initial circular was retracted. Comments received on the circular will be considered as part of the review of regulation 28.

Official forms

Official forms were introduced for the following purposes. These forms must now be submitted on the ERS system and in addition, must be submitted hardcopy (can this unnecessary duplication be avoided – it all eats away from pension fund members’ retirement capital?).

  • Rule amendment
  • Registration of a pension fund
  • Section 14 transfer
  • De-registration of pension funds
  • Appointment of principal officer
  • Appointment of valuator
  • Appointment of auditor

Payment of contributions by employer

  • Contributions must be paid to the fund within 7 days;
  • NAMFISA to be informed about failure to pay over contributions.

Industry malpractices

  • Only one reported on - funds enter into housing loan agreements with banks without the rules providing for this.

Next industry meeting

  • Set for 14 March 2016 (we encourage all funds to attend).

Minutes of this meeting can be downloaded here...

News from the market

Namibia Employers Federation newsflash December 2015

Employment Services Act

  • IT network to support operations of the National Bureau is not in place yet. Employers are required to deliver vacancy notifications in hardcopy to the nearest Labour Office.

Amendments to Labour Act

  • The process of amending the Labour Act has commenced. NEF invites additional proposals for inclusion in the process.

Read the newsletter here…

Fed lifts repo rate

For those who were already on holiday and ‘off air’ when the announcement was made – the Fed’s repo  rate was raised from 0.25% to 0.5% on Wednesday 16 December.

Legal snippets

Deductions that may be made from pension benefits in favour of the employer

Employers need to ascertain that their ‘house is in order’ when attempting to attach an employee’s pension fund benefit for amounts owing to the employer. Often this is not the case and employer than resort to putting pressure on their pension fund and its administrator to breach the law and deduct the amount owing from the employee’s benefit.

When an employee causes loss to the employer through theft, fraud, misconduct or dishonesty the law makes provision for recovering this loss, but only if certain specific conditions have been met. Employers are well advised to have a ready-made declaration template drawn up by their attorney that can be handed to an employee prior to leaving service as the result of having caused loss through one of the defined causes.

This article takes recent adjudicator determinations into account and summarises the preconditions to be met as -

  1. There must be a retirement savings benefit payable to the employee by a pension or provident fund.
  2. The employee must owe an amount to his employer on the date on which his membership of the fund ends.
  3. The damage(s) caused to the employer must be as a result of theft, dishonesty, fraud or misconduct by the employee. The term “misconduct” in this phrase means conduct which contains an element of dishonesty. This does not include negligent conduct.
  4. The employee must either admit liability in writing to the employer, or the employer must get a ruling in a court of law for payment of the amount. This is referred to as a civil judgment. The employer should make sure that if they bring criminal charges against the employee, they also ask that a compensation order be issued in terms of the Criminal Procedure Act. The criminal conviction of the employee might only put them in jail; resulting in the employee then not having to pay damages to the employer.
  5. The written admission must be made voluntarily, not under duress or undue influence.
  6. The judgment or the written admission of liability must relate to the compensation due in respect of the damage caused to the employer by the employee's dishonest conduct.
  7. The written admission or court judgment must clearly state the exact amount compensation or damages.

Read the full article by Hetty Joubert in FA News of 7 September 2015, here...

Media snippets
(for stakeholders of the retirement funds industry)

Will you be able to support your living standard in retirement?

“Defined benefit funds generally examine their asset base every few years to determine if they would be able to honour the promise they made to their members (their liability). Where funds establish that they do not have enough assets to do so, the company whose employees are affected often have to step in and provide additional funding.

Glass is arguing that retirement fund members need to do a similar calculation to determine if their assets could provide them with an income that would be sufficient to maintain their standard of living in retirement. If members do not keep tabs on their situation and do not do so regularly, they may end up in the same position as the company and will have to make significant additional contributions to top up their retirement savings…A measure widely used in the retirement industry is the net replacement ratio. It expresses an individual’s pension expectation as a percentage of his final salary. A general rule of thumb suggests that people should target at least 75%, although many argue that even 75% may be inadequate.”

You need to set and monitor your goal –to find out what you should do,  read the full article by Ingé Lamprecht in Moneweb of 17 December here…

Media snippets
(for investors and business)

Consumption in China: from commodities to Karaoke

“As China continues its transition to a domestic-led economic model from one that has been primarily export based, the country’s overall gross domestic product (GDP) growth has slowed. A slowing in growth is to be expected given the tremendous increase in the size of China’s economy over the past couple of decades, but we must not forget the dollar value of its economy has grown tremendously. There has been some debate about how China’s demand for commodities overall will change as its economic model shifts. We think China’s energy and metal consumption is more likely to increase than decrease over the long term given the tremendous growth and improvement in infrastructure that is still needed in China compared with developed countries. This sustained demand is likely to be fuelled by continued migration from rural areas in China to the cities, in our view. However, we recognize that demand may not meet previous expectations of various commodity-producing firms, which may have overestimated demand growth from China and other parts of the world.”

Read the full article by Mark Mobius in Cover of 30 November 2015, here...

The big commodities price plunge

“The Chicago Research Bureau commodity price index is one of the most widely followed and traded commodity indices in the world. It has been around since 1947 and has been tracking the commodities that Americans use most. It includes everyday items such as oil and coal as well as maize; wheat; meat and orange juice. It is closely watched for signs of product inflation. Generally it is made up of 40% of food stuff; 40% energy and 20% metals and other commodities such as lumber. Every now and again the commodities change but the index remains and can be used as a history lesson. In the last three days the index has been at levels last seen in June 1973. It has dropped 63.1% from its high in 2008. That is the biggest drop in its history – ever.”
For commodity based economies such as ours and SA’s, this is bad news at a time when we are already struggling to balance our budgets.
Read the article by Mike Schüssler in Moneyweb of 14 December 2015, here...

5 New Year resolutions for building your wealth

There is no better time to do a financial health check than the beginning of a new year.

  • A perfect place to start is this time of the year when most companies pay bonuses – use this money to clear your credit or store card. Do you really need all these credit cards and store cards ? Clear those cards cut them up and throw them away;
  • Protect your credit rating that you can maybe borrow money to fund a house or a car later on, it’s important to make your monthly payments, and make those monthly payments each and every month - and take into account anything like cell phone accounts as well as they are also rated;
  • Start packing your own lunch, stop that coffee cost. It’s amazing if you make that mind shift how quickly you get into the habit and how quickly you start saving money;
  • Go and look at your bond repayment, look at your retirement savings and ensure, even if it’s only a 5% increase, adjust those bond repayments, adjust your retirement annuity savings;
  • It’s all good and well having insurance, but insurance that you took out five years ago when you weren’t married, when you didn’t have kids, when your house was smaller, and your car was new is not going to cover you five years into the future when inflation has kicked in and your responsibilities have kicked in. It’s something that you need to look at on an annual basis.

Extracted from an interview in Moneyweb of 11 December 2015, here...

And finally...

When insults had class - something to smile about

This glorious insult is from an era before the English language got boiled down to 4-letter words.

The exchange between Churchill & Lady Astor:
She said, "If you were my husband I'd give you poison."
He said, "If you were my wife, I'd drink it."

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