Trustee training 13 and 14 June
Elite Consulting has once again hired Peter van Ryneveld to present a 1 ½ day training course for trustees. The training will commence each day at 08:30 and end at 17:00 with a lunch break between 12:45 and 14:00. Hand-outs on the course material will be given to each participant. The cost of the training will be N$ 3,900 (excl. VAT) per delegate for attending both days. Closing date for enrolment is 31 May 2016. Download an outline of the two-day training course including information on the presenter, here...
In this newsletter we continue our support to trustees with a generic communication policy. This should of course be adapted to meet the needs of a particular fund. Find it below.
We look at how far NAMFISA’s powers stretch as examined in a legal opinion by advocate Heathcote, we question why NAMFISA objects to vesting scales with reference to OECD guidelines, we provide feedback on the latest pension industry meeting and draw attention to an amendment of the Income Tax Act with regard to withholding tax on entertainment and directors fees payable to a non-resident.
Of course as usual we comment on the global financial markets environment and also have links to topical articles from various media that readers 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's Industry Forum
Benchtest Monthly 04.2016
In April the average prudential balanced portfolio returned 0.12% (Mar: 2.76%). Top performer is Metropolitan (0.62%); while Stanlib (-0.45%) takes the bottom spot. For the 3 month period Namibia Asset Management, takes top spot, outperforming the ‘average’ by roughly 2.4%. On the other end of the scale Stanlib underperformed the ‘average’ by 1.1%.
Volatility in global equity markets has declined substantially since the advent of the global financial crisis. The US S&P 500 moved from as high as 80 points volatility to hovering around 20 points since 2012. This indicates that investors believe markets are stable - or does this indicate that we are in the eye of the storm? Well looking at what is happening in the world around us we note that the Chinese economy is slipping further. Interest rates have not turned the corner and are at unsustainably low levels. This in our view is indicative of trouble brewing somewhere in investment markets. There is upheaval all around the Mediterranean, there is the threat of a Brexit, there is the European refugee crisis, an economic and political crisis in Brazil, the Ukrainian crisis, the US presidential elections, the unpredictability of the oil price and more. All of these present uncertainty and thus risk for the investor that should manifest in market volatility.
What should we expect to happen? A distinct possibility is that a Donald Trump as next US president, and as a political outsider, may well have the courage to act as if he was the new CEO, not being loaded with the political baggage of the candidates that participated in previous elections – take the pain now and move forward! Such a scenario really spells doom for debtors whose liabilities of course will retain their value while any assets will experience a decline in value.
Read part 6 of the Benchtest 04.2016 newsletter to find out what our investment views are. Download it here...
Pension fund governance - a generic risk communication policy
In this newsletter we present a generic communication policy. The aim of this policy document is to embed good governance at a fund into the business of the board of trustees of overseeing the operations of the fund. The communication policy of the Fund is aimed at promoting and supporting the governance, fiduciary and reputational interests of the trustees and members.
This policy sets out to ensure effective communication that promotes and supports the objectives of the Fund. This policy also sets out the duties and obligations of each party that is involved in communication relating to the Fund and its members and stakeholders.
The following documents can be further adapted with the assistance of RFS.
Download the generic communication policy here...
Download the generic risk management policy here...
Download the generic service provider self-assessment here...
Download the generic conflict-of-interest policy here...
Download the generic trustee performance appraisal form here…
Download the generic investment policy here...
Download the generic trustee code of conduct here...
In future newsletters we will consider the following matters also identified by NAMFISA as frequently missing:
Fund rules do not set out how unclaimed benefits will be disposed of;
Fund rules do not provide for a term of office of the trustees; and
Service provider agreements are not in place.
How far do the regulator’s powers stretch
In 2006 Advocate Raymond Heathcote was engaged by the Namibian Ombudsman, in response to a complaint laid by Sternlink Financial Services about certain directives NAMFISA issued, to express an opinion on the powers NAMFISA has under the NAMFISA Act read together with the Namibian constitution.
More specifically, Advocate Heathcote was requested to advise in relation to the following issues:
Does NAMFISA have the authority to regulate healthcare consultants?
Does NAMFISA have the powers to issue directives as it did?
As to the first question and with reference to the NAMFISA Act, advocate Heathcote concluded that NAMFISA does have the powers to supervise healthcare consultants.
As to the second question, advocate Heathcote turned to articles 21(j) 21(2) and 22 of the Namibian constitution. Article 21 deals with fundamental freedoms while article 22 deals with limitation upon fundamental rights and freedoms. These state the following:
“21 (j) practise any profession, or carry on any occupation, trade or business.”
“21 (2) The fundamental freedoms referred to in Sub-Article (1) hereof shall be exercised subject to the law of Namibia, in so far as such law imposes reasonable restrictions on the exercise of the rights and freedoms conferred by the said Sub-Article, which are necessary in a democratic society and are required in the interests of the sovereignty and integrity of Namibia, national security, public order, decency or morality, or in relation to contempt of court, defamation or incitement to an offence.
“22 Whenever or wherever in terms of this Constitution the limitation of any fundamental rights or freedoms contemplated by this Chapter is authorised any law providing for such limitation shall:
(a) be of general application, shall not negate the essential content thereof, and shall not be aimed at a particular individual;
(b) specify the ascertainable extent of such limitation and identify the Article or Articles hereof on which authority to enact such limitation is claimed to rest.”
On this question advocate Heathcote concludes that –
“…the directives issued by NAMFISA never had the force of law, were ultra vires and are null and void. In any event, to declare the provisions of the directive effective with retrospective effect, usurps a function which not event Parliament may do. In turn, to declare existing agreements null and void usurps the powers of a court of law – article 12(1)(a) of the Namibian Constitution.
That supervision is necessary, is not in issue. But the quest for supervision, and the necessity thereof, do not authorize unconstitutional action. By putting courts of law in an invidious position – by arguing that if it is now found that the directives do not have the force of law, the result would be chaos – is not constitutionally responsible or permissible. At the end of the day, total chaos is guaranteed if administrative bodies are allowed to operate as legislators. Valid “laws” should have been made by NAMFISA, e.g. regulations in terms of section 35 of the [NAMFISA] Act.’
Read the full legal opinion here...
What is wrong with vesting scales?
NAMFISA has taken the position that vesting scales shall not be allowed anymore. This is despite the fact that the Pension Funds Act does not prohibit vesting scales. Going by what advocate Heathcote concluded in the preceding article, the directives issued by NAMFISA do not have the force of law and are ultra vires.
However when the FIM Bill arrives, the law will prohibit vesting scales if NAMFISA has its way. But why should NAMFISA be so opposed to vesting scales? The argument put forward by officials is that employees are paid a package so a fund rule that provides for any portion of the employer contribution not being awarded to the employee is unfair towards the employee. Firstly why should NAMFISA take it upon itself to intervene in a labour issue if fairness was its only concern? Secondly, the argument that employer contributions are part of an employee’s remuneration package is flawed. Many employers’ policy is to pay a salary. In addition to the salary the employer incurs certain costs in an effort to achieve certain business objectives such as promoting long service with the employer.
The regulator should distinguish between mandatory pension schemes and voluntary employer sponsored pension arrangements. In the former case no one would object to the regulator prescribing the manner in which benefits are to be determined. In latter case however, it is preposterous of a regulator to prescribe to someone who makes voluntary provision for pension benefits how these are to be determined and will only lead to the employer losing interest in its initiative to voluntarily offer retirement arrangements to staff.
Vesting is a globally accepted practice. The OECD has produced ‘Guidelines for the Protection of Rights of Members and Beneficiaries in Occupational Pension Plans’. In the introduction the intention of these guidelines is defined as to “… guide regulators, supervisors and other entities involved in pension plan design, administration and management, rather than to bind member countries. They aim to present good practices as agreed upon by the 30 OECD member countries participating in the Working Party and the members of the INPRS that participated in the document’s development.”
Section II deals with benefits and vesting rights. Paragraph 2.2 more specifically states that “2.2 Accrued benefits should vest immediately or after a period of employment with the employer sponsoring the plan that is reasonable in light of average employee tenure. Benefits derived from member contributions to the pension plan should be immediately vested.”
So – what is wrong with vesting scales?
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.
Compliment from a principal officer on the submission of SIH return for quarter 1 of 2016
Thank you very much for your efficiency and high level of professionalism...”
Read more comments from our clients, here...
Gunter Pfeifer's Benchmark Notes
The relevance of the salary replacement ratio
Most of us save for retirement in some form or another. All of us, however, hope that when we retire, enough investments have accumulated for a dignified retirement. Instead of just hoping for the best, one should plan for retirement and one of the tools that can be utilized is the salary replacement ratio. This ratio expresses the pension that will be received on retirement as a percentage of the pensionable salary in the last month before retirement. The table below reflects this ratio, based on certain assumptions.
You will realize that we place a lot of emphasis on ‘real investment returns’ and on ‘income replacement ratios’ and you may ask, are the figures used in the table good, bad or indifferent? Firstly, if you invested in equity only, history as shown that you can expect a ‘real investment return’ in the long term of around 7%. Pension funds, however, are only allowed to invest a maximum of 75% in equity. So ‘real investment returns’ from a typical prudential balanced pension fund portfolio, should be around 5% in the long term. The table uses 5% as the maximum as more conservative portfolios are likely to achieve lower real returns in the long term. You will notice that the table does not produce an income replacement ratio of anywhere close to 100% for any of the scenarios. Internationally pension fund structures aim to achieve an income replacement ratio of 2% per year of service, i.e., if you worked and saved continuously for retirement for 40 years, a well structured fund should be able to offer you a pension equal to around 80% of your last salary before retirement. An income replacement ratio of 100% is therefore essentially unachievable.
The table is read as follows: a member that has invested in a portfolio (or combination of portfolios) that yields 4% above inflation (i.e. ‘real investment return’ of 4%) and who has contributed 14% of pensionable salary to a retirement fund will have a replacement ratio of 63%. The pension to be received will be 63% of the last pensionable salary. It is important to note that contributions listed above are after risk premiums and other costs, i.e. it is the actual portion that is set aside for retirement. Total contributions to a retirement fund for this member could be something like 17%, where perhaps 3% is used to pay for death and disability cover as well as administration and other costs.
Another important assumption underlying the above ratios is the number of years that the member contributes to the retirement fund. In this case we have assumed 30 years of contributions until retirement age 60. Life expectancy after retirement has been assumed as 20 years. Where a member changes jobs, it has been assumed that any accumulated fund credit is preserved in a preservation fund and not eroded through a cash withdrawal.
Four factors are crucial to ensure a dignified retirement:
Net contributions and investment returns need to be balanced. Where a moderate risk portfolio is chosen that yields on average 4% above inflation (after fees), net contribution rates should not be lower than 13%. Use the table to establish where you or your fund lie. Make changes while you still can.
Pensionable salary should not be significantly lower than total remuneration package. Your standard of living is largely a function of your total remuneration. It is the pensionable salary however that determines the pension you will be earning one day.
Setting retirement savings aside is a long process. The longer the period you save for retirement, the better. As a minimum it needs to be 30 years.
Do not access your retirement funds when changing jobs, no matter how tempting it may be.
Gunter Pfeifer is former Principal Officer and now a trustee of the Benchmark Retirement Fund. He holds a Bachelor of Commerce (Cum Laude). He completed his articles with Deloitte & Touche. He completed the De Beers Program For Management Development at Gordon Institute for Business Science, and the Advanced Development Program at the London Business School. He was formerly Financial Manager of De Beers Marine.
News from RFS
RFS sponsors SKW youth soccer tournament
For the 12th consecutive year in our 17 years of existence, RFS sponsored the annual SKW youth soccer tournament that was staged by the SKW soccer division during April 2016. Over 1,000 young aspiring soccer stars from all over the country participated in this event. Our congratulations go to the organisers for a well-organised tournament. Pictured with winners, above Director Sharika Skoppelitus, and below, Director Gunter Pfeifer.
Download the final 2016 logs of this prestigious tournament here...
RFS executive committee
Louis Theron, Director: Support Services, joined the company in March 2008. He is a Namibian, born in Cape Town, but grew up on a farm in the south. He obtained a B Econ degree (in 1989) and a higher education diploma (in 1990) from UOFS. In 2003 he obtained an honours degree in business administration from the University of Stellenbosch. Before joining RFS, Louis was employed at Agribank as Manager Financial Services at the time of his departure. Closer to home he served as trustee of the Agribank Pension Fund for 11 years and represented Agribank as director on various boards.
News from NAMFISA
Industry meeting held 16 April 2016
Here are a few key issues arising from the meeting:
NAMFISA will provide training on the completion of the quarterly ERS based returns;
Once the quarterly return ‘goes live’ funds will have 30 days to submit (presumably this will now be 45 days until the end of March 2017 as per subsequent NAMFISA circular);
Application for exemption from quarterly regulation 28 reporting by funds only investing in insurance policies will be considered on a case-by-case basis;
Funds are permitted by regulation 29 to register their own SPV (this requires a fund to be of significant size to justify setting up an own SPV, of which there may be 2 or 3);
Prescribed forms required to be submitted must be submitted on the ERS system. The system is not configured to receive multiple applications and in such cases these must be submitted manually;
The industry should do more to resolve complaints at fund level so that there is no need to escalate them to NAMFISA;
FIM Bill still receiving attention of Ministry of Justice;
More FIM standards to be issued in due course;
Market value movement breaches of regulation 28 limits to be corrected within reasonable time “to avoid excessive penalties” but funds encouraged to apply for exemption where this happens;
Ministry of Finance considering proposed amendments to regulations 28 and 29;
Industry players encouraged to engage NAMFISA where the need arises;
Pension funds must inform the regulator of late payment or non-payment of contributions and industry invited to make suggestions to NAMFISA how to deal with this problem;
Some instances of late payment/ non-payment have been referred to Prosecutor General;
NAMFISA commenced its Bill implementation project including risk based supervision;
NAMFISA intends to issue a directive on corporate governance principles to pension funds in the course of the year;
Next industry meeting scheduled for 12 September.
If you missed the communication of NAMFISA circulating the minutes of the last pension funds industry meeting, download the minutes here...
News from Inland Revenue
Income Tax Act amended
The 2016 Income Tax Amendment Bill tabled in parliament this in May will bring about the following change:
Withholding tax on entertainment fees and fees paid to non-resident directors is raised back to 25% from 10%, as brought about through the 2015 amendment act. The effective date of this change is still to be announced by the Minister once the Bill is approved by parliament.
News from the market
SABCO and SAB African bottling operations to be merged
SA Competition Commission approved the merger of the Coca Cola bottling operations of SAB and Gutsche family investment trust held SABCO. This will effect various African operations but no reference was made to the Namibian operation in the media reports.
Letter from a reader
My wife has an amount of N$100,000 available for a low-risk (not unit trust) tax-free investment.
We have no debts. My wife works at UNAM, but she is settled with her investments. We have organised her investments to her satisfaction. She has 3 ½ years before retirement (she is 61). She has unit trusts with Old Mutual, and also has a Nampost savings account.
Now, we are looking for the best way to utilise the said amount. She is afraid of more unit trusts, and doesn’t want to pay taxes on her investments.
We thought about treasury bills, but she doesn’t need an extra income for now. She gets a small amount from a living annuity. Unfortunately, it culminated into paying a few thousand dollars income tax.
I gather from this that your two main concerns are tax and risk. There are very few tax free investments and all low risk investments are interest bearing investments.
Your choice is thus between a money market unit trust, treasury bills or a Nampost tax free savings account. All these investments do pay interest except that treasury bills would pay it out to you physically while you would be able to capitalise the interest earned on the other investments, i.e. it is just added to your investment and is not paid out to you physically.
(for stakeholders of the retirement funds industry)
Your employer can withhold your retirement benefit
To ask a retirement fund to withhold benefits, the employer must notify the fund in writing and provide the following information:
the nature of the damage caused by the employee
the rand [Namibian Dollar] value of the damage caused
the date the employer began his or her investigation into the alleged misconduct
confirmation of legal, civil or criminal proceedings, or the reasons for not initiating such proceedings
any applicable SAPS [Namibian Police] case information
the amount claimed in civil court
a copy of the letter of demand
confirmation of proceedings and how far they have progressed when employment was terminated or suspended
any other factors that may influence the case
Once this information has been provided to the fund, the fund and its trustees will use their discretion to decide whether or not a benefit is withheld. The following factors must be considered;
the above substantive requirements
the value of the benefit
the losses suffered by the employer, including the legal costs for recovery
if the employer has taken reasonable steps to institute proceedings
if there has been any unreasonable delay on the part of the employer in prosecuting the claim
Read the full article by Claire Densham Communications in Insurance Gateway, here...
PFA lays into fund for holding back death benefit
In this case that was referred to SA Pension Funds Adjudicator, a spouse of a deceased fund member complained about the fact that the fund of which her husband was a member had been waiting for almost 3 years for the payment of the death benefit due to her despite having had regular communication with the administrator of the relevant fund. During this period she had to survive on the old age grant which is not sufficient.
In her determination, SA PFA Ms Lukhaimane said: “For over a period of 30 months after the death of the deceased, no benefit had been paid to the complainant and eventually when payment was made in January 2016, only half of the benefit allocated to the complainant was paid.
It is clear from the submissions that the second respondent failed in its duty to distribute the death benefit within 12 months of the date of death in terms of section 37C(1)(a) of the Act.”
She ruled that the complainant must be placed in the position she would have occupied had the first respondent paid the death benefit within 12 months of the date of the deceased’s death.
“The first respondent should pay the outstanding amount of the death benefit to the complainant together with late interest at the rate of 9% per annum computed from 29 March 2014 [12 months after date of death of member] to date of payment and provide the complainant with a breakdown thereof,” Ms Lukhaimane ruled.
Read the full article in Insurance Gateway of 25 April 2016 here...
Fees, the most proven predictor of unit trust returns
“Anyone investing in unit trusts in South Africa is faced with a daunting choice. There are now over 1 300 funds registered in the country... Choosing an appropriate fund out of this universe is no simple task. The way most investors tackle this problem is to select the funds that have been the recent top performers…Analysis released by Morningstar on Monday re-confirms something that the company has shown before – that funds with lower charges are more likely to out-perform in future. And those with higher charges are not only more likely to under-perform, but to shut down altogether.”
Read the full article by Patrick Cairns in Moneyweb of 10 May 2016, here...
(for investors and business)
Can you afford a long and happy retirement?
“You may be among the fortunate, who followed all the financial advice available to you over the years and you scrimped and saved for retirement and invested sensibly in long-term growth portfolios. When changing jobs you transferred your retirement fund withdrawal benefits to a preservation fund and your most recent benefit statement shows you are on track to achieve your targeted replacement ratio after retirement.
But, how do you ensure that this money will produce the level of income that you are expecting and will continue to produce this level of income no matter how long you live for?
The answer is a simple one. You take out insurance against living for too long. And that is exactly what a traditional guaranteed annuity provided by an insurance company does. It pools the risks associated with thousands of different retirees into a risk pool where no-one knows how long any one annuity will be paid for, but where the average is more predictable. Individual retirees can relax knowing that their pension will continue to be paid no matter how long they live for.
Read what Simone Peile says on the ins and outs of guaranteed annuities in Moneyweb of 21 April 2016 here...
The 6 P’s of a successful retirement plan
“Your retirement years are something to look forward to. This is the time to spend with your grandchildren, pursue your hobbies full-time, or pursue whatever you find most fun and meaningful – at your own pace. But if you did not build up sufficient savings, this phase of your life could turn out to be highly stressful. How do you make sure that you’ve saved enough to enter your retirement years feeling confident and secure?”
Postpone saving no longer
Pay the taxman less
Preserve your money
Professional help is a must
Prolong your working years
Plan your post retirement business
Read the full article by Carl Roothman in Cover of 27 April 2016, here...
Standard Bank SA defrauded by R300 million through credit card scam in Japan
Owners 0f credit cards must be vigilant with regard to their credit cards. In this case 1,600 SA credit cards were used to draw multiples of R 14,000 cash from each account in Japan.
Read how the gangster achieved this feat in this article by Prinesha Naidoo in Moneyweb of 25 May 2016, here…
Research-proven tricks that make you seem smarter than you are
“It’s great to be smart, but intelligence is a hard thing to pin down. In many cases, how smart people think you are is just as important as how smart you actually are…You might not be able to alter your genetics, but there are some proven strategies that can help you appear to be smarter. Some of these strategies seem arbitrary, but research shows they make a massive difference.”
Here are these tricks in short:
Use a middle initial.
John F. Kennedy. Franklin D. Roosevelt [typically American – probably won’t work in Namibia]. For academic competitions, people who used middle initials were selected more frequently than those who didn’t.
Research conducted at Cornell suggests that people are more likely to trust a source if it contains graphs.
Skip that drink.
A joint study conducted by the University of Michigan and the University of Pennsylvania revealed that merely seeing someone hold a drink is enough to make them seem less intelligent.
Believe in yourself.
Nothing projects intelligence quite like confidence.
If you’re really smart, you shouldn’t have to use big words to broadcast it. True intelligence speaks for itself, so you don’t have to show off your impressive vocabulary.
Communication expert Leonard Mlodinow makes the case that even if two people say exactly the same thing, the one who says it most expressively will be perceived as being smarter.
Look 'em in the eye.
In a study conducted at Loyola University, participants who intentionally managed their eye contact scored significantly higher on perceived intelligence.
Wear nerd glasses.
Research shows that people wearing glasses—especially thick, full-framed ones—are perceived as being more intelligent.
Keep pace with the crowd.
If you want to look smarter, you need to stop dawdling, but you also need to stop scurrying around like some crazed robot.
Dress for success.
A recent study by Northwestern University found that making people wear lab coats improved their performance in tasks that required intelligence and concentration.
Read the article by Dr Travis Bradberry in Linkedin of 10 April 2016, here...
Smart-ass answers to smile about
A lady was picking through the frozen chickens at a Woolworths store but she couldn't find one big enough for her family.
She asked a passing assistant, "Do these chickens get any bigger?"
The assistant replied, "I'm afraid not, they're all dead."
…and , I must share this one too.
“I fear the day that technology will surpass our human interaction. The world will have a generation of idiots.”
This wisdom is ascribed to Albert Einstein.