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In this newsletter:
Benchtest 05.2016, regulation 28 compliance, the move towards umbrella funds, a generic ‘unclaimed benefits policy’, nominating a successor to your annuity, new Benchmark product to rid you of your fiduciary duties, tax & death benefits and more...

Important announcements

RFS re-appointed to Retirement Fund for Local Authorities and Utility Services in Namibia (RFLAUN)

The Retirement Fund for Local Authorities is the largest stand-alone fund in Namibia after the GIPF with over 6,000 members and over N$ 3 billion in assets. RFS has been serving this fund as administrator since July 2008. This service was placed out on tender recently. We are pleased to advise that RFS was re-appointed for a term of 5 years from 1 July 2016. This is certainly a feather in our cap and a reflection of the trustees’ level of satisfaction which our client service team has been able to provide consistently over the past 8 years!

We are sincerely grateful to the trustees of this prestigious fund for their decision and for this endorsement of our service delivery and we welcome the fund back to the ‘RFS fold’!

Take note of the effective date of the new withholding tax arrangement
(Notification courtesy of vA consulting)

Please be aware that from 21 June 2016 the following rates apply when calculating the withholding tax on services rendered by non-residents:
10% on management fees and consultancy fees, and
25% on directors’ fees and entertainment fees

Regards

Hartmuth van Alphen
vA consulting

C: +264 (0) 81 124 6892
P.O. Box 20645 Windhoek, Namibia

Newsletter

Dear reader

In this newsletter we continue our support to trustees with a generic unclaimed benefits policy. This should of course be adapted to meet the needs of a particular fund. Find it below.

We comment on challenges in managing fund investments in compliance with regulation 28, we comment on funds being pressurised into umbrella funds, we draw attention to the importance to nominate a successor to your annuity, we report on a new Benchmark product that will relieve trustees of their fiduciary and governance headaches and we once again examine the latest developments with regard to the taxation of death benefits.

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!


Regards

Tilman Friedrich


Tilman Friedrich's Industry Forum

Benchtest Monthly 06.2016


In May the average prudential balanced portfolio returned 3.44% (Apr: 0.12%). Top performer is Allan Gray (4.81%); while EMH (1.31%) takes the bottom spot. For the 3 month period Namibia Asset Management, takes top spot, outperforming the ‘average’ by roughly 2.8%. On the other end of the scale EMH underperformed the ‘average’ by 3.0%.

Brexit – I can’t hear it anymore

So the unthinkable happened. The British electorate was wrongfully given the opportunity to express its opinion democratically. The remainder of the EU should never allow a referendum on EU membership anymore as the electorate is not objective in contemplating on such decision, said a renowned French political commentator on TV the evening of the British referendum. What a blatant contempt and disenfranchisement of the European electorate. Can one still be surprised about the electorate’s skepticism towards this construct?

Former Prime Minister David Cameron, who probably tried to blackmail the EU into granting special concessions to Britain, eventually could not go back on his threat of a referendum which he probably was quite convinced, would go his way. He had no choice but to resign after this serious misjudgment of the attitude of his electorate towards the EU. As every coin has two sides the Brexit also has two sides and for anyone to pretend to understand exactly which side economically is the better one is preposterous. At the end of the day it was a decision between regaining and giving up political autonomy.

Read part 6 of the Benchtest 05.2016 newsletter to find out what our investment views are. Download it here...


Pension fund governance - an unclaimed benefits policy

In this newsletter we present a generic unclaimed benefits policy. 

The Pension Funds Act does not make any reference to how unclaimed benefits should be treated. Consequently, it is left to a fund’s rules to stipulate how the fund is to deal with unclaimed benefits.

The aim of this policy document is to direct what the fund considers to be an unclaimed benefit and how unclaimed benefits will be managed and eventually disposed of.

The following documents can be further adapted with the assistance of RFS.

  • Download the unclaimed benefits policy here...

AND

  • 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 provide for a term of office of the trustees; and
  • Service provider agreements are not in place.

How do you manage compliance with regulation 28 in the interests of your members?

Unlike the SA equivalent, the Namibian regulation 28 does not offer a window period for correcting any breach of the limits set out by the regulation. It does not recognise the difference between an active breach, i.e. where the asset manager or fund have allowed cash flow to result in the breach of the limit, or a passive breach as the result of  market value movements or portfolio in- or outflows.

When questioned about its position on passive breaches at a recent industry meeting NAMFISA responded rather lapidary that such breaches of regulation 28 limits must be corrected within a reasonable time “to avoid excessive penalties” and encouraged funds to apply for exemption where this happens.

Funds in breach of a limit will thus incur a penalty unless the Registrar in his discretion waives the penalty. It is not clear whether this could imply that a specific breach at a specific point in time is condoned, or that a general exemption is granted for a specified period and whether the exemption will be from the date of the breach or from the date of the application for exemption.

To ‘play safe’ and to avoid having to apply repeatedly , if this is what any exemption granted would require, and to avoid penalties, funds  with segregated portfolios will have to consider instructing their asset manager/s not to operate too closely to the limits. The question is what margin to provide for? Just considering the total offshore exposure, running an exposure of 30% as opposed to the maximum of 35% would only protect against a market movement of 15%, not an exceptional move by any means considering that it can arise as the result of currency movement and/ or local or offshore market movement. Setting a cap that diverges from the portfolio manager’s own view would present a problem where the portfolio manager was given a fully discretionary mandate, as the mandate is immediately not a fully discretionary mandate anymore.

Funds with pooled portfolios face a different challenge as they cannot influence the investment decisions of the portfolio manager yet are still required to apply for exemption in their own capacity in the event of a breach if they want to avoid incurring a penalty –which of course will not be a given considering the discretion of the Regulator.

Unfortunately, as the result of the current regulatory environment, asset managers and funds will for all intents and purposes be obliged to move well below the limits to avoid any penalties, which is not in the interests of members.

Funds pressurised into umbrella for the wrong reasons

Over the past quarter of a century of my involvement in the pensions industry, our industry has undergone tremendous changes. Up until Namibia’s independence, all funds in Namibia were underwritten by a single insurance company with no choice and no flexibility regarding risk reassurance, investments and specialist service providers. Funds were not required to be audited or to prepare annual financial statements and were not managed by a board of trustees. Funds at the time were defined benefit funds where the member did not care about investment returns or investment managers. That risk was carried by the employer who typically had little or no insight into the financial affairs of their ‘fund’ other than being informed every three years whether the ‘fund’ had a deficit to be made good by the employer. ‘Fund’ is put in inverted commas, because in those days they were not free standing legal entities but rather a participant in a huge insurer managed insurance product.

Those were the good old days for insurers who had the market wrapped up and could do whatever they wanted without fear of being questioned. Namibia’s impending independence provided a convincing argument to advisers to have the insurers’ shackles broken. Most funds were liquidated, members were allowed to take their money or transfer it to what was perceived to be a ‘safer haven’. A new dawn broke, new funds being established as defined contribution arrangement instead of the prior defined benefit arrangement. Boards of trustees were now established and placed in charge of the business of their fund. Funds now had to prepare audited annual financial statements and were actually free to choose all of their service providers. The risk of poor investment returns was transferred from the sponsoring employer to the member.

But were the trustees really in charge and were they actually capable to manage the affairs of their fund? I venture to say that very few were indeed and even today very few are. Being burdened with other responsibilities concerning their own businesses it is hard to point a finger at the trustees. What actually happened was that advisers quietly took control of the pension fund business of their clients.

Advisers have since done a great job in continuously developing and inventing new products and services in many cases not unselfishly at all, but rather often with the intention to broaden their product offering and build their own business. Clearly this created an environment prone to conflicts of interest producing excesses such as bulking and other dubious practices. Does anyone believe that the integrity of the industry has improved since?

What makes things worse in my view is the fact that even the regulator is chasing shadows, not understanding the technicalities of many of these products and services and the hidden interests of their sponsors, and just following what is made out to be trends instead of critically probing these trends with the view to assess whether it is merely in the interests of service providers or of members. Its response typically is to impose more and more onerous requirements on funds and the industry as a whole thereby accelerating a move away from free standing funds into umbrella funds, where they will once again be under the total control of the product provider. Clearly some of the product providers’ main interest will be to grow their revenue and margins in contrast with a free standing fund where the employer as sponsor and its employees typically take a very personal interest in the business of the fund exclusively for the sake of the members of the fund. In South Africa the regulator has decided in a rather haphazard way that the number of free standing funds must be reduced and that any fund of less than 3,000 members should be accommodated in an umbrella fund.

The basic premise of a pension fund is that it is a compulsory group arrangement. By definition it is not intended to and does not meet the full spectrum of widely diverging needs of its members. With an active interest and the participation of the employer in a fund, it is likely that a fund will meet the needs of the majority of members, though, and at a reasonable cost. Nowadays there is an unfortunate trend to introduce more and more individual choice and complexity into these group arrangements, as if they were retail arrangements. All of these features however increase costs for the member, often primarily for the benefit of the product or service provider rather than the member. In such a scenario the free market mechanism is totally ineffective however, as the member is left to the devices of the fund’s particular service or product provider. Individual or retail retirement funding arrangements offer those few members with exceptional needs a wide choice of alternatives, at significantly higher costs, while the free market mechanism should serve to promote the interests of the individual. Since these arrangements are only exploited by a minority, they can only serve to complement compulsory occupational pension fund arrangements and should be considered for the exceptional needs rather than adding to the complexity of the pension fund.

It is often rather amusing to read articles by so-called financial experts where it is so obvious that they merely pretend to provide expert opinion, yet too blatantly promoting their service or product instead.

It is futile to question how developments of our industry over the past 20 years have impacted on members’ benefits. I suspect that members today in many instances are significantly worse off in terms of benefits received for every Dollar invested in the system, as the result of the self-interests of their advisers. Can one at least say that members are on average more satisfied with their retirement arrangement than they were 20 years ago? Again I venture to say that despite all the options and choices that were introduced into many pension funds, these have not really led to a positive improvement of members’ perceptions.

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 an HR officer of a large mining house

“...Can assure you that I don’t have one negative thing to say about RFS, in the 30 years that I’ve worked with various ‘pension fund administrators etc.’ – I’ve never worked with a fund so professional and accessible.”

Read more comments from our clients, here...


Gunter Pfeifer's Benchmark Notes

The importance of designating a successor to your annuity

The way matters have evolved with regard to the treatment of death benefits from a pension fund, Inland Revenue is now clear that in the event of the death of a living annuity pensioner of a pension fund, no lump sum may be paid but only an annuity and this annuity must be paid over any period, but no less than 5 years. This successor annuity of course will also be taxable as the original annuity was. The problem is that this annuity would have to be paid to the deceased pensioner’s estate over a period of 5 years if the pensioner never nominated a pension successor/s.

We are therefore urging all pensioners of the Benchmark Retirement Fund to ensure that the Fund holds your written instruction regarding the successor or successors you want to continue to receive an annuity from the capital remaining, as your legacy.

Please email This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it. or call either on tel 061 231 590 to make the necessary arrangements.

New product
Are you bogged down by increasing demands on trustees and increasing governance requirements?


The continuously increasing demands on trustees in terms of their fiduciary responsibilities and for more governance driven by NAMFISA, many boards of trustees feel ever more overwhelmed. The advent of the FIM Act that has been coming along for a long time now and may be expected to become law in the next year or two will only exacerbate this experience.

But what should trustees do to overcome this challenge? An umbrella arrangement is the obvious alternative and the one being strongly pushed by the regulator. But this is typically quite a drawn out and painful process and will become a lot more difficult once the FIM Act is in place.

So if this state of affairs concerns your board of trustees it will avoid prospective complexities if a decision is made and carried out before the advent of the new FIM Act.

Whilst RFS is not a proponent of umbrella funds under all circumstances, increasing regulatory demands unfortunately do make it more and more difficult for trustees to manage their private fund in compliance with these conditions. To assist trustees who feel overwhelmed by the regulatory demands we have developed an alternative within the Benchmark Retirement Fund that offers a smooth and painless transition into an umbrella fund. The Benchmark Retirement Fund, a unique Namibian fund, driven by Namibian intellectual capacity, will continue to find innovative ways to meet any needs that may evolve in the pension funds market.

Email This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it. or call either on tel 061 231 590 if this is a matter you are currently grappling with.

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 executive committee

To conclude the short biographies of the members of our executive committee that were presented in the past few newsletters, here is a picture of the team.



From left to right - Kai Friedrich (Director: Private Funds), Sharika Skoppelitus (Director: Client Services), Marthinuz Fabianus (Deputy Managing Director), Charlotte Drayer (Senior Manager: Systems and Training), Günter Pfeifer (Director: Operations), Frieda Venter (Senior Manager: Fund Accounting), Louis Theron (Director: Support Services), Victoria Nashongwa (Senior Manager: Fund Administration), Tilman Friedrich (Managing Director - refer to the short biography of him above), Hannes van Tonder (Senior Manager: Fund Administration).

Staff movements

A late announcement is that Zaskia Ochs, Senior Manager: Audit and Compliance, and Chanelle van Wyk, Wealth Manager, left our employ at the end of last year. These positions have been filled in the meantime and further announcements will be made in due course.

Letter from the head of finance of a large tourism company

“Hi RFS

Some feedback: I find the newsletters very interesting. Although most of it has no applicability to my day-to-day it is good to be informed and to be aware of the wider industry issues. It is a real value-add. Keep it up!”

Thank you T for your encouraging words. It is important to me to know whether this newsletter reaches its target audience as you have confirmed for your person.

Regards

Tilman Friedrich

News from NAMFISA


Staff movements

NAMFISA recently announced a number of staff movements including the departure of former General Manager: Provident Institutions, Ms Maria Nakale-Gaomas, whose duties will be fulfilled by General Manager: Insurance, Ms Grace Mohamed.

Read the notification here…


News from Inland Revenue


Death benefits in consequence of the death of a fund pensioner

A number of pension funds offer benefits in the event of the death of a pensioner of the fund. Typically the rationale is that if the deceased pensioner leaves capital this capital, or at least a portion thereof will be paid to survivors or designated beneficiaries of the deceased pensioner.  Clarity has now been obtained that in the event of the death of a pensioner, no further commutation of any portion of the capital will be allowed as the pensioner would probably have commuted the maximum 1/3rd at the time of retirement. Any capital left by the deceased pensioner may be paid to one or more beneficiary in the form of an annuity. This annuity can be over any period but for no less than 5 years and will be fully taxable.

Taxation of death benefits from pension funds

Clarity has now been obtained that a minimum of 34% of the total capital available for provision of benefits in the event of the death of a pensioner must be paid as an annuity. Inland Revenue allows the trustees to determine what portion of the total available capital in respect of each beneficiary should be paid in the form of an annuity and what portion may be paid as a lump sum but in aggregate the annuity portion may never be less than 34%. This already assumes that the beneficiary opted to commute for a cash lump sum one-third (17%) of the designated annuity capital. The total designated annuity capital is thus 51%, the balance of 49% representing a tax free lump sum upon the death of the member. The 17% commutation of the designated annuity capital is also tax free. We believe that if the 51% annuity capital is less than N$ 50,000 it may also be paid out as a cash lump sum and should then also be tax free. This means that where the total capital available upon the death of a pension fund member is less than N$ 98,000, it can be paid out as a tax free lump sum. We are still awaiting confirmation of our opinion by Inland Revenue.


Media snippets
(for stakeholders of the retirement funds industry)

Do your fund managers think differently or are they all doing the same thing?

Do all your fund’s portfolio managers hold a large stake in Naspers? If they do, your fund would have probably done very well as the result of this large stake in Naspers whose share price gained 470% over the past 5 years. But there is a serious risk that the fund is exposed to as the result of holding a large stake in a single stock and earning a large portion of its returns from this stock. “…And while you may not think there is anything wrong with Naspers, what this means is that you are concentrating your risk…It is important for investors to look for managers that think differently and have different stocks in their portfolios. This will mean that you get exposure to different drivers of both risk and return…Diversification is the only free lunch in investing... Good diversification gives you better returns at a much lower risk profile.”

Read the full article by Patrick Cairns in Moneyweb of  13 June 2016, here...

Downgrade – is the sky falling?

A number of clients have expressed great anxiety over the impact of a downgrade of South Africa on their investments. As usual in panic situations, the horses have bolted and it serves little purpose to now close the gate, as this technical analysis tries to show. Understanding and managing your risks is really the only answer and diversification is the only free ride you get to managing your risk. Reacting to a situation that is already apparent to everyone will not serve any purpose.

Read the full article in PSG Wealth Client Newsletter of  May 2016 here...

Why Allan Gray has increased its exposure to SA

“The Allan Gray Balanced Fund, has been increasing its exposure to local equities over the last six months. The weighting it gives to local stocks is still well below all-time highs, but it has been creeping upwards towards 50%.

The answer, according to chief investment officer Andrew Lapping, is that there is more to the JSE than what one might see at first glance.”

“We are not buying the market,” Lapping explains. “We are buying specific companies that we feel are undervalued. Following what happened in December with Nenegate we are finding more companies trading at a discount and we are buying those companies.”

“He points out that the All Share Index has become dominated by just two stocks – Naspers and SABMiller. Together they currently make up just over 25% of the entire Index. Over the last five years the share prices of these two stocks have grown exponentially, and they have become progressively more expensive.”

Read the full article by Patrick Cairns in Moneyweb of  6 June 2016, here...

The key to successful retirement is resilience

“Resilience is the ability to recover from setbacks, adapt well to change and keep going in the face of adversity. One way of doing this is having a purpose and an interest outside of your home and immediate family.

While it is true that you can’t change what happens to you, there is a window of opportunity between what happens to you and your response. And you have the power to choose your response.So how do you build resilience in the run up to retirement and is it too late if you’re already retired? It’s never too late to make good lifestyle choices and the options to cultivate a purposeful life after work are endless.

Why not consider a second career, or provide consulting services in your field of expertise? Pursue a new hobby or revive an old interest. Get involved in your community or with a charity organisation. Call an old friend or reach out and build new friendships. Join a mutual interest group, or even better, start one of your choice.

You’ve accumulated all this knowledge and experience why not mentor someone starting out in your profession? If you feel that you want to do something different, what’s stopping you?”

Read the full article by Brenda van Zijl in Moneyweb of 18 June 2016, here...

Media snippets
(for investors and business)

Getting executive pay right

Should executive pay be purely a function of the financial performance of a company or should it consider other metrics such as environmental and social aspects? Should the shareholders have the final say or should it be left to the remuneration committee?

The King IV Report stipulates that if shareholders vote against a remuneration policy or its implementation, then this must be discussed further. Based on this the Institute of Directors in Southern Africa suggests that if the vote doesn’t pass with 75%, then the company needs to engage with the shareholders that voted against the pay.

Read the full article by Patrick Cairns in Moneyweb of 14 June 2016 here...

3 Ways to be happily engaged at work

“It’s very easy to say your work sucks because your boss is mean and doesn’t care. But let’s be honest -- if you think that, you don’t care either. If you did, you’d do something to feel better. To help you, I’ve summarized three different ways you can become more engaged at work and at life. Among the U.S. workforce, engagement levels are low. And the bigger the company you work for, the higher the chance you're not engaged in your everyday work. This might seem like a problem for leadership or management -- for whom employee disengagement converts into loss of revenue and higher turnover rates -- but it is also your problem because you’re the one who is unhappy.

To help you, I’ve summarized three different ways you can become more engaged at work and at life.

  • 1. Why do you wake up in the morning?
    Even the most dull working environment can be made fun and interesting by focusing on what's important to you -- whether it's paying rent or changing the world.
  • 2. What exactly is important?
    For a lot of people, days are filled with meaningless tasks and pointless meetings that keep us from doing things that matter. Not always, but on many occasions, we have a chance to choose what we are doing, so it helps to think about which tasks best move you towards your goals. Remember, 80 percent of results are achieved with 20 percent of work. So eliminating all the “fake work” you can saves time and allows you to focus on things that matter.
  • 3. Measure yourself.
    To increase your overall work satisfaction, it's important to reflect on how your work impacts others. Understand how the tasks you do are connected to the work of others on your team, and measure the positive impact you have. Knowing your importance increases your engagement levels greatly and makes you better at your work.

In the end, we are the ones who decide if we're engaged or not -- happy or not.”

This is an extract of an interesting article. Read the full article fromTravis Bradberry, here...


And finally...


Politics... something to contemplate on

“Politics is the gentle art of getting votes from the poor and campaign funds from the rich, by promising to protect each from the other.”
~ Oscar Ameringer, "The Mark Twain of American Socialism."

 

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