In this newsletter we continue our support to trustees with a rule defining the appointment and term of office of the board of trustees, we contemplate on how remaining pension capital may be disposed of upon death of the pensioner, the dichotomy of the Namibia Investment Promotion Act and the NEEEB, Benchmark breaches the N$ 2 billion mark, RFS non-standard fees in perspective, Bank of Namibia wants funds to repatriate offshore investments, Inland Revenue and good standing certificates and more. Find it below.
As usual we 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 07.2016
In July the average prudential balanced portfolio returned 0.61% (June: -2.85%). Top performer is Metropolitan (1.76%); while Allan Gray (-0.30%) takes the bottom spot. For the 3 month period Old Mutual, takes top spot, outperforming the ‘average’ by roughly 1.2%. On the other end of the scale Investec underperformed the ‘average’ by 0.9%.
In our performance review newsletter we present a guest commentary on the direction of interest rates and the outlook of asset classes. For the investor, this article provides an excellent guide to investing under prevailing uncertainties. Read part 6 of the Benchtest 06.2016 newsletter to find out what our investment views are. Download it here...
Pension fund governance - trustee term of office
In this newsletter we present a rule that deals with the appointment of member and employer trustees, their alternates and the term of office.
The following documents can be further adapted with the assistance of RFS.
Download a draft rule dealing with the appointment of the board of trustees here...
Download the code of ethics policy here...
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...
Download the unclaimed benefits policy here...
In future newsletters we will consider the following matters also identified by NAMFISA as frequently missing:
Service provider agreements are not in place.
Accelerated payment of remaining capital and Income Tax practice note 1 of 1998
Inland Revenue many years ago issued Practice Note 1 of 1998 in response to the advent of new investment linked annuities, or also referred to as living annuities. In short this practice note prescribes that not more than 20% and not less than 5% of the capital at the start of every year may be paid in the form of an annuity. It also prescribes that in the event of death of the annuitant, no further amount may be commuted for a cash lump sum and that the balance must be paid in the form of an annuity over no less than 5 years. It goes without saying that this annuity is taxable.
Defined contribution pension funds of course also place the emphasis on the retirement capital retaining its identity as the property of the fund member. Where such fund provides for members converting the capital to an annuity within the fund, rules typically attempt to retain the ‘ownership’ notion by availing the remaining balance upon death to the deceased pensioner’s successor/s. Where this occurs, the principles laid down in practice note 1 f 1998 also apply.
But what about retirement annuity funds offered by insurance companies? There appears to be some difference of opinion in the market whether or not the retirement annuity fund can also affect an accelerated annuity of the remaining balance upon death over 5 years. We are of the opinion that once retirement capital has been transferred to a Retirement Annuity Fund, it must under all circumstances be paid in the form of a ‘life annuity’ and cannot be accelerated independent of where the capital derived from. This opinion derives from the definition of ‘retirement annuity fund’ in the Income Tax Act that categorically states that the fund may only pay an annuity for life of a beneficiary. Clearly accelerating the payment would not meet the ‘for life’ requirement.
The dichotomy of performance agreements for investors and NEEEB
The topic of the year so far has undoubtedly been the NEEEB for Namibian PAP’s (previously advantaged persons) in business. The message sunk in even if this initiative does not come to fruition. Many PAP’s in business will unfortunately think twice about new investment in their business or starting up any new business according to the mantra ‘once bitten, twice shy’.
This would be a pity for our economy particularly in view of government’s efforts to attract investment to Namibia, as more recently manifested in a number of bills signed into law by President Geingob that are aimed at promoting foreign investment in Namibia.
According to a recent report in Oshili24, the new Namibia Investment Promotion Act aims to promote sustainable economic development and growth through mobilisation and attraction of foreign and domestic investment to enhance economic development, reduce unemployment, accelerate growth and diversify the economy.
Can this dichotomy be rationalised or do we rather need a statutory environment that extends protection to all investors. If we have rules that make local investors skittish, what is the foreign investor going to make of it?
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 an former member of the Benchmark Retirement Fund
Baie dankie vir al die moeite ons waardeer dit opreg. Dis so spesiaal om iemand soos jy te he met wie jy persoonlike kontak kan het. Dit voel soos ‘n dokters rekening altyd die vrymoedigheid om jou te kontak. Baie dankie daarvoor. Ons sal nog ‘n brief skryf as jy my net ‘n mail adres gee om vir jou baas te se baie dankie vir die wonderlike behandeling by julle.”
Read more comments from our clients, here...
Gunter Pfeifer's Benchmark Notes
Benchmark breaches the N$ 2 billion mark
The Benchmark Retirement Fund today is by our estimates the 4th largest fund in Namibia in terms of membership and 6th largest fund in terms of total assets, having achieved this milestone over a mere 16 years since it was established. Benchmark today has 9,000 members and assets exceeding N$ 2 billion.
Read the full report here...
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.
Kai Friedrich's Administration Forum
"Non-standard service fees" – is this principle in your fund’s interest?
Clients often appear to be irritated about our charging and fee philosophy, more particularly with the principle that while we are usually paid a retainer fee, certain services attract a so-called “non-standard service fee”. In one instance this practice has even been discredited as being unprofessional! Typically, clients take the position that all fund management services must be covered by the ‘retainer’ fee.
The Code of Ethics and Professional Responsibility of the Financial Planning Institute defines a pensions practitioner’s practice for determining fees for professional services. It requires of a professional member of the Institute to “..explain in writing, the precise range of professional services that the fee is intended to cover, the basis on which the fee is computed…” and that “…the main criteria are fairness and equitability for the client and the member…”.
This means that a professional service provider should not charge for work it has not executed. By implication, the principle requires a service provider to charge for services carried out.
The services we carry out in return for a ‘retainer fee’ agreed upon with our clients, are clearly defined in our service level agreement, and in addition, our service level agreement clearly demarcates our mandate from that of other service providers and also clearly defines services we will provide on an ad-hoc basis as and when required, for which we would then raise an additional “non-standard service fee” as agreed upon with our client in advance. If a service provider were to include all conceivable services that a fund might require in the course of time, clearly provision would have to be made for the unknown requirement for ad-hoc services. This would entail charging for services not rendered on an on-going basis and applying the over recovery to recover the cost of ad hoc services should they be required at any time in future. In our view this is inconsistent with the Code of Ethics and Professional Responsibility.
An analogy ‘closer to home’ for most, is building a house. The only two possible arrangements with the contractor consistent with our professional obligations are, firstly that where you add to the original plans you pay extra and where you deduct you get a price reduction. Alternatively, you agree with the contractor that whatever you desire to be changed must be changed without reference to the costs and that the contractor then informs you only upon completion, what the actual cost is. At this stage we apply the former approach which we believe is the right approach.
Kai Friedrich Director: Fund Administration, is a qualified chartered accountant and a Namibian Certified Financial Planner ® practitioner, specialising in the pensions field. He holds the Post Graduate Diploma and the Advanced Post Graduate Diploma in financial planning from the University of the Free State.
News from the market
Bank of Namibia in talks with local asset managers
The Bank of Namibia is in talks with local asset managers for the companies to swap their foreign investments for local ones as part of moves by the central bank to boost foreign reserves. The stock of international reserves stood at N$19,2 billion by 12 August, deputy governor Ebson Uanguta said yesterday. Reserves have been declining due to a slowdown in the economy and a decline in exports. He said the central bank already has an agreement with the Government Institutions Pension Fund, and was targeting the fund to move about N$5 billion worth of assets from abroad to Namibia. Uanguta said by moving assets to the Bank of Namibia, the companies will earn the same interest they would have abroad. “The earnings are the same, they are not reduced,” he said. The assets are denominated in Namibia dollars. Ideally, the central bank would like to have reserves amounting to 4,5 months of import cover, he added. The current reserves are about 2,4 months of import cover. By comparison, Swaziland and Lesotho have about six months of import cover, while Botswana has, because of its rich diamond exports, built up about 17 months of import cover. ~ The Namibian
This report is concerning. Firstly, it seems to take a simplistic view that the decline in foreign reserves is the result of a slow-down in the economy. Here one should ask – what is government doing to prevent huge amounts of money leaving the country because of the fact that it nowadays primarily appoints foreign contractors to the construction projects it gives out? One side of this coin may be that Namibia has to lay out less tax payer’s money to achieve the same economic benefit as Namibia would have, had it appointed the more expensive local contractor. The other side of the coin though is that this money leaves the country never to return and never to be taxed again. Had the money remained in the country it would have changed hands and each time it would have changed hands there would have been a tax implication. Has any adviser to government or the Bank of Namibia every done a cost benefit study to determine the efficient frontier for this trade-off?
This report is also concerning because it will impact me as pension fund member. How can the Bank of Namibia make an arrangement with any asset manager I have appointed to move my foreign investment back to Namibia? To say that the “earnings are the same” sounds quite naïve unless it meant to say that any downside currency risk will be borne by someone other than me.
News from Inland Revenue
Certificates of good standing now mandatory
We read the comment by Minister of Finance Calle Schlettwein that taxpayers are ‘getting away with murder’. One of the measures now taken by Inland Revenue is to make it mandatory for persons contracting with, or providing services to government to submit a certificate of good standing from Inland Revenue before any payment will be made to them.
Download the to the letter to government departments here...
It has also become practice of most SOE’s to make the submission of a certificate of good standing a condition of tender when inviting tenders for products and services.
Unfortunately, as many taxpayers know from first had experience, Inland Revenue’s tax records are in many cases incorrect as the result of which the taxpayer’s interests may be seriously compromised. Is it not rather a matter of Inland Revenue getting away with murder, using the Minister’s phrase, and the insistence on this certificate being tantamount to extortion?
(for stakeholders of the retirement funds industry)
Withheld pension: fund loses case
In our previous newsletter we reported on a case where the SA Adjudicator condoned the withholding of a benefit for a 5 year period.
In this case a member was dismissed for reasons referred to in section 37 D of the Pension Funds Act. The employer laid criminal charges against the member but the member was acquitted by the court. The employer also initiated a civil case against the member which floundered and was eventually dropped. The member lodged a complaint with the adjudicator against the fund and his former employer, because his pension benefit had been withheld, and his employer had made several deductions from the benefit to settle legal costs. The adjudicator ruled in favour of the member and ordered the fund to pay the withdrawal benefit with interest from the date the civil action was to have been launched in court. The deduction of legal costs was thus disallowed by the adjudicator.
The fund launched an appeal against the adjudicator’s ruling at the High Court against the rate of interest that the adjudicator applied, while the member launched a counter application for interest to be calculated from date of dismissal rather than the date the civil case was to have been launched in court as directed by the adjudicator. The High Court dismissed both claims and confirmed the adjudicator’s statutory powers to determine the date from which interest is to be calculated as well as the rate of interest to be applied.
The matter was then referred to the Supreme Court of Appeal by the fund but it lost the case with the court essentially confirming the verdict of the High Court.
Read the full article by Martin Hesse in Personal Finance of 2 July 2016, here...
Reality of retirement
“Q: I am 56 years old, healthy, have a reasonable job and presume I can work for the next 10 years.
I have a home which is worth about R2.5 million, with a relatively small bond. However, apart from an annuity worth about R300 000 I have no other savings.
My youngest child is almost independent, and in a couple of months’ time I will be able to save R10 000 per month. This amount can increase to R20 000 in the next 18 months.
How should I invest this money and how much trouble am I in?”
Read the answer to this question by Patrick Cairns in Moneyweb of 18 August 2016, here...
(for investors and business)
A guide to SA’s economic bubble and coming crisis
This somewhat dated but still very relevant technical analysis of what has caused the economic bubble in SA since the financial crisis and what is in stall for the SA economy should still be of interest. Namibia of course is in very much the same boat as SA and we are now at the beginning of the crisis alluded to in this article.
Read the full article by Jesse Colombo in Forbes Magazine of 19 March 2014 here...
Top five leadership qualities you need today
“Much has been written about agility, creativity, innovation, curiosity and perspective and yet our ability to develop these qualities in ourselves and others often requires a very practical approach. Firstly, we need to unpack what each of these qualities really mean and then explore the specific areas we need to develop within ourselves. Once we have a clear idea, we need an action plan to realise the change we have identified. After all, theory without action is dead!
Leadership agility is considered the master competency in navigating our VUCA (Volatile, Uncertain, Complex and Ambiguous) global business environment. In Bill Joiner and Stephen Joseph’s book Leadership Agility, the authors estimate only 10% of leaders have mastered the level of agility needed for consistent effectiveness in our turbulent era of global competition.
So let’s unpack these five qualities in brief in the context of leading in today’s disruptive environment:
Agility: The mental and emotional ability to adapt to volatility and change as it occurs – unexpected or anticipated.
Creativity: A constant quest for the next big idea to drive your business forward.
Innovation: The ability to transform ‘big ideas’ into action and business success.
Curiosity: A mind-set of relentless exploration, research and questioning into broad social and economic trends (past, present, future).
Perspective: The ability to understand the broader climate and context in which you operate.
These five critical qualities work together to deliver a mind-set best equipped to navigate today’s disruptive economy. They are as fluid, dynamic and ever evolving as our business environment.
Work with a coach or mentor to assist you here. Focusing on your own development will free you up from any habitual ways of thinking (and doing) that may be inadvertently curbing your progress, and will ultimately serve you extremely well.”
Read other interesting articles on leadership and management in mowbraybydesign here...
Finding time to be a good leader
“We know this all too well. One of the biggest concerns I have about senior leaders is that most of them are too busy. They're "stuck in the weeds" as the Americans would say, answering emails, attending meetings, managing details, and working long, long hours. You might think that this is what senior leaders are supposed to do: that's their job. But actually, senior leaders are meant to be the thinkers in the organisation. You have become a slave to the urgent, to the mundane, to the repeat appointment, to your team's habits, and it will wear you down sooner than later.
So, what should we do about it?
There's a simple starting point: create a NOT to do list.”
Download the full article from Tomorrow, Today’s Tips on Tuesdays, here...
“[People] didn’t see the signals because they all look at official data and not at the things... you can see with your own eyes.”
~ Pippa Malmgren, popular contemporary speaker and commentator.