In this newsletter:
Benchtest 09.2016, smooth growth vs market linked portfolio, who qualifies as a beneficiary upon death, MIP goes live and more...

Important announcements

RFS telephone number due to change
to 061 446 000

Take note that we have installed a new switchboard with many new features, one of which is that it will allow direct calls to our staff members without intervention of our receptionist. Further official communication will follow in due course.

You will be alerted to the new number when you call in on our current number 231 590 once the new number has been activated.

New MIP administration system due to go live

Please read more about this topic under RFS company news below.


Dear reader

In this newsletter we examine how much protection a smooth growth portfolio really offers vis-à-vis market linked portfolios. We examine who qualifies to be nominated as a beneficiary of a death benefit. MIP admin platform will soon go live, so please bear with us. The industry should soon know whether retirement capital can be transferred to a member owned annuity, SIH report format and content are due to change early 2017 and more topical articles you will find below.

The topical articles from various media should not be overlooked – they are carefully selected for the value they add to the management of pension funds and the financial well-being of individuals.

In our commentary on global investment markets we look at policy options for re-igniting the global economy and what the potential impact could be on the investor’s investment decisions.

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


Tilman Friedrich

Tilman Friedrich's Industry Forum

Benchtest Monthly 09.2016

In September the average prudential balanced portfolio returned -1.59% (August: 1.86%). Top performer is EMH Prescient (-0.52%); while Stanlib   (-2.43%) takes the bottom spot. For the 3 month period Metropolitan, takes top spot, outperforming the ‘average’ by roughly 1.5%. On the other end of the scale Stanlib underperformed the ‘average’ by 1.2%.

Do your grandmother and a burglar only still need cash?

This was the topic of the speech of Carsten Lange of Delta Secondary School who won this year’s German speakers’ competition held amongst various schools in Namibia. He went through various arguments for and against cash as legal tender. He correctly pointed out that internationally crime is generally not committed by means of cash and concluded in saying that for his part, he would like to continue being able using cash.

I am not sure whether this learner had had in mind Bank of Namibia’s declared intention of doing away with cheques when he prepared his talk. Fact of the matter is that internationally central banks are on a mission to do away with cash. Money laundering, crime in general and being in a better position to track the flow of moneys are the arguments used to push this down citizens’ throats. But is this the real reason behind efforts to do away with cash?

Read part 6 of the Benchtest 09.2016 newsletter to find out what our investment views are. Download it here...

Pension fund governance - a toolbox for trustees

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

  • Download the privacy policy here...
  • 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...

Do you need a smooth growth portfolio protect your retirement nest-egg?

In this article we will be looking at the alternatives for protecting you retirement nest-egg against short-term market down-turns. In this context it should be appreciated that normally a retiree must apply two-thirds of his retirement capital to purchase a pension, while only one-third may be paid out in cash.

As far as the two-thirds portion of the retirement capital is concerned, a prospective retiree need not be concerned about any short-term down turn in the market. This is so because this capital will be returned to him with investment returns over his remaining life, usually anything from 15 years upwards, a long period during which the market should have recovered again. The down turn will only impact the level of post retirement income while the down turn prevails and this should be for a short term.

As far as the one-third cash portion is concerned, a fund member will obviously be worried about the impacted of any down turn in the markets in which the capital is invested. His retirement planning may be dependent on realising a certain amount in respect of the one-third pay-out, say for paying off the balance on his home loan or on the loan arranged to purchase that last new Benz before heading into retirement. If the N$ 2 million the retiree had hoped for turns out to be only N$ 1.7 million, the shortfall of N$ 0.3 million will mean that a portion of his post retirement income will now have to be applied to pay off the balance on the outstanding debt. How ‘mission critical’ the one-third pay-out is to the retiree, should inform his decision how this portion of the retirement capital is to be invested. How long before retirement a decision has to be taken and what options are typically offered in the market will be examined further on.

Retirement capital is generally invested in the same asset classes no matter what retirement product one is looking at, namely equity, bonds, cash and property. The difference between the most common retirement products lies in the manner in which the returns on the investment in these asset classes are passed on to the prospective retiree. Returns are either allocated directly to the retiree or are allocated by way of a mechanism that resembles the principle of a ‘funnel’. The difference is that in the former method, the return flows ebb and flood while in the latter method a regulated flow passes through the funnel no matter a what rate returns are pouring into the funnel. Of course the funnel serves no purpose anymore should returns dry up totally or flow out as fast as they trickle in and in such event the retiree will experience exactly the same returns under both methods. In the retirement funds industry former method of investing is referred to as market linked investing while latter method of investing is referred to as smooth growth investing or return smoothing.

The following graphs depict the performance of the worst performing prudential balanced portfolio on the Benchmark Retirement Fund platform over the period January 2002 to August 2016, the best performing prudential balanced portfolio and the Benchmark Default Portfolio that are all market linked portfolios and the most popular alternative, the Old Mutual AGP portfolio with a 50% guarantee.

Let’s look at the Graph 1 which depicts rolling 12 month returns. Firstly, it shows that the AGP portfolio commenced in January 2008 when the market was on a steep downward slope and just before its trough in consequence of the financial crisis. One may argue that the first 12 months’ or performance to January 2009, probably even longer, are not representative of the characteristics of the smooth growth portfolio compared to the market linked portfolio. The graph shows that at the worst of times, in January 2009, the worst performing market linked portfolio had a one year return of minus 22%, the Benchmark Default market linked portfolio had a one year return of around minus 8% while the best performing portfolio had a one year return of around minus 3%. At the same time the smooth growth portfolio had a one year return of 10%. As depicted by Graph 1 above, markets have recovered rapidly from this trough as the result of the quantitative easing program.

One can conclude from this graph that the smooth growth portfolio has outperformed some of the market linked portfolios over 1 year periods at times by around 5% and underperformed at other times by up to 20%. The smooth growth portfolio has thus protected the prospective retiree’s one-third by around 30% over a one year period if compared to the worst performing market linked portfolio, by around 20% compared to the Benchmark Default Portfolio and by around 15% compared to the best performing market linked portfolio.

If we now look at the same portfolios but over rolling 5 year periods as depicted by the Graph 2. This graph shows that the smooth growth portfolio outperformed the market linked portfolios from commencement to late 2013 and underperformed since then. To what extent the initial outperformance was the result of perfect timing of the introduction of this portfolio, history will show. Going by the principles and assuming Old Mutual will be able to produce average returns over the long-term one should expect this portfolio to underperform the average manager because of the cost of the guarantee it offers.

Graph 3 depicts the cumulative return of the smooth growth portfolio and the market linked portfolios since 1 January 2009


From these graphs the smooth growth portfolio relative to any prudential balanced portfolio can add value over the short term (+/- 12 months) if the main concern is to avoid negative returns on the commutation. Tracking the worst performing market linked portfolio’s performance over rolling 12 months, it underperformed the smooth growth portfolio by 30%, with a performance of – 22%, when the bottom fell out of the market but outperformed smooth growth portfolio by 25% when the market recovered soon afterwards. Given that most members would have to arrange a pension with two-thirds of their retirement capital their highest underperformance risk based on the statistics of the worst performing prudential balanced portfolio is then 10% (30% *1/3) while they risk losing outperformance at the same time of 8.3% (25%*1/3), at times of extreme volatility.

Given that a fund member invests in the investment management skills of the provider of the smooth growth portfolio only, sacrifices returns of 0.2% p.a. to pay for the guarantee and sacrifices the flexibility of moving between asset managers to improve performance, a member may prefer to retain greater flexibility. This would however require the member managing the risk against short term negative returns differently. Within most funds a member should normally know 12 months ahead of time that he intends to go on retirement. The member can then move to the cash portfolio 12 months before retirement at times of high market volatility in respect of the one-third retirement commutation. Through preservation, the prospective retiree should also be able to defer retirement to ride out any trough in the market in respect of his one-third commutation at the time of planned retirement.

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 employee of a client

You had me in tears! I really did not know that people like you still exist? Endangered species I’m telling you! Thank you from the bottom of my heart for listening to my plea this morning. Jy sal nooit besef hoe bly het jy iemand se hart gemaak nie. God see and God bless!.”

Read more comments from our clients, here...

Kai Friedrich's Administration Forum

Who qualifies as a beneficiary to your death benefit

  • A nominated beneficiary must survive the member of the fund to qualify for the benefit payable upon the death of the member. This means that the estate of the nominated beneficiary cannot benefit anymore.
  • A nominated beneficiary does not acquire any right to a benefit of a member during the lifetime of a member.  It is only upon the member’s death that the nominated beneficiary is entitled to accept the benefit and the fund is obliged to consider the beneficiary in the distribution of a benefit. Until the death of the member, the nominee only has an expectation of claiming the benefit, but has no vested right to the benefit.
  •  A nominated beneficiary is only entitled to that portion of the benefit allocated by a deceased fund member to him or her, if there is no dependant and no shortfall in the estate of the deceased member.
  • A beneficiary of a benefit upon death of a fund member must be a natural person. A member of a fund cannot nominate his/her estate as a beneficiary (subject to a narrowly defined exception). The same applies to nominations of Companies and CC’s as beneficiaries. The benefits payable by a fund upon the death of a member shall not form part of the estate of such a member, as per section 37C(1) of the Pension Fund Act. Thus a nomination of a member’s estate as his/her beneficiary does not carry any weight at all in the trustee’s considerations. Benefits are only payable to the estate if the deceased fund member has not nominated any beneficiary and leaves no dependant.

If a fund member nominated a beneficiary found to not qualify as a nominee, such as having predeceased the fund member, the remaining nominees would not be entitled to receive the non-qualifying nominee’s share. The board of trustees is only allowed to pay such a portion of the benefit as is specified by the member. This portion would then have to be paid to the estate of the deceased.

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.

News from RFS

New MIP administration system due to go live

After a long and arduous journey we have finally set the beginning of November as the date for our first funds to go live on our new administration platform. The process of conversion entails an initial phase of running parallel on the first funds to go live in order to identify any quirks that have not been picked up during the preparation and testing phase that took place over the past year. From here on we will convert funds as they move into a new financial year up until June 2017.

As much as we are excited about the new features and facilities that this web-based system offers and the efficiencies we expect to be able to realise, we are realistic enough to expect hiccups during the implementation phase. It goes without saying that during the implementation phase, we may not at all times be able to adhere to the standards we have set for ourselves in terms of service delivery and turnaround times.

The system will allow us to reduce investment timing differences in respect of cash flows to a minimum. However, it will require some changes to our investment administration processes. Other processes administration processes may also have to be adapted and some of this will impact on our clients’ processes. These changes will be communicated with clients over the course of the next few months.

We are appealing to all stakeholders to bear with us during this challenging period of running parallel and converting funds one-by-one. We are convinced that when you and we look back in a year’s time, it will have been worth our effort and your patience!

New staff appointments

It gives us great pleasure to share our latest permanent appointments with our clients and readers and to welcome them to our team:

Daltrie Tsowaseb joined us on 9 May as Fund Accountant to create capacity in the Private Fund Accounting team. Daltrie has been working as a fund accountant at Old Mutual for over 3 years and has also gained accounting experience at Agra and Pupkewitz. He holds a Bachelor in Accounting Science from UNISA and is busy with a Postgraduate Diploma in Forensic Auditing.

Leana de Klerk joined us on 16 May as Fund Administrator to create capacity in the Benchmark Team and to assist with projects. Leana has gained valuable experience at Alexander Forbes and for the last 10 years at Old Mutual Corporate as administrator and team leader. She holds a B Comm degree from UNAM and completed a management development program at the University of Stellenbosch.

RFS staff surprises residents of Oude Rust Oord with flowers

It has become a tradition for a group of RFS staff visting Oude Rust Oord to share a moment of joy with residents when handing over fresh flowers.

The team was rewarded with a hug and a smile from one happy resident.

News from NAMFISA

Transfer of retirement capital from approved fund to unapproved policy

Concerning this topic, a NAMFISA official recently advised as follows:
“We have received back the legal opinion. We will have to table the opinion internally after which a circular or directive will be drafted to industry. Due to the administrative processes around issuing legislative instruments, this may take us to the end of the calendar year but I do not foresee it taking longer than that. I cannot make the contents of the opinion public but I do believe it does break our deadlock and will drive our circular/directive.”

In the meantime caution remains warranted before transferring retirement capital to an insurance policy issued in the name of an individual retiree.

SIH report for quarter ended 30 September due

The Excel based report for the 3rd quarter is due for submission by principal officers by 15 November. Take note that passive investment breaches resulting from market value and presumably also exchange rate movements (‘volatility in the financial markets’) will not be considered as Regulation 28 breaches anymore. The onus remains on the fund to prove this.

Similarly, where a limit is breached at quarter end the presumption is that the breach occurred during the whole quarter and will be penalised accordingly unless the fund can show that this was not the case.

News from the market

Finance Minister Calle Schlettwein on state of the economy

“Let me take this opportunity to brief the House and the public about the general state of our economy, the main outcome of the recently announced credit rating assessment by Fitch Credit Ratings Agency early this month and the impact on Namibia, actual or potential, of BREXIT; that is, the expected exit of the United Kingdom from the European Union.”

Read the full brief in The Villager, here…

Government relaxes good standing certificate rules for SME’s

“The Ministry of Finance has scrapped an August directive requiring small businesses to have a certificate of good standing to qualify for payments of goods and services delivered to the government.”

Read the full report in Windhoek Observer, here…

Our comment: is this the right message to the conscientious taxpayer? Why should SME’s have lower standards for meeting their obligations towards the fiscus than the man in the street or large organisations?

Media snippets
(for stakeholders of the retirement funds industry)

Funds can delay paying a benefit while criminal charges are investigated

In this case, the member resigned on 31 October 2011. Shortly thereafter the employer opened a case of fraud against the former employee and requested the fund to withhold payment of his resignation benefit. Although the employee neither admitted liability nor had a judgement been obtain, the fund administrator submitted an e-mail dated 19 January 2016 to the adjudicator in which the National Prosecuting Authority confirmed that it had every intention to prosecute the former employee

“A retirement fund is entitled to delay paying out a withdrawal benefit pending the outcome of a criminal case into whether a member’s former employer suffered damages as a result of the member committing fraud, theft, dishonesty or misconduct. However, the fund cannot exercise this right unreasonably or indefinitely.

This principle was highlighted by Muvhango Lukhaimane, the Pension Funds Adjudicator (PFA), in a determination handed down recently.”

Read the full article by Staff Reporter of IOL, here...

No one should withhold your pension fund unreasonably and indefinitely after you have admitted in writing that you owe your employer.

In this case a member was dismissed by the employer for alleged fraud in 2013. The member admitted guilt in writing in respect of an amount of N$ 16,000 and was dismissed in 2013. The employer instructed the fund administrator to withhold the former employee’s termination benefit in the amount of N$ 148,000. A criminal case was pursued but was withdrawn in court for further investigation as the file had gone missing from the magistrate court.

“On June 2, Pension Funds Adjudicator Muvhango Lukhaimane ruled that a provident fund is entitled to withhold a withdrawal benefit pending the outcome of legal proceedings against the member. However, the employer must exercise this power reasonably and not indefinitely, Lukhaimane said. Lukhaimane said the criminal matter may proceed to determine his criminal liability, however, this should not result in his money being withheld further as he has admitted liability.”

Read the full article by Thuli Zungu in Sowetan of 10 July 2016 here…

Bull and Bear - a consensus view of the market over the next 12 months
5 October 2016

The Sanlam SPP Bull & Bear report is a collation of the performance expectations of seven South African Asset Managers over the coming 12 months.

100% say

  • they are bearish on US, Euro-Zone, UK and Japanese bonds

71% say

  • they expect Emerging markets to outperform Developed markets
  • they are neutral on Mid-caps
  • they expect SA inflation to trend downwards
  • they think that the SA interest rate is stable

Asset managers’ view of the current SA Equity market

Download the full report here…

Media snippets
(for investors and business)

Sarb accused of causing economic downturn

SA can cut interest rates, boost infrastructure spend and liquidate the PIC: Duma Gqubule. “The South African Reserve Bank (Sarb) is implicated in causing the last three recessions, as well as the current economic downturn, says Duma Gqubule, founder of the Centre for Economic Development and Transformation.”

Read this interesting commentary on what SARB should do to boost economic growth by Prinesha Naidoo in Moneyweb of 27 September 2016, here…

How do we maintain our retirement income and our capital?

I intend on retiring in March 2017. I would like your opinion on the following:

  •  I will require R24 000 per month income after tax; my house is paid for and do not have any debt; my wife and I are healthy.
  • We have R3.3 million in compulsory savings and R3.25 million in discretional savings. I also have emergency fund of R500 000.

My questions are as follows:

  • Will we be able to maintain that income for the rest of our lives with inflation taken in to account and maintain my capital?
  • How do you suggest I invest the capital to maintain the income, taking inflation into account?

Read this interesting exposition on how the reader should go about achieving his income objectives with the available capital by Nikki Taylor in Moneyweb of 3 October 2016, here...

Unique things that great bosses do every day

“In one study, 61% of those working for bad bosses said they were looking for another job, while just 27% of those working for good bosses were considering alternate employment. And here’s one that’s really startling: 65% of people with bad bosses said they’ve sometimes misrepresented the truth at work, compared to only 19% of those with good bosses. Just as great bosses bring out the best in us, bad bosses bring out the worst… Being a great boss obviously has a tangible value other than just being liked, but how do you know if you are one? And, if you’re not, how do you get better?”

Here are the unique qualities of a great boss –

  • He shares information;
  • He puts a lot of thought into hiring;
  • He looks for and celebrates wins;
  • He respects your time;
  • He is empathetic;
  • He is accountable;
  • He says “thank you”;
  • He doesn’t forget that people have lives outside their work;
  • He is a great communicator;
  • He creates leaders.

Read the full article by Dr Travis Bradberry in Linkedin, 12 October 2016, here...

Here is how you know you’ve got a really great boss

“In identifying admirable leaders, I focus first on three characteristics: empathy, empowering others, and generosity. Together, they form the basis of “others-focused” leadership that distinguishes the best from the rest.”

Here is an excerpt on these 3 key characteristics:

  1. Empathy - empathetic leaders invest the time and effort in getting to know their teams. They really listen and seek to understand what is important to them professionally, but even more importantly, their personal and social goals.
  2. Empowering others - empowering leaders aren’t afraid to step aside and share responsibility. They trust their teams, knowing they have surrounded themselves with people who are very capable of tackling the challenges and opportunities in front of them. The leader is always accessible as a resource, but doesn’t need to be part of every decision.
  3. Generosity - The best leaders are not only transparent in admitting their mistakes, but they’re generous in giving recognition, sharing credit, patting someone on the back for a job well done, and offering their time.

Read this interesting article by David Schonthal in Linkedin of 4 October 2016, here...

What can you do with a Bitcoin?

“I am sure you've heard of Bitcoins. They're one example of the new form of currency being created on the Web. Think of them as dollars, or pounds, or Euros, or Norwegian Kroner or Thai Bhat. You can use them to buy and sell goods online, at stores that accept them. For most of us, the way we would get Bitcoins would be to buy them, which you can do very easily using "normal" currency (mainly your credit card).

But do you know what to do with a Bitcoin? Four things really..

  1. Use it like real money;
  2. Trade it like shares;
  3. Invest in Bitcoin mining;
  4. Tell your hipster friends about it.”

Read the post by Graeme Codrington in ‘Tomorrow Today’s Tips on Tuesdays’ of 10 October 2016 here...

And finally...

“Coming together is a beginning; keeping together is progress; working together is success.”
~ Henry Ford

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