Festive season dates
Please note we will be closed on 23.12.2016 and will reopen on 03.01.2017.
With this newsletter we conclude 2016. We extend our sincere gratitude for the great support of our clients and the exceptional dedication of each member of staff over the course of 2016 and the years before! We wish all of you a peaceful festive season and a prosperous 2017! May the New Year be blessed with adequate rainfall for all who depend on it, with success in your business endeavours and with health and happiness in your private lives!
In this newsletter we do a bit of introspection on claims that RFS is inflexible and arrogant, the implications of rules not providing for maternity leave, can an employer deduct an employee’s debt, should group schemes become retail products and a reader’s letter on BoN asset swaps.
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's Industry Forum
Benchtest Monthly 11.2016
In November the average prudential balanced portfolio returned 0.59% (October: -1.95%). Top performer is Investec (1.56%); while EMH Prescient (-0.91%) takes the bottom spot. For the 3 month period Metropolitan, takes top spot, outperforming the ‘average’ by roughly 1.7%. On the other end of the scale Namibia Asset Management underperformed the ‘average’ by 1.8%.
As 2016 is drawing to a close
Unlike the usual format of this column I do not comment on investment markets this time around or provide our investment views. They are unlikely to change from our Monthly Review of Portfolio Performance to October 2016. However, by the time the November issue will be released I will be overseas, watching the markets from a different, very cold perspective.
Do refer to our October issue for the last review of investment markets and our investment views for 2016. I trust you find something of interest and something you can personally relate to from time to time in these reviews!
Read part 6 of the Benchtest 11.2016 newsletter for a brief review of developments at RFS during 2016. Download it here...
Commentary: Is RFS inflexible and arrogant?
As the saying goes, ‘the tallest poppy gets its head chopped off’. It seems that there are persons out in the market with only one goal and that is to tarnish our exceptional reputation by making us out to be inflexible and arrogant. Those that know us will no doubt agree that we are in fact humble and down to earth and will discount such comment as a deliberate attempt at discrediting RFS. These could be competitors who want to raise their image to our level by lowering ours or it could simply be persons who have an axe to grind with us.
Our fee model
Our ‘arrogance’ is typically portrayed in the context of our fee model. RFS probably uses one of the most scientific methods to determine the cost of its services to its clients of service providers in the pensions industry. For any client it should be comforting to know that the services you pay for are determined in a scientific manner. This means that they are fair towards you, first and foremost. Fairness in determining fees is an obligation of any service provider who is a member of any professional association. In our case, top managers are members of a number of different professional associations whose code of ethics obliges them to apply fairness in the determination of their fees. This means the client is paying for what he is getting. Conversely it also means the client is not paying for a service he is not getting. Secondly, a client should be comforted knowing his service provider applies a scientific method to determine the costs of his services as this means the service provider has a sustainable business model.
The fact that RFS has been around as a self-sustaining Namibian organisation for over 17 years now is testimony to the sustainability of our business model. New entrants to the industry may prefer a misguided strategy of buying market share by offering unsustainably low fees. For the client who buys into this, it means one of two things. The service provider will either revert back soon with the scenario of having to close doors or the client agreeing to a fee adjustment or of the service provider in fact closing doors – a nasty situation for any pension fund if it was your administrator.
Would you call this arrogance?
Our business principles
Our ‘inflexibility’ is typically portrayed in the context of our way of dealing with client enquiries on special ‘non-standard’ services. As our slogan goes ‘rock solid fund administration that lets you sleep in peace’, we are very principled in approaching such requests. Firstly, requests must be defined properly so that both parties understand what is required, what the parties’ expectations and obligations are, what risks need to be addressed and how these risks will be addressed. Until all these pre-requisites have been met, trustees may at times experience our response frustrating and overly dogmatic. However at the end of the day, our concern for protecting the interests of fund members and trustees should in the final analysis provide the comfort and peace of mind to our clients that all ‘i’s’ have been dotted and all ‘t’s’ have been crossed and that their risk exposure is consequently minimised. RFS’ reputation speaks for itself!
Would you call this inflexible?
Comments referring to RFS being arrogant and inflexible have to be interpreted in the context of their origin. We do not think they are appropriate. Being a humble, down to earth organisation believing to apply the highest standards of fairness, we invite any client or prospective client to explore with us our model for setting fees for the services we provide.
Do your fund rules provide for maternity leave?
For member contributions to be tax deductible it is essential that these are made in terms of the rules of the fund. The Income Tax Act granting the concession to members to make tax deductible contributions to a fund requires that membership of the fund must be a condition of employment and that regular contributions must be in accordance with specified scales. The Income Tax Act does not link the employer contributions to an individual member’s pensionable salary but rather to his/her total approved remuneration. Remuneration is a wider term than pensionable salary and can include other costs of employment relating to the employee.
Pensionable salary is normally defined in the rules of a fund as the basis for determining the contributions to be made to the fund by the member and by the employer.
Most rules of funds would define pensionable salary as -
“The MEMBER'S basic annual salary or wages and any other regular amounts paid to such MEMBER as are regarded as pensionable by the BOARD OF TRUSTEES at the request of the EMPLOYER”
As far as the rules are concerned, contributions must thus be linked to pensionable salary. Whether or not a salary is paid during maternity leave is usually set in the conditions of employment.
Scenario 1 – No salary is paid to member on maternity leave
Where no salary is paid, there should be no contribution by either member or employer, based on the definition of pensionable salary.
If the employer does not continue to pay any regular amount to the member while on maternity but wishes to continue contributing this would be in contravention of the rules. It would essentially be a voluntary contribution by the employer, posing the risk that the Receiver might disallow it for tax purposes. It is unlikely though that the employer would exceed the total that the Income Tax Act allows the employer to deduct for tax purposes in respect of such member, it being based on the wider concept of total remuneration per Income Tax Act, rather than the narrower definition of pensionable salary in fund rules.
Scenario 2 – employer continues to pay a salary to the member on maternity leave
If the employer continues to pay any regular amounts to the member on maternity leave, both parties should contribute based on such regular amount. In this scenario the failure of the member to contribute while on maternity leave is a contravention of the fund rules and must be recorded as a debt to the fund. The member’s record would be built up by the administrator from month to month as if that contribution was received. How that debt will be disposed of, is a matter between the fund and the employer.
The risks faced by the fund and the employer under this scenario of suspending the member contribution though is minimal. If an agreement has been reached between employer and member to do so, the member has very little argument to challenging the employer as this actually benefits the member at the time of maternity leave.
Both scenario 1 and scenario 2 pose potential risks, where the rules of a fund do not provide for members on maternity leave. The potential risks posed by scenario 1 and scenario 2 are small. The rules should preferably be amended to correctly reflect the employer’s employment practice in this regard.
Can you deduct the employee’s debt to the employer with his permission?
Section 37 D of the Pension Funds Act prescribes the conditions under which an employer can have an amount deducted from a member’s benefit and paid to the employer directly. Section 37 A prohibits the member to give permission for the deduction of his debt to his employer while section 37 D defines very specific scenarios under which an amount can be deducted from a member’s benefit. A member cannot authorise a deduction and payment directly to the employer other than with regard to a housing loan or housing loan guarantee.
Section 37 D does allow a deduction where the employer has obtained a court order based on damage caused to the employer by the member as the result of his or her theft, fraud, dishonesty or misconduct, or where the member has in writing acknowledged to this. The amount determined by the court or acknowledged by the member as the damage caused can be deducted and paid to the employer directly.
While cheques still represent legal tender, funds often employed the practice of instructing that an uncrossed cheque is issued for any amount to be paid to the employer for reasons other than those aforesaid. The member is then requested to endorse the cheque to the employer. This practice has been followed on the basis of the argument that the member first received payment from the fund and then made over the payment to the employer. We are not aware of an instance where a court has ruled against this practice but stand to be corrected on this.
Should group schemes offer members choice based on personal needs and preferences?
“No more business as usual for (SA) employee-benefits” is the headline of an article that appears below. The message of this article is that “The one-size-fits-all model of offering employee benefits to large groups of employees was simply no longer appropriate.”
It is a well-known statistical phenomenon that in any population, let’s talk about pension fund membership and members’ needs in this case, the bulk of experiences in the population are concentrated around the centre of the curve with a steep decline in experiences on either side of the curve. In terms of cost effectiveness the further any fund tries to move to the outer ends of the needs curve, the more costly it will become to provide for the need and the less value the fund will add in providing for a particular need relative to the greater membership of the fund.
To satisfy every need of every member in a group arrangement is certainly nice to have but will not be affordable and not in the interest of the bulk of members. That is not the purpose of a group scheme!
Retail products in contrast are built around and for the needs on the individual. But the individual has to weigh up the cost of providing for each of his needs against the benefit this presents to him and will take a rational economic decision. In a group scheme everyone will have to contribute towards the cost of the scheme providing for my unique needs.
A group scheme aims to cover the bulk of members’ common needs at an affordable cost!
Having said this, RFS will now have the capability through its new MIP administration platform to offer extensive individual choice and flexibility adding every extent of complexity that one can think of. However, our business purpose is to provide appropriate solutions rather than deliberately increasing complexity for the sake of building our revenue streams.
Pension fund governance - a toolbox for trustees
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...
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 of a large pension fund on 6 October 2016
“The speed at which you respond is beyond my wildest expectations. THANK YOU VERY MUCH!”
Read more comments from our clients, here...
News from RFS
RFS re-appointed by Unipoly
We were delighted to receive the wonderful news of our reappointment as fund administrator to the Unipoly Retirement Fund effective 1 January 2017. We sincerely appreciate this gesture of confidence of the Fund’s board of trustees, after a tenure of 16 years with a flawless record! We believe that our expertise is unrivalled in the Namibian market and that the trustees’ decision will prove to have been in the best interest of their Fund, its members and the employer. We look forward to be at the service of the Fund for our forthcoming tenure.
Christmas celebrated at RFS
RFS staff heralded Christmas with this artistic Christmas tree that is decorated with 2016 pictures of highlights of the staff's lives.
(for stakeholders of the retirement funds industry)
No more business as usual for SA employee-benefits
“South Africa’s employers and pension funds need to change their employee-benefits engagement models to align and recognise them as a critical ingredient to employee and member value propositions that guide financial planning to create financial freedom.
It is sad, but true, that too many South Africans would rather stay in the warm shower of deniability, when it comes to planning for retirement, as opposed to taking charge of their lives by spending some time in the cold shower of reality to better understand their financial status and plan for retirement; one of the country’s top insurance-industry leaders said yesterday.
One of these is that the one-size-fits-all model of offering employee benefits to large groups of employees was simply no longer appropriate. We live in a world that is volatile, uncertain, complex and ambiguous. The old certainties no longer apply. Individuals want to know what value we’re offering them; they want to know that we understand their needs and are willing to walk the retirement planning journey with them. They want to know that the information and solutions we’re offering can be trusted.
Read the short article by Sandile Hlophe. CEO of Group Arrangements at Liberty posted in Cover, Financial Planning, Retirement of 18 October 2016, here…
(for investors and business)
The CEO of a £1.4 billion software giant says Blockchain won't succeed...
The CEO and founder of cloud accountancy software giant Xero thinks blockchain, one of the hottest concepts in technology at the moment, won't succeed in banking because of "surveillance culture and tribalism."
Read the post by Kathy Caprino in Linkedin of 31 October 2016, here…
The ‘state capture’ report
Now that you, dear reader, are no doubt also departing on your well-deserved Christmas holiday, you may find the time to acquaint yourself with the content of the report of former SA Public Protector, Thuli Madonsela on the state of capture, referring to the Gupta debacle in SA.
Download the 26 page executive summary and form your own opinion, here…
(You may just need a brush to call your hair to order again.)
“It does not matter how slowly you go as long as you do not stop.”