|In this newsletter:
Benchtest 07.2018, message from Managing Director, pension or provident fund, risks of dismissal, conferences and more...
Important notes and reminders
Tilman Friedrich's Industry Forum
Monthly Review of Portfolio Performance
to 31 July 2018
In July 2018 the average prudential balanced portfolio returned 0.15% (May 2018: 2.45%). Top performer is EMH Prescient (0.88%); while Allan Gray (-1.12%) takes the bottom spot. For the 3 month period, Stanlib takes top spot, outperforming the ‘average’ by roughly 1.15%. On the other end of the scale Namibia Asset Management underperformed the ‘average’ by 1.43%.
The prudential balanced portfolio – the best choice for an investment horizon of 3 years and longer
Graphs 1.7 and 1.8 above depict the 5 year and the 10 year returns of prudential balanced portfolios to the end of July 2018, as blue bars. An article by Patrick Cairns in Moneyweb of 8 August 2018, shows the SA top-performing world-wide flexible funds for these periods to the end of July 2018. The table below sets out a comparison between the SA and Namibian funds
Interestingly, the Namibian funds have stood their own very well despite the fact that the SA universe of available funds is so much larger that the Namibian universe. The Namibian top performing fund was just slightly behind the top performing SA fund over 5 years and over 10 years. The worst performing Namibian fund outperformed the worst performing SA fund by nearly 2% per annum over the 5 year period as well as over the 10 year period. The Namibian category average also outperformed its SA equivalent over both periods. The JSE Allshare index returned a mere 1.7% above inflation over the 5 year period and 2.2% above inflation over the 10 year period. This is pedestrian performance indeed. Fortunately dividends of around 3% per annum contribute to total return on equities and raises the near zero real return to close to 5% over 5 years and just above 5% over 10 years. These returns are of course before portfolio management fees of around 0.75% on the typical pension fund portfolio. This would produce a real return after portfolio management fees of 4% over 5 year period and 4.5% over the 10 year period on the typical Namibian pension fund portfolio. In the wake of the financial crisis that slashed the SA Allshare by 33% from 27,720 in July 2008 down to 18,465, pension fund members should be quite comfortable with the investment returns they have earned.
Read part 6 of the Monthly Review of Portfolio Performance to 31 July 2018 to find out what our investment views are. Download it here...
Pension or provident fund, lump sums or pensions – where to from here?
Making adequate provision to retire with dignity is not so easy to achieve in the first instance, and there are a number of pitfalls that will prevent you from achieving this ideal - early withdrawal, poor investment returns, high management costs, too low basis for setting a contribution rate, too low contribution rates. Of course government doesn’t want end up bearing the responsibility for persons that have made inadequate provision for their retirement.
The proposed National Pension Fund is one policy measure government is considering in order to ascertain that all citizens will eventually have provided adequately to retire with dignity. Clearly there is serious and justified consideration how to go about this national objective. And it does not take much grey matter to appreciate that the approach must be two-pronged, one being to ascertain that everyone contributes adequately, the second one being to plug the holes in the system that cause leakages as we will deal with further on.
Conferences, seminars, workshops – are they worth our while?
Most professional bodies nowadays require their members to obtain an annual score for continuing professional education. Many entrepreneurs have pounced on this business opportunity by offering conferences, seminars and workshops. I am sure not to be the only one totally irritated by the unsolicited calls one receives virtually daily and the flood of invites filling up one’s Inboxes. Worst of all is the fact that one receives numerous calls from different sales people for the same conference, who all drive a hard sale to boost their commission income.
The cost of these events is in many instances exorbitant, considering that one would typically pay as much for about 10 days’ conferencing as one would pay for a whole year university tuition, or more! Some organisers even have the audacity to cost their conference in one or other foreign currency! The programmes typically comprise of an array of speakers, wisely picked between a few experts and a string of people whose only purpose is to present themselves in all their glory and eloquence. Often these events are poorly organised, studded with sub-optimal speakers and poor attendance, and at times one may even get trapped by a fly-by-night who offers great early-bird discounts just never to be seen or heard again (speaking of experience)! But to be honest, what can you learn by listening to six or eight 45 minute talks throughout the course of a day, depending on how long the tea and lunch breaks are drawn out, even if it were the best possible speakers? It can only be but an appetizer here and there for topics one may want to delve into more deeply in a more dedicated manner.
Isn’t it time for this industry to become regulated? We love regulators so here is another opportunity for controlling an awful waste of resources.
New regulations and standards: comment on RF.S.5.17
In the second half of last year NAMFISA issued a number of new regulations and standards for comment. Although some comments were submitted these mostly did not address the substance of these but rather their form. Having considered these comments NAMFISA made some changes that we would consider superficial and not addressing the real concerns. Trustees are urged to pro-actively consider the possible implications of these regulations and standards and how to deal with these. Funds are encouraged to liaise with RFS where these may impact the administration of the fund.
The following regulations and standards were issued and covered in the process:
The above regulations were covered in the Benchtest 2018-02 newsletter issued in February.
In the Benchtest 2018-03 newsletter we addressed RF.S.5.11.
This standard requires every pension fund to now report on a quarterly basis to members, pensioners, employers, labour unions, fund bankers, fund investment managers, fund actuary, fund auditor, NAMFISA, the Financial Intelligence Centre and “…any other party who may have a similar interest…” [to these parties]. This report is to be in a standard tabular form setting out extensive detail on contributions due and paid.
The Benchmark Retirement Fund - Flagship of umbrella funds in Namibia
By Paul-Gordon, /Guidao-Oab, Benchmark Product Manager
Annual report 2017/2018 reveals growth of 27%
As at 31 December 2016 the Benchmark Retirement Fund was the 4th largest fund in terms of assets and the 6th largest fund in terms of membership in Namibia, and that includes the ‘almighty’ GIPF!
By 31 December 2017 the Fund’s assets grew by a further 27% reaching N$ 2.7 billion while its membership increased by 16% to just over 10,000 members. This is a remarkable achievement considering that Benchmark was only established at the beginning of 2000 and its growth can primarily be ascribed to word of mouth marketing. The Benchmark Retirement Fund is a unique fund of Namibian origin that caters for just about any need with regard to retirement provision, be it for employees of very small groups, SME’s and even large funds whose trustees do not want to be sucked into the maelstrom of the FIM Act and all its standards and regulations, for retirees, and for their minor and adult dependents.
Download the annual report, here...
News from RFS
We are pleased to announce the appointment of Monika von Flotow as Manager: Projects. Monika is a Namibian by birth and she matriculated at Deutsche Oberschule Windhoek. She started studying at the University of Stellenbosch after school and obtained a B.Com degree in management accounting in 1997. She worked in the finance department of Cape law firm, Cluver Markotter Inc, for 3 years before she joined PWC in Windhoek in the audit department. While employed by PWC she obtained an Honours degree in Accounting Science (UNISA 2004), a Post-graduate Diploma in Auditing (RAU 2005) and qualified as chartered accountant in 2007. She left PWC in 2010 to join the Development Bank. Monika also completed a number of other professional and managerial courses during her career while serving in various positions at PWC and DBN. We extend a hearty welcome to Monika and look forward to her bringing her expertise to bear on the services and products of RFS and the Benchmark Retirement Fund!
We are furthermore pleased to advise that Stefanus Morris rejoined the Benchmark team as client manager at the beginning of June after a short absence of 6 months to pursue an opportunity close to his heart, namely to serve his community through and NGO. This unfortunately did not turn out the way Stefanus had hoped. We are very happy to have him back serving a portfolio of Benchmark employers and look forward to having him around for many years to come!
Long service awards complement our business philosophy
RFS philosophy is that its business is primarily about people and only secondarily about technology. We know that as a small Namibia based organisation we cannot compete with large multinationals technology wise because of the economies of scale that global IT systems offer. To differentiate us we need to focus on personal service and on the persons delivering that service to get customer acceptance and service satisfaction. With this philosophy we have been successful in the market and to support this philosophy we place emphasis on staff retention and long service.
The following staff members recently celebrated a work anniversary at RFS. We express our sincere gratitude to these staff for their loyalty and support over so many years:
15 year service awards (in our 18 year history)
A total of 9 staff of our complement of 67 have passed this milestone.
10 year service awards
5 year service awards
News from NAMFISA
NAMFISA investments exposed - correction
Our readers’ attention is drawn to the fact that the article from The Namibian in last month’s newsletter under this heading grossly overstated NAMIFSA’s total assets as being N$ 1.46 billion. NAMFISA’s annual report for the year ended 31 March 2017 in fact reflects its total assets as N$ 190 million, down from N$ 228 million the previous year.
May the registrar refuse to register rules or amendment?
In this SA matter between Security Employees National Provident Fund (appellant) and the Registrar of Pension Funds and another fund for security personnel (new fund) as respondents, this question was considered by the Appeal Board of the Financial Services Board.
The precursor to this case was a determination by the Minister of Labour under the Basic Conditions of Employment Act that provides for the establishment of the new fund and to make membership of that fund a condition of employment for private security sector workers. As the result of this determination the appellant fund submitted amendments to employer special rules, firstly to make existing employers paid up who discontinued their contributions to participate in the new fund and, secondly, to make provision for compulsory membership and contributions by employees of any employer who chooses to continue active membership of the appellant fund.
The Registrar upon submission of the special rule amendments requested proof that those employers who chose to continue active membership had obtained exemption from participating in the new fund as is required in terms of the determination by the Minister of Labour. Appellant informed the Registrar that she did not have the legal power to refuse registration of the rule amendments on the basis of the information requested by the Registrar. Appellant argued that the Registrar had refused to register the amendments it submitted, even though the Registrar argued that she had merely requested additional information as she was entitled to in terms of the Act, and consequently referred the matter to the appeal board.
The appeal board dismissed the appeal with costs.
The following interesting conclusions can be drawn from the arguments presented in the matter by the parties and the appeal board:
(for stakeholders of the retirement funds industry)
Have balanced funds changed the mind of investors
“South African investors have had to deal with very muted returns for the better part of the last five years. Between July 1, 2013 and June 30 2018, the average return from unit trusts in the South Africa multi-asset high income category was just 8.2%.
This was a mere 2.8% ahead of inflation for this period. Given that these balanced funds would ordinarily be expected to produce returns of at least CPI + 5% over a five-year period, this is obviously disappointing.
What is notable, however, is that despite this situation investors have continued to favour these strategies. The latest statistics from the Association for Savings and Investment South Africa (Asisa) show that multi-asset high income funds continue to be the main savings vehicle for most people invested in local unit trusts…”
Interestingly, in Namibia, the average prudential balanced (multi asset) pension fund portfolio returned 10.9% nominal and 5.4% real, thus outperforming the SA equivalent unit trust by 2.6% per annum over a 5 year period!
Read article by Patrick Cairns in Moneyweb of 7 August 2018, here...
Security Sector Provident Fund defends trustees’ exorbitant fees
“...The Financial Sector Conduct Authority (FSCA) accused the Private Security Sector Provident Fund of paying its trustees "exorbitant" fees.
In its court application the FSCA, formerly the Financial Services Board (FSB), said trustees’ fees had topped R25m a year, while total administration expenses had rocketed to R353.8m for the R6.23bn fund, equivalent to a staggering 5.6% of its total asset value….
Trustees were entitled to be paid R7,900 per board meeting and R5,768 per subcommittee meeting, but "neither of these rates conformed to the rates specified in the fund’s trustee remuneration and allowance policy", said the FSCA…
The FSCA also accused the trustees of being unable to justify their high rate of remuneration, "but tried to do so by indicating that the two section 26 trustees appointed by the registrar (out of a board of 12) were receiving over R500,000 a month…"
Read the article by Julietta Talevi in BusinessDay of 12 June 2018, here...
7 financial must haves for women in retirement
“Recent Statistics South Africa figures reveal that, on average, women outlive men by nearly a decade or 9.3 years. And this means that it is absolutely vital for women, if they haven’t already, to take an active role in managing their finances rather than relying on a spouse or partner, because they will need the skills at some point in their lives, says Citadel Advisory Partner Kerry King…
It’s crucial that you feel confident enough to do what needs to be done to ensure that your income will last your entire lifetime, and that you can enjoy your retirement years in comfort.”
Here are the 7 financial must haves for a woman in retirement:
(for investors and business)
Fitness tips that are doing more harm than good
“Because there's so much conflicting health and fitness advice out there, we've outlined all of the biggest workout myths and misconceptions and countered them (where possible) with truth. Use this as a guide to get fit in the most efficient way possible…”
How should 23-year-olds invest their money?
“…A budget tells your money where to go instead of you wondering where it disappeared to. It also tells you how much you need every month to live the lifestyle that you choose. This amount will guide you during the planning process.
Once you know what amount you need every month, the next step is to set up a reserve or emergency fund. The funds should be available on short notice as emergencies usually arrive without notice! The amount that you should have available in an emergency fund is three to six times the amount that you need according to the budget that you have set…You should therefore be able to hold sufficient funds in a reserve fund without having to pay tax thereon.
Once you have a reserve fund, you can start to invest. Tax-free savings accounts and retirement annuities are both excellent investment vehicles as both are exempt from income and capital gains tax on the investment returns earned…Contributions to a retirement annuity can be deducted from your taxable income… Because you are building wealth, you should also draft a will and get into the habit of reviewing it annually when you review your investment portfolio as personal and financial circumstances do change.”
Read the full article by Angélique Visser in Moneyweb of 31 July 2018, here...
Take note though that in Namibia the tax deductible maximum towards all retirement vehicles is N$ 40,000 p.a. while only interest on TB’s and certain Post Office savings are tax free but without any limit.
See the salary increases SA can expect - PWC
“The following rise in costs seen by the PwC report over the past nine years:
According to the PwC, around 560 participants in its REMchannel online salary database reported budgeted increases ranging from 0% to 10% for the next 12 months. Their online database contains more than 520 participating companies and 85% of these include the top 100 companies in South Africa.
The following results on salary increases were shown:
Blackboard wisdom at a filling station
A filling station has become quite a landmark in Gauteng, South Africa, with its daily #PetrolPumpWisdom, which are uplifting quotes written on a chalkboard. Some motorists say they deliberately travel this road just to read the quote which brightens their day. Here's one: