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In this newsletter:
Benchtest 01.2019, Administration of Estates, National Pension Fund 2, the CoA Return and more...

Important notes and reminders

Age of majority is now 18 as from 30 January 2019

The Child Care and Protection Act was promulgated on 29 May 2015 and commenced on 30 January 2019. Be reminded of what this law entails in the overview further down. Notably the age of majority has been brought down to age 18.

NAMFISA levies

  • Funds with year-end of January 2019 need to have submitted their 2nd levy return and payments by 25 February 2019; funds with year-end of July 2018 need to have submitted their 1st levy returns and payments by 25 February 2019;
  • Funds with year-end of January 2018 need to submit their final levy return and payment by 31 January 2019; February 2018 year-ends need to submit their final levy return and payment by 31 February 2019.

VAT refunds stuck in the system!

Here is an extract from an e-mail sent out by the Institute of Chartered Accountants in Namibia that reflects the answer of Ms Aune Shikongo, Deputy Director at Inland Revenue to an enquiry into the state of affairs:

“The refund issue is presently outside the Receiver Jurisdiction

The predicament is to do with IFMS (Integrated Facilities Management System) which did not deploy so far

Inland Revenue Department did however approached the office of the Deputy Executive Director for State Accounts to intervene

We are hopeful that the situation is nearly ending  

On the Receiver side, ITAS is ready to release all processed refunds anytime IFMS enables it”


Phasing out of cheques - reminder
 
Local banks no longer accept any cheques issued after 1 February. Note that cheques will expire after 6 months, thus 1 August. Cheques issued on 1 February 2019 will thus be valid only up to 31 July 2019.


Check out our new retirement calculator


Our web based retirement and risk shortfall calculator has been enhanced and updated to assist you to determine how much you should contribute additionally, either by way of lump sum or regular salary based contribution, to get to your target income at retirement, death or disablement.

Try it out. Here is the link...

 

Newsletter

Dear reader

This year literally started with a bang for the retirement funds industry, or shall we say it started on the same note 2018 ended? Packed with surprises, last year ended with the unexpected notification that the new CoA return has to be submitted to NAMFISA by 31 January 2018. This was followed by the commencement of the Child Care and Protection Act and the implementation of ITAS. Back in office early January, after a short holiday, we had to scramble around to make sense of an amendment to the Administration of Estates Act that commenced on 31 December 2018, senior officials at the Master’s Office mostly being caught unaware, the Minister himself still being on holiday! Trustees were generally either still on holiday or in holiday mood but mostly not ready to respond to these challenges thrown at them by various regulators and the legislator. It left us with no choice but to make the best out of this in the absence of guidance by our funds in, what we had to conclude to be in their best interests. And as if our lives were not interesting enough so early in the year, NAMFISA went on a mission to collect information on benefits paid to minors over the past 5 years from fund administrators, presumably to assist in decision taking on the Administration of Estates Act.

In this newsletter

  • we review the run-up to the submission of the 31 December Chart of Accounts report, suggesting that there is room for improvement in the interaction between the regulator and the industry;
  • we provide an overview of the Child Care and Protection Act;
  • we probe the arguments for amending the Administration of Estates Act;
  • we examine its impact on estate planning and income tax administration brought about by the amendment of the Administration of Estates Act, and
  • we express our concern about the ever increasing, disproportionate pressure being exerted on trustees.

And our Managing Director continues his discussion on a National Pension Fund.

In our investment commentary we comment on prevailing artificially low interest rates, the common misconceptions about investment risk and how these factors have changed the world of investment and retirement. We present in full length our commentary that already appeared in last month’s Performance Review newsletter.


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...

...and make a point of reading what our clients say about us in the ‘Compliments’ section. It should give you a good appreciation of who and what we are!


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

Regards

Tilman Friedrich


More considerations for a National Pension Fund
A contribution by Marthinuz Fabianus, Managing Director

Since some 20 years ago, various attempts have been made by the Social Security Commission (SSC) to come up with a broadly acceptable and viable policy and legal framework for the operationalisation of the NPF. Over the many years, various proposals have been submitted with the help of mainly foreign experts on social security.

Previous proposals for operationalising the NPF without any known exception, based their suggested models on social protection schemes of first world in a typical ‘copy and paste’ approach. This is with regard to key aspects such as contributions and benefit design, governance framework, management and administration of the fund, participation and the consideration of occupational pension funds, investments of funds and regulatory supervision etc. As I write, information has it that Social Security is once again considering advice by experts from the International Labour Organisation (ILO). These experts are guiding us on a path of pension fund structures that may be working for western countries, but is sure to fail and lead us into trouble as our situation is completely different as a developing nation.

In my previous and first article in a series to deal with the subject, I made the point that there is a need for a fresh approach to considering the NPF. With sufficient local experience in managing occupational pension funds, vibrant asset management and long term insurance industries, we should build our own thoughts for how the NPF can work to best answer most of the questions emanating from government, labour, employers and even from Social Security Commission. This 2nd article in a series will look at the compelling arguments for a NPF from a government policy point of view.


Reasons for the establishment of the NPF

The Social Security Act, No. 34 1994 (SSA) provides for the establishment of a National Pension Fund (NPF), a compulsory contributory social pension scheme.

Globally there is consensus amongst policy-makers that social protection programmes or social security initiatives play a crucial role in the eradication of poverty and income inequalities.  Namibia’s development agenda as set out in the National Development Plans (NDP4), Vision 2030 and more recently the HPP also recognises that enhanced social protection will help fight poverty and our highly skewed income distribution.

Namibia is signatory to various international conventions and member of international organisations, continental and regional bodies such as United Nations (UN), International Labour Organisation (ILO), World Bank, African Union (AU), Southern African Development Community (SADC) etc. These institutions and conventions set various developmental goals which member countries and signatories must aim to achieve. Specifically, the ILO adopted the Social Security (Minimum Standards) Convention (No. 102 of 1952) that sets minimum standards for social security, particularly with regard to the benefits related to retirement, disability and survivor benefits.

The current Maternity, Sickness and Death Benefit Fund (MSDF) as well as the Employment Compensation Fund (ECF) of the SSC, are far cries from meeting the financial needs of any person that is economically active in the event of death, permanent incapacity or upon reaching old age. Namibia has a well-developed occupational and private pension fund industry. Unfortunately, only around a third of gainfully employed persons or roughly two thirds of formally employed persons are covered by these schemes. Never mind the majority of informally employed persons not covered by any scheme during their productive stage of life. Against the above concise background, I believe the provision for the establishment of an NPF is warranted and will support the operationalisation of the scheme based on a pragmatic, sustainable and cost effective model.  

Namibia is one of a handful countries that provides non-contributory old age pensions to all citizens upon reaching retirement age of 60 years. It is no secret what socio-economic impact the funding of these pensions has on our fiscus.

His Excellency Dr Hage Geingob, stated at the occasion of the official opening of the Cabinet Workshop on the National Equitable Economic Empowerment Framework (NEEF) on 27 February 2018, as follows; “We are proud that we are able to cater for most of our vulnerable citizens, through social grants. But we cannot build a prosperous nation around that model. We have to address the underlying structural impediments, which make it difficult if not impossible for many Namibians to effectively participate in the economy, and engage in wealth creating opportunities”.

You would agree that even if the above statement was made in only a related context, it is just as relevant if not more relevant to the issue of the NPF. In fact, the Harambee Prosperity Plan (HPP) sets the explicit goal that the NPF be established, noting that many Namibians are excluded from retirement funding arrangements. The President went on to further state the following; “Our response to those that try to discredit Government interventions at every opportunity is: what are your solutions? Sadly, very often, the reply is a deafening silence.”

If not in response to the challenge posed by our President, then I believe SSC and its line Ministry, the Ministry of Labour, owe it to the Namibian patriots with relevant experience to share their wisdom on a unique Namibian solution based on our local strengths and successful experience of managing pension funds. The next article will consider some diverging views amongst key stakeholders that may have contributed to SSC not having operationalised the NPF more than 20 years since enactment of the SSA.

Marthinuz FabianusMarthinuz Fabianus graduated from Namibian University of Science & Technology with a Diploma in Commerce and Bachelors in Business Management. He completed a senior management development programme at University of Stellenbosch and various short courses including a macro-economic policy course which he completed at the International Training Centre of the ILO in Turin, Italy. Marthinuz also serves as trustee on the board of the Benchmark Retirement Fund and is a member of the board of the Retirement Funds Institute of Namibia. Marthinuz also served as a Commissioner on the Social Security Commission from 2015-2017.

Tilman Friedrich's Industry Forum

Monthly Review of Portfolio Performance
to 31 January 2019


In January 2019 the average prudential balanced portfolio returned 1.2% (December 2018: 0.74%). Top performer is Namibia Asset Management Fund (2.7%); while Allan Gray Balanced Fund (-0.49%) takes the bottom spot. For the 3-month period, Hangala Prescient Absolute Balance Fund takes top spot, outperforming the ‘average’ by roughly 2.78%. On the other end of the scale Allan Gray Balanced Fund underperformed the ‘average’ by 3.25%. Note that these returns are before asset management fees.

The world of investment and retirement is not what it used to be!

Politicians, particularly those of the western world, would want to make us believe we live in an open global economy. However, where international trade is concluded in a single currency, where fiscal and monetary authorities intervene massively in financial markets, more will have to be done by the politicians to make the public believe.

The law of demand and supply, has no bearing on the behaviour of markets today. Savers are paying off the debt of borrowers through artificially low interest rates that are set by monetary authorities. So-called ‘safe haven’ investments are earning negative real interest rates and the investor is now conditioned to accepting that he will have to work until he drops dead, instead of realising his dream of retiring at an age where one might still be able to enjoy life for a while. Retirement ages are extended while pension entitlements are at best being questioned and already reduced in some countries.

With negative real interest rates seemingly having become the ‘new norm’, asset valuation models are now being questioned. Why should this be of concern to a pension fund member? Well the point is that pension fund contribution structures were established over the course of the past century or more based on the assumption of cash returning around 2% above inflation, bonds around 4% above inflation, property around 5% above inflation and equity around 8% above inflation. A typical balanced portfolio comprising of a mix of these assets based on conventional investment theory was expected to return roughly 5% above inflation, net of fees. Pension theory then arrived at a net retirement funding contribution rate of 11%+, to produce an income replacement ratio of 2% per year of membership.

Indications based on the ‘new norm’ are that one is now only looking at a net return of between 2% and 3% p.a.

Read part 6 of the Monthly Review of Portfolio Performance to 31 January 2019 to find out what our investment views are. Download it here...


Can you currently invest anywhere but in cash?

The US Repo rate is currently 2.25%. In this month’s commentary we continue the discussion on the US repo rate and its implications for global financial markets and therefore on investment decisions. What is the risk of investing anywhere other than cash now and in which asset class can you otherwise invest? We have in last month’s commentary shown how closely correlated the SA interest rates and the JSE is to its US equivalents. Fiscal policy is driven primarily by the state of the economy which drives inflation and the tools used to drive policy are interest rates and the supply of money to the market. If the economy overheats inflation rises and this will result in the lifting of the Fedrate (or repo rate in SA). If the economy is moving into recession, the Fed will attempt to stimulate it by dropping its policy rate. Inflation will follow the decline in the economy.

When the global financial crisis struck at the end of 2007, the US economy turned into recession. The Federal Reserve responded by lowering its policy rate from 5.25% in July 2007 to 0.25% in December 2008, and by flooding the market with money, in order to support the economy. GDP did recover rapidly out of negative territory up until the middle of 2009 to peak at just below 6% in quarter 2 of 2014. Since then it has declined steeply to steady at around 2% barring a blip taking it to just over 4% in the middle of 2018, probably the result of changes to US tax laws (refer graph 1).

Graph 1


Over the past just over 30 years the US Fed Rate was on average around 0.7% above inflation. However, excluding the period since the start of the global financial crisis from December 2007 to date the differential was 1.7%. Graph 2 shows how well correlated these two metrics have been since 1987 (Fed Rate measured on the right hand axis) but it shows a large gap between these currently. The graph also confirms that a 2% shift between the two axes produces a good fit of the two lines. The gap between these two lines can close through a decline in inflation or an increase in the Fed Rate or both. As things stand, it seems that the Fed has stalled further rate increases for the time being while the inflation rate is on a downward slide. This is not what the Fed wants to see as it means that the economy is in reverse gear and therefor it cannot afford to lift the Fed Rate, the chance being that it will be reduced if inflation continues to sag. Currently the differential between the Fed Rate (2.5%) and US annual inflation (1.9%) is 0.6%. This is still around 1% lower than the long term average.

Graph 2


Tracking the red (CPI) lines and the blue (policy rate) lines in graph 2 and 3, it is indeed surprising how closely they resemble the other, as I referred to in last month’s column, “the dog wags the tail”. Note that on graph 3 the SA Repo is measured on the left hand axis and the CPI (Namibian) on the right hand axis. Evidently SA had nothing to do with global politics, e.g. Kuwait invading Iraq or with the Tech Bubble yet our market moved in sympathy with the US market. Currently the differential between the Repo Rate (6.75%) and Namibian annual inflation (5.1%) is 1.8%. That represents a real rate of 0.6%. Over the past just over 30 years the Repo Rate was on average around2.5% above inflation. However, excluding the period of artificially low interest rates since the start of the global financial crisis, from December 2007 to date, the differential was 3.6% and this is where we have to get back to for a normalization of asset class valuations. A normalization will probably be delayed due to the state of the SA economy. Undoubtedly also due to the absence of sufficient risk premium for foreign investors, we saw R 120 billion foreign portfolio investment leaving local markets for the year 2018. To lure foreign investor into SA, the repo will have to be raised substantially. Once the Federal Reserve resumes lifting of its policy rate, SA Reserve Bank’s hand will in any event be forced.

Graph 3


It is evident from the above analyses that the US Fed Rate is still around 1% off its long-term inflation differential and a normalised interest rate environment. Since the Fed has stalled further increases in its policy rate for the time being it is difficult to foresee for how long global financial markets will remain in the current state of flux but markets will definitely not show any fireworks for the next 12 months and perhaps quite a bit longer. Graph 4 shows a noticeable, negative trend in global equity markets since the beginning of 2018, the DAX leading the pack with a decline of close to 20%.

Graph 4


The question is whether we will see this continuing or whether equity markets have now bottomed out. Since 1986 SA equities now delivered a real return of only 5.7%, including dividends where the long-term expectation is 7.4%. This indicates that our equity market is now ‘behind the curve’ and needs to catch up again. Looking at the US equity market, the S&P 500 produced a real return of 6.7% including dividends which is in line with the long-term expectation of 6.5%. From that perspective, the US market does not pose a threat of a significant downward correction.


Conclusion

We believe that the normalization of interest rates has largely been factored into equity valuations already and that the risk of a further downward correction is slim. We expect normal returns from US equities and believe that SA equities need to catch up as they are behind the curve in terms of long-term returns. They should present a buying opportunity. Since there is no evidence that the global economy is busy turning around, it is difficult to identify any economic sector that might produce some fireworks over the next 12 months meaning that one should spread your investments across all economic sectors but should preferably pick companies with quality earnings and high dividend yields.

The CoA return - time for a post mortem?

The Chart of Accounts return came a long way and changed its guise repeatedly and substantially. The first time it raised its head in official form was so long ago, I can hardly remember – 2012 it was. By 2013 it had become imminent. We had already been in touch with our system vendors and they had started to gear up – and then it fell flat again. Imagine we had instructed our system vendors to proceed programming the report as it then looked on the basis of this reporting being imminent? It would have been a total waste of time!

2016 then saw a resurrection of the report under the guise of the One Chart of Accounts. Back then we questioned a number of principles, following an open invitation by the regulator, such as:
  • the cost of compiling this information versus the benefits this may offer to the regulator and the fund member;
  • information to be reported on to a large extent falls outside the scope of IFRS reported information, will not be audited, is not defined and therefore does not lend itself to inter-fund and industry analysis and comparison;
  • the report was put together in such a form that it makes it very difficult to compile the information that has to be sourced from different service providers;
  • all administration system providers are foreign organisations that have to adapt their system for Namibian reporting requirements for one or two Namibian administrators exclusively, at high costs to the Namibian fund member;
  • trustees and even service providers will no understand from where and how the report derives its figures, results and conclusions and will not be able to purposefully engage in questions;
These concerns of RFS were dismissed or ignored by the regulator.
At the request of NAMFISA, RFS engaged in testing the report at considerable expense and provided extensive commentary. These comments were ignored by the regulator.

JbC (just before Christmas) the regulator issued a circulator informing all retirement funds that the new report now needed to be submitted, and this 15 days sooner than the predecessor report the industry had just gotten on top of, namely by 31 January. No guidelines were provided on how this report is to be compiled.

Pleas by RFS to provide an input sheet to industry to facilitate the uploading of information were dismissed by the regulator.

The report was not accessible on the ERS system until after Christmas, for all intents and purposes only on the 2nd of January.

RFS suggested to its clients immediately to apply for extension, having been aware about a number of problems with the report. These applications were all denied by the regulator on the basis of the arguments being unwarranted.

When it eventually became evident that there were indeed problems with the report, the regulator eventually granted some funds extension to end of February but at the same time set the condition that the predecessor report had to be submitted by 15 February! This predecessor report of course was substantially different from the new report meaning that the whole processes of compiling and submitting information needed to be started all over again. This condition was apparently eventually waived by the regulator. It did not affect RFS as our clients had all submitted their returns in the deficient format in time!

No sooner had some funds diligently and in time submitted their report as directed by the regulator, the regulator for the first time acknowledged some of the problems with the report. Certain fields were not open and could not be filled in. Funds were now directed to resubmit their reports within 7 days after these fields were opened!

We suggest that the run-up to the submission of the new report as set out above should warrant a post mortem to determine whether this reflects the spirit in which cooperation between the industry and the regulator should be approached. NAMFISA’S 2018 annual report defines objectives vis-à-vis its stakeholders as -
  • to have continuously satisfied stakeholders that are effectively engaged to endure brand protection and visibility, and help build beneficial relationship;
  • to increase stakeholder satisfaction.
It would be interesting to know whether the regulator is satisfied that the process followed and the manner in which it was handled reflects the spirit of its above stated objective vis-à-vis its stakeholders?

Child Care and Protection Act - an overview

The Child Care and Protection Act, Act 3 of 2015 was promulgated in Gazette 5744 of 29 May 2015, to give effect to the United Nations Convention on the Rights of the Child, the African Charter on the Rights and Welfare of the Child and other international agreements binding on Namibia.

This massive Act of 254 sections and 279 pages, plus 120 regulations covering over 300 pages that were promulgated on 30 January 2019, commenced on 30 January 2019. It provides for a penalty not exceeding N$ 50,000 or imprisonment not exceeding 10 years or both, for offences relating to abuse, neglect, abandonment or failure to maintain a child. It also provides for the state paying a maintenance grant, a child disability grant and a foster parent grant, in an amount and frequency as determined by the Minister by regulation.

The Act aims to:
  • give effect to the rights of children;
  • set out principles relating to the best interests of children;
  • set the age of majority at 18 years;
  • provide for the appointment of a Children’s Advocate;
  • provide for the establishment of a Children’s Fund;
  • make provisions relating to children’s courts;
  • provide for residential child care facilities, places of care and shelters;
  • provide for proof of parentage and parental responsibilities and rights in respect of children born outside marriage and children of divorced parents;
  • provide for custody and guardianship of children on the death of the person having custody or guardianship;
  • provide for kinship care of children;
  • provide for prevention and early intervention services in relation to children;
  • provide for foster care;
  • provide for the issuing of contribution orders;
  • provide for the domestic adoption and inter-country adoption;
  • combat the trafficking of children;
  • provide for provisions relating to persons unfit to work with children;
  • provide for grants payable in respect of certain children; and
  • create new offences relating to children.
The following laws were, amongst others, repealed in the whole:
  • Children’s Act, 1960,
  • Children’s Status Act, 2006 and
  • Age of Majority Act, 1957
The following laws were amended:
  • the Combating of Domestic Violence Act, 2003,
  • the Combating of Immoral Practices Act, 1980,
  • the Liquor Act, 1998,
  • the Administration of Estates Act, 1965,
  • the Marriage Act, 1961; and
  • the Criminal Procedure Act, 197
If you would like to have an overview of the contents of the Act, download it here...

If you would like to have any overview of the contents of the regulations to the Act, download it here...


Administration of Estates Act debacle

The amendment to the Administration of Estates Act requires with immediate effect, that all monies payable to minors and persons under curatorship payable from pension funds, insurance policies, annuities and even from deceased estates, to be paid to the Guardians Fund in the Master’s Office.

This Amendment Act applies ‘notwithstanding any other law’. It thus overrules every other law including the Pension Funds Act as from 1 January 2019 and requires that pension funds now have to pay any lump-sum benefit and any pension benefit to the Guardians Fund, given that the Minister of Justice believes that he has the powers to stay the prompt implementation thereof by way of public pronouncements and a letter which requires trustees to continue paying benefits to minor as before, ‘in the best interests’ of the minor. This puts trustees in a very awkward position. Firstly, can the Minister stay the implementation in this manner? Remember that trustees have a duty to comply with laws and regulations, the same for the funds’ auditors and non-compliance may carry serious sanctions for trustees and auditors. Why has NAMFISA not pronounced itself on this yet? Does this mean that all funds should obtain legal opinion on how they should act under these conditions?

Secondly, if the Minister’s official staying of the implementation of his amendment indemnifies trustees from being in breach of the law, which I believe not to be the case, how would they interpret ‘in the best interests of the minor’? Considering that the amendment was justified by reference to abuse of minors’ moneys by service providers and by reference to excessive costs having been charged to minors for the processing of benefits due to them. Now funds are to continue as before but does that include them condoning the abuse referred to? Surely it must be argued that this will then not be ‘in the best interests’ of the minor. Considering that the Master will administer these moneys at no cost, I would argue that trustees need to ascertain that minors should bear no costs in respect of the processing of any benefits payable to them. Just not sure who would do any work without compensation?

Let’s turn to the topic of costs. Clearly no-one would engage in business without compensation. Whether it is a minor or a major, everyone has to pay for any service consumed and that includes the taxpayer who has to pay for the services provided by government – through tax primarily but often through fees as well. Why should a minor be treated differently to a major? As far as my knowledge goes, fees charged by the various providers of financial services are based on the type of transaction and do not consider the age of the beneficiary. The free market mechanism surely will separate the corn from the chaff and ascertain that anyone charging unreasonable or abusive fees will sooner rather than later run out of business?

To use these arguments for government or one of its agencies to ‘nationalise’ a part of the economy in a monopolistic environment, is highly questionable. This insinuates that government can do better than private sector operating in a competitive environment. Unarguably this is not the case as has been proven by so many socialist experiments across the world, and this is regularly admitted by government. In contrast Martyn Davies MD of emerging markets and Africa at Deloitte believes that “…the state cannot be trusted to own anything... (see report ‘The state should not own anything’ further down).

Another interesting dilemma in this saga is that the amendment now inserted age 21 as age of majority for the purposes of the Act. Yet the Child Care and Protection Act just reduced the age of majority to 18 from 30 January 2019! Which one prevails?

Finally we have a dilemma regarding the Income Tax Act. The fund and its administrator are obliged in terms of the ITA to determine and to deduct income tax on any taxable benefit and to issue a PAYE 5 certificate to the relevant taxpayer. Furthermore, any annuity is gross income. The implication is that in practice the administrator must deduct income tax from the annuity and issue a PAYE 5 certificate for the amount paid and any tax withheld. In terms of the amended Administration of Estates Act, the annuity now must be paid to the Guardians Fund. The Guardians Fund in turn should pay this annuity as an annuity for the benefit of the minor beneficiary to the guardian. Since this will then also be an annuity it must be taxed, or at least it is taxable. The ITA never envisaged such a scenario and therefore does not require the Guardians Fund to deduct tax and to issue a PAYE 5 certificate, which does not change the taxable nature of the annuity. To address this dilemma will require some fancy footwork in terms of trustees deciding what they want to offer to the minor beneficiaries of any deceased employee and how this must be dealt with in the rules in order to deal with this dilemma,

To round off the discussion on the Administration of Estates Act debacle, our industry will now be forced to change its processes and procedures to comply with this Act. The Master will set up processes and procedures to receive, to record to maintain and to dispose of benefits it will receive in respect of minor beneficiaries – and this will only be for a short while where after the situation will change fundamentally once again! Come the FIM Act, we are effectively back to the previous dispensation because it will once again be the trustees’ responsibility to dispose of benefits for minors and majors in a clearly prescribed manner, as set out in section 276 and will have to be observed ‘despite anything to the contrary contained in any law’! Since the FIM Act will be a younger Act than the Administration of Estates Act, as now amended, the FIM Act will prevail!


Estate planning in the new estates law environment

Estate planning is no longer what it used to be with the amendment of the Administration of Estates Act. Where a testator directed that a trust be created for his minor child or children, grandchild or grandchildren or any other minor to be funded from a portion of his estate after his passing away or if he has already created a trust for such minor beneficiaries, the testator needs to be aware that the moment a benefit becomes vested in a minor, i.e. the minor has a legal claim on receiving the benefit, the amount, whether it is a capital amount or an annuity, must be paid to the Master for disposition to or for the benefit of the minor in its absolute discretion.

Bear in mind that anyone above the age of 18 is no longer a minor as from 31 January 2019. The Master will thus now, most likely, pay out any remaining capital of a minor upon the minor reaching the age of 18. (Note that it is not clear yet how the conflict between the age of majority of 18 and the age of 21 specifically referred to in the amendment of the Administration of Estates Act will be resolved.) This may also not be what the testator would have wanted. Where the testator is also not comfortable that his bequest to a minor is entrusted to the Master of the High Court, he needs to consider the alternatives. Hopefully the Minister of Justice will realise that the amendment of the Administration of Estate Act may lead to capital flight from Namibian to other jurisdictions that still provide for freedom of testation.

Failing the retraction of the obligatory disposition of all moneys due to minors to the Guardians Fund, subject to the total discretion of the Master, testators conceivably may create a trust in South Africa or another jurisdiction and determine an amount to be paid into that trust without specifying the minor or minors in respect of whom this money is to be paid so that at that point the minor has no legal claim on the money. The trust deed in the neighbouring country would then lay down the parameters of how the money should be allocated to minor beneficiaries. Testators may also attempt to circumvent these unwanted consequences by nominating a trustworthy family member with whom they agree to accept a bequest and how the family member is to deal with the moneys in the interests of the minor beneficiaries.


Trustees are put under ever increasing, disproportionate pressure

So we in Namibia are trying to emulate, sometimes even lead the developed world in putting ever increasing pressure on trustees to shape up. Trustees are expected to become professionals in their role as trustee, never mind the fact that for 90% of all trustees this job has been assigned to them by or with the blessing of the employer, as an adjunct to their position in the management structure of the employer. They cannot, and will never be pension experts as this would require them to neglect their job that earns their company its keeps. Neither can pension funds, barring a few exceptions, afford to engage professional trustees.

I believe trustees already find the going tough, and that is even before they have been confronted with the requirements of the FIM Act.

Just the other day principal officers received a circular from NAMFISA “Supervisory guidelines on the integration of ESG factors in the investment and risk management of pension funds” with the remark that this “…document for your use and submit your comments if any to the IOPS Secretariat, Dariusz Stanko at This email address is being protected from spambots. You need JavaScript enabled to view it. by 11 March 2019. We like acronyms – IOPS, the International Organisation of Pension Supervisors  Who will respond? Unlikely that anyone will, after all who has already incorporated ESG factors into their company management processes? For those that have never heard about ESG, it stands for Economic, Social and Governance principles that KING IV also refers to. Does it make sense for your fund to lead your company from a governance perspective or should it rather be the other way round. Surely your company should come first as its survival will determine the survival of its pension fund rather than the converse. This is where proportionality should come in!

Not interested in IOPS or ESG, you may think, but be aware! When the regulator sends this out for commentary, it probably has something up its sleeve! It will likely not be the last time you as a trustee will hear about these acronyms. Just another indicator that the road forward will be uphill for the pensions industry.

The direct cost of operating a retirement fund for employees is steadily increasing and that does not account for a significant element the employer is and has been carrying all along such as the time its senior staff spend on pension fund matters. For all its good intentions to provide for the well-being of its employees through its pension fund, the employer gets slapped with ever increasing regulatory demands and is exposed to the ever increasing risk of non-observances of laws and regulations some of which can have the consequence of a senior staff member either ending up in jail or being barred from serving on its board of directors.

In just about every discussion on global best practice with regard to the management and governance of the pensions industry, reference is made to ‘proportionality’. Surely in every country there should be intense discussion about what proportionately means for the country when striving to pursue global best practice? As far as my knowledge goes, there has never been an open discussion between the regulator and the industry as to what proportionately means to our regulator and our industry.


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 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...
  • Download the list of fund service providers duly registered by NAMFISA here... 
  • Download the Principal Officer performance appraisal form here...
  • Download the revised service provider self-assessment here...
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 Chairman of the RFS Board, and retired chairperson, and now trustee, of the Benchmark Retirement Fund.
 
Compliment from a pension fund broker

“B
YOU ARE REMARKABLE
EXCELLENT SERVICE!!!
YOU HELPED ME in literally a few minutes to build up a spreadsheet that indicates all clients Pensionable salary and all costs etc. We wanted the management of the company to see what &  how the breakdown will look like for each staff member. WOW ONCE AGAIN YOU ARE A BABE! If it works out – This client will be in great hands regarding Pension and I for one can say that they won’t make a mistake! I will always refer RFS to any Company out there because this is where service starts and continues all the way.


Read more comments from our clients, here...
 
News from RFS

RFS
says thank you for loyal service

We express our sincere appreciation for 5 year’s loyal service and commitment to RFS and our clients to –
  • Anandi Britz
20 years of RFS participation in Volleyball for all

Since its establishment in August 1999, RFS Tigers participated in every Volleyball for All tournament!


Above: the MD motivating our team.



Above: some of our ladies distracting the attention of their competitors!

News from the media

RFS captures PMR Diamond Arrow award


Above: Louis Theron (L) and Gunter Pfeifer (R) with the 2019 PMR Diamond Arrow for the Pensions / Retirement Fund Administrators category.

Retirement Fund Solutions (RFS) has been awarded the 2019 PMR Diamond Arrow award. This is the 4th Diamond Arrow awarded to RFS for achieving 1st place in the category ‘Pension / Retirement Fund Administrators’ in as many times participated.

Marthinuz Fabianus, Managing Director of RFS, dedicated the award to the tireless commitment and dedication of RFS staff that often go beyond the call of duty. He remarked that the Diamond Arrow did not come easily as RFS squared off against established multinationals. He thanked RFS clients for consistent support and loyalty over the past 19 years RFS that has been in business.

The Diamond Arrow is awarded to the participant with the highest score of not less than 4.10/5. RFS scored 4.26/5.

Second place Gold Arrow went to Old Mutual with a score of 4.20/5. Sanlam took the Silver Arrow with a score of 4.15/5. Alexander Forbes was fourth in this category with a score of 4.06/5.


Legal snippets

Death benefits – did you know that...
  • 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 entitled to only such portion of the benefit as was allocated by a deceased fund member to him or her and only if there is no dependant and no shortfall in the estate of the deceased member, else the trustees must apply their discretion in the distribution of the benefit.
  • 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.
Media snippets
(for stakeholders of the retirement funds industry)


Before you restructure your fund, consider this truly independent advice

Richard Morris, former associate director of PWC offers some prudent advice which trustees should carefully consider when restructuring their fund. Although this is a fairly dated article it is still as relevant today as it was then and is worth reading by every trustee and adviser.
  • Pursue economies of scale. “In general retirement fund members do not achieve optimal retirement funding targets.” “Industry in SA tends to offer products that are unduly complex or at a cost that is too high…”
  • Avoid complex services of doubtful value and focus on retirement not risk benefits. Members happily “tend to stick to the trustee default options…typically 80% to 90% or more do this.” “Industry cautions members against the dangers of trying to time the market, but it might be more effective simply to remove the means to do so.” “It is unfortunate that the sharp focus is on retirement date and the life stage models are put in place merely to provide a more certain result at this date. This is hardly the point.” “…life stage models meant more complex member record platforms, many more transactions…and substantially higher fees.”
  • Seek to avoid fruitless costs on acquiring an annuity outside the fund on retirement. Members “effectively turn their benefit into cash to purchase…an annuity outside the fund. The irony is that the bulk of cash is promptly converted back into…equities and bonds…” “Net replacement values have sagged…This is because…longevity increased sharply in line with the drop in yields in…bonds.” This funding gap… has only recently started to receive attention.” “In view of
    • the high costs of retiree obtaining an annuity
    • the complexity of selecting an appropriate annuity, and
    • the opportunity cost of being in unduly conservative investments…”
  • Conclusion: Adequate scale, simplification and streamlining for cost reduction.
To read the full article, click here…

No fund manager stays on top for ever

In 2002 S&P Dow Jones Indices published the first S&P Indices Versus Active (Spiva) scorecard. It was a piece of analysis that compared the returns of active fund managers in the US against a broad market benchmark.

It wasn’t exactly a revolutionary piece of research, but it did introduce a new level of clarity to the argument for the use of index funds. Back in 2002, and consistently ever since, Spiva has showed that very few active managers are able to outperform a broad market index over any time period, either short-term or long-term, and even fewer can do so consistently…

What SPDJI did find surprising, however, was that this was a global phenomenon, and that it was persistent. The opportunity for active managers to outperform is higher in inefficient markets, but there just aren’t that many of these anymore.”

Read the full article by Patrick Cairns in Moneyweb of 19 February 2019, here...


Three factors that will determine your future wealth

Saving enough for retirement can seem like a daunting and complex problem. However, there are really only three things that investors have to consider.

“In its simplest form, saving for retirement depends on three factors: time, contributions and returns…
  1. Time - Discussions about how best to save for retirement almost always start with giving yourself enough time. That is because the power of compounding over the long term is the greatest tool that any investor has at their disposal… Yet this is something many people struggle with because they don’t realise its significance early enough in their careers…
  2. Contributions - The second factor is the one that investors have the most control over. It is up to every individual how much they save – and, quite simply, the more you save, the more your wealth will grow…However, it is crucial for every investor to understand how their level of contributions balances the other two factors…
  3. The last of the three factors is the one investors tend to worry about the most – the performance of their portfolios. Ironically, however, it is the one over which they have the least control, since markets are largely unpredictable in the short term. That doesn’t, however, mean that returns should be left to chance. It is important that investors are in the right mix of products and asset classes to achieve the targets they have set for themselves…”
Read the full article by Patrick Cairns in Moneyweb of 13 February 2019, here...

Media snippets
(for investors and business)


The state should not own anything

State-owned entities (SOEs) should be privatised, because the state cannot be trusted to own anything, says Deloitte MD of Emerging Markets and Africa Martyn Davies. This comes ahead of the 2019 budget policy statement at a time in which stabilising SOEs, which have weighed on the country’s finances, will again be at the fore. “Hopefully the trajectory is one from stagnation to currently thanks to [public enterprises minister] Pravin Gordhan moving towards stabilisation. The inevitable next step is privatisation. Those are the three steps,” Davies said at a media briefing. “I don’t believe the state should own anything. In SA’s case, you clearly can’t trust the state to own anything,” he said. Davies said President Cyril Ramaphosa will likely announce in the next few weeks that embattled power utility Eskom will be broken up. “It should have been announced a year ago but we waited until we’re in this policy limbo as we wait for elections,” Davies said. “Breaking up Eskom is inevitable otherwise it’s going to tank the economy.”

̴ The Red Eye – Momentum Investments


The six habits of successful companies

“What makes private companies great? In an unscientific analysis six habits found at the biggest private firms as well at some smaller, successful ones have been extrapolated. The writer hopes you can apply one or more of these lessons to your business, no matter what size.

Here is the list:
  1. They have a mission - …Delivering on meaning also helps build more substantial relationships with customers and partners---especially when a company isn't getting the kind of press coverage and attention public companies typically get…
  2. They keep employees happy - …If you treat employees as if they make a difference to the company, they will make a difference…
  3. They react quickly and adapt - …Many of the biggest private companies are old: 42 of the top 220 are more than a century old. But heritage doesn’t mean stale…
  4. They work the long-term - …Being privately held affords companies the freedom to invest in high-risk, high-reward projects that may not pay off for years..
  5. They have a family plan - …Close to half of America’s biggest private companies are owned by the founders or their relatives. The best ones have learned how to handle domestic squabbles…
  6. There are no islands - …Being private does not mean going it alone. The best private companies recruit real outsiders for the board and put them in executive positions…”
Read the full article, quite dated but as relevant as in 2013, published in Forbes magazine, here…

4 Simple things you can do to improve your leadership right now

“…Leadership can be easy, and I wanted to share four secret tips that you can do right now, that will make you a better leader and will help to improve your influence and results immediately.

Now you might not think that these are really secrets, but, given how few leaders do them, it certainly seems that way to me,
  • Smile more - …It also makes you appear more approachable, and people love to feel connected to their leaders. Smile at everyone, too: cleaning staff, security, everyone, not just your direct reports or your boss. Make smiling an authentic part of who you are.…
  • Listen more - …When you listen more, you show your teams respect, you show that you value them and their opinion. All of which helps build trust and respect for you as a leader…
  • Talk more - …Three of the most important things you can do to engage your team are Communicate, Communicate and Communicate. But don't just tell your teams what you want them to do, tell them why it's important…
  • Praise more - Everyone wants to feel like they are doing a good job, that they have contributed to the success of the company, and praise is a simple way to do this. It helps boost people’s self-esteem, which, according to Maslow's Hierarchy of Needs, is one of our basic needs…”
Read the full article by Gordon Tredgold in Linkedin of 18 February 2019, here...

And finally...

Did you ever wonder why??

WHY: Why is shifting responsibility to someone else called 'passing the buck'?
BECAUSE: In card games, it was once customary to pass an item, called a buck, from player to player to indicate whose turn it was to deal. If a player did not wish to assume the responsibility of dealing, he would 'pass the buck' to the next player.

 

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