In this newsletter:
Benchtest 10.2019, disabled members and retirement and more...

NAMFISA levies

  • Funds with year-end of November 2019 need to have submitted their 2nd levy returns and payments by 24 December 2019;
  • Funds with year-end of May 2019 need to have submitted their 1st levy returns and payments by 24 December 2019;
  • Funds with year-end of December 2018 need to submit their final levy returns and payments by 31 December 2019; and
  • January 2019 year-ends need to submit their final levy returns and payments by 31 January 2020
Restrictions on unlisted investment eased

As was recently reported in the Namibian, “Government lifts lid on unlisted investments. Pension funds will now be able to invest more money in private companies and diversify their portfolios. This follows a government announcement that they will increase the percentage of funds put in unlisted investments. Finance Minister Calle Schlettwein announced the lifting last week during the mid-term budget review saying regulations will be amended to allow pension funds, insurance companies to invest from 5%, 7.5% and ultimately 10% in phases, as the 45% domestic asset requirement takes effect.”

Inland Revenue offers to write-off penalties for registering on ITAS

The Ministry of Finance has announced an incentive programme in terms of which penalties imposed for non-compliance by taxpayers will be written off if those taxpayers are registered on the Integrated Tax Administration System (ITAS).  The incentive programme ends on 30 June 2020.

Read the EY newsletter setting out the incentive scheme offered by Inland Revenue here... (attached as Tax Bulletin 7-2019…Pdf)

Administration of Estates Act – where do we stand?

Following our formal enquiry and an informal meeting between a senior official of RFS and the Master of the High Court, the following points were noted with regard to the status of the prospective further amendment of the AoEA:
  • The Master is not ready to accept and administer monthly annuities. It can however administer and make lump sum payments to minor beneficiaries.
  • The Master would formally communicate when they would be ready to accept payments, for both annuities and lump sums and undertook to provide a formal response before or on 1 November 2019. We have not received any response in this regard from the Master yet.
  • The Master does not expect the revised Bill to be enacted this year.
On the basis of comments made by a NAMFISA official at the September industry meeting, it seems funds should ignore the amendment of the AoEA that came into force on 1 January 2019 on the basis of the written ‘moratorium’ granted by the Minister of Justice earlier this year. Trustees should however carefully assess the risk they would face if they were to follow this advice by the senior NAMFISA official.

News from parliament on FIM Bill

The debate on the second reading of the FIM Bill resumed in the National Assembly on 29 October. A member of the opposition raised an objection that the opposition of their Parties to the Bill be formally recorded in the Minutes of Proceedings. The Bill was then read for a second time. On 30 October the Minister of Finance deferred the discussion of the FIM Bill to February 2020.

Extension granted for Online Submission of Employees Tax (PAYE) returns via the ITAS portal - Reminder

Employers were originally required to submit their monthly PAYE 5 returns on ITAS by 20 September. Due to difficulties experienced by many employers to adapt their payroll systems in time, the due date was postponed to 20 February with a clear message that any further extension will not be granted.

Read the relevant PWC alert here...

Registered service providers

Certain pension fund service providers need to be registered by NAMFISA and need to report to NAMFISA regularly

These service providers are:-

  • Registered Investment Managers
  • Registered Stockbrokers
  • Registered Linked Investment Service Providers
  • Registered Unit Trust Management Companies
  • Registered Unlisted Investment Managers
  • Registered Special Purpose Vehicles
  • Registered Long-term brokers
  • Registered Long-term insurers

If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...

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...

Dear reader

In ‘Tilman Friedrich’s industry forum’ we present:

  • Should you allow a disabled member to go on early retirement?
  • Can your employees deduct voluntary contributions to the fund?
  • RFIN, the GIPF and the remnants of an industry – a bridge too far?
  • The full article in last month’s Benchmark Performance Review to 31 August 2019 – ‘Should you be concerned about recent poor performance of your pension fund?
In our Benchmark column we present:
  • Are you bogged down by increasing demands on trustees and increasing governance requirements?
In our Administration Forum column we present –
  • Dismissal – a major risk for the employer
In ‘News from RFS’, read about Blood Transfusion service being recognised for long membership of the Benchmark Retirement Fund

In ‘News from the marketplace’ read –
  • No sale of SOE’S for now
  • Informal sector tax off the table
  • Sanlam and broker community say farewell to Willie Geldenhuys
  • Ex-Rössing press on for pension surplus
In letters from our readers –
  • The difference between a hostile and an empathetic regulator explained
  • A note on the Benchtest newsletters
In ‘News from NAMFISA’ we present –
  • Circular on benefits provided by provident funds
  • Provident funds the Income Tax Act and NAMFISA.
  • GIPF gets 45% domestic asset requirement extension
In ‘Legal snippets’ read a summary of a landmark ruling by SA adjudicator on negligence of a valuator.

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!


Tilman Friedrich

Monthly Review of Portfolio Performance
to 31 October 2019

In October 2019 the average prudential balanced portfolio returned 1.6% (September 2019: 1.3%). Top performer is Momentum Namibia Growth Fund with 2.2%, while Investec with 1.2% takes the bottom spot. For the 3-month period, Allan Gray Namibia Balanced Fund takes top spot, outperforming the ‘average’ by roughly 1.2%. On the other end of the scale Stanlib Managed Fund underperformed the ‘average’ by 1.2%. Note that these returns are before (gross of) asset management fees.

The Monthly Review of Portfolio Performance to 31 October 2019 provides a full review of portfolio performances and other interesting analyses.

Evaluating your investment managers and your investment portfolio

When evaluating investment managers, the text books will tell you that you should consider the 6 P’s:-
  • the people responsible for managing the portfolio;
  • the philosophy applied in managing the portfolio;
  • the process followed in managing the portfolio;
  • the characteristics and composition of the product or products available for investment;
  • the price charged for managing the portfolio;
  • the performance track record of the portfolio.
Of these, only performance is an objective measure. All the other criteria are subjective and require the person who evaluates them to apply his personal judgment in order to reach a conclusion. When one considers performance track record, every expert will tell you that you cannot place any value on this criterium as historic performance gives no reliable indication of future performance and this has been shown to be true by just about every piece of research that has ever been published on this topic, but it is the only measurable criterium. When you consider all the criteria, aren’t you also only looking at historic evidence in any event, even if it was obtained a minute ago – it is history when you look at it and there is no way you can be sure that what you have seen today will be the same you will see tomorrow, as long as you consider anything that involves people.

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

Should you allow a disabled member to go on early retirement?

Many funds offer a disability income benefit to members, insured with an insurance company. When a fund member becomes disabled, the member would be entitled to an income benefit, paid by the insurance company that would effectively replace a certain percentage of the salary the member used to earn from employment prior to disablement; usually between 60% and 100% of his previous salary. The disabled member would remain a member of the fund. The insurance company usually also takes over the employer contribution towards the fund, in respect of the disabled member. The member will remain obliged to contribute to the fund as if he was still employed, but the contribution would normally be deducted from the income benefit payable by the insurance company and be paid over to the fund. As a member of the fund, the disabled person would also remain entitled to the death benefit the fund offers that is also usually insured with an insurance company.

The employer of this member would usually terminate the employment of the employee upon his disablement. As pointed out, the employer’s contributions would be taken over by the insurance company so the employer also no longer has any obligation towards the former employee in this regard. Where the rules of the fund (and the Income Tax Act) requires that membership of the fund must be a condition of employment, the termination of employment as the result of disablement, would then imply that the disabled member cannot remain a member of the fund unless the rules specifically provide that a disabled member will remain a member of the fund notwithstanding the fact that he is no longer an employee of the employer, and most rules do provide for this. The relationship of the disabled member with the employer would thus be severed and the disabled member would now be a member of the fund is his own capacity as provided for in the rules. Usually rules would link the conditions of the disabled member’s continued membership to the terms and conditions set out in the insurance policy under which the disability income benefit is being paid to the disabled member.

Fund rules would normally describe under what circumstances a member becomes entitled to a benefit, typically, termination of employment, death or retirement; all of these reasons being linked to the employee’s employment. For employed members, these would cover all possible reasons for termination of membership, other than disablement elaborated above. The retirement rule would normally provide for early, normal or late retirement where early retirement is normally at the discretion of the employee, normal retirement manifests the obligation of the employee to retire and late retirement is at the discretion of the employer.

As pointed out above, the terms and conditions applicable to a disabled member who is no longer employed are usually linked to the terms and conditions of the policy providing the benefit. Clearly in the absence of an employment relationship, there can be no termination of employment due to resignation, dismissal or retrenchment, yet the benefit has to cease at some stage. Rationally this is either death or normal retirement age and this is usually also what the disability insurance policies provide for. Where the rules of a fund link the disability benefit to the insurance policy, fund membership of the disabled member can only terminate as provided in the disability insurance policy. Where the rules do not explicitly link the disability benefit to the disability insurance policy we would argue that the only reason for termination of fund membership remains the termination of payment of the disability benefit by the insurance company, which would be upon the earlier of recovery, death or reaching normal retirement age.

We are regularly confronted with requests by disabled members receiving a disability income benefit, to terminate their fund membership for whatever reason but more often than not the member being after the ‘pot-of-gold’ he has in the pension fund. This would not be in the interests of the disabled fund member or his dependants who will lose the continued contribution by the insurance company, the benefit payable in the event of the death of the disabled member and any investment returns on the money that will continue to be invested on behalf of the disabled member, until the earliest of recovery, death or retirement.

Besides the fact that the early retirement of a disabled member will seriously prejudice the disabled member, section 37A of the Pension Funds Act explicitly prohibits the member to sacrifice his benefits in stating that “…no benefit provided for in the rules of a registered fund (including an annuity purchased or to be purchased by the said fund from an insurer for a member), or right to such benefit, or right in respect of contributions made by or on behalf of a member, shall notwithstanding anything to the contrary contained in the rules of such a fund, be capable of being reduced, transferred or otherwise ceded, or of being pledged or hypothecated, or be liable to be attached or subjected to any form of execution under a judgment or order of a court of law, …, and in the event of the member or beneficiary concerned attempting to transfer or otherwise cede, or to pledge or hypothecate such benefit or right, the fund concerned may withhold or suspend payment thereof…”

The disabled member thus has a statutory right to the benefits offered by the rules to a disabled member which right cannot be disposed of by the disabled member or even allowed to be disposed of by the fund and these rights can be sued for by the disabled member and/ or his dependants at any time in future. Prescription will never apply to this right. Trustees are advised to ignore any request by a disabled member to be allowed to take an early retirement benefit.

Can your employees deduct voluntary contributions to the fund?

The contract of employment

One principle of the Income Tax Act is that expenses can only be claimed for tax purposes if they were incurred in the production of income (refer section 17(1)(a).

In the case of employees, Inland Revenue will not easily accept any claim for expenses incurred by the employee. An employee can only claim expenses that he is required to incur in terms of his employment contract. In other words the salary you earn is dependent on you incurring certain costs so these costs are incurred in the production of income as contemplated in section 17(1)(a).

If an employer can formulate the employment contract in such a way that a pension contribution in respect of the employee’s bonus is an obligation, the employee should be able to claim that expense. If the decision is left to each employee, the employer should find that it is not possible to formulate it in the contract as an obligation. This does not mean that every employee has to have the same contract of employment. So certain employee categories or certain employees can have a special provision in their contract of employment that others do not have, to make the contribution obligatory.

The fund rules

Most fund rules provide for voluntary contributions by members. We caution to use this clause as the heading is problematic, referring to ‘voluntary’. As pointed out above, the word ‘voluntary’ means it cannot be an obligatory contribution by the employee and would thus not be incurred as a condition of employment for the purpose of producing income from employment.

It is important that the rules of the fund mirror the employee’s employment contract. Thus, if a contribution calculated on a member’s bonus is a condition of employment, it should not be referred to as ‘voluntary contribution’ in the fund’s rules.

The Income Tax Act on fund contributions

The definition of ‘pension fund’ in sub-section (b)(i) requires that the rules of a fund provide that ‘…all annual contributions of a recurrent nature of the fund shall be in accordance with specified scales…’. The definition of ‘provident fund’ lays down the same requirement. Typically, this refers to the contribution percentages at which members contribute on a monthly basis. The definitions do not make any reference to any other contributions.

Section 17 of the IT Act deals with ‘General deductions allowed in determination of taxable income’. Section 17(1)(n)(i), sets out that the employee may deduct ‘…by way of current contributions [which are required to be in accordance with specified scales per definition of ‘pension fund’ and ‘provident fund’] in the year of assessment and directs that ‘…such contribution is a condition of employment…’ The IT Act contains no other specific provision that allows any deduction for contributions to a pension fund, and here we do not refer to a transfer of accumulated contributions to another fund.


As set out above, the principle of the IT Act militates against an employee deducting any expense that he was not required to incur in the production of income [and that can only be achieved through the contract of employment].

This sets out the dilemma of employers or funds wanting to allow staff to make additional contributions to their fund and indicates what route the employer and the fund should take to achieve their goal of having employees contribute to the fund in respect of their bonus.

We would caution employers and funds though not to create an impression towards employees that voluntary contributions are tax deductible, or worse, to offset voluntary contributions from an employee’s salary in determining the taxable income unless you have obtained comfort that Inland Revenue will allow these as a deduction for tax purposes.

RFIN, the GIPF and the remnants of an industry – a bridge too far?

Ever since RFS was established, senior employees made it their business to support this industry body in various roles as we always considered it our responsibility to contribute towards the development of the retirement funds industry in Namibia.

Over the years RFIN was confronted with numerous challenges impacting its members either as service providers to the industry or as retirement fund, primarily when it comes to legislation and regulation. I would venture to say that RFIN has not been able to effectively counter most of these challenges.  One of the outstanding features of our industry that contributed to this ineffectiveness is that it is utterly lopsided. One single institution, being the GIPF, comprises more than 50% of the industry, the balance of it comprised of some 80 small private and umbrella funds.

During my latest term of office it has become evident to me that RFIN faces a serious challenge for which it needs to find an answer that better balances the needs of all its members. The interests of the GIPF cannot be, as the result of it operating in a different ‘sphere’, and are often not consistent with the interests of the other funds and vise-versa. However, because RFIN simply cannot afford to alienate GIPF for what might be in the interests of the other funds, the interests of the other funds may often not receive the necessary support. The consequence is that RFIN is trying to find a balance between these often conflicting interests of the two categories of membership, that satisfies neither category. To find an answer to this challenge will not be easy.

To my mind it is encumbent upon the one big player to sub-ordinate its interest to the majority interest. It surely has a key role to play in promoting and protecting the interest of our industry, as lopsided as it is. Rather than seeing itself to be part of the government structure, the GIPF should fully align itself with the interests of the pension funds industry, whether or not this may please the executive, but will it be able to  exert the necessary autonomy?

As things stand it seems tax payer funded GIPF is set on using it overwhelming size and resources to compete with the tax paying remnants of this industry rather than supporting and promoting it. As the minister of finance was quoted at the occasion of GIPF’s 30th anniversary - “with big things comes big responsibility” and that responsibility to my mind goes further than the responsibilities one would expect any pension fund to carry! Will the GIPF live up to this expectation?

Should you be concerned about recent poor performance of your pension fund?

As a pension fund member you will no doubt be disappointed with the investment returns your (probably) biggest investment has earned over the last number of years. This investment is to carry you through retirement and in order to ensure a comfortable retirement. This assumes a typical total contribution by you and your employer of around 17% of salary and on the underlying expectation of long-term returns that your pension fund investment should earn of 5% per year in real terms, i.e. above inflation. Where inflation for the year to 30 September was 3.2%, your investment should thus have earned 8.2% for the year to 30 September. The average return of typical pension fund investments for the same period however, was only around 3.4% (after fees). Over a 5 year period inflation was 4.7% per year. Your investment should have thus earned 9.7% per year while the average return of typical pension fund investments for the same period however, was only around 6.8% per year (after fees). So over both periods, your investment has substantially underperformed the underlying expectation. One will have to extend the period to 8 years to get to the first measurement period where the average return of about 9.8% per year (after fees) actually achieved the expected real return of 9.9% per year (inflation of 4.9% plus 5% real return).

Any member of a fund who has been in the fund for 7 years or less certainly has good reason to be disappointed and to be concerned, however, only if you are approaching retirement and you have not preserved your pension capital for all the years you have worked until 7 years ago. The underlying expectation for you to retire in comfort is that you will have worked and saved up uninterruptedly for your entire working life of at least 30 years, i.e. you only started to work at age 30 and will already go on retirement at age 60. Most people in fact start working at 20 and retire earliest at age 60, actually giving them 40, not 30 years of saving up for retirement. If you are one of the diligent fund members who has indeed saved up uninterruptedly for the past 20 years (or longer) your return should have been 11.8% per year as opposed to inflation over the same period of 6.3% per year, i.e. a real return of 5.5% per year including the disappointing past 7 years.

If you diligently started to save up from the day you started to work (at age 25) and this was 7 years ago, and you intend to remain as diligent, you still have 28 years to save up. Why should you be concerned now? Clearly it is only those fund members that have reneged on their commitment to save up from their first to their last working day who may find that they will not be able to live comfortably on their pension. Unfortunately this is not how pension funds are designed and these members should rather look critically at themselves than at the performance of their pension fund over the past 7 years. Over the past 10 years, pension funds have achieved the return expectation of inflation plus at least 5% per year per year (after fees).

Having referred to the past, you may well ask “but what about the future”? Can I be certain that over the next 28 years my pension investment will recover what it fell short over the past 7 years? Of course, no one will be able to look into the future, and indeed one may have valid concerns considering that ‘things’ have changed in financial markets globally since the financial crisis in 2008/ 2009.

It seems, the law of economics, of demand and supply, no longer has any 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 across the world. 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 passes away, 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 already, and even reduced in some countries.

It is pretty much common knowledge that the situation we are and have been facing in investment markets globally for the past nearly 10 years, is the result of ‘ultra-loose’ monetary policy by central banks across the world, including Namibia. After the financial crisis, central banks poured money into the financial markets in order to encourage the consumer to pick up spending levels again after these had fallen flat in the aftermath of the financial crisis. Artificially low interest rates, designed to encourage spending, were great for the borrower, but bad news for the depositor, pension fund members and pensioners to a significant extent. In many instances depositors would earn negative real interest rates.

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 as we pointed out above 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, that is 60% of the member’s last salary before retirement after 30 years, or 80% after 40 years uninterrupted fund membership.

Indications based on the ‘new norm’ are that one is now only looking at a net return of between 2% and 3% per year as opposed to 5% per year. If this were to become true, the retirement funding contribution rate would have to be raised from 11% to at least 16%. Add to this a typical cost element of 6% for risk benefits and management costs, the ‘new norm’ for a total retirement fund contribution rate is now at least 22% instead of the 17% before the advent of the ‘new norm’. Alternatively the retiree would now have to settle on an income replacement ratio of only around 40% after 30 years of service, instead of his expected 60%!

We are certainly living in a different world today to what it was 30 years ago. What we expected of the future may be materially different and we will have to find ways and means to deal with the impact these changes have on our lives and on our retirement planning. One can only find some comfort in the fact that we are all ‘in the same boat’, from ‘top to bottom’, the answers have not been found and a lot of energy and time will be spent all across the globe to find answers how to still have time in retirement to enjoy.

The global economy just has to get going again by getting consumers to start spending again and governments across the world are making every effort to achieve this goal. We are all consumers and we all know that we have an urge to spend our money, to buy a new TV, a new motor vehicle, to go on leave etc. but we are able at times to also to hold back on spending when times are bad, only to feel the spending urge growing as time goes by. There are many possible scenarios that are likely to lead to increased spending. Namibia has experienced a terrible drought for the past few years that has resulted in many Namibians holding back on spending. At some stage it will start raining again and this will then lead to the pent up spending urge to be unleashed. Globally there is much talk about the ‘4th industrial revolution’ evolving right now where the advancement in technology is in the process of changing the world of work ever faster. Any revolution will lead to the destruction of existing infrastructure and reconstruction of new infrastructure that will require large-scale investment.

With the prevailing exceptionally low interest rates, borrowers have a ‘hay-day’ while depositors (and pension fund members) are suffering. This is turning conventional money wisdom upside-down and must and can be corrected in different ways.


We are convinced that the prevailing situation cannot continue for too long and that conventional money wisdom will return. Which investor in his right mind will invest in an asset that gives him a return of 0% or even a negative return, i.e. his investment declines in value as time goes by? And this is currently in nominal terms and the situation is exacerbated by prevailing inflation as the result of which the decline in value is actually accelerating. Either interest rates will return to normal or we will see deflation (or negative inflation) meaning that goods and services will become ever cheaper as time goes by.

Pension fund members we believe do not need to be overly concerned about the poor investment experience of the past 7 years, provided they have been and remain diligent and focused on saving up for retirement throughout their working life. A pension fund is designed to deliver only over the working life of a member of 30 to 40 years. Those that are at the end of their working life and have saved up right through should still be able to retire in comfort, given that 7 years ago the picture was a lot rosier, but we are still on target! If you are at the beginning of the road of still saving up for another 30 to 40 years, markets still have a lot of time to correct and the pension fund member ultimately can influence the growth of his pension savings by saving more at a time when interest rates are low and house and rent prices have declined as the result of the prevailing economic environment.

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 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.

From a broker

“Good morning M
Thank you very much for the proof of payment. You always deliver exceptional service, I appreciate it.”

Read more comments from our clients, here...


Are you bogged down by increasing demands on trustees and increasing governance requirements?

The continuously increasing demands on trustees in terms of their fiduciary responsibilities and for more governance driven by NAMFISA, many boards of trustees feel ever more overwhelmed. The advent of the FIM Act that has been coming along for a long time now and may be expected to become law in the next year or two will only exacerbate this experience.

But what should trustees do to overcome this challenge? An umbrella arrangement is the obvious alternative and the one being strongly pushed by the regulator. But this is typically quite a drawn out and painful process and will become a lot more difficult once the FIM Act is in place.

So if this state of affairs concerns your board of trustees it will avoid prospective complexities if a decision is made and carried out before the advent of the new FIM Act.

Whilst RFS is not a proponent of umbrella funds under all circumstances, increasing regulatory demands unfortunately do make it more and more difficult for trustees to manage their private fund in compliance with these conditions. To assist trustees who feel overwhelmed by the regulatory demands we have developed an alternative within the Benchmark Retirement Fund that offers a smooth and painless transition into an umbrella fund. The Benchmark Retirement Fund, a unique Namibian fund, driven by Namibian intellectual capacity, will continue to find innovative ways to meet any needs that may evolve in the pension funds market.

Email Günter Pfeifer or This email address is being protected from spambots. You need JavaScript enabled to view it. or call either on tel 061 446 000 if this is a matter you are currently grappling with..
Paul-Gordon /Guidao-Oab joined RFS as Manager: Audit and Compliance in May 2016 and then moved into the position of Benchmark Product Manager. In 2019 he assumed the duties of Principal Officer of the Funds. Paul holds a B Compt degree from Unisa and has completed his articles with SGA.

Dismissal – a major risk for the employer

Whilst the dismissal of an employee may appear to be purely a matter of following the correct procedures as envisaged in the Labour Act, the implications for the employer may be a lot more profound than just a possible reinstatement.

Consider the scenario of dismissing an employee. HR will now complete a withdrawal form that will be forwarded to the pension fund administrator. As far as the fund is concerned its rules would typically determine that membership of the fund terminates upon termination of employment by the employer. The implication for the administrator is that a termination benefit must be paid. Whether or not the employer was within its rights to initiate the termination of this person’s membership of the fund is not within the administrator’s knowledge. The fund administrator will therefor terminate the employee’s membership of the fund and will pay out the benefit due to the employee in terms of the fund’s rules.

The employee then challenges his dismissal. In the meantime and before the matter is concluded, the employee passes away or becomes disabled. The court then finds the dismissal to have been unfair and orders the reinstatement of the employee. Where does this now leave the employer as far as the fund’s death or disability benefit is concerned, to which the employee should now be entitled in the light of his reinstatement?

The dismissal of an employee can clearly create a dilemma for the employer given that the employee can challenge such dismissal, while the fund is obliged to terminate fund membership once a notification of termination of service has been issued by the employer.

To avoid the risk of being held liable to make good the loss of the benefit that would have been due to the employee from his fund upon death or disability, the employer should rather consider suspending contributions to the fund in case of a dismissal where there is any possibility of such dismissal being challenged by the employee. The employer would thus not contribute to the fund in respect of the employee but the fund would maintain death and disability benefits (which should be borne by the employer in terms of most rules). The cost of keeping cover in force will be a fraction of the cost of making good the loss of the benefit to the employee.

Kai Friedrich, Director: Fund Administration, is a qualified chartered accountant and a Namibian Certified Financial Planner ® practitioner, specialising in the pensions field. He holds the Post Graduate Diploma and the Advanced Post Graduate Diploma in financial planning from the University of the Free State..

Blood Transfusion Service recognised for loyal support

Unfortunately Mrs Christa Gouws, who heads up Blood Transfusion Service of Namibia was unable to attend RFS’ 20 year anniversary function.

The Blood Transfusion Service of Namibia was the first employer group who had the courage of joining the Benchmark Retirement Fund as the fund’s very first participating employer on 1 January 2000, the day on which the fund ‘opened its doors for business’.

To give recognition to the 20 years loyal support, Mrs Gouws was handed a certificate by Tilman Friedrich.

Interesting statistics

Since RFS was founded and commenced to administer retirement funds as from 1 July 2000, it has processed the following benefit payments:
  • Gross benefits of exited members – N$ 12.9 billion
  • Members exited – 47,000
  • Average benefit paid out – N$ 276,000

No sale of SOEs for now.

The partial sale of Namibia's state-owned enterprises is not being considered at the moment with the exception of MTC, which is expected to be listed on the Namibia Stock Exchange next year. Owing to government's precarious financial state, public enterprises minister Leon Jooste was asked whether there were any plans to raise money by partially disposing of some commercial assets, as was the case with MTC. Jooste was of the opinion that certain SOEs are not suitable to be sold, owing to corporate governance concerns at these entities. This publication recently did an assessment in which it found that a number of SOEs were without permanent chief executive officers. A number of SOEs also do not publish their annual financial results, a key requirement for listing. “You need to be a very healthy, well-governed entity to consider listing, so at the moment there is no candidate for listing. In the long term there may be other candidates that could qualify and that might be viable but in the short-term, there is not anything,” Jooste said. – Namibian Sun

Informal sector tax off the table.

The ministry of finance has struck any plans to introduce a presumptive tax on the informal sector of the economy off the table and said it would rather look at introducing favourable tax rates for small and medium enterprise in that sector. Tax commissioner Justus Mwafongwe shed some light on the issue of presumptive tax in an interview with Namibian Sun. while the idea seemed favourable to Treasury at one point in time, a feasibility study showed otherwise. “Presumptive tax is something we wanted to introduce for these small businesses, but we actually did not continue with that because at the time the feasibility study we conducted was a bit difficult to implement at the time,” said Mwafongwe. – Namibian Sun

Sanlam and the Sanlam broker community say farewell to Willie Geldenhuys.

Sanlam recently announced the departure of their colleague Willie Geldenhuys who has left the company at the end of October after 30 years of dedicated service. Willie successfully served in various capacities at various management levels, from junior positions as an advisor, pupil branch manager, founder of the unit trust business and SPP in Namibia and later ably representing his businesses on the Sanlam executive management team, as an Exco member.  Willie leaves a rich history and vast legacy behind. Sanlam will certainly feel the loss of an immense institutional memory that he will be taking with him.

As RFS we say thank you for the many years of working with Willie and bid farewell to him. We wish him all the best for the future.

Ex-Rössing employees press on for pension surplus

Disgruntled former Rössing Uranium Limited employees have given the company 30 days to conclude their pension surplus pay-out, citing unspecified action if their demands are not met.

The group held a press conference at Ongwediva last week to air their concerns, saying the beneficiaries of the fund have been subjected to unfair treatment and unequal distribution of the pension surplus to former members, and that the process is very slow.

The former Rössing employers are demanding equal payment to all members, and the immediate payment of the surplus allocated to former members being shared equally among them.

Read the full article that appeared in the Namibian of 2 October 2019 here...

Do we have a hostile or an empathetic regulator?

My involvement in the Namibian and South African retirement funds industries began in 1988. Having witnessed Namibia’s independence and South Africa’s transition to democracy, I have experience of in-house retirement fund regulation by government ministries and outsourced regulation by independent regulators in both countries. I believe that one can classify regulators as “hostile” or “empathetic”.

A hostile regulator is:
  • non-co-operative, i.e. regulation occurs in a vacuum and does not involve consultation with regulated entities;
  • inconsistent, i.e. regulated entities do not have the confidence that like cases will be treated alike by the regulator nor that regulated entities won’t be subjected to a “one size fits all” approach;
  • not transparent, i.e. regulatory goals are not stated openly and pursued openly, reasons for decisions are seldom furnished and the decision-making process is not explained clearly and concisely with reference to the regulator’s statutory assessment criteria. In short, there is no foundation of legal certainty;
  • ineffective in striking a cost-benefit balance;
  • one who ignores its own previous interpretive rulings and makes “new” rulings on a case by case basis with no regard for its own previous interpretative rulings or an industry’s established trade usage.
Subjectively-speaking, a hostile regulator is one whose aggression, contempt, lack of empathy and total disregard for another’s point of view are clearly palpable. While this may seem like a minor irritation, the retirement fund industry is a major driver of economic growth in Namibia. Retirement funds are the single largest institutional investor group in the country.  When seen in this light, questions about the ease of doing the business of retirement funds are highly pertinent. There are parallels to be drawn with comments made by Paul Romer, World Bank Chief Economist and Senior Vice President in Doing Business 2017: Equal Opportunity for All, the World Bank Group’s annual report on the ease of doing business. He said, “Simple rules that are easy to follow are a sign that a government treats its citizens with respect. They yield direct economic benefits – more entrepreneurship; more market opportunities for women; more adherence to the rule of law. But we should also remember that being treated with respect is something that people value for its own sake and that a government that fails to treat its citizens this way will lose its ability to lead.” Paraphrasing Mr Romer, we can say that conduct by a regulator that shows that it views the entities that it regulates with respect, will yield direct benefits for both the regulator and the regulated. A regulator that fails to treat those it regulates with respect and empathy will lose its ability to regulate.

The antithesis of the hostile regulator is the empathetic regulator. But first let’s examine empathy and its importance. Psychologists define empathy as the ability to emotionally understand what another person is experiencing. The term “empathy” derives from the German “Einfühlung” or "feeling into". Empathy is important because it helps people build connections with each other. According to sociologist Herbert Spencer, empathy leads to helping behaviour. Empathy requires avoidance of cognitive bias, relating to others as individuals, not stereotypes and realising that those different from us feel and behave as we do.   

In my opinion, an empathetic regulator:
  • treats regulated entities as industry stakeholders, rather than as opponents. Regulated entities are “customers” and afforded opportunities to openly and constructively collaborate with the regulator on all issues;
  • respects regulated entities and reflects this in open and transparent engagement with such entities;
  • balances consumer protection and the needs of industry. In Regulating Financial Services and Markets in the 21st Century, A.C. Fawcett writes that successful regulation addresses the differences between industry and consumers “fairly”. Fairness is both the outcome (the balance) and the mechanism by which that outcome is achieved (regulation). Generally, where there is a common understanding in an industry, then “fairness” will not require the same detailed regulations which would be appropriate where there is no such common understanding. Successful regulation acknowledges different levels of understanding of participants and provides an appropriate response.  Fawcett maintains that in financial services, fairness is reflected in the differences in regulation applied to markets which are purely inter-professional or “wholesale” ... and those which contain a retail element. These distinctions are important because regulation is a “manufacturing cost” which is reflected in the price end-users (consumers and wholesale purchasers) pay for products and services.  The more complicated or extensive the regulatory requirements, the greater the likelihood that it will result in increased costs;
  • shows no favour to or bias against any regulated entity or group of entities, i.e. it promotes healthy and fair competition between entities;
  • gathers extensive information on regulated entities in order to properly understand them, meaningfully assess their products and risk profile and consistently apply the law across a sector;
  • supervises entities, products and services that pose similar levels of risk fairly and consistently by setting and consistently enforcing uniform conduct standards;
  • focuses on “people excellence”. As Cary Coglianese writes in his book Achieving Regulatory Excellence, “... the people serving in regulatory organizations need to be technically knowledgeable and highly competent. But these organizations also need to possess and sustain an internal culture that fosters and reinforces humility, openness, empathy, and a steadfast commitment to public service on the part of all the people who serve in the regulator’s name— and who serve on behalf of the public to which the regulator is accountable.”  The importance of this subjective aspect of empathy in regulation cannot be over-emphasised. While perceptions are not facts, they are nonetheless powerful drivers of behaviour. People who treat others the way that they would like to be treated generally elicit the desired response from others.
For financial markets to function effectively, they require regulation to reduce associated risks. However, ensuring the effective and ethical functioning of financial markets is not the exclusive preserve of the regulator. Market players have a vested interest in ensuring that customers are treated fairly, business is transacted ethically, and client investments are safeguarded. As Raymond Ackerman, founder of the Pick n Pay Group and outspoken consumer advocate puts it, “If you look after the community, the community will look after you.” To this end, regulated entities and their service providers have developed internal self-regulatory mechanisms to ensure sustainable business and engender consumer confidence. It is simply not in the best interests of financial markets to rip off their customers and leave them destitute. Hostility has a high price - one that is borne by the fund beneficiaries.

A note on the Benchtest newsletter

“thank you RFS, always informative and relevant!!”

Note: The opinion of our readers does not necessarily reflect the opinion of RFS. We reserve the right to shorten and to edit letters received from our readers.

Circular issued on benefits provided by provident funds

NAMFISA recently issued circular PF/CIR/06/2019 that deals with the benefits provident funds may not offer. Quoting the definition of ‘provident fund’ in the Income Tax Act the circular advises that all rules purporting to be for provident funds must comply with this definition. NAMFISA further advises that it will assess provident fund rules against compliance with this definition.

The concern specifically raised in this circular relates to funds that pay risk benefits while the member is still a member of the fund, while the definition seems to only provide for benefits being paid upon death or retirement of the member and not under any other circumstances. Disability income benefits and funeral benefits for any person other than the fund member are consequently considered to be inconsistent with the Income Tax Act, although if one wants to restrict oneself to the definition of ‘provident fund’ withdrawal benefits are also not provided for in the definition. It is only when considering other sections of the Act that withdrawal benefits and disability benefits may possibly also be offered. One will also find that when one only considers the definition of the other types of tax approved funds, some ridiculous conclusion may be reached.

NAMFISA is mistaken in assuming the power to rule on matters contained in the Income Tax Act and should only apply the provisions of the Pension Funds Act. After all, a fund registered by NAMFISA only has to comply with the requirements of the Pension Funds Act. There is no obligation to comply with the Income Tax Act and the consequence of not complying with the Income Tax Act is merely the loss of the beneficial tax treatment of contributions, benefits and income earned by the fund. Inland Revenue has made the point that it will not prescribe to funds on matters relating to contribution rates or benefit structure but will either cancel the tax approval of the fund or disallow the deduction of contributions that are paid towards benefits no provided for in the Income Tax Act.

Provident funds, the Income Tax Act and NAMFISA

NAMFISA has recently decided to ‘dig in its heels’ on said to be in contravention of the Income Tax Act and has turned down application for rule amendments by provident funds that offer such benefits. To try and resolve this matter, we understand that a meeting recently took place between RFIN, NAMFISA and Inland Revenue.

Unofficially we understand that the Commissioner of Inland Revenue expressed his surprise that NAMFISA is making it its business to approve rules only if the benefits meet the prescriptions of the Income Tax Act and suggested that the rules should be registered by NAMFISA but Inland Revenue would disallow contributions in respect of benefits that are inconsistent with the Income Tax Act. It was suggested that NAMFISA should alert the industry about such benefits and should suggest to the funds to amend their rules. It was furthermore agreed that NAMFISA should provide Inland Revenue with information concerning registered funds that offer such benefits.

GIPF gets 45% domestic asset requirement extension

“Nuyoma indicated that by the end of September 2019, the fund's local assets amounted to 37%, with a need to bring about 8% of foreign-invested assets back home to meet the minimum 45% domestic asset requirement.

“We are not yet at the required 45% level, but obtained an extension by when we need to comply with that requirement. Our deadline to comply is now 31 March 2021,” he added...”

Read the article in the Namibian of 25 November 2019 here...

Landmark ruling of adjudicator on negligence of valuator
A summary by Andreen Moncur BA (Law )

The Amplats Group Provident Fund, its Board of Trustees and its PO lodged a complaint with the Adjudicator against certain of the Fund Trustees, the Fund’s actuary, Vivian Cohen and the Fund  administrator for payment of R40 501 000 with interest, for losses suffered by the Fund. Between September 2012 and December 2012, Mr Cohen made a unit pricing error in the opening balance of one of the Fund’s portfolios. A cell in the Excel spreadsheet of one of the investment portfolios was hard-coded with the value as at 31 July 2012 when it should have referred to the previous month’s balance using a standard Excel formula. The unit price was thus overstated and as a result members’ Fund credits were overstated by 4%. Members who left the Fund after September 2012 received more than they should have, causing the Fund to suffer a loss of R40 501 000.

The important points to take away are:
  • The administration agreement between a fund and its administrator must set out administrator duties in sufficient detail, i.e. list all functions the fund expects the administrator to perform
  • All fund service providers should be contractually bound to notify the fund if the service providers use sub-contractors
  • All fund service providers, but especially those whose “small” errors can cause significant financial loss to the fund, must carry adequate insurance to indemnify the fund against their errors and omissions and provide the fund with proof of current cover
  • A fund must not grant “blanket” indemnities to service providers
  • The Board of Trustees must carefully manage fund service providers and ensure that they regularly report to the Trustees
  • The Board of Trustees should ensure that the fund keeps accurate records, including minutes of meetings
  • The Board of Trustees must know what is expected of it in terms of the fund rules
  • The Fund administrator was not liable because it fell outside the scope of their responsibility and the administrator would not have been able to detect the calculation error as it was not an expert in such matters.
Mr Cohen, appealed against the ruling to the Financial Services Tribunal. In April this year the Tribunal set aside the decision ordering the actuary to compensate the fund for the approx. R41 million loss it suffered plus interest.  The decision was referred back to the Adjudicator for further consideration. The rest of the order stands.

As far as I can establish, the matter has not yet been reconsidered by the Adjudicator. Since the Tribunal did not even analyse the merits of the Adjudicator’s determination in its decision, the Adjudicator has no guidelines for reconsidering the decision. The Tribunal made a point of emphasising the “fatal flaws” in the proceedings before the Adjudicator-flaws relating to, amongst others, jurisdiction to make a determination against Cohen, procedural unfairness, incorrect assumptions regarding the loss by the independent actuary employed by the Adjudicator for advice and the adjudicator’s lack of expertise to make a determination of negligence on paper.

The ruling by the Tribunal is probably the only one possible in the circumstances since the Tribunal lacked the power to substitute its own decision for that of the Adjudicator. So the poor actuary still does not know if he will be held liable for the loss.

What is the most over-rated quality in a fund manager?

“Many asset managers want you to believe that they are uniquely smart – that investing is such a difficult thing to get right that it should be left to only the brightest among us. In reality, however, successful investing is really quite simple.

Intelligence is probably the most overrated quality required to be a fund manager, says Kevin Murphy, co-head of the global value team at Schroders... A good example of this, Murphy points out, is what happened during the tech bubble in the late 1990.

Everyone got carried away with technology stocks and was happy to buy them at any price because the future was guaranteed, he says. That didn’t work out too well... Most fund managers talk about the quality businesses they invest in, the great management that they have, the wonderful barriers to entry and so on,” says Murphy. “But the problem with those kinds of businesses is that there are only a few of them in the world, and everyone is looking for them. That drives the prices of those businesses up to very high levels, and there’s a lot of research that shows that if you buy expensive companies you get very bad outcomes... the more expensive stocks are at any point, the lower their future return is likely to be. Diane Strandberg, director of international equity at Dodge & Cox, believes that understanding this is one of the three pillars of value investing.

Valuation starting point matters, Strandberg told the recent Morningstar Investment Conference in Cape Town. “It is the most powerful determinant of long term return – more powerful than GDP growth, earnings growth or other measures that we might look at...”

Read the full article by Patrick Cairns in Moneyweb of 18 November 2019, here...

You can achieve above inflation returns and be cautious

“...Equities have shown the ability to outperform inflation over the long term. However, with the potential for greater returns comes the increased risk of capital loss, as well as increased short-term volatility... generally an equity fund, or balanced fund that includes equities, would be able to meet the needs of an investor saving with long-term goals in mind, and able to stomach volatility. But what if you need real returns but you can’t tolerate as much volatility, is there a way to beat inflation?

Pure cash investments are unlikely to go the distance. To generate investment returns that beat inflation over time, the reality is that investors have to include other asset classes, like equities, in their portfolios. The key is to strike the right balance for your personal circumstances.

For the more risk-averse investor, one option to consider is a ‘defensive’ or ‘stable’ unit trust from the Multi Asset – Low Equity unit trust category of the Association for Savings and Investment South Africa (ASISA). As the category name suggests, these unit trusts can invest in the full range of assets, like equities, bonds, property, money market instruments and offshore investments. However, they are restricted to a maximum equity exposure of 40%, and 25% for property. As a result, they usually display lower short-term volatility and aim to provide long-term capital growth. Therefore, the unit trusts in this category are generally a good option for investors seeking inflation-beating returns with fewer ups and downs than multi- asset unit trusts with higher equity weightings.

Within the parameters of this category, the asset mix for any particular unit trust will depend both on the unit trust’s specific mandate and on the investment managers’ opinions on where they’re finding value at the time. For example, if they’re cautious about the equity market, they may increase the unit trust’s allocation to bonds or money market instruments instead.

The benefit of multi-asset unit trusts is that you don’t have to think about all the decisions yourself – the investment professionals take care of the unit trust’s asset allocation and select the specific underlying investments, all you need to do is pick a unit trust from the category most suited to your needs and timeframes...”

Read the article by Radhesen Naidoo and Stephan Bernard in Cover Magazine of 22 October 2019 here...

Allan Gray remembered with tremendous respect

Allan Gray, who launched Allan Gray Limited in 1973, recently passed away in Bermuda at the age of 81.

Read the befitting tribute by Patrick Cairns in Moneyweb of 12 November 2019 here...

2019 Medium-Term Budget Policy Statement in a nutshell

If you are interested in a high level overview of the South African medium-term budget policy statement in graphical format by Deloitte, follow this link...

The biggest challenge facing the investment industry

“In the discounted cash flow model, which is arguably the cornerstone of active investment management, year 50 is almost irrelevant,” the president and chief investment officer at Morningstar Investment Management, Daniel Needham pointed out. “Years one to 10 make up the largest proportion of what you look at.”

The impacts of climate change on business models and industries, however, have to be considered way beyond this kind of time frame. For example, how do you assess an investment in a coal miner, when the use of fossil fuels will fall dramatically over the next few decades? Models that rely on historical data are inherently incapable of assessing these sorts of risks and opportunities.

“Consultants and clients are typically backward-looking,” Green noted. “But this is not a backward-looking problem you can solve.”

Read the full article by Patrick Cairns in Moneyweb of 11 November 2019, here...

Great quotes have an incredible ability to put things in perspective.

I’ve learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel.
~ Maya Angelou

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