In this newsletter:
Benchtest 11.2019, year end message, reckless trading, GIPF too large to fail, fishrot and more...

NAMFISA levies

  • Funds with year-end of December 2019 need to have submitted their 2nd levy returns and payments by 24 January 2020;
  • Funds with year-end of June 2019 need to have submitted their 1st levy returns and payments by 24 January 2020; and
  • Funds with year-end of January 2019 need to submit their final levy returns and payments by 31 January 2020.0
Inland Revenue offers to write-off penalties for registering on ITAS - Update

The Tax Committee of the Institute of Chartered Accountants of Namibia has obtained some clarifications from the ITAS project team regarding the tax incentive in place up to 30 June 2020.

See below the clarifications as per the ITAS team and the Inland Revenue Department (IRD):
  • To qualify for the incentive, the taxpayer himself/herself needs to have registered on ITAS as e-filer and all returns need to have been submitted.
  • The system automatically wipes penalties from the account of the taxpayer when the above conditions have been met. In other words, no intervention is required by the IRD or by the taxpayer.
  • The incentive applies to all penalties whether due to late submission, late payment or any other reason.
  • The incentive applies to all returns and penalties regardless of which period they cover. In other words, it also applies to penalties that accrued before the launch of ITAS.
  • The incentive will apply only once per taxpayer. In other words, once the taxpayers account is up to date and penalties are reversed by the system, all penalties that accrue thereafter, even if before 30 June 2020, will not be covered by the incentive.
The program to reverse the penalties once taxpayers comply with the incentive was launched on Friday, 22 November 2019.

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 this newsletter we address the following topics:

Year end message by Marthinuz Fabianus, Managing Director;

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

  • An extract from the Monthly Review of Portfolio Performance to 30 November 2019 and of our view on what to expect of investment markets in 2020;
  • Reckless trading – pension fund trustees beware!
  • Price is what you pay – value is what you get!
  • “The GIPF is too large to fail” and the flip side of this coin;
  • ‘Fishrot’ is not a fishermen’s disease;
  • The full article in last month’s Benchmark Performance Review to 31 October 2019 – ‘Evaluating your investment managers and your investment portfolios’.

In our Benchmark column we present:

  • Employers beware – fund membership must be a condition of employment!

In our Administration Forum column we present:

  • Should you rotate your service providers on a regular basis?

In ‘News from RFS’, read about our year end function held at ‘De Kayak’.

In ‘News from the marketplace’ read:

  • Travel insurance is a must.

In letters from our readers:

  • A note on the Benchtest newsletters;

In ‘News from NAMFISA’ we present –

  • Feedback from industry meeting of 3 December 2019.

In ‘Legal snippets’ read about vicarious liability and the insurance implications thereof.

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

Year-end message

In my shoes, it is customary and I would like to take stock of this year that is fast coming to a close. We recently held our staff end of year function under the ‘Western’ or ‘Cowboys’ theme. Over the years, we celebrate the coming to end of a year under a theme and it was the first time to celebrate as “Cowboys & girls”. To appreciate and make sense of the theme, I got the help of Google to read up a bit on definitions, origin and historical significance of this familiar western culture. I am not an ardent reader of history or novels, but if you are or would just like to feed some curiosity, I suggest it may be worth reading up on. In my case, it helped my ignorance, as I eventually learned that the ‘Wild West era’ is largely a myth perpetuated and portrayed via film as made popular by Hollywood characters.

But on the back of this theme, I have taken a leaf from the lives of these ordinary human beings referred to as Cowboys and found various meanings in our own lives at RFS.

As I take wisdom from some Cowboy inspired quotes, I wish to take stock of the past year.

1) "Country fences need to be horse high, pig tight, and bull strong".

This quote sums up the type of people we employ at RFS. We look for specific personalities and go through a thorough process to ensure we only appoint persons we consider fit for our environment. In the course of the year, we were fortunate to secure the appointment of 5 new staff members (the names of the new staff members were shared in our previous editions of the newsletter). Unfortunately, 3 of our staff will be leaving our employ to pursue other interests, and we close the year with a staff complement of 74.

We are very proud of our staff retention track record and in this respect, proud that during the year – 7 of our staff celebrated 5 years of service with the company, 4 celebrated 10 years’ service with the company and 2 staff members (namely Charlotte Drayer and the RFS founder Tilman Friedrich) celebrated 20 years’ service with the company.  

2) "Don't worry about biting off more than you can chew; your mouth is probably a whole lot bigger than you think".

Some things are not in your control, but how you choose to respond to those things is in your ultimate control. We no doubt faced difficult challenges this year, but we are not the only business that faced challenges. In fact many businesses faced different challenges or the same challenges but to a greater extent than we did. Some businesses had to decide not to offer any increases to their staff, others had to decide to reduce salaries to retain staff, yet others had to let go of staff or cease doing business altogether. Thankfully, we were not put in any of these severe circumstances. We have taken views and crafted strategies that had at the time not envisaged all current economic and other circumstances into account, but now that we are witnessing the impact of the same challenges on some businesses, as a business, we feel even more confident that the strategies we are pursuing will not just carry us through current challenges, but give us reasons to be very optimistic and confident about the future of RFS in the financial services industry.

3) "If you're riding ahead of the herd, take a look back every now and then to make sure it's still there with ya."

We managed to retain our appointments to 3 of our clients that went on public tender during the course of the year. We are indebted and grateful for retaining our appointments to NBC Retirement Fund, NHE Retirement Fund and the Namwater Retirement Fund in such a difficult operating environment. We were during the year also appointed to the NAPOTEL (Nampost, Telecom & NPTH) Pension Fund. These appointments all signal the long term value that pension fund trustee boards place on quality and reliability of service rather than price.

We will not relent on our efforts to seek optimal efficiencies in our operations. To this end, we are analysing data from our time keeping system with the view to ensure that we remain unrivalled not only in terms of service delivery, but concomitantly in the transparency of our service fees.

During the year, we were also in a position to reflect and celebrate with clients and stakeholders 20 years of service in the pension funds industry. We have enjoyed remarkable support over the past 20 years and on the occasion to mark the milestone in the life of RFS. We have been given every reason to look forward to the next 20 years and beyond with renewed dedication and commitment.

4) “Every path has some puddles”.

This will always be true and was indeed the case for this year. In this respect some aspects of our retail business have been impacted greatly by questionable competitive behaviour on the part of GIPF and its protégé company Kuleni. Fair and even field competition is always necessary. However, our industry still lacks a level of maturity with regard to market conduct and financial literacy.  

Another big challenge we faced during the year is on the regulatory front. The Administration of Estates Amendment Act was a new law that was introduced whilst we were away on holiday during December 2018 and came into effect on 01 January 2019. This law is now on the statutory books even if the introducer of the law, the former Minister of Justice is now facing the rough of the laws he was supposed to uphold. The FIM Bill is another law which will change the face of our industry. This law was introduced and discussed in Parliament, but could not be concluded and was postponed to next year. Our FIM Bill Project Manager, Monika Von Flotow has worked very hard this year to make sense of the FIM Bill and we managed to experience first-hand, the fruits of her hard labour as she took us through a few training sessions. The jury is still out on this and we look forward to further training and discussion sessions as we make sure to ready ourselves as an organisation.

5) "Good judgement comes from experience, and a lot of that comes from bad judgement".

This was the first calendar year I have been at the helm of RFS. My taking over from Tilman was of course only the beginning of preparing our organisation for the next phase. As we look forward to the coming year, my fellow colleagues in senior management and I will start working on the organisational structure for the next phase of our business.

In conclusion, I feel indebted to thank all our staff who have given so much of themselves and made so many sacrifices in the name of RFS! I also thank all our various clients, fellow service providers and indeed all our stakeholders for the support and for enriching our lives over the past year!

I wish you all a safe and peaceful holiday season. May you enjoy the festive days and may you be blessed throughout as we look forward to see and work with you again come 2020.
Marthinuz 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.

Monthly Review of Portfolio Performance
to 30 November 2019

In November 2019 the average prudential balanced portfolio returned -0.7% (October 2019: 1.6%). Top performer is Old Mutual Pinnacle Profile Growth with 0.0%, while Investment Solutions with -1.0% takes the bottom spot. For the 3-month period, Namibia Asset Managers takes top spot, outperforming the ‘average’ by roughly 1.2%. On the other end of the scale Stanlib Managed Fund underperformed the ‘average’ by 1.4%. Note that these returns are before (gross of) asset management fees.

The Monthly Review of Portfolio Performance to 30 November 2019 provides a full review of portfolio performances and other interesting analyses. Download it here...

What do we expect of investment markets in 2020?

Based on our above analysis, we do not foresee a return to a normal interest rate environment in 2020 but rather expect real interest rates to decline further some into more negative territory. Global consumer and investor sentiment should stand a fair chance of improving rather than declining further. We believe locally consumer and investor sentiment is probably as low as it can get with a fair chance of also improving in 2020, just thinking of the early rains we thankfully experienced in parts of the region and a faint hope that the new Escom management may be able to make some progress. We would thus expect global equity markets to show some real growth in 2020. We expect the trend in interest rates to continue downward which in turn will impact positively on the performance of bonds. Bonds should also be able to produce a real return in 2020. Money market rates are consequently likely to decline globally. As the result, the typical prudential balanced portfolio should outperform the money market portfolio and we would expect it to achieve its long-term objective of inflation plus 5%.

Read part 6 of the Monthly Review of Portfolio Performance to 30 November 2019 to find out what our investment views are. Download it here...

Reckless trading - pension fund trustees beware!

In terms of section 96 (2) of the Companies Act, 2004, “A company must not make any payment in whatever form to its shareholders if there are reasonable grounds for believing that – (a) the company is, or would after the payment be, unable to pay its debts as they become due in the ordinary course of business; or (b) the consolidated assets of the company fairly valued would after the payment be less that the consolidated liabilities of the company.”

Section 429 of the Companies Act holds directors personally liable, in the event of winding up or judicial management of a company, for any delinquency, including breach of faith or trust or carrying on business recklessly or committing an offence under the law of insolvency, to restore property and to compensate the company in the event of having conducted the business fraudulently. Section 431 goes further to apply criminal provisions to insolvency contraventions while section 432 provides for the prosecution of a director.

So as an officer or director of a company, breach of faith or trust, carrying on business recklessly or committing an offence under the law of insolvency can have serious consequences.

But what is the relevance of this for pension funds and pension fund trustees? Well it is common knowledge that a number of SOE’s are struggling to survive, having been used to budgetary support by government which has been cut or reduced substantially as the result of government’s financial predicament. It has been reported in the media that as the result of the reduction of the government subsidy some SOEs are failing to meet their contractual liability towards their retirement fund.

So what happens if an employer stops contributing to its retirement fund as required in terms of the rules of the fund?  Firstly, the assets of the fund do not grow by the contributions that would have been paid. Secondly, the liabilities of the fund, more specifically members’ fund credits, will continue to grow as if contributions had continued as provided by the rules. Evidently, the fund will be accumulating a shortfall equal to the contributions that should have been paid but were not paid by the employer, unless the fund has reserves that may be used to fund this shortfall in terms of the rules of the fund.

Where a fund has reserves that may be applied to fund such contribution shortfall, it may have a grace period, but the principle is that the liabilities of the fund will exceed the assets of the fund. Where the fund does not have any reserves to be applied another concern for members will be that the fund cannot pay its service providers including the insurance companies supposed to provide life and disability cover. This may lead to the service providers suspending their services to the fund and members being without life and disability cover. This may have serious consequence for those leading the organisation, certainly under the Companies Act as elaborated above.

While it is not uncommon for directors’ being held liable in their personal capacity for any breach of faith or trust or carrying on business recklessly or committing an offence under the law of insolvency, it seems that neither in Namibia nor in SA have any of these principles been tested yet with regard to retirement funds. However, the distinctions drawn between retirement funds and companies become ever less pronounced. As we know the NAMCODE and King IV are nowadays commonly applied to both types of legal entity.

It therefore cannot be a foregone conclusion that trustees may not be held liable in the same way as company directors and officer can be held liable under the Companies Act.

Trustees whose funds are in the situation where an employer no longer meets its obligations to make contributions to the fund as provided by the fund’s rules must be cognisant of the potential risk they may face should members challenge their performance in this regard. Where the employer does not contribute at all, the rules may already provide that no contributions will be allocated to members’ fund credits and death and disability benefits will be suspended. This of course constitutes a reduction of benefits with consequences under the Labour Act. Often the employer may also not make the full contributions but only partial contributions in contravention of the rules. If the rules do not provide for this, they may be amended to provide that the amount received shall first be appropriated to pay the service providers and the balance, after providing for insurance premiums calculated on a proportionally reduced pensionable salary, to be allocated to each member in proportion to their pensionable salary. It will be appropriate for the employer to be responsible for paying interest on any outstanding contributions. Trustees should also consider terminating the fund in order to avoid a situation where early leavers receive their full benefit while the last remaining members have to carry the shortfall

Price is what you pay - value is what you get!

This is a popular quote of Warren Buffet, and it is so true! It is especially relevant and extremely important when you are dealing with business of a long-term nature. Pension funds are of course business of a long-term nature. In pension fund business accuracy and reliability of data is a sine-qua-non. Transparency and disclosure provides those vested with the supervision and governance of their fund with the tools to ensure that the business of the fund is administered properly to let them ‘sleep in peace’. If things go wrong in the administration of a fund and this slips through all systems and controls undetected, its consequence may be felt many years later to then present a serious challenge to trustees how to deal with such errors or omissions.

For trustees it will be very difficult to determine whether the price they pay for the administration of their fund presents value. In Benchtest 09.2019 we quote from the 2019 Sanlam Benchmark Survey where Barend le Grange makes the point “...that the impact of waiving all the administration and consulting fees over a 40-year term is just a 5% uplift [in the net replacement ratio, e.g. from 56% to 61%] and only 1% uplift [from 9% to 10%] over a 10-year term. Le Grange advised that clients should move away from focusing on the difference between the cost of administration and/or consulting between service provider A and B and rather focus more on which service provider produces more value.

Although in making this comment we are clearly conflicted, we believe it is a valid point and it is in the interests of trustee to give due consideration to this.

“The GIPF is too large to fail” and the flip side of this coin

The GIPF is too large to fail, Minister Calle Schlettwein sounded at the recent 30 year anniversary of the GIPF. The problem is - who will be able to rescue this institution from failure if this were to happen? With its disproportionate size relative to government fiscal means and even the Namibian economy as a whole, what will our government be able to stomach? With a relatively modest shortfall or loss of 10% of its total assets we are talking of roughly N$ 15 billion that government will not be able to shoulder, let alone anything more than this. This is clearly a serious systemic risk the Namibian economy is facing and government seems to be content with this. Like in a number of other instances, government seems to see no threat while things are going well but ‘when the paw-paw hits the fan’ we are surprised that this could have happened. And I hasten to add, fortunately, the GIPF is currently run well by all reports, but this was not always the case and there is no guarantee that it will continue to be run well at all times.

The other side of this coin, of being so disproportionately large is, that it can apply leverage its agenda like no other institution in Namibia or the rest of the pensions industry put together. An example of this is the acknowledgement by GIPF that it is probably the only pension fund in Namibia that does not comply with the minimum of 45% of total assets to be invested within Namibia. How many funds in Namibia were penalised by NAMFISA for not observing one or the other parameter laid out in regulation 13?

In as much as I have appreciation for the GIPF finding it very difficult to meet the 45% requirement, in the absence of investible assets to the value the GIPF can purposefully invest, it does cast a shadow on the financial and regulatory system.

If the Minister through NAMFISA has approved non-compliance by GIPF, I believe it is nothing less than fair and incumbent upon the Minister through NAMFISA to reduce the limit for all funds to what was granted to the GIPF. The point has to be made here that the Minister is seriously conflicted being the provider and underwriter of the GIPF and the  highest authority of the pension funds industry.

‘Fishrot’ is not a fisherman’s disease

‘Fishrot’ is a new designation that should actually end up in the dictionary for its pictorial abundance. Corruption has a much more limited meaning. Fishrot is all around us every day and the pensions industry is particularly prone to this disease in affording access to other people’s money to a small and often exclusive board of trustees.

What is prudent and appropriate and what is imprudent and inappropriate for pension funds is not defined anywhere and no benchmarks exist that trustees can refer to in assessing whether their actions are prudent and appropriate or not. Before entering into any expense the trustees should at least ask the question: is this prudent and appropriate for our fund or is it not? They should try to determine what other funds are doing and should not benchmark themselves on the outliers but on the mean. When dealing with service providers in a competitive market it is clearly a fairly simple task, given that the trustees need to distinguish between value and price as elaborated in another article above.

Often it starts small and the lines may be blurred. How many funds are sending their trustees to attend seminars and conferences in South Africa, elsewhere in Africa and even offshore? Can this be justified? Does the fund get any meaningful return on the money it has invested into such forays? Is any of the knowledge acquired by a few trustees transferred to the other trustees so that they can also benefit for the same cost? We see funds paying seminar fees that include a personal tablet or laptop. We see funds delegating trustees to seminars and conferences at significant expense where the trustee is only seen at registration and never again thereafter. We see funds making donations to bodies totally unrelated to their membership. Does this mean that the need of such body is greater than the need within the fund’s membership? Has any attempt been made to make such an assessment?

NAMFISA has an extensive data base that funds are required to update every quarter. This information is updated on the data base by every pension fund at its own expense. Should NAMFISA not make meaningful expense statistics available to the industry to enable trustees to benchmark their own discretionary expenses, in particular? Surely this will have a meaningful risk mitigating purpose for all funds, considering that trustees may be ruled in breach of their fiduciary duties for having incurred certain expenses without due regard to industry norms, by a court of law. As pointed out elsewhere in this newsletter, trustees can be held responsible for inappropriate expenditure in their personal capacity.

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. If one uses a team of people to individually apply their personal judgment in order to arrive at a team conclusion, the end result will be a moderated average of the judgment of each team member. One may apply weightings to these criteria to give the individual, subjective assessment an additional subjective twist. To be honest though, the fact that a manager has a track record and has demonstrated resilience through different economic cycles should offer sufficient comfort that all of the above P’s other than performance track record can be ticked off.

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.

One may try to bring the historic track record of a manager into the context of economic and other environmental factors in an effort to use the deductions from the associations one believes to have identified to refine one’s own view of their implications for the future. At the same time one would need to have a view on the future to bring these deductions into the right context with regard to the manager being evaluated. In the final analysis one will always look at history whenever one is evaluating an investment manager. One would have to be able to foresee the future if one wanted to avoid considering history but such skill is not bestowed upon any of us.

When evaluating an asset manager, one has to take comfort in only having a rear view mirror to decide on the way forward. One of the most common ways of evaluating a manager is to measure the manager’s performance against that of other managers operating within the same mandate, also referred to as ‘peers’. For pension funds the typical mandate is a balanced prudential mandate, in other words, the manager has to observe the maximum and minimum exposures to certain asset classes and assets defined by the regulator.

Graphs 6.1 and 6.2 below measure peer performance of 7 prudential balanced portfolios. More specifically it measures the cumulative out- or underperformance of the managers relative to the average prudential balanced portfolio. The average balanced portfolio is represented by the straight horizontal line at 100%.

In Graph 6.1 we see that the Old Mutual Pinnacle portfolio incrementally out-performed the average from August 2002 until the end of 2006 and then essentially maintained the gap it had built up over the first 4 years at 13% to October 2019.

Investec underperformed the average for the first 4 years to then start outperforming incrementally, reaching a 12% cumulative out-performance by the end of October 2019.

Prudential initially underperformed for about a year to then maintain a consistent outperformance ending up at 6% at the end of October 2019.

Stanlib underperformed incrementally for the first 5 years, to then pick up to the average and ending up on par with the average at the end of October 2019.

Graph 6.1

In graph 6.2 we see Allan Gray incrementally out-performing the average up to the end of 2015 and from then on losing a little bit of the cumulative outperformance and ending up at an outperformance of 32% at the end of October 2019.

Investment Solutions did quite a good job in performing on the average for the full period. This is a multi-manager comprised of a number of building blocks consisting of other managers with a specialist mandate, but in aggregate also representing a prudential balanced portfolio. Interestingly, this picture disproves the claim of multi-managers of achieving an incremental outperformance of the average manager through the intelligent combination of the best managers in different asset classes.

NAM/ Coronation marginally, but incrementally underperformed the average for the whole period ending up at an under-performance of 10%.

Graph 6.2

For those pension fund members who look at point in time performance of portfolios and might have switched or considered to switch to a money market portfolio in view of the poor performance of the prudential balanced portfolios, graph 6.2 should be an eye opener. This graph again reflects the average prudential balanced portfolio as the horizontal line at 100%. It also reflects the cumulative under- or out-performance of the different asset classes relative to the average prudential balanced portfolio.

It shows that as the result of the poor performance of equities as represented by the ‘JSE’ for the first 4 years, the all bond (ALBI) and cash indices (BM Csh) out-performed the average prudential balanced portfolio for the first 3 years. Ever since the beginning of 2005 however, the bond and cash indices incrementally underperformed the average prudential balanced portfolio except for a short period from the end of 2007 to the end of 2009, representing the peak of the financial crisis. We see that despite the average prudential balanced portfolio’s poor performance over the past 7 years, cash has only been able to maintain the gap over the past 6 years, but has not been able to reduce he gap and ends up with an under-performance of 62% at the end of October 2019! Finally we see that the all bond index actually managed to close the gap slightly since the beginning of 2018 but has still underperformed the average prudential balanced portfolio by 41% at the end of October 2019!

Graph 3


As we and every other commentator have cautioned so often before, the above graphs clearly show that the prudential balanced portfolio is the most appropriate investment portfolio for pension fund members over any period longer than 2 to 3 years. To try and capitalise on the short stints of outperformance of bonds and cash, or to avoid the short stints of underperformance of the prudential balanced portfolio, takes doing. As we see in the graphs above, these are usually very short periods of 2 to 3 years and it then requires the astute fund member to move out of the prudential balanced portfolio and back in again just at the right time. If we assume a 50% probability of each timing decision being spot on, between the two timing decisions, the total probability of picking the right moment for both moves is only 25%. In other words the chance of being wrong is 75%! One should thus never try to time the move and the objective of moving should not be to avoid a short-term blip but rather to avoid only the downside in accordance with the member’s long-term financial planning.

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.

A compliment from a Deputy Director of an SOE

“Good morning colleagues
Thank you for all support over the past years.  You are such a useful and conscientious team to work with.  May God continue to bless you!!”

Read more comments from our clients, here...


Employers beware - fund membership must be a condition of employment!

We wish to draw the attention of employers who participate in the Benchmark Retirement Fund, to the fact that it is a requirement that all new employees joining the employer after the date the employer joined the fund, must be enrolled as members of the fund. This is not optional and employers affording new employees the choice whether or not to become a member are transgressing the rules, the agreement with the fund and the requirements of the Income Tax Act.

Employers who engage in such practice firstly may find that the Receiver of Revenue cancels the tax approval of the employer’s pension fund. In terms of the Income Tax Act, membership of a fund must be obligatory in order for employee contributions being allowed as a deduction against the employee’s taxable income. Cancellation of tax approval will mean that the contributions that employees have made to the fund will be disallowed. In other words the employees that participate will be punished for the transgression by those the employer afforded the choice to join and who chose not to join.

From the fund’s and the insurer’s perspective it is also important that membership is a condition of employment. This serves to ensure that the employees cannot apply anti-selection. In other words healthy employees are more likely not to join while those who know to have a health impediment are more likely to join. As the result the fund may end up with the poor risks, thereby undermining the principles of group underwriting. To protect the fund against such practices, the trustees have the powers to terminate membership of an employer.

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.

Should you rotate your service providers on a regular basis?

Pension funds typically employ a whole array of different services from 3rd party providers. Certain service providers offer composite services while others are focusing on a limited range of closely related services.

Good corporate governance requires the regular review of service providers, does it not? In essence good corporate governance aims to manage risks and compliance. Rotating service providers for the sake of rotation certainly cannot be at the core of good corporate governance.

Assuming one is satisfied with the services provided by a service provider one would have to determine whether rotation reduces risk and/or strengthens compliance management, before this question can be answered conclusively.

What are the typical risks a fund faces vis-à-vis its service providers? Here are some that spring to mind immediately:
  • The service provider overcharges, i.e. its costs are excessive relative to the value of the service provided. Costs can be benchmarked to the market, but to value the service provided is typically left to judgement.
  • The service provider does not meet required standards of diligence such as inferior controls that lead to errors and omissions, loss or corruption of data and compliance failures; unqualified or inexperienced staff; high staff turnover and loss of corporate memory; insufficient indemnity and fidelity cover; inadequate succession planning; late, poor or defective reporting and potential of business failure due to defective or unsustainable business philosophy and policies.
  • The service provider is not adequately supervised by another independent expert, particularly relevant to composite service providers.
Considering these key risks a service provider presents to a fund, it is quite evident that the risks referred to will not be addressed through rotation of service providers.

There are industries and situations where the rotation of service providers makes sense as it mitigates important risks. Rotation is typically employed in the security and asset protection industry or where highest standards of independence between client and service provider are required, such as in the audit profession.

In other industries rotation could in fact present additional risks. Personal services dependent on an acquired knowledge of the client or administration services relying on historic data going back over many years, such as typically relevant to the pensions industry are a points in case where rotation may present bigger risks than it might mitigate.

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..

RFS year-end function held at ‘de Kayak’

Staff of RFS had their year-end function on Saturday 30 November at ‘de Kayak’. Under the theme ‘Wild Wild West’ everyone made a great effort to dress up appropriately. The venue was beautifully decorated according to the theme and everyone enjoyed the function thoroughly.

RFS cowgirls on their way to the saloon Waiting for their cowboys in the saloon
Listening to where to graze the cattle in 2020
A most wanted smile on the way to the gallows... ...and hiding in the crowd, to no avail.
Just appointed masters of ceremonies for 2020. Thank you for volunteering!  

Travel insurance is a must

If you are one of those lucky people to be travelling abroad this holiday season, don't skimp on your travel insurance. Travel insurance can cover everything, "from missed connections, loss or damage of sports equipment, injuries sustained in adventure activities, pre-existing medical conditions and even crime and terrorist attack," explains Christelle Colman an insurance expert at Old Mutual Insure. In many African countries quality medical services are private, charged in US dollars and require either upfront payment – or recognised proof of cover or ability to pay," says Colman.

Prescribed assets

I read with interest your publication on Prescribed Assets on LinkedIn.

In Namibia there is another unfair disadvantage. The same goes for Swaziland where there is also a local asset requirement. If prescribe assets are introduced in South Africa the same effect will happen here.

If there is an increased demand for debt instrument investments because of prescribed assets and the volume of debt instruments is fairly stable, then something most give. this will be the price and thus the return. But it is more subtle than what meets the eye. As the prices of the instruments are bid up to artificially high levels to such an extent that the return offered relative to the credit raking of the sovereign is too low and does not compensate the investor adequately for the implied credit risk given the credit rating of the sovereign.

The BoN has alluded to this recently. It could mean that banks and insurers will need to hold more capital than would have been required had the local investment requirement not existed.

In practice investors receive a lower return and products investing in debt instruments - like annuities, disability income claims in payment and risk products offered by insurance companies will become more expensive.

Should Namfisa implement a solvency II or equivalent regime for insurers it will magnify the problem. I think they are working on this.

The new accounting regime for insurers - IFRS 17 - will not help matters at all either and could well give a distorted picture of the financial position of, particularly, long term insurers.

Kind regards
Philip Barnard

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.

Feedback from industry meeting of 3 December 2019

NAMFISA conducted the last industry meeting for the year on 3 December. Following is feedback from RFS staff who attended the meeting:
  • Funds need to take pro-active steps of educating members in order to reduce complaints as the Financial Services Adjudicator Bill would require significantly more effort from Funds to resolve complaints. To be noted here on this lengthy exposition by NAMFISA -of the 35 complaints against pension funds in the current quarter, only 6 were resolved in the favour of the member.
  • Rule Amendments – NAMFISA is considering introducing submission block intervals (e.g. every quarter, etc...) where NAMFISA wants to focus on approving rule amendments. Their argument being that during times like CoA submission their entire focus is only on reviewing these submissions and thus it cannot also place focus on rule amendments. NAMFISA did however indicate that “emergency rule amendments” or new fund rules would receive immediate attention nonetheless (question is who will make the differentiation between emergency amendments or not). Some immediate concerns were raised from the floor, NAMFISA only wants to bring this to industry attention for now for being something they are looking into and discuss further next year. Interestingly one official was insinuating that some funds are changing rules ever so often which NAMFISA hopes to avoid with these block periods as funds may have reconsidered some amendments by then.
  • FIM Bill – deemed registration extends beyond 12 months of registration. Funds that are deemed to be registered and have submitted their rules within 12 months, are deemed to be registered until the NAMFISA registers the new rules. This includes the period NAMFISA takes to register the rules after the 12 month period.

Vicarious liability and the insurance implications thereof
An interesting article from South African Financial Planning Institute members’ digest

“While employers get to enjoy the benefit of the profits resulting from the deeds of their employees, they also create the risk of harm to others through the actions of their employees – this is why public policy dictates that employers should be held liable for the wrongful acts of their employees. The doctrine of vicarious liability, which has recently been developed by the Supreme Court of Appeal, will have implications for liability insurance covers.

The Supreme Court of Appeal ("the SCA"), in a recent decision in Stallion Security (Pty) Limited v Van Staden (526/2018) [2019] ZASCA 127 (27 September 2019), found the employer to be vicariously liable, and ordered the employer to pay damages, in circumstances where an employee acted intentionally, and "entirely for his own purposes", because there was a sufficiently close link between the actions of the employee and the business of the employer. The employee in this case, a security guard, had been provided with an override key for the purpose of inspecting the interior of a building. He used the key to facilitate the robbery of an individual who was working late in the building and in the process the individual was murdered.

In arriving at its decision, the SCA determined that the South African law "should be further developed to recognise that the creation of risk of harm by an employer may, in an appropriate case, constitute a relevant consideration in giving rise to a sufficiently close link between the harm caused by the employee and the business of the employer". (our emphasis added)

The yardstick for establishing vicarious liability is whether there is a sufficiently close link between the employee's unlawful actions and the business of the employer. In view of the Stallion decision the yardstick of a "sufficiently close link", traditionally satisfied through the employee acting in the course and scope of his or her employment, may now be satisfied simply through "the creation of risk of harm by the employer".

The further extension of vicarious liability, driven by the development of public policy, presents even greater exposure to employers.

Importantly, are deliberate actions (such as that in the Stallion decision) even insurable?
  • In line with the principle of fortuity, deliberate actions are generally, in accordance with public policy, not insurable, although it is competent to expressly include such liability.
  • As public policy develops, many deliberate actions are increasingly insurable. For instance, insurance is given for liability for defamatory statements, crimes by employees and employer discrimination, to name a few.
  • Policy wording will therefore be an increasingly important aspect in determining what cover, if any, is afforded to an insured, or is assumed by an insurer. In the recent Scottish Court of Sessions decision, Mrs Fiona Elsie Burnett or Grant v International Insurance Company of Hanover Ltd [2019] CSIH 9 PD 4/16, a patron of a pub had died after being restrained by the pub's bouncer. The public liability insurer rejected the claim on the basis that the insurance cover did not apply in instances where an individual was killed by an insured's employee's deliberate action:
    • Typically, liability polices contain a clause which excludes liability for "deliberate acts, wilful default or neglect by the insured, any director, partner or employee of the insured". The insurer in the Court of Sessions decision argued that as the assault was a deliberate act, it triggered the exclusion clause.
    • The Court reiterated that a literal interpretation of the exclusion clause would lead to an absurd result and highlighted that the commercial context of the policy needed to be considered in interpreting the policy – the interpretative process in South African law is in line with this approach. See our previous articles on the subject of policy interpretation.
    • In its consideration of the factual and commercial context, the Court of Sessions took into account that the insurance policy had been given by the insurer to a security company, and that it was inevitable that employees of that company would, on occasion, commit assaults in the course of their duty. In this instance, the bouncer had not intended to kill the patron, which led the court to find that "the causing of the death was not a deliberate act", within the meaning of the policy. The court rejected as absurd the interpretation of the exclusion contended by the insurer that the clause would allow the insurer generally to escape liability for all assaults. The insurer was accordingly found liable under the policy.
The further extension of vicarious liability, driven by the development of public policy, presents not only a greater exposure to employers, and therefore insureds, but also to insurers. Employers/insureds need to ensure that they obtain adequate insurance cover, and liability insurers need to understand and appreciate the extent of the risk that they are underwriting.”

How much can you safely draw from your living annuity?

“One of the most complex problems in financial planning is how to manage your capital in retirement. This is because there are so many unknowns.

Most significantly, nobody can be certain about how long they will need their money to last. Someone who retires at 65 may only live to 75, but they might also make it to 100.

This is a vital consideration for anyone who has reached the stage where they need to turn the capital they have saved up during their working lives into an income. They naturally want the highest monthly payments they can get, but they can’t afford to run the risk of running out of money.

Identifying at what level that balance is reached is one of the greatest debates in retirement planning...

Marriott recently conducted some interesting research looking at what level of withdrawals could be viewed as safe by those using living annuities...

“Initial safe withdrawal rates have fluctuated significantly over time,” Coetzee points out. “Some retirees were able to start with a withdrawal rate as high as 13%, grow their income in line with inflation, and still have a successful retirement.”

This is because they enjoyed very strong returns from their portfolios in the first 10 years, which put them in a much stronger position for the full period. Where returns in the first 10 years were much lower, however, initial safe withdrawal rates dropped as low as under 4%...

Marriott’s analysis found that even at a 5% initial withdrawal rate, retirees would have run out of money more than a quarter of the time over the period since 1900.

Many investors, and their advisors, may therefore need to carefully re-evaluate their strategies. To secure their retirement income, there are two options to consider.

The first is to make greater use of guaranteed annuities. This means giving up some capital, but in return investors are ensured of receiving an income for their entire lives.

Recent studies have shown that the optimal retirement strategy almost always involves a combination of living annuities and guaranteed annuities to reduce all the risks that investors face...”

Read the full article by Patrick Cairns in Moneyweb of 13 December 2019, here...

3 Lessons for investors from the past 5 years

“Over the past five years, investors on the JSE have struggled to earn inflation-beating returns. The FTSE/JSE Capped Shareholder Weighted All-Share Index (Swix) has delivered just 3.09% per annum over this period.

...the average South African general equity unit trust has fared slightly better than that. The median annual return of funds in this category has been 3.41%, and mean average return is 3.13%

Those who have invested in balanced funds have done even better. The median return from the South African multi-asset high equity category is 4.84%, and the mean average return is 5.05%.

There is, however, a fairly wide dispersion among these funds. As the table below shows, the spread of returns between the best and worst performing unit trusts over this period is quite large.

Best and worst performing unit trusts over five years
SA equity general
SA multi-asset high equity
Source: Morningstar

Compounded over a five-year period, this is a meaningful variance. The table below shows the difference in final value that would have been realised from investing R100 000 in either the top or bottom performers.

Illustrative returns of R100,000 invested over five years
SA equity general
SA multi-asset high equity

Lessons for investors

These figures reveal a number of important considerations for investors. The first is how much better multi-asset funds have held up over this period than pure equity unit trusts.

The returns from balanced funds are still not enormously exciting, but they have at least, on average, kept up with inflation. Most investors in these products have therefore not lost value over this period, which they would have done in most pure equity funds.

The reason for this is that balanced funds are able to build portfolios from a range of asset classes.

Over the longer time frames, this type of return profile can deliver outstanding returns. It can, however, be difficult for the average investor to sit through it from year to year.

This is a further benefit of diversification. Including a range of asset classes in a portfolio smooths out returns, because when one part of the portfolio isn’t performing, there should be another part that lifts it.

Longer-term returns can still be a result of short-term performance.

One of the most often heard pieces of advice is that investors need to be patient and think long term. This is not just because it is only when you start compounding returns that they really become meaningful. It is also because markets do not deliver performance in a straight line....

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

NHI plan will create another state monopoly

SA government is planning to introduce a National Health Insurance plan, something already provided for in our Social Security Act. In Namibia however, it seems that government has prioritised a National Pension Fund above a National Medical Scheme. The question is, will Namibia learn from SA’s atrocious experience with state-run monopolies such as Transnet and Escom, or of some of our own state-run monopolies such as Air Namibia, Transnamib etcetera?

“Concerns have been raised that the government’s plan to set up a National Health Insurance (NHI) scheme will result in another state-run monopoly that will be susceptible to greater levels of corruption and mismanagement.

These fears have been voiced by Alex van den Heever...Van den Heever, who is chair of Social Security Systems Administration and Management Studies at the Wits school, is a vocal critic of the NHI and has more than 25 years of experience around public healthcare policy and advocacy.

“Tenders and the existing framework in government healthcare have also been affected by a system of patronage, which is already endemic in the current system,” he said.

“A new government monopoly – in the form of the NHI – is not going to solve the problems in healthcare...”

Read the full article by Suren Naidoo in Moneyweb of 25 November 2019 here...

7 Boardroom tips to ensure a future fit organisation

To be ‘future-fit’ requires doing work today that will mean you are ready for tomorrow – regardless of what that tomorrow might look like. This is far more difficult than it sounds.

There are several impediments that inhibit or block achieving this readiness. Here are (at least) seven challenges that will need to be recognised and addressed if your organisation is to be future-fit. Ensuring the capacity to recognise and meet these challenges is what a wide-awake and vigilant Board concerns itself with – it starts at the very top!

Challenge #1: Current success. Being successful can lead to complacency (and arrogance) where the focus becomes one of guarding the status quo whilst reducing healthy risk and experimentation.

Challenge #2: Looking inward, not outward. The focus swings from ‘out there’ to ‘in here’. Less attention is given to the broader context, to ‘what is changing and why’ and the focus, attention and energy is all inward.

Challenge #3: The failure to adapt. When things stop working (as well as they once did) we respond with exhortations for increased effort whilst looking for greater efficiencies.

Challenge #4: Values that become meaningless. Values drive behaviour and I am yet to meet a company that didn’t have a good (if not great) set of values.

Challenge #5: Leaders who stop learning. All too often the prevailing assumption within organisations is that leadership / personal development initiatives are ‘for everyone else’ except the Executive team.

Challenge #6: Acknowledging that every business model has a ‘sell-by date’. This might just be the hardest of challenges and it requires an ability to be able to challenge core assumptions about the business.

Challenge #7: Failure to understand the importance of reputation. Understanding that reputation could be your biggest future risk is a key Board responsibility.

Read the full article by Keith Coats in Tuesday Tip of Tomorrow Today here...

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

Perfection is not attainable, but if we chase perfection we can catch excellence.
~ Vince Lombardi

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