In this newsletter:
Benchtest 12.2019, the back door in the FIM Bill and more...

NAMFISA levies

  • Funds with year-end of January 2019 need to have submitted their 2nd levy returns and payments by 25 February 2020;
    Funds with year-end of July 2019 need to have submitted their 1st levy returns and payments by 25 February 2020; and
    Funds with year-end of February 2020 need to submit their final levy returns and payments by 28 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...

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...

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:

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

  • An extract from the Monthly Review of Portfolio Performance to 31 December 2019 and of our views on where to invest in 2020
  • “The FIM Bill – are we scared of our own courage, or is it even more sinister?”
  • A practical approach to planning your retirement;
  • The full article in last month’s Benchmark Performance Review to 30 November 2019 – “‘What to expect of investment markets in 2020?’’.
In our Benchmark column we present:
  • “Benchmark umbrella fund – a way out of the conundrum?”
In our Administration Forum column we present:
  • “Can a provident fund also offer annuities or pensions?”Kai Friedrich reflecting on his divisions achievements in 2019;
In ‘News from RFS’, read about:
  • Our business philosophy on skills and service;
In letters from our readers, find:
  • A comment on our previous article “The GIPF is too large to fail and the flip side of this coin”;
  • The FIM Bill gives a carte blanche to Minister and NAMFISA.

In ‘Legal snippets’ read about –
  • Can a retirement fund recover a death benefit already paid?
  • When must a person be dependent to be eligible for a death benefit allocation?
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 December 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 31 December 2019 provides a full review of portfolio performances and other interesting analyses. Download it here...

How to invest 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 31 December 2019 to find out what our investment views are. Download it here...

The FIM Bill – are we scared of our own courage, or is it even more sinister?

I believe anybody who claims to be ready for the implementation of the FIM Bill is either vastly overestimating his capabilities or vastly underestimating what is coming! The expanse and complexity of this law really puts it out of the reach of the mental capacity of any individual, certainly mine I do acknowledge, unlike its predecessor law, the Pension Funds Act that is still digestible. In trying to get a full grasp on any question one has to roam between various ‘chapters’ (or laws), getting lost in between most of the time. One cannot just focus on the ‘chapter’ (law) relating to the industry one is doing business in. As the result, I concluded that the pension funds chapter made no provision for transitional arrangements, which it does not. But when one then turns to ‘chapter’ 11, there are transitional provisions that apply to all financial services institutions covered by this new Bill.  In addition there is absolutely no precedent one can rely on for finding an answer where no answer was found despite focused roaming.

NAMFISA is confident that it is ready for the FIM Bill and what this requires of it, and so is the Minister of Finance. In the light of this confidence it is interesting to note though that the FIM Bill keeps a back door open for both the Minister and NAMFISA to make law very informally and un-procedurally where it provides in clause 7 of schedule 3, of section 4, of chapter 11 “On the effective date, and for a period of 60 days after the effective date, the Minister and NAMFISA may make any subordinate measure of a legislative nature contemplated in the Act without meeting the procedural requirements set out in this Act, provided the Minister and NAMFISA have published such proposed subordinate measure in the Gazette, allowing a period of at least 30 days for comment.”

So the Minister and NAMFISA have a carte blanche to change the law within the first 60 days after its effective date, without this having to go through parliament. There is not even any requirement that any comment, for which merely 30 days are afforded, has to be considered properly!

The rationale for this back door is not self-evident. Either the Minister and NAMFISA are indeed scared of their own courage in introducing this statutory revolution (by NAMFISA’S own words) or one or both of these parties already have certain changes in mind that would evidently not have passed parliament, or both. The first consideration is unlikely as 60 days is too short a period to fix any serious problems the Bill may cause. I shudder to think it may be the second consideration?

Planning your retirement

Typically, most people approaching retirement do not know where to start planning for retirement. Planning for retirement probably requires the retiree to take some of the most frightening decisions in his life. What is worse, some of the decisions that need to be taken cannot be ‘rolled back again’ and the pensioner will have to live with the decision for the rest of his life.

Here are a few practical guidelines for your retirement:
  1. You firstly need to determine the monthly cash flow surplus or shortfall of your household, based on your assets and liabilities and your cost of living, before you consider how to invest your available capital. This requires the following:
    • a) You should prepare a detailed monthly budget of your normal cost of living and other ongoing monthly obligations and provide for any other exceptional or irregular costs such as known repairs and maintenance to your residence, your holiday house, motor vehicles, machinery and equipment, holidays and medical expenses that you may have to carry over and above what is covered by your medical aid.
    •  b) You then need to determine your expected income from any other investment or pension, after providing for income tax.
    • c) The difference between 1.a) and 1.b) will reflect either a shortfall or a surplus before the prospective pension income that you will earn from your retirement capital.
    • d) If the difference per 1.c) is a surplus, you can be more flexible as to how you can invest your available capital. If the difference per 1.c) is a shortfall, your focus should be how to invest your available capital so that it provides a stable monthly income covering as much of your regular expenses as possible. It may also require you to reconsider your budget per 1.a) with the view to reduce your cost of living.
  2. Secondly, having determined your cash flow position as per 1.c) you now need to decide how to invest your available capital.
    • a) In case of a surplus per 1.c) you can invest your discretionary capital (cash from your retirement fund and any other capital you may still have available for investment) more aggressively in an effort to achieve higher investment returns.
    •  b) In case of a shortfall per 1.c) you need to invest your discretionary capital (cash from your retirement fund and any other capital you may still have available for investment) more cautiously in an effort to secure a stable monthly income.
    • c) Ideally you should have funds that are readily accessible (money market, savings, call deposit etc.) to cover your expenses in 1.a) for at least the next 6 to 12 months. Alternatively, if your mortgage bond would allow you to take up money again without major effort, in case of an emergency, your one-third portion from your retirement fund can be used to repay the outstanding balance on the mortgage bond.
  3. Paying back a mortgage bond with one-third pay-out from a pension/ retirement annuity fund (untaxed) is usually a sound investment decision, provided that you can draw on that mortgage bond again in case of an emergency as per 2.c).
  4. Having your full provident fund capital paid out (where you are a member of a provident fund) to be invested again is usually not a sound investment decision. In the first instance you will be taxed on the full benefit. You now need to invest the balance elsewhere, after tax has been deducted. It will be very difficult to achieve competitive returns on such an investment. You would typically incur initial and ongoing fees on such investment, or would sacrifice investment returns, that would not be the case if you retained your capital in the retirement fund to receive a monthly pension.

The above exposition should indicate what information is required before you can consider how you should deal with your pension or provident fund retirement capital.

Where you are allowed to switch to another investment portfolio in anticipation of your retirement, mostly for the sake of protecting your retirement capital, your decision should be based on the following considerations:
  1. If you are invested in a market portfolio, this is a volatile portfolio that can produce negative returns depending on the investment environment and on short-term investor sentiment.
  2. Are there any prevailing political or economic uncertainties that pose a risk of investment markets declining over the next year or two and require you to protect that part of your retirement capital that you intend to withdraw in cash?
  3. If you are planning to retire within the next 36 months, your investment horizon in respect of your retirement capital is short-term, at least until you have concluded on the above process, and you should avoid the risk of negative returns of any retirement capital you intend to withdraw by switching to a lower risk portfolio.
  4. You do not need to be concerned about any portion of your retirement capital you intend to convert to a monthly annuity or pension as it will cost you less to buy the annuity for less should the market have turned negative just before your retirement, or vise-versa.
  5. If you can choose to switch to a guaranteed (or smooth bonus or absolute growth) portfolio, you will not run the risk of negative investment returns until you retire..
What do we expect of investment markets in 2020?

Going into the New Year hurt by poor returns on pension fund investments, this is a relevant question when thinking of our stakeholders, the pension fund member and more specifically his investment.

Graph 6.1 below shows the 5 year rolling returns rolled forward by one month at a time from December 2008 to November 2019. Why 5 years? Well that is a period more relevant to a long-term fund member as opposed to any shorter period. So it should reflect a more appropriate picture. Why ‘rolling’ returns? Well ‘rolling returns’ give a much better insight than point in time returns, reflected as bar charts in performance reviews. The point in time returns are those as at the end of every month, sometimes showing the peak, sometimes the trough, hiding what happened in between and as graph 6.1 shows, the returns vary widely from one month to the next.

Turning to the story revealed by graph 6.1, the fairly stable black line represents the returns on the Benchmark money market portfolio, which is usually the benchmark for fund members when their typical prudential balanced pension fund portfolio does not do well.

The also fairly stable yellow line represents the return one would expect to earn on your pension fund investment over the long-term and what is required to secure a comfortable pension after retirement, offering an income replacement ratio of 2% per year of membership, assuming the contributions towards retirement have been in the region of 14% of pensionable remuneration throughout.

If we now consider the rolling 5 year returns of the Benchmark money market portfolio (stable black line), it has constantly been below the yellow line (CPI plus 5%), the shortfall in expected long-term return being anything between 2% and close to 5% per annum! This is not where a pension fund member can afford to be unless it is for a specific purpose and with a short-term horizon only.

Turning to the red line, reflecting the rolling 5 year returns of the average prudential balanced portfolio, we see that the fund member would have done well until the end of 2010, some disappointment then setting in to the middle of 2013, then a long stretch of outperforming until the end of 2017 and since then more disappointment. While the current underperformance is very much in line with that of the Benchmark money market performance and about 2% short of where one would want to be, it is also evident that the outperformance is generally much more pronounced than the underperformance.

Anecdotally graph 6.1 also reflects the returns of an all share investment as the blue line and of an all bond investment as the green line. I venture to say that the most satisfactory line is indeed the red line, i.e. the performance of the average prudential balanced portfolio.

Graph 6.1

We know that the situation we are in 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, pensioners to a significant extent. In many instances depositors would earn negative real interest rates. To avoid this they would have been looking around for any asset class that offered any real returns. This is what we have seen, where all assets other than fixed interest investments experienced significant inflows resulting in their artificial and unsustainable growth, here reflected in the sharp up-turn of the blue (all share portfolio) and the red line (average prudential balanced portfolio) from the end of 2012 to April 2014. Since then the US started to phase out it easy money policy with a consequent, continuous decline in the 5 year rolling returns of these two indices in particular.

What can we expect of 2020 in terms of investment returns though? We just had a very long cycle of initially high, but consistently declining out-performance of the red line over a 7 year period and of underperformance only over the past 2 years in terms of rolling 5 year returns. A reversion to ‘normal’ investment returns, where risk is rewarded through higher returns, i.e. where an equity investment should yield the highest returns, followed by bonds and cash, restricting things to the main asset classes found in a typical pension fund portfolio, is dependent on central banks exiting their mode of manipulating the interest rate environment.

The US Fed rate of 1.75% currently represents a negative real return of 0.25% over prevailing inflation in the US of around 2%. Going by its long-term average the real rate should be around 1.7% in a normal interest rate environment. This is thus around 2% off the long-term average real rate. The expectation is that the US Fed’s next move will be a further reduction of its policy rate. Unless US inflation were to increase, of which there is little evidence at the moment, the situation will worsen and we would currently not expect the interest rate environment to revert to ‘normal’ in 2020. In this regard we would expect SA interest rates to follow their global ‘superiors’.

Equity of course comprises the largest asset class in the typical prudential balanced portfolio. The performance of equity is firstly driven by company profits which are driven by the economy, which is driven by consumer sentiment and the interest rate environment. Secondly equity performance is driven by investor sentiment. If company profits go up, the price of shares should go up, unless the investor sentiment turns more negative, and vice-versa. Low interest rates benefit companies with high debt and they benefit consumers who are generally indebted. But will company profits increase, will investor sentiment improve and will consumer sentiment improve from where it has been over the past 10 years and what will make the sentiment improve?

If we consider graph 6.2, we see that the JSE Allshare index (the red line) shows a clear declining trend. This could be due either to investor sentiment declining and the investor not being prepared to pay as much for a share as he was earlier on, or it could be due to company profits declining. The SA P: E ratio (the green line) shows a pretty synchronized decline which indicates that the missing factor here, the company earnings have largely been moving sideways. With what we know of the SA economy and the Eskom predicament in particular, it cannot be foreseen that there will be a turnaround in SA over the next 12 months and local equities are thus likely to move sideways.

Graph 6.2

If we look at the same indicators as far as the US is concerned, we see that the US S&P 500 index (the red line) has shown a strong growth over the last number of years. In contrast to SA the US P: E ratio (the green line is moving sideways and slightly below its long-term average as shown in this graph. US companies have thus been able to increase their earnings pretty consistently over the past number of years. Investor sentiment has certainly not been exuberant, probably in the light of the trade wars the US is involved in, so it is probably depressed with a prospect of it improving in the next 12 months if the trade war with China is settled amicably. Over this 30 year plus period the US S&P 500 index has grown by 5.1% inflation adjusted. That is not overly ambitious over this period.  On that basis the US equity market should have some upward potential in 2020 and this should assist in propping up global equity markets that are not subject to their home made challenges.

Graph 6.3


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 Eskom 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%.
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.

Reflection on RFS processes by an actuary

“Dear R

Please find the REVISED returns for October 2019 and November 2019 attached...


E (Fund Accountant from RFS) queried our returns as he could not reconcile to our market linked portfolio return. We compared our workings and it became obvious that the Investec market value as at 31 Oct 2019 differed. The Investec statement we received reflected a market value of … whereas RFS received a statement which showed...

This was taken up with Investec and they confirmed the … [RFS value] to be correct. This caused the October return to be overstated and the November return to be understated…

This situation shows the merits of having independent service providers that keep an eye on each other. Thank you E for highlighting this.

Kind regards”

Read more comments from our clients, here...

Cash deposits present a high risk to trustees and RFS alike

The Financial Intelligence Act (FIA) aims to prevent money laundering and financing of terrorism. It places an obligation on any person who carries on business to report suspicious transactions to the Financial Intelligence Centre that was established under FIA, if he knows or ought to have known or suspects that the suspicious transaction or unlawful activity is the result of money laundering or terrorism activity. Failure to comply exposes the person to a fine not exceeding N$ 100 million or to imprisonment not exceeding 30 years or to both.

Cash deposits are always high risk since cash transactions are often used to avoid declaring taxable income, which is of course unlawful. The cash proceeds received by a fund could therefore be ‘proceeds of unlawful activities’ which need to be reported as a suspicious transaction. It is however very difficult for us as
administrator to determine whether or not this is the case. Most of the time we are also not aware in advance that the client intends to make a cash deposit as opposed to an EFT.

To avoid RFS stepping into a trap, we have agreed with banks serving our pension fund clients not to accept any cash deposits.
Carmen Diehl joined RFS in May 2017 as Manager: Internal Audit, Compliance and Risk Management. Carmen matriculated at DHPS in 2000. She obtained a B. Accounting (Honours) degree in 2004 at the University of Stellenbosch.  She started her articles with KPMG in 2005 and moved to EY in October 2006. She completed her articles with EY in 2008 and qualified as a chartered accountant (CA Nam). She joined Bravura Namibia Trading in 2008 as Financial Manager. From 2009 until 2012 she was employed by the O&L group as group financial manager: corporate finance, where after she joined Ohorongo Cement.

Benchmark umbrella fund - a way out of the conundrum?

In previous newsletters you will have read a lot about the statutory, regulatory and reporting revolution that pension funds are facing once the FIM Bill becomes law with all its subordinate legislation. We sincerely believe that only a handful funds will survive this onslaught.

Joining an umbrella fund instead of maintaining your separate identity is not only a business opportunity for RFS, but it offers a workable solution to funds who cannot afford to employ full time fund officials, a likely consequence of the new law.

If you do consider this option, the sooner you do it the easier it will be as there are draft standards that will make it very difficult and onerous to move into an umbrella fund once the FIM Bill becomes law. You should also make sure that you choose the right umbrella fund likely to best suit your needs for many years to come, as a new proposed standard will make it extremely onerous to move to another umbrella fund in future.

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.

Can a provident fund also offer annuities or pensions?

Over a number of years, practices have evolved in the retirement fund industry that are inconsistent with the Income Tax Act.  One example is that pension funds replaced dependants’ pensions upon the death of a member in service with lump sum benefits. Another example is that some provident fund rules provide for a member opting to receive a pension upon retirement instead of a lump sum.

The different types of tax approved retirement fund (i.e. pension-, provident-, preservation- and retirement annuity fund) are a creation of the Income Tax Act. The Pension Funds Act does not recognise these differences. Whether or not a provident fund can offer pensions or annuities or whether or not a pension fund can offer lump sums would have to be determined by reference to the Income Tax Act. Referring to the definitions of pension fund and provident fund in the Income Tax Act, one will note that these definitions are mutually exclusive. A provident fund is thus a fund other than a pension fund and vice-versa.

With the practice note 5 of 2003 debacle, it should have become clear to everyone that Inland Revenue insists that the definition of pension fund does not allow for the payment of more than 49% of a benefit due to dependants in the form of a lump sum, but has to rather provide annuities. The definition of provident fund in contrast has no provision for paying annuities. By implication a provident fund cannot provide annuities else it would become tax approved as a pension fund.

Although it is possible to run two different types of fund in a single legal entity, each type of fund would have to have its own structure and receive separate tax approval. The rules of the fund should thus create a pension fund section and a provident fund section if a fund wishes to offer its members a choice between annuity and lumps sum benefits.

Reflecting on 2019 – a noteworthy message to staff

The year has once again come and gone in a frightening speed.

From the first day of office of 2019 we were thrown with challenges and obstacles from many external angles, to name a few:
  • Administration of Estates Amendment Act came into effect on 1 January 2019, which caused us to undergo major changes in procedures – more than once;
  • ITAS went live – which caused changes in the way we request tax directives, amongst others, whilst having to run around to try and register online;
  • NAMFISA Chart of Accounts was implemented for the first time during January 2019, where we had to down all our tools to try and comply by the due date.
We also changed internal processes, procedures and templates to ensure we keep relevant and abreast of industry changes. We further made internal staff movements, which had quite an impact on our operations at times. I believe these changes were all made for the better of the company and our clients.

Nevertheless as a team we stood strong and managed to overcome and succeed over all these challenges. A few highlights I can mention are as follows:
  • None of the CoA returns over any quarter was submitted late (due to RFS’ fault);
  • For the first time in RFS history (that I am aware of) we managed to submit all but 1 management reports for September 2019 on or before our own deadline set of 15 November 2019, which is a mere 45 days after the month-end. One management report was submitted on 19 November 2019, still a remarkable achievement considering that two days in between were a weekend!
  • For the first time in RFS history (that I am aware of) all contribution were  fully reconciled between admin and accounting, as of yesterday when I last checked!
  • Although Regulations allow the first and second provisional payment for NAMFISA levies to be no less than 90% of the final payment, the lowest we ever paid for the first and second provision was a staggering 99.05% of the final payment, so just 1% short of what the final outcome should have been. This is only possible if our financial records are kept up to date on a regular basis – needless to say is that no levies were ever paid late, and this despite the fact that NAMFISA also changed their requirements for now having to submit this via ERS, which once again caused some internal processes having had to be changed;
  • Not one set of AFS were submitted late to NAMFISA during the year – beware that the FIM Bill will require signed financials to be submitted to NAMFISA within 90 days of the financial year end;
  • We were appointed as administrators to NAPOTEL;
  • We managed to avoid appointing new staff following resignations, through all of us carrying an additional workload…
The above are only a few noteworthy events that came to mind whilst drafting this mail, which prove our resilience as team and company as a whole. I may not always say it in as many words, but I (and the rest of management) highly appreciate what each one of you is doing for the greater RFS family. Please keep doing what you do and find the time to rest and relax over the office closure, we will need the energy for the new challenges awaiting us in 2020.

I challenge you all to think about ways of working more efficient and effective going forward, without compromising quality and service excellence that our clients are accustomed to. If we can work smarter, not harder, we will all win.
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.

Môreson School Donation

Rudigar van Wyk recently donated handheld emergency alarms to Môreson Special School for the Cognitively Impaired on behalf of Retirement Fund Solutions. The innovative alarms are an initiative of the Make a Noise Organisation.

Above: Rudigar van Wyk hands over the alarms.

Above: Some of the learners who will benefit from extra safety.

Above: Rudigar van Wyk and the educators of Môreson.

Long service awards complement our business philosophy

RFS philosophy is that our business is primarily about people and only secondarily about technology. Every time a fund changes its administrator, a substantial amount of information is lost be it physically or knowledge. Similarly, every time the administrator loses a staff member, it loses information and knowledge. We know that as a small Namibia based organisation we cannot compete with large multinationals technology wise because of the economies of scale that global IT systems offer. To differentiate us we need to focus on personal service and on the persons delivering that service to get customer acceptance and service satisfaction. With this philosophy we have been successful in the market and to support this philosophy we place great emphasis on staff retention and long service.

The following staff member celebrates her 5 year work anniversary at RFS! We express our sincere gratitude for her loyalty and support over the past 5 years to:
  • Jolene Dias-Farmer
The following staff member celebrates her 15 year work anniversary at RFS! She joins a ‘club’ of 9 staff members with more than 15 years’ service with RFS. We express our sincere gratitude for her loyalty and support over the past 15 years to:
  • Drolina Rochter
We look forward to these staff members continuing their value-addition to our clients!

Unique comfort factors offered to our clients

Our executive committee:

Our total staff complement boasts the following credentials:
Average years relevant experience 17
Average years of RFS service 8
Number of holders of a diploma or certificate 24
Number of graduates 24
Number of honours degrees 10
Number of post-graduate diplomas 6
Number of staff who obtained CFP® 2
Number of chartered accountants 3

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

The following expert commentary on this article in last month’s newsletter was received from a reader.

I read this note with interest this morning...

I am interested in the comment that GIPF is well run. While I do not want to disagree per se, I have seen a few things that I find quite worrying. The major issue among these is that the fund is fast approaching an actuarial deficit position, as can be seen in the graph below. This is likely due to a number of factors (challenging markets, more debt than optimal, concentration in a shrinking economy, concentration in bank equity in a shrinking economy, etc.), however I believe some of it is also management (and of course, bad regulations/legislation that narrows down the investible universe).

What is also noteworthy in the above is that this valuation is based on an expected fund return of 12% PA in perpetuity. This is possible, however I think a number of the assets in the fund have experienced price inflation (multiple re-ratings for example) over recent years, thanks to first the reg28, then the reg13 changes (dual listed reductions then the increase in the local asset requirement). As these reg changes are theoretically complete, the transitory buying of these local assets will stop and only natural demand will remain (which at these prices is limited I suspect). Thus, there is a very real possibility that many of these assets will not perform well in the future, especially as the economy is not poised to see a dramatic turnaround either.

The quantum of this problem is illustrated in the graph below. If we added 2020, the “once off buying” would basically fall to zero (if GIPF was compliant). This also has a large bearing on general liquidity and Govt’s ability to fund their deficit in 2020.

An additional consideration for the fund is the ZAR, as this has boosted returns on the off-shore portion of the fund historically. However, with relative ZAR strength (despite all the bad news) this won’t be the case in 2019, and who knows what will happen in 2020. Then of course there is that ever-present risk of a global slowdown and US recession (still a little way off in my view).

The magnitude of the asset appreciation can be seen in the spread between the SA and Nam yield curves, as illustrated below, showing the spread before the reg13 changes until September. The buying has dried up a little now and the spreads are widening again. This will mean a nasty mark to market for these buyers who were forced to buy through 2019 (all the defined contribution guys were, at least. Somehow, GIPF was exempted, which I think is completely wrong). Interestingly, if you go long on the curve (to the most interest rate sensitive part), GIPF owns the vast majority of these bonds (see second graph below – this is from March 18 so a bit outdated now, but the holdings remain weighted similarly), so their mark to market could be painful.

All in all, I think GIPF is in some trouble, and as you say, who can bail them out? I guess it will be us, the taxpayers, once again!”

The FIM Bill gives carte blanche to Minister and NAMFISA

I am finalising my overview of the FIM Bill and my attention was again drawn to the provisions of clause 7 of Schedule 3 [of chapter 11].

Clause 7 of Schedule 3 provides as follows:

“Subordinate measures

7.  On the effective date, and for a period of 60 days after the effective date, the Minister and NAMFISA may make any subordinate measure of a legislative   nature contemplated in the Act without meeting the procedural requirements set out in this Act, provided the Minister and NAMFISA have published such proposed subordinate measure in the Gazette, allowing a period of at least 30 days for comment.”

Herein lies the rub; for 60 days after the implementation date of the FIM Act or the relevant section thereof, the Minister of Finance and Namfisa have effectively been given the unfettered power to make subordinate legislation (standards and regulations) without having to comply with any of the procedural requirements for doing so. All that is required is that the proposed legislation is gazetted and at least 30 days be allowed for comment. This is extremely worrying. To my mind, our focus to date has been on the devil we know (the FIM Bill and the standards and regulations drafted to date), rather than on the devil we don’t know (those standards and regulations that can made on and within 60 days of the promulgation of the FIM Act or relevant section).

It is trite law that an Act of parliament is merely a skeleton that in and of itself does not really effect change, but rather paves the way for change. To effect change, the Act must be given flesh by the relevant line ministry or statutory body, i.e. the line ministry or statutory body must interpret parliament’s intention in passing the Act (as broadly stated in the Act’s preamble or headnote) and then give effect to this intention by making subordinate legislation (standards and regulations) that detail how effect is to be given to the legislature’s intention. Just as the legislature does not pass laws in a vacuum and there is a law-making process with checks and balances to safeguard democracy and the nation, a line ministry or statutory body cannot operate in a vacuum when making subordinate legislation. Hence the procedural and other requirements of the FIM Bill regarding the passing of subordinate legislative measures. Law-making of subordinate legislation (legislation made under an Act) by a line ministry or statutory body is law-making under a delegated authority from the legislature (parliament). To guard against this delegated authority being abused by the line ministry/statutory body and to prevent the line ministry/statutory body from usurping the powers and functions of parliament, Acts of parliament contain certain safeguards, such as procedural requirements for making subordinate legislation. If parliament has to comply with certain procedural requirements before it can lawfully pass laws, surely an organ of state to which parliament has delegated a subordinate law-making authority must also be subject to procedural requirements? Proceedings in parliament are a matter of public record; much of what the Ministry of Finance and Namfisa do when making subordinate legislation is not. Giving affected institutions and persons a minimum of 30 days to comment makes a mockery of the idea of consultative law-making, given the complexity of the subject matter. What clause 7 effectively does is to give the Minister of Finance and Namfisa the power derogate from the FIM Act in a manner akin to the President’s power to suspend the operation of any law during a state of emergency. Notwithstanding the President’s powers to act in a declared state of emergency or national defence not even he has the unfettered right to derogate from or suspend the fundamental rights or freedoms granted by the Constitution.

This provision of the FIM Bill is not only a threat to the Namibian non-banking financial sector, but in my opinion, is a threat to Namibia’s very democracy and may well be able to be struck down for being unconstitutional. In the light of the 2018 amendments to the Admin of Estates Act and the even more draconian proposals for further amendments to said Act, I believe the threat is credible. As they say, the devil is in the detail and when the Ministry of Finance and Namfisa feel the need to bypass safety measures in an Act in order to pass further
legislation, one cannot but question their integrity and their motives. What shocks await us once the FIM Bill is promulgated? How easy will it be to overturn such subordinate legislation and at what cost?

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.

Can a retirement fund recover a death benefit already paid?

In this dated but still very relevant article in Pensions World March 2013, Johan Strydom, legal adviser of Metropolitan Retirement Administrators, discusses whether a fund can claim back a benefit paid to a beneficiary upon the death of a member, where a court or the adjudicator has ordered a fund to pay to a beneficiary not previously considered.  Essentially, a fund would have to follow a common law enrichment action, which would present very narrow constraints for any action taken and is very likely to lead to the fund suffering losses.

The author concludes in making recommendations on changes to the South African Pension Funds Act in order to avoid funds suffering loss even though the trustees acted prudently and in a bona fide manner. These recommendations are equally relevant to our current statutory environment applicable to pension funds. A superficial review of the Financial Services Adjudicator Bill revealed no explicit provision that would address the dilemma of a fund required to change the distribution of a death benefit after it has already paid out the full available capital. Namibian funds will therefore face the dilemma of having to fund and additional death benefit allocation from its – i.e. the members’ – reserves should it be required to do so by the financial services adjudicator after it has already paid out the full retirement capital.

Download the article here...

When must a person be a dependant to be eligible for a death benefit allocation?

A very, very interesting SA Supreme Court of Appeal case pronounced itself on when a person must have been dependent on the deceased pension fund member in order to be eligible for a death benefit allocation in terms of section 37C.

In this case the deceased member was separated from his wife at date of death and his wife had commenced divorce proceedings at the time. The deceased was also survived by a major son, a major daughter and his mother. The board of trustees made the largest allocations to deceased’s mother and his estranged wife and smaller allocations to his children. Deceased’s mother however passed away 4 days before the trustees took their decision. At the time the trustees were  presumably not aware of her passing away. Deceased’s wife challenged the decision and the adjudicator ordered the trustees to review their decision. After reviewing their decision the trustees resolved not to change their original decision. The matter was then referred to the Supreme Court of Appeal.

The question before the court was whether deceased’s mother was a dependant or not and had to consider at what stage a person must be a dependant in order to qualify for an allocation. The fund argued that it must be determined at date of death. The court pointed out that the Fund is obliged to keep itself abreast of the situation and to check that these are correct. Based on any changes in the situation the Fund can change the allocation to dependants even to the extent of them either becoming dependants or losing their dependency status. In this case the court was of the view that the fund should have taken into account the deceased mother’s life expectancy and stated that “…the time at which to determine who is a dependant for the purpose of distributing a death benefit is when that determination is made and furthermore the person concerned must still be a beneficiary at the time when the distribution is made.”

The author interprets the underlined part of the quote at the end of the previous paragraph as meaning the date at which payment is made by the fund. From a practical point of view this would clearly create an untenable situation for the relevant board of trustees, if that interpretation were to be correct, as it might in certain cases lead to repeated re-consideration of the distribution. Worse if
payment for whatever reason cannot be made simultaneously and there are time gaps between different payments to different beneficiaries, the situation may change for different beneficiaries at different times after the previous payment has been made but before the next payment is made.

Download the full article by Leanne van Wyk that appeared in Pensions World October/ December 2019, here...

The benefit of alternative investments

“More South African investors are including alternative assets – also known as private market assets – in their portfolios as they increasingly understand the benefits offered by these investments. This echoes a global trend…

Alternative or private market assets refer to those not traded on a public exchange, such as private equity, private debt, real estate and infrastructure. Art, antiques and classic cars are also classified as alternative investments. In the past, alternative investments were considered too hard to access, high-risk or complex for many investors, but now they are accepted as an attractive means to diversify portfolios, often achieving better inflation beating returns than traditional listed markets…

The main benefit of including alternative asset classes in your investment portfolio is to have sufficient diversification to reduce risk and enhance returns. They may also act as an inflation hedge, provide reliable income streams, generate high absolute returns, contribute towards sustainable investing goals and provide access to emerging markets where public markets are thin...

Investors should consider having a well-diversified portfolio that can deliver a steady, above-inflation return throughout market cycles. This might include public market allocations to fixed income, public equities and cash complemented by some exposure to inflation beating investments benefits offered by alternative assets…”

Read the full article by Rudigor Kleyn, in Moneyweb of 11 December 2019, here...

Could one of the best global investment opportunities be on the JSE

“Across the world, stock markets are seeing an extreme and unusual divergence. There are certain regions and sectors that are highly in favour and therefore richly priced, while others are severely out of favour and looking extremely cheap.

“For instance, the difference in valuations between the S&P 500 and emerging markets is the highest on record,” says Greg Hopkins, chief investment officer at PSG Asset Management. “The difference between the most expensive and least expensive parts of the US market is the highest it’s been since the 1950s.

“And if you look at South Africa, there is a subset of South African shares where valuations are lower than they were in 2008 and 2009 (after the global financial crisis) and 2002 (after the dot-com crash).”

Predominantly, these stocks can be found in the mid- and small-cap sectors on the JSE. Traditionally, mid and small caps have outperformed the Top 40, but as the chart below shows, this has not been the case in recent years...”

Read the full article by Patrick Cairns, in Moneyweb of 23 October 2019, here...

Wall Street refuses to get its head right

“What we have here is a Wall Street that refuses to get its head right.

After two decades of monetary, fiscal, and financial folly, honest price discovery is dead. And collective reasoning about anything except the next fix from the Federal Reserve has disappeared.

Indeed, it’s fitting that the S&P 500 Index was up 30% and the NASDAQ 100 40% during the final year of a two decade-stretch that’ll go down as the birthing time of the greatest calamity in economic history.

Trade wars and tariffs... those are mere details at this point. The real elephant in the room is debt, both the public kind and the private.”

Read the full article by David Stockman in Deep State Declassified, here...

Become a millionaire. It’s easier than you think

“Investing is often presented as something complicated. Trying to make sense of the range of products available, the different asset classes, and the relationship between risk and return can be daunting to a lot of people.

In reality, however, the basic principles are extremely simple:

Start as early as possible. Save as much as you can. Be patient, and let time work in your favour.

To illustrate this, Morningstar put together some data on what it takes to save your way to R1 million. Using different monthly contributions and rates of return, it calculated how long it would take an investor to become a millionaire.

The analysis used a range of return outcomes varying from the current return investors can achieve by putting their money in a bank account...

The findings are presented in the table below.

Source: Morningstar

Read the full article by Patrick Cairns in Moneyweb of 20 January 2020 here...

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

If you look at what you have in life, you’ll always have more. If you look at what you don’t have in life, you’ll never have enough.
~ Oprah Winfrey

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