|In this newsletter:
Benchtest 04.2020, provident funds – a time to change and more...
If you have missed proclamation no 16 issued under the State of Emergency that suspends the operation of certain provisions in a number of laws, such as prescribed periods for certain legal processes, and provisions of the Labour Act relating to dismissal of employees, reduction of salary and forced leaved, download the gazette here...
Note that the effective date of this proclamation is deemed to be 28 March 2020, i.e. it is backdated by 1 month.
Update on economic stimulus and relief measures
For an overview of all economic stimulus and relief measures government has introduced to mitigate the impact of COVID 19, read PWC’s May 2020 Tax Alert here...
Extension for submission of tax returns
ICAN/ NIPA will not approach Inland Revenue for a general extension of submission of income tax returns.
Taxpayers are rather advised to submit as many returns of income and payments within the time permitted and request an extension of time, on a case by case basis, for all those taxpayers where the necessary work cannot be completed in time.
Download the communication from the Institute of Chartered Accountants of Namibia here...
Pensioners and fund members urged to provide TIN number to RFS
RFS is deemed to be the employer of pension fund members for the purpose of deducting PAYE from any benefits payable, and paying this over to the Receiver of Revenue. On a monthly basis RFS is required to load comprehensive information on the person to whom a taxable benefit was paid and tax was deducted. However, the ITAS prevents RFS from meeting its legal obligation to load this information unless the beneficiary’s TIN (tax identification number) is reflected.
RFS will not be able to pay any benefit if it does not have the TIN of the person due to be paid a benefit.
We are therefore urging all pensioners and members who are due to be paid a benefit from their pension fund to provide us with their TIN urgently. To pre-empt the delay of the payment of a benefit, all employees who are due to receive a benefit from their fund are similarly urged to ascertain that RFS is provided with their TIN.
Please mail or arrange to have your ITAS registration certificate delivered to RFS, for attention your fund’s administrator.
Pension fund governance - a toolbox for trustees
Registered service providers
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...
In ‘News from RFS’, read about:
In ‘News from the market place’ read about “Old Mutual introduces new AGP seriest”.
In ‘News from NAMFISA’, catch up with the latest circular on the temporary suspension or reduction of contributions of employers participating in umbrella funds.
As always, your comment is welcome, so open a new mail and drop us a note!
Monthly Review of Portfolio Performance
to 30 April 2020
In April 2020 the average prudential balanced portfolio returned 8.3% (March 2020: -8.2%). Top performer is Prudential Namibia Balanced Fund with 9.6%, while Momentum Namibia Growth Balanced Fund with 7.4% takes the bottom spot. For the 3-month period, Investec Namibia Managed Balanced Fund takes the top spot, outperforming the ‘average’ by roughly 4.4%. On the other end of the scale Momentum Namibia Growth Balanced Fund underperformed the ‘average’ by 4.8%. Note that these returns are before (gross of) asset management fees.
The Monthly Review of Portfolio Performance to 30 April 2020 provides a full review of portfolio performances and other interesting analyses. Download it here...
After Corona the world will never be the same again
Every politician, every news medium, and of course Bill Gates, are all heralding that the world we knew before will never be the same again, after Corona. The abbreviations A.C. and B.C. have been given a new meaning – After Corona and Before Corona. Have you noticed like I, that this message is driven in particular by ITC companies and others, clearly wanting to capitalise on IT to promote their business?
In the 20 years or so B.C. we experienced a huge tidal wave of human movement across the world. One may probably differentiate between business movement and leisure movement. I believe these two will respond differently in the years A.C.
Maybe me, as a ‘baby boomer’, am still of the old school. I believe human beings are social animals. They like to socialise, meet face to face and interact on a personal level and have that feel-, smell-, taste experience, simply being a human being. We do not want to be prescribed to the n’th degree what we may do, what we may not do, where we may and may not be, how and when we may move around – like an animal in a zoo. We may live being shackled for a while, but we will not, as a species accept shackles for any extended period and the longer we are shackled down, the more violent the breaking of these shackles will eventually be. This is what history tells us. The virtual world may add a facet to our lives but it will not change our human genes. I am convinced that the new reality A.C. is a huge hype blown up by people with a vested interest and opportunists joining the band wagon.
Read part 6 of the Monthly Review of Portfolio Performance to 30 April 2020 to find out what our investment views are. Download it here...
Provident funds – a time to change!
Compliment from an HR practitioner of a village council
“...I trust this email finds you well. This email serves to convey my compliments on the way you really answer your business phone. “Highly professional”, your calls never ring more than 3 times. It is being pick up on time. Keep up your excellent telephone etiquette, something one can learn from and emulate...”
Read more comments from our clients, here...
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 and knowledge is lost. 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 celebrated her 5-year work anniversary at RFS! We express our sincere gratitude for her loyalty and support over the past 5 years to:
Important administrative circulars issued by RFS
RFS issued the following fund administration related circulars to its clients over the last four months. Should any client have missed any of these circulars, please get in touch with your client manager:
Old Mutual introduces new AGP portfolio series
In last month’s newsletter, we reported on a circular issued by Old Mutual informing its investors of the introduction of the 2020 series of AGP portfolios resulting from the steep market decline that produced a negative reserve of 20%+ in the in the current AGP series. All new cash flow was to have been transferred to the 2020 series portfolios with effect from end March.
Old Mutual has now issued a new circular offering three options to investors. These are:
Find the circular here...
Thoughts on Benchtest 03.2020 newsletter
As usual I have my thoughts on your publications and I want to comment in totality with the hope that it makes some sense and something can be of use to people retiring in the near future.
I have started to wonder why Covid-19 has taken all the attention over the last few months. Is it really that different from Covid-18 and 17 and many other Covid viruses from recent years. I do not want to dwell on any conspiracy theories, because it is what it is and governments have reacted as they have seen fit and we the people have to do the best we can.
I agree with your statement that more people die of hunger than from viral infections. I think what has played an important role in lock down in South Africa, Namibia and Zimbabwe is the fact that there has not been sufficient investment in public health care.
The Actuarial Society of South Africa has published an internal model on the spread of the virus in South Africa based on worldwide data available until about 10 days ago. I suspect the trend will be similar in Namibia and Zimbabwe. The best estimate on current data is that the virus will peak in South Africa by mid August. By then SA will require 80 000 hospital beds and the expected number of deaths could be in the order of 48 000. The worse case projection is a peak in September with a requirement of 120 000 hospital beds and about 100 000 deaths.
In SA we do not have 80 000 hospital beds! The Cape Town convention centre is going to take only 800 emergency beds! This I think is the real reason for the lock down. I would think that a similar train of thought would have been followed in Windhoek.
Treatment of Covid-19 and other matters
This in itself is a dilemma. The protective gear and testing kits used are all(mostly) imported. There is not enough to go around. For the sake of the argument, let us say 60% of the protective gear worn and 70% of the test kits used to identify the virus in humans are imported. With lock down, closed borders and minimal air transport available the supply of these items become a problem for countries at the southern tip of Africa. Many countries where these items are produced have banned the export of these items, because they need it themselves!
This adds to the argument for a required lock down.
It is worth just to re-emphasise the strain the lock down has on the finances of government in lost tax receipts. The question is then how is the increased government budget deficit going to be financed. In Namibia's case the main budget has not been presented, but still, the deficit is no doubt going to be bigger than initially thought.
National Health Insurance or National Pension Fund
I am afraid my vote is for neither. Unfortunately, both institutions will open doors for the misappropriation of very scarce resources.
The UK is still trying to make its National Health System to work. Such a grand centrally planned system is too complicated to organise and run efficiently.
This brings me to where my real concern is - although I do not work in this field!
Many people about to retire has just seen their retirement pot just disappear. I am sad to admit that I think the actuarial profession has not provided good service to the general public with the demise of defined benefit funds. All the profession has done was to allow the employer discharge investment risk and to let the pension fund member take all the investment risk. Most pension fund members do not care about invest risk.
Then there are Pension Fund Regulators who insist on balanced portfolios. And then there is the issue of fund managers' fees. Where to begin. Here are just a few thoughts.
1. Fund manager fees.
When total return was about 13% and a fund manager took 1%, then his return as a percentage of total return is 7.7%, but when returns are about 7.2% then the fund manager takes 13.9% of the return. Surely this is highly questionable and fund managers should also take a reduction in fees? There is a lady at Alexander Forbes who does research on this matter and she has interesting thoughts on the matter. I forget her name for the moment.
You might recall I ended my previous email with the next possible risk being inflation. Here this the thought. Oil is currently in over production and price is very low. Shale producers are forced to close, wells are closed. The problem is when a well is closed it takes a fairly big investment to open again, so the oil price could rise in about 18/24 months time when some form of normality returns and demand for oil increases. This could ignite inflation. With the lock down of transport, supply chains have been disrupted and this can also lead to an increase in inflation.
3. Investment returns
There are commentators who are surprised at the returns as shown by indices. The truth of the matter is that an index like the S&P 500 suffers the same problem as the Top 40 index in South Africa. In the S&P 500 the top 6 constituents make up just under 17% of the index and all but one (JP Morgan) are tech companies. The tech companies are increasing in value and they draw the index with them. The actual return of a fund's equity exposure could well be very different to what an index is showing, not withstanding the effect of expenses.
4. Where to hide
Could a hiding place for those retiring over the next 12/15 months perhaps be Namibian very long dated government bonds. If there is sufficient protection against a further downgrade and unexpected inflation - which I do not think will materialise in the next 12 months.
I have left you with my thoughts and nothing else.
Best wishes from Cape Town.
Editor’s note: Letter shortened slightly
Response from the editor:
Thank you for your interesting thoughts.
We are living in challenging times. I am personally very hesitant to commit any funds to any type of investment ‘until the dust has settled’.
We have no idea what the economy will be like after Corona, and like you say, probably up to 2 years after lockdown has ended. There will be many surprises of companies folding who one would have never expected to fold. It will start with smaller companies and their demise will spread like the virus to every bigger companies. Just to think that Lufthansa is in trouble and has indicated that it will not make it without government support! How many other airlines will go down and who will they draw down with them?
Our comments on the oil crisis
Dear RFS, ...
I really enjoy reading your articles. Academic knowledge is being applied in Financial markets.
Would you point me to your latest article regarding the Oil crisis.
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.
Temporary suspension or reduction of contributions
NAMFISA issued circular PF/Cir/02/2020 that allows trustees of umbrella funds to submit ‘master rules’ amendments to alter fund contribution rates, that empower the trustees to permit temporary contribution reductions or suspensions to a participating employer. This circular was issued in response to the financial distress many employers are currently experiencing as the result of COVID 19. The circular sets a number of stringent requirements for funds submitting such an application.
The following requirements need to be met as a minimum:
Death benefits and S 37C - when do you have to pay?
In a technical guide on the distribution of death benefits, the author, Liz del la Harpe makes a few important points that are overlooked too easily, regarding the time frames for the payment of death benefits in case of each of the 5 different scenarios envisaged in section 37C:
A debt becomes due when the duty to pay arises. Where a debtor’s liability is dependent upon the performance of certain conditions, the debtor will not be in mora until a duty to pay arises, e.g. all dependants of a deceased needed to be and then have been determined.
Mora can arise where the debtor’s need is urgent and the creditor’s delay is unreasonable. The common belief that a fund’s duty to pay is contingent upon the expiry of the 12 month period referred to in Section 37c is not correct. The duty to pay is not dependent on this but rather whether the trustees are satisfied that they have investigated and considered with due diligence and are in a position to make a decision.
Other questions addressed are :
How to handle changes to living annuity draw downs
The SA Minister of Finance is in the process of changing the draw down regime for living annuities. Proposals are that pensioners be able to draw anything between 0.5% and 20% of their savings instead of anything between 2.5% and 17.5% of their savings. This will address both the need of a pensioner to reduce his draw down to compensate for the sharp market decline as well as the need to increase the draw down where a person is in dire need to generate additional income during the lockdown.
Although similar proposals were made in Namibia, unfortunately nothing has come of this yet. In Namibia, a living annuity pensioner may draw down up to 20% but cannot draw down less than 5%.
“When the proposed changes are gazetted [in SA] it is expected that annuitants will be able to change their drawdown rate immediately instead of waiting until the anniversary date of their policy. This will mitigate the risk that comes with regular withdrawals when the capital value is down — as it will be now after large falls in global and local financial markets.
If you continue to draw high percentages on your depleted capital, the percentage drawn can quickly escalate until it reaches the maximum you are allowed to draw.
At that point — known as the point of ruin — you can no longer increase your pension each year to keep up with inflation, resulting in your income declining in real (after-inflation) terms...”
Pensioners considering to change their draw downs, particularly those that contemplate to draw down the maximum of 20%, are well advised to read the article by Laura du Preez in the Money section of Business Live of 12 May here...
A guide to COVID-19 pandemic’s impact on retirement funds
Seven executive remuneration trends in 2020
“What then are the executive remuneration trends for 2020 that will drive the desired outcome of ensuring that business is sustainable in the changing world?
Should I invest or pay off debt?
“I currently have R25 000 available to either invest into an FNB share-builder type account or reduce my credit card debt which is close to R50 000. What would be the better choice given the current state of affairs? I feel shares are depressed and could produce real returns in the future, but I know credit card debt carries a high interest rate. Any advice would be appreciated...”
Read the response to this important question by Thulisile Nkomo in Moneyweb of 7 May 2020 here...
10 Tips to financially survive retrenchment
Read the full article by Sherwin Govender, Business Development Manager at Glacier by Sanlam, in Cover of 9 April 2020 here...
Great quotes have an incredible ability to put things in perspective.
"Correction does much but encouragement does more."
~ Johan Wolfgang von Goethe