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In this newsletter:
Benchtest 06.2020, reassurance on Covid-19, S14 transfers and more...



NAMFISA levies

  • Funds with year-end of July 2020 need to have submitted their 2nd levy returns and payments by 25 August 2020;
  • Funds with year-end of January 2020 need to have submitted their 1st levy returns and payments by 25 August 2020; and
  • Funds with year-end of August 2019 need to submit their final levy returns and payments by 31 August 2020..
FIM Bill awaiting President’s signature

After being passed by the National Council with changes, the FIM Bill was returned to the Ministry of Finance to examine the proposed changes. These amendments accepted by Parliament. The Bill is now with the President who has the discretion to either assent to the Bill or withhold his assent.

Once the President has signed the Act it will be published in the government gazette. It is not known when this will take place. The Minister of Finance can take one of two routes as also elaborated on in the NAMFISA Circular FIM 06/2020 with NAMFISA preferring the route whereby up to 12 months will be granted in which the Standards and Regulations are finalised and issued. If the Minister agrees, it will be 12 months after promulgation that the FIM Act is effective and then a further 12 months for registration of Funds, i.e. up to 24 months (from promulgation) until a fund, financial intermediaries and other financial institutions have to be FIM Act compliant.

Pension fund governance - a toolbox for trustees

  • 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
UPDATED May 2020


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 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...


If you need any assistance with your personal financial planning, you are welcome to get in touch with Annemarie Nel (tel 061-446 073) or with Kristof Lerch (tel 061-446 042)



Dear reader

In this newsletter we address the following topics:

In this newsletter we address the following topics:
In ‘Important notes and reminders’, read about –

  • NAMFISA levies due;
  • FIM Bill awaiting president’s signature;
A note from the managing director
  • Pension fund member seeking assurance concerning COVID-19

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

  • S 14 transfer to another fund – It's now or never!
  • Will equity markets take Corona in a stride?
In ‘News from RFS’ we draw attention to ‘Important administrative circulars issued by RFS’ since the previous newsletter.

In ‘News from NAMFISA’ read about:
  • Pension funds industry meeting scheduled for 29 July

In ‘Legal snippets’ read about:

  • Death benefits and divorce settlements
  • S 14 transfers – some legal intricacies
  • Matrix for implementation of rule amendments
...make a point of reading what our clients say about us in the ‘Compliments’ section. It should give you a good appreciation of who and what we are!

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

Regards

Tilman Friedrich


   
Pension fund member seeking assurance concerning COVID-19
 
The Namibian had a WhatsApp post where the person writes “Will the GIPF and other pension fund managers please provide assurances to their members that COVID-19 will not be detrimental to future pension pay-outs and the principal amounts invested? Is it worth having a pension fund for the young?”
 
This is indeed a profound concern this young pension fund member raises. As far as Retirement Fund Solutions is concerned, as the biggest wholly Namibian owned pension fund management company, administering pension funds for majority of the country’s SOE’s, large private sector groups where we are dominant manager of pension funds for employees of the majority of banks in Namibia, but also other private sector entities, I would like to assure this member that it is still worth having a pension fund, particularly as a young person who still has many years to retirement and on the basis of the following considerations:
  • We communicate regularly with members of funds we manage to keep them up to date on the impact of COVID on their investments;
  • Returns on pension fund investments across the globe have been muted over the past 3 years as a result of jitters in global financial markets caused by uncertainties about the China: US trade relations;
  • The Corona pandemic led to panic that caused a broad sell-off in financial markets resulting in a significant decline in returns during March 2020, however markets around the globe including SA and Namibia where most of our pension funds are invested, rebounded the following months and are currently only a few percentage points down from where they were before COVID struck.
  • There is still a lot of fear in the markets, which is causing a lot of swings in investment returns, however most pension funds’ year-to-date returns to June were positive;
  • It is important to note that our pension funds’ investments are generally well diversified amongst different asset classes and across different markets;
  • Within our funds, members at their different stages in life are also given guidance and opportunities to dovetail their investments to their respective stages in life;
  • We ensure that continuous guidance and advice is provided to exiting pension fund members;
  • Pension fund schemes remain the most secure and tax efficient vehicles to save and prepare financially for retirement;   
  • Our pension fund investments still make substantial contributions to economic activity and stability as they continue to invest within the regulations laid down by government;
  • COVID has not only impacted pension fund investments negatively but virtually all asset classes and of course the global economy resulting in business closures, job losses and a decline in income for the populace as a whole;
  • COVID does not constitute a permanent state of economic malaise and the world will get over it again and move forward.

Given these considerations, I have no doubt that it remains worth having a pension fund in particular for younger members who still have a long time to work until they reach retirement.

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 June 2020


In June 2020 the average prudential balanced portfolio returned 2.3% (May 2020: 0.7%). Top performer is Hangala Prescient Absolute Balanced Fund with 3.2%, while NinetyOne Managed Fund with 1.4% takes the bottom spot. For the 3-month period, Prudential Managed Fund takes the top spot, outperforming the ‘average’ by roughly 2.3%. On the other end of the scale, Allan Gray Balanced Fund underperformed the ‘average’ by 2.0%. Note that these returns are before (gross of) asset management fees.

The Monthly Review of Portfolio Performance to 30 June 2020 provides a full review of portfolio performances and other interesting analyses. Download it here...


Should you now buy, sell or stay put?

‘Factset’ journal recently published some rather disturbing statistics on the S&P 500 share index as depicted in graph 1 below. It shows record high cuts to earnings per share estimates for the second quarter of 2020. The Q2 bottom-up EPS estimate (which is an aggregation of the median Q2 EPS estimates for all the companies in the index) declined by 37.0% (to $23.25 from $36.93) during this period. This is the largest decline since a 34.3% decline which occurred in quarter 4 of 2008, when the global financial crisis struck global economies. This is evidently the result of COVID-19 and the lockdown imposed on the US economy.

Graph 1



Read part 6 of the Monthly Review of Portfolio Performance to 30 June 2020 to find out what our investment views are. Download it here...

S 14 transfer to another fund – it’s now or never!

In South Africa the FSB (now known as FSCA) has driven a deliberate agenda to reduce the number of stand-alone funds dramatically and has been very successful in doing so to where there are today just over 1,000 stand-alone funds left. In other words, it is of the opinion that only very large funds should operate as stand-alone funds, while all other funds should be housed in an umbrella fund. This is for the sake of more efficient and improved regulatory supervision. NAMFISA indicated that it has a similar philosophy.

Since Namibia is about 4% of the SA economy it is not far-fetched to surmise that there will be not much more scope than about 40 stand-alone funds of currently about 70. I do not believe it will be viable to operate a stand-alone fund with less than 1,000 members as it will simply become too expensive to manage with the onerous and extensive requirements with which trustees will be burdened under the FIM Act.

In Namibia there are currently 27 funds with more 1,000 members. Of these 11 funds are umbrella funds which leaves 16 employer sponsored stand-alone funds, of which quite a few are already earmarked for a steep decline in membership. I do not expect more than 10 to 15 employer sponsored funds left in the next 5 years.

For those funds that are unlikely to survive, there is currently a last window of opportunity to move into an umbrella fund before extensive and onerous requirements under the FIM Act will make trustees’ lives a misery and a transfer to another fund a challenge.

To give trustees a taste of what will be require before any business can be transferred from a fund to another fund, consider RF.S.5.22. This is a standard issued under Chapter 5 (the retirement funds chapter) of the FIM Act. Bear in mind that all Standards and Regulations under the FIM Act can still undergo some changes and bear in mind that there are currently 23 standards already issued in draft format under chapter 5, another 11 ‘general’ standards issued in draft format under chapter 10 and 7 draft regulations issued under chapter 5 that should not be overlooked in anything done that effects a retirement fund. So here is what RF.S.5.22 prescribes:

RF.S.5.22

  1. No transfer of benefits and corresponding assets and liabilities may be made, if (S 2) –
    1. either of the funds
      1. is not in compliance with Act and this may prejudice transferring members (note that this may only become apparent once a scheme has been submitted to NAMFISA for registration and may cause the transfer effort to fail);
      2. party to litigation and this may prejudice transferring members (note that this may only become apparent once a scheme has been submitted to NAMFISA for registration and may cause the transfer effort to fail);
      3. technically insolvent (note that this may only become apparent once a scheme has been submitted to NAMFISA for registration and may cause the transfer effort to fail);
      4. not expressly authorised by rules to make or receive a transfer (note that rules of an existing fund wishing to transfer may have to be amended, invoking the new onerous process for amending rules).
    2. funds have not concluded an agreement governing the transfer;
    3. NAMFISA has not approved the agreement (note – an agreement may exist but NAMFISA may not approve of the agreement);
    4. transferring employer is in default vs transferee/ transferor fund or NAMFISA (note that this may only become apparent once a scheme has been submitted to NAMFISA for registration and may cause the transfer effort to fail).
  2. NAMFISA may notwithstanding S 2 approve a transfer if requirements of S 4 have been met and transfer is in interests of the members of both funds.
  3. NAMFISA will not approve a transfer unless it is satisfied that (S 4) –
    1. transfer agreement has been submitted jointly by both funds;
    2. members were given at least 3 months’ notice to voice concerns, prior to effective date and that the agreement between the funds adequately addresses legitimate concerns (note that this will only be known after members were given notice to voice concerns);
    3. provisions of Chapter 10 regarding transfers and amalgamations have been complied with;
    4. the transfer agreement –
      1. protects transferring members’ accrued benefits and reasonable benefit expectations;
      2. provides analysis showing that remaining members of transferor fund and members of transferee fund are treated equitably and showing impact of transfer on financial position of both funds;
      3. stipulates that accrued benefits of transferring members are fully vesting
      4. stipulates that transferring members’ period of service will be recognised by the rules of the transferee fund;
      5. where assets, not cash is transferred, specifies and analyses (by independent advisor) the methodology for selecting assets;
      6. in the case of a transferor fund that is not a defined contribution fund that has an actuarial surplus –
        • describes members’ rights to allocation of surplus according to the rules;
        • provisions made for allocation of surplus;
        • valuator’s opinion provided that allocation is equitable to transferring and remaining members;
      7. in the case of a transferee fund that is not a defined contribution fund –
        • describes the effects on the rights to surplus that may reasonably be expected to result from transfer of accrued benefits;
        • valuator’s opinion provided that the rights to surplus (of remaining members?) are not adversely affected by transfer;
      8. includes a certificate by both funds confirming -
        • transfer is authorised by and in compliance with the rules;
        • disclosing proportion of members that have formally objected to the transfer.
      9. includes statement of costs of transfer.
  4. If applicable, following reports must be appended to transfer agreement upon submission to NAMFISA (S 5) –
    1. any statements of opinions of fund advisor or valuator;
    2. report on what statement of opinion is based on.

In addition to the requirements of RF.S.5.22, Chapter 10 of the FIM Act contains the following requirements:

Section 449

  1. The documents referred to in RF.S.5.22 must be executed as at the date at which the proposed amalgamation or transfer is to take effect, which date must not be more than 12 months before or after the date of the application to NAMFISA.
  2. An applicant must, before any application is made to NAMFISA, publish a notice of intention to make the application in the Gazette and in at least one newspaper circulating nationally in Namibia or in any other manner approved by NAMFISA.
  3. The notice referred to in 6. above must -
    1. indicate that any client of the financial institution or financial intermediary concerned or any other interested person has the opportunity to object to the amalgamation or transfer within a period of 30 days from the date of the publication of the notice;
    2. describe the procedure for making such an objection; and
    3. indicate the place where the documents referred to in subsection (5) may be inspected.
  4. The documents under which the proposed amalgamation or transfer is to take effect must be open to inspection to clients and other interested persons for a period of 30 days after the publication of the notice referred to in 6. Above.

Section 451

Where an amalgamation or transfer has been approved, the amalgamating financial institutions or financial intermediaries and any other party to the amalgamation, or the transferor and transferee financial institutions or financial intermediaries, as the case may be, must within 10 days from the date of the amalgamation or transfer, deposit with NAMFISA -

  1. a) certified copies of statements of their respective assets and liabilities together with a statement of the nature and terms of the amalgamation or transfer;
  2. a certified copy of the documents under which the amalgamation or transfer was affected; and
  3. a declaration signed by the chairperson and principal officer of each financial institution or financial intermediary that to the best of their knowledge and belief every payment, whether in money or other property, made or due to any person on account of the amalgamation or transfer has been recorded in the documents mentioned in this section, and that no other such payments have been made or are due to the knowledge of any of the parties concerned in the amalgamation or transfer.

Will equity markets take Corona in their stride?
 
Looking back at how global bourses have performed since the global financial crisis in 2007/ 2008, as depicted in graph 1 below, by 2014, all bourses had recovered the market slump resulting from the global financial crisis and since the only new one direction and that was up! This was of course up until COVID-19 struck and bourses plunged by around 20% from end of December 2019 to end of March 2020. At that point many investors went into panic mode and already saw the end of the world closing in on them. Tracking the bourse since then however, markets have recovered about half of the losses incurred up to the end of May and are on a good course June-to-date.
 
Graph 1
 
 
The question is evidently - what has caused the rapid recovery and can we expect markets to take the COVID-19 decline in its stride in the same way it did with the global financial crisis? We know that central banks across the globe introduced zero interest rate policy and quantitative easing measures in an effort to stimulate lending and consumption and thereby stimulating the global economy. Graph 2 below is clear evidence of the extent of quantitative easing applied by the major central banks across the globe. It shows that their balance sheet assets grew by around 300% from around US$ 6 trillion to close to US$ 21 trillion. We also see that these central banks then started to taper off quantitative easing as manifested in the decline of their balance sheet asset since the beginning of 2019.
 
Graph 2
 
 
When the Covid-19 crisis hit the world, monetary authorities of the main countries were planning wide ranging reviews of their strategies. The exceptional measures they had adopted to cope with the global financial crisis of 2007/8 and its appendixes, including the euro area crisis of 2010-12, needed a careful evaluation, a deeper understanding of their limits and undesired side effects. The idea was to gradually define and implement a “new normal” strategy learning from a decade of unconventional policies.

The COVID shock has precipitated again the world in exceptional times requiring the postponement of efforts towards any “normality” and the adoption of new extraordinary measures. Moreover, while the health aspects of the shock will probably be relatively short lived, its economic consequences are bound to last much longer, requiring monetary authorities to devise a true medium-long term anti- COVID strategy, going beyond one-off special decisions. The virus pushed their policy design from one decade of exceptionality to a new period of necessarily abnormal strategic attitudes.
 
Most developed countries have made massive economic responses to the COVID-19 pandemic, ramping up spending and using monetary policy to cushion the blow of lockdowns and other measures that have shut down businesses and left huge numbers unemployed. The Federal Reserve has stepped in with a broad array of actions to limit the economic damage from the pandemic, including up to $2.3 trillion in lending to support households, employers, financial markets, and state and local governments. The European Central Bank (ECB) launched the €750 billion Pandemic Emergency Purchase Program (PEPP), which will last until the coronavirus crisis period is over but, in any case, at least until the end of 2020.
 
We will therefore see central bank assets growing massively once again. The announcements that have been made by central banks of their policy responses to the COVID-19 crisis clearly was the primer for the renewed surge in equity markets since the end of March. Financial markets are once again being flooded with money that will seek investment opportunities across the globe and this will lead to asset prices inflating further on.
 
The major central banks of developed countries have shown their resolve to prop up their economies with further stimulus measures since the COVID-19 crisis struck the world. These measures have already provided an underpin to global equity markets. It may therefore be expected that equity markets will recover and probably continue on their trajectory that was capped only recently as the result of the tapering off of support measures taken by central banks after the global financial crisis.
 
Investor sentiment however, is likely to swing wildly as the real economic consequences of lock down trickle into the media over the next year or two, and this could of course take longer, depending on whether we will see further lock downs in response to further waves of COVID-19.
 

Conclusion
 
The problem investors are facing, is that central banks had not yet found a way out of the consequences of policy responses to the global financial crisis. First steps taken to unwind these had to be reversed abruptly in the face of the COVID-19 crisis. Many commentators already warned of the aftermath of unwinding the previous policy measures that were taken by central banks and the likely negative impact on global financial markets. These concerns will now be exacerbated by the latest policy response measure to the COVID crisis.
 
While equity markets are enjoying the underpin of the latest policy responses to the COVID-19 crisis, the expected volatility in these markets, suggest that short-term investors should be cautious and not risk cashing in at a time negative sentiment has reduced their capital. Medium to long-term investors should be well placed in equities.
 
In this column of our previous two newsletters, we alluded to our expectation that the world will change significantly after COVID-19 and that these changes will lead to the demise of some industries and to the burgeoning of others. This must be taken into account when taking investment decisions.
 
Measuring the value of the Rand relative to the US Dollar since 1986 on the basis of the inflation differential, the exchange rate should currently be 11.8 while it was 17.6 at the end of May, thus indicating that the Rand is still undervalued by more than 30%. This indicates it is not a good time to expatriate capital but rather to repatriate capital to capitalise on the hopefully, temporary, severe undervaluation of the Rand.

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.
 



Compliment from a sales executive

Dated 24 June 2020

“Hi B

That is great news indeed, I would like to thank you and A personally for all the effort put in over all the times I have asked you for assistance and I will recommend your company to all my friends?.


This has lifted a massive burden for me.”

Read more comments from our clients, here...



RFS welcomes new staff
 
We are pleased to advise that Kristof Lerch and Jamerene Maletzky will join our permanent staff complement on 1 July. We extend a hearty welcome to Kristof and Jamerene and look forward to their contribution towards the progress of the company and the well-being of our clients!
 
Kristof Lerch matriculated in 2011 at DHPS where after he left the country to study in South Africa. In December 2015 he obtained his Bachelor of Accounting Degree from the University of Stellenbosch. After that he enrolled at the University of Cape Town for a Bachelors of Commerce Honours (Financial Analysis and Portfolio Management) which he completed with exceptional results. In July 2018, Kristof joined Crystal Water Investment Management (CWIM) as a junior financial analyst. During this period Kristof discovered his passion for financial planning and decided to expand his qualifications by registering for the Post Graduate Diploma in Financial Planning, which he is currently busy with. Kristof joined Simeka Wealth in October 2018 through a joint venture between Graviton Wealth Management and Simeka Consultants & Actuaries. He is a keen soccer and fistball player. Kristof serves as adviser in our wealth management unit.
 
Jamerene Maletzky (nee Louw) grew up in Rehoboth. She matriculated at Dr Lemmer Secondary School in 2012. After school she took up studies at NUST and obtained a Bachelors in Business Management in 2017, followed by an Honours Degree in Business Management in 2018. She started her working career as an intern payroll administrator at TransNamib in 2016. She joined the pension funds industry at the end of 2016 at Alexander Forbes as a fund administrator. Jamerene is assigned to our Benchmark team serving our pensioners as administrator.
 

Important administrative circulars issued by RFS
 
RFS issued the following fund administration related circular to its clients over the last month. Should any client have missed this circular, please get in touch with your client manager:

  • Cash Management Arrangement (RFS 2020.07-11). 
  • Pension funds industry meeting scheduled for 29 July
The industry meeting that was scheduled for 15 July has now been set for 8h30 on 29 July and will be conducted remotely via Microsoft Teams.


 

Death benefits and divorce settlements

In a settlement agreement between husband and wife that was made an order of the court in the final divorce order, the couple agreed on the following few key terms:

  1. Custody of child:
    The custody and control of their child was awarded to the wife with arrangements for access to the child by the husband.
  2. Maintenance
    1. A monthly amount for maintenance of the child to be paid by the husband until the child reaches the age of majority or becomes self-supportive, whichever occurs last.
    2. Husband to pay all expenses in respect of and in relation to the minor child’s primary and secondary education, including clothing and extra tuition.
    3. In the event of the minor child displaying an interest and aptitude for tertiary education, the husband shall pay all expenses in respect of and in relation to the minor child’s tertiary education, as far as the expenses are not covered by a bursary or study loans, which obligation shall continue for as long as the minor child applies himself with due diligence and continues to make satisfactory progress.
    4. Wife shall pay all expenses in respect of and in relation to the minor child’s medical expenses, including all medical, dental, pharmaceutical, hospital and ophthalmological expenses.
  3. Other
    1. In respect of wife’s revocation of donation claim against husband, husband is to pay wife a monthly amount for a period of 10 years, or by the payment of the full amount in a lump sum.
    2. In the event that the husband defaults on these payments the outstanding balance shall become due and payable immediately.

The former husband later got married again. The son of the couple proceeded to university. The husband passed away some 7 years after the divorce order was granted. At that time their son was in his last year of studies and had turned 21 in that year.

The following questions arose out of this case for which the trustees needed to find an answer:

  1. Is the outstanding balance of the amount that was to have been paid by the husband in terms of 3.i above deductible from the lumpsum due by the husband’s pension fund in consequence of the passing away of the husband, in terms of section 37A?
  2. Does the outstanding balance of the amount that was to have been paid by the husband in terms of 3.i above mean that the wife is a dependant of deceased husband?
  3. Was deceased’s son a dependant at the date of his father’s death?

Dependency of son (section 37C of Pension Funds Act)

In terms of the deed of settlement dissolving the marriage of deceased husband and wife, the son would have only been a legal dependant until reaching majority, which is age 18 since 30 January 2019 and was age 21 until then. At the time the husband passed away, his son was already 21, so even before the age of majority was reduced from 21 to 18, his son no longer was a legal dependant at the time of death of his father.

Whether or not the son was a financial dependant at the time of death of his father will depend on the factual assessment whether deceased father in fact continued to fund his son’s studies at the time he passed away. If the father still supported the son’s studies up to the date of his death, the son would have a claim for financial dependency against his father’s pension fund death benefit. The quantum of the claim would be based on the factual support given by his father for the remainder of the son’s studies, i.e. either the year in which the father passed away or any extended period the son might require to complete the course for which he was enrolled when his father passed away.

If the father no longer supported his son at the time of his death, his son would have no claim for financial dependency against his father’s pension fund death benefit either and would not be entitled to be considered for an allocation from the father’s pension fund death benefit by the trustees of the fund.

Dependency of divorced wife (section 37C of Pension Funds Act)

Since the wife was divorced from the deceased former husband, she is no longer a legal dependant as contemplated by the Maintenance Act No 9 of 2003. She could however be a legal dependant in terms of the divorce order, and more specifically the settlement agreement, which made the settlement agreement part of the order. The settlement agreement, provides for 2 financial obligations of the husband. The first obligation related to the maintenance of the son. There is no reference to the wife in this part and the wife cannot claim legal dependency under this part. The second financial obligation relates to the wife’s revocation of a donation claim.

In this regard, section 28(5) of the maintenance Act No 9 of 2003 stipulates “Notwithstanding anything to the contrary contained in any law, any pension, annuity or compassionate allowance or other similar benefit is liable to be attached or subjected to execution under a warrant of execution or an order issued or made under this Part in order to satisfy a maintenance order.”

Any person claiming compensation to satisfy a maintenance order must therefore obtain an attachment order or execution warrant under section 28(5) of the Maintenance Act. The deed of settlement dissolving the marriage of deceased Plaintiff and Defendant spouse does not constitute an attachment order or execution warrant as contemplated by section 28(5). The deed of settlement does not contain any maintenance obligations of deceased towards his divorced spouse but only an obligation of deceased to pay his spouse certain amounts in respect of her revocation of a donation claim against deceased. Deceased’s spouse has no maintenance claim against deceased that meets the requirements of section 37A of the Pension Funds Act read together with section 28(5) of the Maintenance Act. In our opinion, there are therefore no grounds for providing for her either as a dependant of deceased or for any maintenance claim against the death lump sum as envisaged in section 37C of the Pension Funds Act.

Section 14 transfers – some legal intricacies
 
There is a common misconception that the appointment of another administrator to a fund impacts the corporate identity of a fund. This of course is not the case. It is simply a change of service provider, that currently is not subject to any particular legal requirements.
 
When a board of trustees decides to terminate its stand-alone fund and to join another fund, or when the participating employer/ its fund management committee decides to terminate participation in a fund and to start participating in another fund it creates a totally different and quite a tricky scenario. The decision to terminate participation in a fund is always ultimately a decision by the employer. There is no legal requirement for a company to offer a pension arrangement and a decision to do so is purely that of the employer. In the same way the decision to discontinue participation in any of the manners set out above is an employer decision. Any decision by an employer to change conditions of employment, is of course subject to the employer observing the requirements of the Labour Act. The introduction of a pension arrangement clearly implies a change of conditions of employment. The decision to end participation in one fund and start participation in another fund does not necessarily imply a change of conditions of employment if all benefits and the contribution structure remains unchanged. The employer decision to end its participation in a stand-alone fund does not impact the legal identity of the fund in the first instance and the board of trustees can in theory decide to continue operating the fund for the benefit of the existing members. In practice however, it will be very difficult to do so if the employer and its employees no longer contribute to the fund. It will be a ‘closed fund’ with a diminishing membership.
 
Once a decision has been taken by an employer to discontinue participation in a stand-alone fund and to start participating in another fund instead, the trustees of the stand-alone fund thus need to decide whether they will continue operating the fund or whether the fund is to terminate. If the trustees decide to terminate the fund, they now need to decide whether the fund is to be dissolved in terms of section 28 of the Pension Funds Act (voluntary dissolution) or whether the fund’s assets and its liabilities are to be transferred to the other fund in terms of s14 of the PFA.
 
In a voluntary dissolution of a fund in terms of section 28 of the PFA the fund needs to appoint a liquidator and will go through a liquidation process. Liquidation is typically a long drawn-out and costly process as it has to comply with extensive legal requirements and the liquidator will typically have to be compensated in terms of statutory remuneration scales. While the fund is in liquidation, members would normally not receive any pay-out until the liquidation has received statutory approval. (Note that a fund can also be wound up by the Court in terms of section 29 of the PFA.)
 
In practice, a fund would only be dissolved voluntarily in a case where the employer is liquidated or dissolved and there will no longer be an employer: employee relationship after the fund was dissolved.
 
Where the employer continues operating, the trustees of a stand-alone fund need to resolve whether all members will be paid out their benefit and where after the fund will be dissolved voluntarily, or whether members will be given an option how to dispose of their benefit including the option to transfer to the employer’s new fund and where after the existing fund will also be dissolved voluntarily, or whether all members and all assets will be transferred to the employer’s new fund. The last alternative has to be executed in terms of section 14 of the PFA. This process is subject to some formal requirements of, and approval by NAMFISA. Once these requirements have been met, as confirmed by NAMFISA approval, all assets and liabilities of the ‘old’ fund will devolve upon the ‘new’ fund. The ‘old’ fund now needs to be deregistered by NAMFISA and its legal existence will have terminated upon deregistration.
 
Where an employer participated in a fund also comprising of other employers and then resolves to end its participation to start participating in another fund comprising of other employers and the employer takes the decision not to give members any option but to transfer all assets and liabilities to the new fund, such transfer is also subject to the provisions of section 14 of the PFA. The difference here is that the former fund will continue to operate for the benefit of the remaining employers.
 
Transfers of assets and liabilities in terms of section 14 of the PFA are always subject to an agreement between the two funds and this agreement must meet the requirements of both funds before it can be approved by NAMFISA.
 
A ‘section 14 process’ typically takes anything between 6 months and longer, sometimes substantially longer. In the course of the process, the employees would have already been enrolled in the employer’s new fund and the employer and its employees would have started to contribute to the new fund. As one can read out of the next topic ‘Matrix for implementation of amendments’, unless the fund’s generic registered rules will apply to the employees of the employer, the employer needs to submit its own rules to NAMFISA for approval. This approval process typically takes between 1 month and longer. Until such time that the rules are registered by NAMFISA. This could mean that the rules may have to be amended to meet any specific requirements of NAMFISA, in which event the amended part of the rules, as eventually registered, has no applicability. Since the process usually takes some time, members may have exited the fund in the meantime and may have received a pay-out based on rules that subsequently had to be amended to meet NAMFISA requirements. Members may have been overpaid during this time and this may have consequences for the fund.
 
During the period between the termination of participation in the old fund and the registration of the employer rules of the new fund, the old rules no longer have any relevance to any benefit entitlement of the members where the decision was to transfer all assets and liabilities in terms of section 14 of the PFA the moment the transfer has been approved by NAMFISA. Paying out in terms of the old rules poses the risk that the benefit actually due to the member upon exit from the new fund is calculated in a different manner for the period from date of termination of participation in the old fund until date of payment of the benefit. This could once again mean that the member was overpaid with consequent repercussions for the old fund.
 
To be certain that neither the old nor the new fund overpay a member during the period of ‘uncertainty’ it may be advisable that no benefit is paid out to a member who exits. In practice, both funds often make a provisional payment that is less than what the member should eventually receive under the rules of the new fund. Unfortunately, this is not without risk to both funds.

Matrix for implementation of rule amendments
By Andreen Moncur, B.A (Law)

The Fund may not implement amendments that have not been registered by NAMFISA and approved by Inland Revenue. The following matrix sets out the legal implications of –

  1. An amendment having been implemented before having applied for registration if
    1. it is subsequently registered after the effective date
    2. it is subsequently not registered; and
  2. An amendment if first registered and then implemented, and it is –
    1. registered before the effective date;
    2. registered after the effective date.
AMENDMENTS IMPLEMENTED BEFORE APPLYING FOR REGISTRATION AND THEN:
registered after their effective date subsequently not registered
  • Prospective application as from date of registration
  • Applies for all events/transactions on and after date of registration 
  • Amendment null and void ab initio, i.e. from the start
  • Status quo ante, i.e. position before effective date, must be restored
  • Retroactive to effective date only if presumption against retrospectivity does not operate
  • Only retroactive to effective date if this intention clearly stated in Amendment
  • If not, retroactive amendment is null and void for period between effective date and date of registration
  • Unless Rules further amended to correct errors/omissions during the period between effective date and date of registration, i.e. to legitimise conduct before date of registration, status quo ante, i.e. position before date of registration, must be restored
 
AMENDMENTS FIRST REGISTERED AND THEN IMPLEMENTED
registered before their effective date registered after their effective date
  • Prospective application as from effective date
  • Applies for all events/transactions on and after effective date
  • Prospective application as from date of registration
  • Applies for all events/ transactions on and after date of registration
  • No retrospective application to date of registration
  • Retrospective to effective date only if presumption against retrospectivity does not operate
  • Only retrospective to effective date if this intention clearly stated in Amendment
  • If retrospective, transactions completed and any pending transactions initiated under pre-Amendment Rules not affected. Vested rights granted under pre-Amendment Rules not affected
  • Only retroactive to effective date if clear intention to affect transactions completed and pending transactions initiated under pre-Amendment Rules or to interfere with vested rights granted by pre-Amendment Rules




4 Ways retirement has changed over the years

“The past few decades have seen a massive shift in the entire concept of retirement, with medical advancements and digitisation creating more opportunities for people as they age. The reality of the Covid-19 pandemic too, has also adjusted priorities in terms of location, healthcare and lifestyle for many retirees…

“Retirement was once considered to be quite final – an end to the working life and the start of a more sedate existence – but it’s a much more fluid, personalised concept now,” explained Phil Barker, of Renishaw Property Developments. “People are looking forward to this as a transitional phase, slowing down on the more demanding careers while pursuing areas of interest that you’re now able to enjoy with the benefit of time and experience.”

Here’s a look at some of emerging trends in retirement.

  • People continue to work - Rather than hitting 65 and being sent off with a gold watch, people are adjusting their working schedules, scaling down where possible, but still remaining productive…
  • People want home-based healthcare - … Rather than having to rely on frailcare centres or hospitals, modern retirees are seeking home-based healthcare options that allow them to get necessary treatment from the comfort of home...
  • People are much more physically active - … Modern retirees are getting quite adventurous in their pursuit for optimum health, with many keeping fit through trail walking, yoga, dance classes…
  • Skills’ sharing through volunteer work - The massive skills’ shortage in South Africa means there is a growing need for skills’ sharing from more experienced individuals. This has seen a rise in volunteer work with retirees joining organisations that tutor the youth...”
Read the full article by Renishaw Hills in Cover of 7 July here...

Raising liquidity: “Selling the crown jewels.”

“…The build-up of wealth is closely linked to the accumulation of lifestyle assets such as homes and holiday homes, as well as items such as cars, art, jewellery, gold coins, and other collectables. Once, however, the wealth creation cycle is completed (usually at retirement age), we turn from being accumulators to consumers, and the need for income and liquidity becomes a priority. So just how does a portfolio generate enough cash, and what kind of investment strategies do we need to implement to make sure we can always pay our monthly bills?... selling assets requires careful planning and market expertise to ensure you are selling the right assets, for the right reasons, and for the best returns. It is important to understand exactly why you are selling, and what you hope to achieve.

Here are some points to consider before deciding which assets to liquidate:
  1. Investing “out” - … The reasons an investor might sell out of an investment include capital growth having exceeded expectations, high valuations, or an investment representing an overexposed position in a portfolio. These situations can be used to increase liquidity or to re-align a diversified strategy…
  2. Selling for liquidity - … The first assets on the list to sell should be overvalued asset classes, or individual shares that have become too expensive when markets present opportunities to make a significant profit…
  3. Selling your most treasured possessions - … When the need for cash dictates you sell a prized possession like an investment property, a holiday home, gold coins, an expensive piece of jewellery, or a valuable piece of art, you have to detach yourself from the emotional reasons for holding onto it. These investments often fail to provide an attractive yield or bring in any income at all.…
  4. Cash flow planning - To prevent future negative outcomes from the sale of assets, our approach to ensuring steady cash flows for our clients through their portfolio has always been to start by planning the most likely path of future expenses (both regular and ad-hoc) and future cash inflows…”
Read the full article by Riaan Campbell of Citadel in Cover of 7 July here...


 

Are RSA retail bonds an option for a pensioner requiring monthly income?
 
“RSA Retail Savings Bonds are available as either Fixed-Rate Retail Savings Bonds (available over terms of two, three or five years) or Inflation-Linked Retail Savings Bonds (which mature after three, five or 10 years). These bonds are effectively loans to the South African government, with a promise to pay back the capital after the term in question, along with interest, payable as described below. The minimum amount that can be invested is R1 000 and the maximum R5 million.

Fixed-rate retail savings bonds
Different [market related] interest rates apply to each of the maturities in the series as per the table below. Investors in these bonds can choose to reinvest their interest, have it paid out twice a year on the interest payment dates (March 31 and September 30 each year), or in your case, as you are over 60 years old, receive their interest payments monthly. These fixed-rate bonds also have a ‘restart’ option. This enables the investor to restart the term of the bond at a new prevailing (possibly higher) interest rate after 12 months, or to change the investment term.

The Inflation-Linked Retail Savings Bond
These series consist of bonds with a three-, five- or 10-year maturity. Capital amounts invested in these bonds are inflation-adjusted over the term. A floating interest rate is payable every six months on the interest payment dates.

 
Current interest rates on these bonds
Fixed rates Inflation-linked bond rates
2-year fixed rate 6.5% 3-year inflation-linked 3.5%
3-year fixed rate 7.0% 5-year inflation-linked 4.5%
5-year fixed rate 8.5% 10-year inflation-linked 5.0%
 
Source: https://secure.rsaretailbonds.gov.za/

In this article the author provides an exposition of the risks (inflation risk, income risk, default risk), which one needs to be aware of when contemplating to invest in any of these bonds.

Read the full article by Trevor Lee in Moneyweb of 30 June 2020, here…

12 Traits of emotional intelligence

“What makes someone great at their job? Having knowledge, smarts and vision, to be sure. But what really distinguishes the world’s most successful leaders is emotional intelligence — or the ability to identify and monitor emotions (of their own and of others).

  1. Self awareness - You understand your own strengths and limitations; you operate from competence and know when to rely on someone else on the team…
    1. emotional self-awareness
  2. Self-management - the ability to keep disruptive emotions and impulses under control
    1. emotional self-control;
    2. adaptability;
    3. achievement orientation;
    4. positive outlook.
  3. Social awareness – indicates accuracy in reading and interpreting other people’s emotions, often through non-verbal cues…
    1. empathy;
    2. organisational awareness
  4. Relationship management - an interpersonal skill set that allows one to act in ways that motivate, inspire and harmonize with others…
    1. influence;
    2. coach and mentor;
    3. conflict management;
    4. team work;
    5. inspirational leadership…”

Read the full article by Daniel Goleman in ‘make it’ of 9 June 2020, here...



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

"Everything that irritates us about others can lead us to an understanding of ourselves."
~ Carl Jung

 
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