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In this newsletter:
Benchtest 07.2020, RFS celebrates, penalties and fines under FIM Act and more...



NAMFISA levies

  • Funds with year-end of August 2020 need to have submitted their 2nd levy returns and payments by 25 September 2020;
  • Funds with year-end of February 2020 need to have submitted their 1st levy returns and payments by 25 September 2020; and
  • Funds with year-end of September 2019 need to submit their final levy returns and payments by 30 September 2020.
Are you ready for the FIM Act?

RFS in collaboration with Mrs Andreen Moncur  (BA Law) will be hosting a webinar training series over a period of 6 weeks, commencing 8 September until 13 October. The webinars will be conducted every Tuesday from 14h30 to 16h00. These virtual sessions will cover the standards and regulations, governance, outsourcing, benefit structures, employer liability and cost implications, amongst others. You will understand what is needed for retirement funds to be open for business under the FIM Act.

Find more information and the registration link here...

The training is aimed at trustees and principal officers, sponsoring employers (non-fund management who are interested or interact with the fund administrators), brokers, consultants, academics, NAMFISA, GIPF, industry bodies and government.

Andreen is veteran pensions lawyer with over 30 years’ experience in employee benefits law in South Africa and Namibia, having lived in Namibia for a number of years and still rendering services to Namibian funds and their service providers. She has a proven track record in the financial services sector, as a legal and communications consultant and trustee. Andreen is uniquely qualified to assist all stakeholders in navigating the long-awaited Financial Institutions and Markets Act.

If you have not yet registered, you are welcome to contact Leande de Bruyn for further information using This email address is being protected from spambots. You need JavaScript enabled to view it.. Registrations close on 4 September 2020.


VAT refunds and ITAS issues

ICAN and NIPA addressed two letters to the Acting Commissioner of Inland Revenue dealing with challenges taxpayers are experiencing with VAT refunds and with the ITAS system insinuating that the extended due date for submission of 2020 income tax returns of 30 September may no be reasonable given the challenges being experienced.

If you are interested in reading these letters click
  • this link to the letter dealing with VAT refunds, and
  • this link to the letter dealing with ITAS issues.

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 ‘Important notes and reminders’, read about:

  • Are you ready for the FIM Act?
  • VAT refunds and ITAS issues
In ‘A note from the Managing Director’, read about RFS having reached another important milestone in its history, celebrating its 21st anniversary

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

  • Assessing the impact of penalties and fines under the FIM Act;
  • How do you benchmark the cost of fund administration?
  • Will equity markets take Corona in a stride?
  • Should you now buy, sell or stay put?
In ‘News from RFS:
  • We welcome new staff;
  • We provide an overview of the fund administrators market; and
  • We draw attention to ‘Important administrative circulars issued by RFS’ since the previous newsletter.
In ‘News from NAMFISA’ read about:
  • The virtual pension funds industry meeting held on 29 July; and
  • The ladder of supervisory interventions.

In ‘Legal snippets’ read about pension fund rules and the Income Tax Act.

...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!

Regards

Tilman Friedrich


   
RFS celebrates!
 
On 19 August 2020, Retirement Fund Solutions (RFS) Namibia turned 21 years, the day the company was incorporated and opened for business.

Those of you who managed to join us for the company’s 20th anniversary which we celebrated at the Windhoek Golf and Country Club on 3rd October 2019, may still hold some fond memories of the event.

The 20th anniversary event was dedicated to all our clients, with special mention of our early clients who joined us in the first make or break 24-month period. We also dedicated the anniversary to the founders of Retirement Fund Solutions, especially our Board Chairperson Tilman Friedrich, whom I had the great privilege of succeeding as the company’s Managing Director, 2 years ago.

Today, Tilman as founder, together with the company’s first employee, Charlotte Drayer, both celebrate 21 years together with the company.

I congratulate them and pay homage to their outstanding dedication and commitment to Retirement Fund Solutions!

On the occasion of the company’s 21st anniversary, I recall some of the salient promises of the company in the early days, amongst these:
  1. To be the number one address in day-to-day fund management,
  2. To focus on superior client service and administration capability,
  3. To be the best and not the biggest,
  4. To be excellent through ownership,
  5. To be committed to building the pensions industry in Namibia, etc.

 

Today, as ever before we cherish and continue to promote these business philosophies of the first days that delivered the success that RFS has experienced over the past 21 years!

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 31 July 2020


In July 2020 the average prudential balanced portfolio returned 1.7% (June 2020: 2.3%). Top performer is NAM Coronation Balanced Plus Fund with 2.5%, while Allan Gray Balanced Fund with 0.1% takes the bottom spot. For the 3-month period, NAM Coronation Balanced Plus Fund takes the top spot, outperforming the ‘average’ by roughly 2.2%. On the other end of the scale Allan Gray Balanced Fund underperformed the ‘average’ by 3.1%. Note that these returns are before (gross of) asset management fees.

The Monthly Review of Portfolio Performance to 31 July 2020 provides a full review of portfolio performances and other interesting analyses. Download it here...


When can we expect to see double digit returns again?

In this newsletter, we present two articles that effectively address the same subject. Firstly ‘Governments must beware of the lure of free money’ that appeared in the Economist of 23 July wherein it is pointed out that we are currently dealing with a profound shift in economics as the result of policy decisions taken by governments across the developed world in response to the COVID pandemic. It talks of 4 defining features of the ‘new epoch’ induced by COVID. Firstly, the extent of government borrowing, secondly, the extent of money printing by central banks, thirdly the governments’ increasing roles as capital allocators in their economies and fourthly, a persistently low inflation rate. These ‘epochal features’ lay the foundation for how economies and consequently the financial markets will evolve for many years to come.

The second article ‘Portfolios need to be more active and flexible to ensure returns’, international asset manager Schroders believes that both, equity and bond returns, are likely to be lower in the future than during the past 10 years. Equities are facing economic headwinds and record valuations, while interest rates are at record lows and likely to remain low for years, affecting both the income and price appreciation potential for bonds...

Read part 6 of the Monthly Review of Portfolio Performance to 31 July 2020 to find out what our investment views are. Download it here...

Assessing the impact of penalties and fines under the FIM Act
The new legal environment the Financial Institutions and Markets Act (FIMA) will bring about for non-banking financial institutions will have a serious impact on the costs that these institutions will have to incur to meet the new requirements of the FIMA, ultimately at the cost of the consumer of non-banking financial services.

‘Closer to home’, the FIMA will impact pension funds, all their service providers and ultimately the members of pension fund. By our count, pension funds, currently under the Pension Funds Act, need to comply with 29 legal and supervisory requirements. Pension fund administrators need not be registered at all and are therefore not subject to any direct compliance requirements.

The FIMA ushers in a new era. One of the key objectives of this statutory revoluti0n is to move from compliance or ‘tick-box’ based supervision to risk-based supervision. By our count under the FIMA, pension fund administrators now have to register, will be regulated and are subject to a separate law that was devised for pension fund and certain other administrators and forms part of the barrage of laws incorporated in the FIMA. Between pension funds and pension fund administrators, by our count there are now already over 600 compliance requirements, and this is not the end of it, as a number of standards still need to be issued by NAMFISA. Currently the highest penalty / fine that can be imposed between our courts and NAMFISA is an amount of N$ 1,000 per day for non-compliance with the investment prescriptions. All other fines and penalties under the current regime, are ‘paltry’ in relation to this fine.

Under the current regime the Pension Fund Act only once refers to imprisonment of a maximum of 12 months. Under the FIMA fines and penalties can be as high as N$ 10 million, and 10 years imprisonment, and such sanctions are multitude in each law of the FIMA.

It goes without saying that the massive increase in compliance requirements from 29 to over 600 together with the massive fines and penalties that can be meted out between our courts and NAMFISA will result in a painful increase in general cost levels in the non-banking financial services system in Namibia which will ultimately be borne by the consumer. It is inconceivable that no fund will ever be able to comply with over 600 requirements! Every single fund in Namibia will be found to be non-compliant in more than 1 area and it is a given that every fund will be sanctioned with penalties meted out by NAMFISA and with fines and even with imprisonment meted out by the courts.

Although it is at this stage very difficult to appreciate and quantify the cost impact of the new statutory and supervisory regime, preliminary indications are that the operational costs of an umbrella fund may easily increase by 50% or more between spending more on compliance by trustees and the fund’s service providers, on statutory reporting by service providers on behalf of the fund, on assurance by auditors and actuary, on communication with members and other stakeholders and on governance by trustees.

Evidently the cost of supervision by NAMFISA will increase in line with the increase in the operational costs that funds will experience.

As I pointed out in a previous edition, I am utterly amazed that a law the size of the FIM Bill and with such far reaching implications passed through parliament and national council with only a handful of grammatical corrections and this despite the relevant standing committee of parliament having been alerted to many serious concerns of the pension funds industry!

How do you benchmark the cost of fund administration?
 
Social Security Commission’s 2017 feasibility study on a National Pension Fund is providing some useful information to benchmark the cost of administration of pension funds, being based on research carried out in the southern African environment. The study deals with different components of which the ‘retirement component’ is in effect a defined contribution pension fund.

The report gives quite a detailed exposition of the costing to substantiate that SSC can do it cheaper than the private sector, due to the absence of a profit motive, and that it is feasible. It seems the authors of the study used figures from SA funds that indicate that one administrative staff should be able to handle 2,000 members. The number of members one staff member can handle of course significantly depends on the size of the fund and SA funds are on average much larger than Namibian funds. The larger the fund the more members one administrator can handle.

In the table below we have used the calculation in the study, adjusted for the 17% increase in the CPI index between June 2016 and June 2019, to arrive at the study’s implicit cost per member. This is for very basic services, no pensioners, no housing loans, no employer reporting, no separately audited financial statements, no NAMFISA reporting, no individual member choice etc. This calculation produces a cost of N$ 73.50 per member, per month. For commercial purposes a profit margin still has to be added. The typical profit margin for fund administrators is around 25%. This means that a very basic administration service, based on the average SA size of a free-standing fund would amount to around N$ 90 per member per month. For the significantly smaller average size Namibian fund this figure should be higher.

COST COMPONENT COST BASIS RATE RATE P.A.
1 Administrator Per 2,000 members   30,000  360,000
Additional Resources
Supervisor 1 per 6 admin staff 60,000  120,000
Manager 1 per 3 supervisors   90,000    60,000
Subtotal - cost per 2,000 members     540,000
Cost centre staff and computer systems Cost per line 9 aa         540,000
Overhead costs - offices (travelling contribution to SSC, H.O.) Cost per line 9 aa         540,000
Cost of Governance Per member      6.00 144,000
Total Cost per 2,000 members          1,764,000
Total Cost per member per month     73.50
 
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

S&P 500 Change in Bottom Up EPS

What is further worrying is the fact that the S&P 500 index continued to increase despite the collapse in earnings estimates for this index as depicted in graph 2. Where the S&P 500 index represented about 68 times earnings per share estimates at the end of March, this multiple has now doubled to 136 times at the end of June.

Graph 2

S&P 500 Change in Q220 EPS vs change in price

In the July 2020 column in this newsletter, we pointed out that the 4 largest reserve banks globally have grown their balance sheets by 300% from US$ 6 trn to US$ 21 trn after the global financial crisis in 2007/ 2008 in order to prop up the economy and that between the Federal Reserve and the ECB alone, their balance sheets are set to increase by yet another roughly US$ 3 trn in response to the COVID-19 crisis this year. What these measures seem to have achieved is to prop up investor sentiment while they do not seem to have impacted company profits so far.

Although the market stress that was experienced in February and March has largely dissipated, it has not disappeared though, as the trajectory of COVID-19 and its economic consequences are still largely unknown. Volatility will persist and stresses will re-appear and will lead to market corrections.

In these circumstances, the investor is faced with three alternatives:
  • He can cut his losses by selling out of the market
  • He can take advantage of the depressed prices to buy into the market or
  • He can stay put.
Selling out of the market is the instinctive response of many risk-averse investors. The goal is to prevent further investment loss. However, if one looks at risk as the probability of not meeting one’s investment objectives, then selling out becomes “counter-intuitive” for a risk-averse client. First, this implies converting a paper loss into a realised loss. Secondly, this increases the probability of missing out on the recovery that will eventually come, and which generally cannot be predicted or timed. This in turn, decreases the probability of achieving one’s investment objective and thus, selling out of the market can be construed to be taking on higher risk.

If selling out of the market is risky, how would one describe the opposite - buying into the depressed market? After all, isn’t this the all too popular notion of buying low? While this is true, the decision should be based on the risk profile and the change in risk profile that occurs as a result of the decline in market values. It is also important to note that the huge decline in market prices comes with a huge increase in market volatility. The huge drop in the FTSE/JSE All Share Index also saw a huge increase in the SA volatility. The SA volatility index was at one of its the highest points, only second to its previous 2008 peak.

Understanding the inherent market risk at a time when prices appear very cheap, is very important when making the decision to buy into the market. If risk capacity is significantly above neutral, it means one is not reliant on one’s investments to fund one’s lifestyle. A significant market decline means investible assets are now an even smaller component of total net wealth. This means the investor can afford to take more risk with those investible assets. It is important however to take cognisance of the extreme amount of risk inherent in the market at such points and the possibility of further massive declines in market values as well as the possibility of a drawn-out recovery. It is impossible to predict exactly at which level the market will bottom out, it is also impossible to forecast the length of time for recovery. Ultimately, it is the risk capacity that will determine whether an investor should buy into the market to take advantage of depressed prices.

If the investor chooses to do nothing, paper losses are not converted to realised losses. There is no point getting out of the market now when prices have declined heavily. If one gets out hoping to buy in at a lower price, one won’t. One will most likely wait for the new bull market to be confirmed and surpass the price at which one sold! If an investor holds an adequately diversified portfolio, it is possible to weather the storm without selling out of the market to meet expenses. The investor will also not miss the recoveries that eventually follow huge market declines. Doing nothing also means the investor is not taking on extremely high risks to benefit from highly depressed prices. For most investors doing nothing is the most prudent strategy. It is also the approach with the least risk.


Conclusion

Equity markets and other asset classes are evidently once again in a bubble as the result of the global flooding of markets by reserve banks. The question is whether this bubble is going to burst or whether it will be allowed to gradually deflate. Following the same measures taken by reserve banks after the global financial crisis in 2007/ 2008, asset markets experienced a similar bubble all over the world until the Fed first mooted the possibility of reducing its policy rate in the middle of 2014. From that point on the SA equity market first dipped and then moved largely sideways, a trend not followed by the S&P 500 though, as capital was withdrawn from developing economies into ‘safe haven’ economies.

Based on this experience, it is likely that the re-inflated bubble of late is unlikely to burst, everything else remaining equal, but will rather be allowed to slowly deflate. This bubble is purely based on sentiment rather than fundamentals as graph 2 above depicts. It may be expected that any larger military conflict or another unexpected global event such as we had with COVID-19 may cause sentiment to collapse again. However, at present there are no apparent dark clouds on the horizon and there is no immediate reason for getting out of the market, if one had not sold out already.

If one had sold out already and one had not re-entered the market, one will have lost out on the 27% recovery of the SA Allshare index since the March month-end low. In the face of prevailing volatility and the uncertainty of how the COIV-19 crisis will pan out, one should now best stay out of the market at least until the end of the year to use any opportunity a market correction will offer. Economic performance is not supporting any meaningful growth in equity markets.

Investing offshore is a great risk diversifier and must be part of one’s investment strategy. As the SA Allshare index dropped by 22% since the beginning of the year to its March month-end low, the Rand fell by a similar percentage, effectively placing the investor in a neutral position. Since then the Allshare has grown by 27%. The Rand in turn strengthened by 11% since its April month-end low, indicating that it still has scope to make up some lost ground relative to the recovery in the SA Allshare index. This indicates that it is not a good time to expatriate investments at this stage and the suggestion to hold on to the end of the year may also bring with it a further strengthening of the Rand, presenting an opportunity to re-enter offshore equities.

 
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.
  

 

FIMA - the way forward
 
The FIM Bill was passed by Parliament on 7 July 2020. The Bill is expected to be published in the Government Gazette soon and thereby become law.

In terms of Section 468(1&2) of the FIM Bill, the Minister of Finance reserves the power to determine which provisions or Chapters will commence. As per a circular issued by NAMFISA in June 2020 setting out the NAMFISA FIM Bill implementation plan (‘Project New Dawn’), the implementation of the FIM Act may follow one of two routes:
  1. The Minister of Finance may make all provisions for which the critical regulations and standards are ready and in place effective at promulgation date; or
  2. The Minister of Finance may stay all provisions of the Act at promulgation date until such time NAMFISA advises the Minister on the ideal implementation date taking into account the underlying work that comes with formal consultations on the critical subordinate legislation.
NAMFISA favours the second option in order to provide for sufficient time to effectively operationalise the FIM Act. In terms of the circular, NAMFISA envisages 9 – 12 months formal consultation on the critical subordinate legislation. If the Minister of Finance decides on this option, it means that the FIM Act only becomes effective 9 – 12 months after promulgation of the Bill in the Government Gazette. In terms of the FIM Bill, a further 12 months are allowed from the effective date for submission of FIM Act – compliant rules of the fund to the Regulator.           

Of the total 115 critical standards and regulations to the FIM Bill listed in the NAMFISA circular, a total of 40 standards and regulations are applicable to the retirement funds industry (11 General Standards, 21 Retirement Funds Standards and 8 Retirement Funds Regulations). This is of course in addition to the relevant Chapters that are applicable to the retirement funds industry in the FIM Act itself (Chapter 1, 5, 8, 10 and 11).


RFS implementation plan:

A comprehensive consolidated checklist containing the applicable chapters of the FIM Bill as well as the 40 standards and regulations has been compiled. This checklist contains 660 line items, so you can imagine that there are quite a number of compliance requirements. Not all will result in changes to the way things are done currently and some are not directly applicable to RFS.

The next step is to assess the requirements of the relevant sections in the FIM Bill, standards and regulations in order to identify what needs to be done so that RFS is able to comply with the requirements. To achieve this, workshops will be held to go through the requirements and identify action plans, responsible persons and due dates. During these workshops, the required changes to systems and procedures will also be identified. Some of you will be required to attend the workshops.

In addition, RFS will provide comments on draft regulations and standards to NAMFISA. Also, RFS will consult with NAMFISA on items that are not clear etc.

Our implementation plan currently provides that should the FIM Act be promulgated now, that we will have until 30 June 2021 to finalise the above.

Should the FIM Act become effective on 30 June 2021, the FIM Act provides for 6 – 12 months to finalise the Rules of the Fund. Therefore, at this stage, funds are expected to be fully FIM Act – compliance by 30 June 2022.


It should be noted that these timelines are dependent on the manner that the FIM Act is promulgated in the Government Gazette and might therefore change.

Carmen Diehl joined RFS in May 2017 as Manager: Internal Audit, Compliance and Risk Management and has recently assumed responsibility for preparing RFS for the FIM Act. 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, after which she joined Ohorongo Cement.
 

 
Compliment from a pension fund consultant

Dated 17 June 2020

“Thank you so much for your quick response T, keep it up. It’s really a pleasure working with you, you never disappoint me.”

Read more comments from our clients, here...



RFS welcomes new staff
 
We are pleased to advise that Thomas Kesslau will join our permanent staff complement on 1 September. We extend a hearty welcome to Thomas and look forward to his contribution towards the progress of the company and the well-being of our clients!

Thomas grew-up on a farm in the Kunene region and matriculated at Outjo Secondary School in 1993. He joined Sanlam in 1994 as a Benefit Administrator and was promoted to a number of other positions in the Employee Benefits and Risk Services departments of Sanlam. His last position at Sanlam was that of Unit Manager: Namflex Schemes. Thomas resigned from Sanlam in 2013 and was employed at Solitaire Lodge for 2 years before he joined the Bible Association of Namibia as Financial Manager in 2016.

Thomas obtained a B.Compt Degree through part-time studies at UNISA in 2014.

He is serving in our private fund administration team where he took over the portfolio of Esmé Mouton following her departure earlier this year.
 

RFS turns 21... and still going strong
 
Retirement Fund Solutions Namibia (Pty) Ltd was registered on 19 August 1999. The company was established on the initiative of Tilman Friedrich and Mark Gustafsson to offer the retirement funds in Namibia an ‘indigenous’ alternative to a market served then only by South African fund administrators. Marthinuz Fabianus is giving a fair account of the philosophy of the company in the Managing Director’s column above.

We can say many things about ourselves but there can be no better testimony to who we are than that of a client who we have been serving for close on 20 years now:

“Dear Marthinuz and the RFS team

On 3 October 2019 guests could drop their thoughts about RFS into a box, and I thought by myself that evening – a full year (if not mistaken) for Management to wait before they can read all those little papers inside the box.  Would that not be a surprising and inspiring gift to be opened today?

My sincere congratulations to RFS’s 21 years of existence, and to Tilman and Charlotte with their 21 years of commitment and severe hard work to maintain RFS as a moving force within the pension fund industry – not only for themselves, but also for their loyal staff and clients.

Wishing you all the best you deserve under current difficult circumstances but by only upholding integrity, hard work, and above all – your passion for the pension fund and retirement industry.

Happy Birthday RFS!

With best wishes

Tessa Kok
Principal Officer:  NHE Retirement Fund”


“Congrats to you two – a true achievement & with promises kept!!!

To the whole of RFS – I have been privileged to be involved with you from the start and from all aspects of life and it has been only a pleasure, and obviously a journey.

“Doet so voort”

Kind regards


Reinhard Voigt
Strategic Actuarial Partners Namibia (Pty) Ltd”


Fund administrators – a market overview

The following table provides an interesting overview of the retirement funds market in Namibia and RFS’ position in the market.



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:
  • SMS Notifications (RFS 2020.08-12).
  • FIM Bill Update (RFS 2020.08-13).

  

Pension funds industry meeting held 29 July

NAMFISA held a remote industry meeting on Wednesday 29 July. Here are a few notes on key matters discussed:
  1. Chart of Accounts returns –
    • Investment income provided by some funds as year-to-date instead of for the reporting quarter only.
    • Fund reserves are included under ‘accumulated funds’ instead of including it under ‘reserves’.
    • Funds do not insert the “Balance at the beginning”, per previous Quarter’s Chart. Any differences to actual fund figures must be indicated under ‘prior period adjustments’.
    • All amounts should be determined on a cash basis rather than an accruals basis.
    • Unlisted investment requirements not observed in that committed capital is not drawn
    • Inconsistent classification of investments from quarter to quarter
    • Guidelines will be part of the Chart in future.
  2. Annual financial statements and actuarial valuation reports
    • These documents are to be submitted via the ERS system in future. Provision has been made on the ERS menu as a specific ‘form’ to be selected.
  3. Complaints
    • NAMIFSA is planning to meet quarterly with the 3 funds in respect of which the highest number of complaints were registered in order to find solutions with these funds for reducing the number of complaints.
  4. Statistics and information extraction from ERS data base:
    • NAMFISA invites stakeholders to submit suggestions of useful information and statistics that it wants extracted.
  5. Registration of rules and rule amendments (other than for new funds/ participating employers) –
    • the idea of restricting submissions to specified time blocks has been postponed.
  6. New laws to be signed by President
    • Financial Institutions and Markets Act (FIMA)
    • Financial Services Adjudicator Act
    • NAMFISA Act’
  7. Administration of Estates amendment
    • The amendment is being finalized by the Master of the High Court
    • No further consultation currently envisaged
  8. Implementation of FIMA
    • Project plan for implementation was circulated to stakeholders by NAMFISA on 4 June
    • Regulations 12 and 13 issued under the Pension Funds Act will remain in force for the time being
    • Implementation plan lists all ‘critical’ standards (21) and regulations (8) that will be implemented immediately
    • NAMFISA will require 9 to 12 months to finalise these ‘critical’ standards and regulations
  9. Fund rules deficient
    • Fund rules do not disclose to the members all costs associated with belonging to the fund
  10. Total pension fund assets
    • Over the past 4 quarters to end quarter 1 of 2020, total assets grew from N$ 147 bn to N$ 172 bn at end quarter 4 of 2019, slumping by 10% to N$ 156 bn end quarter 1 of 2020
    • Regional allocation of assets at end of quarter 1 of 2020 –
      • Namibia – 41% (non-compliance with minimum of 45% persisted for past 4 quarters, likely due to GIPF’s non-compliance)
      • CMA – 21%
      • Africa ex CMA – 6%
      • International – 32%
If you missed the meeting, find the presentation by NAMFISA here...

Ladder of Supervisory Interventions

NAMFISA recently circulated a revised ‘ladder of supervisory interventions’ setting out 5 different stages of intervention and increasingly extensive intervention measures for each:
  • Stage 1 – no significant problems
  • Stage 2 – early warning
  • Stage 3 – risk to viability/ serious non-compliance or governance deficiency
  • Stage 4 – future viability in serious doubt/ insolvency imminent
  • Stage 5 – entity not viable/ solvent
You will find the document to the extent that it applies to regulated entities other than micro lenders here...

Pension fund rules and the Income Tax Act

In this article we present a technical discussion between the editor and Andreen Moncur on the income tax law and Inland Revenue practice concerning fund rules and rule amendments and the implications of proceeding without having rules or rule amendments approved by Inland Revenue.

TF: Is it true that rule amendments need to be approved by Inland Revenue before one can implement them?
AM: It is preferable that rule amendments are approved by Inland Revenue before being implemented because while Revenue approval does not affect the validity of a rule amendment and one can operate a “retirement fund” (pension, provident, retirement annuity or preservation fund) without tax approval thereof, the complications of trying to reverse tax deductions etc if an amendment results in Inland Revenue no longer approving a retirement fund for tax purposes will be a nightmare. Please refer to ss 66 (‘additional tax in the event of default or omission’) and 69 (‘additional assessments’) of the ITA in this regard.    

TF: Inland Revenue approval of rules simply affect the tax treatment of a fund and its transactions. Proceeding without tax approved rules only holds in the risk that a fund may not enjoy the favourable tax treatment of a fund with tax approved rules.
AM: You are correct. Revenue approval simply affects the tax treatment of the fund and not the validity of an amendment. Inland Revenue approval is not required before an amendment can be implemented, but there is a risk to implementation of amendments before they are tax-approved.

TF: Also consider that rules “...shall be subject to approval by the Minister...in respect of the year of assessment in question...”. I would argue that it is Minister’s obligation to either re-approve rules every year for the tax year of assessment, or they are deemed to be tax approved unless the Minister has withdrawn his approval.
AM: Strictly speaking, the fund should apply for tax approval every year because the ITA talks about approval by the Minister for “any year of assessment” or “the year of assessment in question”. The onus is on the fund to prove that for any given year of assessment, the fund complies with all the necessary requirements for its approval. A trade usage or practice has arisen over the years in terms whereof the Minister (Inland Revenue), in a gesture of good faith regards a fund as approved without the fund having to “re-apply” for tax  approval annually once Inland Revenue has approved a fund as a “retirement fund” (see above). However, this continuing tax approval from tax year to tax year is premised on the rules of the fund remaining unchanged, and on the fund notifying Inland Revenue as soon as the rules have been amended (i.e. the rule amendment has been registered). As soon as there is an amendment to the rules, the fund’s tax approved status may well be in jeopardy; hence the requirement for all rule amendments to be submitted to Inland Revenue for approval in order for the fund to continue enjoying tax approval. The initial and the continuing tax approval of a fund is contingent upon, amongst others, the Minister being satisfied as to the provisions of the rules being in accordance with the ITA. The Minister cannot approve a fund if the rules do not comply with the ITA.

TF: As far as amendments are concerned the ITA only requires “that the Minister shall be notified of all amendments of the rules.”
AM: This is true, but  since the rules of the fund are subject to approval by the Minister to begin with, the purpose of notifying the Minister is to enable him to decide whether the amended rules still permit him to continue approving the fund for tax purposes, so the notification is more than just a courtesy by the fund. Notifying Inland Revenue actually enables Inland Revenue to do its job. As soon as rules are amended, the amended rules replace the approved rules and then one has to apply for approval of the fund from scratch as it were for the years of assessment affected by the amended rules.

TF: Since “...the Minister shall be notified of all amendments of the rules...”, the only rational conclusion I can draw is that the Minister cannot disapprove any rule amendment but would have to withdraw his approval of the rules for a specific tax year of assessment.
AM: Yes, you are correct. The Minister will not be able to refuse to approve a rule amendment, but will have to withdraw approval of the fund as from the year of assessment in which the rule amendment became effective (not as from the year in which it was adopted or registered because the rule amendment may be retrospective in its application). When Inland Revenue refers to rule amendments being approved in terms of the Income Tax Act, they really mean that the rule amendment in question has not resulted in the fund’s tax approval being withdrawn.

TF: Once rules have been approved by Inland Revenue, I would argue that they are valid for the year of assessment.
AM: The tax approval of rules can be withdrawn retrospective to the date on which the rules were amended such that Inland Revenue was no longer able to approve the fund for tax purposes. Inland Revenue has this power in much the same way that it has power to reopen previous assessments and levy more tax or disallow deductions previously allowed.

TF: Rule amendments can then probably only result in withdrawal of approval by the Minister for the next tax year of assessment.
AM: Not so, please refer to s 69 (‘additional assessments’) of the ITA. Please also refer to the anti-avoidance provisions in s 95 of the ITA.

TF: As you point out, the Minister has wide ranging powers that potentially create great uncertainty regarding the tax status of funds. Having followed the current practice of a once-off approval of rules, however, the Minister would have a serious problem withdrawing tax approval of a set of rules that he has approved before with back-dated effect, unless he can invoke some of the arguments referred to in ss 66, 69 and 95 and probably others too. We had such cases before where IR followed the route of requiring changes only prospectively.
     When it comes to rule amendments, we do not know to what extent we can accept that its approval means either the amended rules or just the amendment itself have been approved, particularly since the ITA has no provision that rule amendments must be approved. I would argue that the ‘approval’ we get upon submission of an amendment is meaningless as the result.
     I accept that in certain circumstances the ‘approval’ of a rule amendment by IR may just add a little bit of comfort and reassurance but it’s not a given. My concern is for us to withhold implementation of all rule amendments until they are tax approved, as a matter of principle. Whilst this may be ‘playing it safe’, as I pointed out, it may not necessarily be safe and it may even be unnecessary in many cases where the amendment clearly does not affect the definitions in the ITA or any other specific requirement.

AM: What you say is true, but I think there is merit in the "belt and braces" approach, even if only to show that the BoT attempted to comply with the ITA given Inland Revenue's broad powers. I still maintain that it is implicit in the relevant definitions in s 1 of the ITA that one must obtain approval of rule amendments. I do also believe that if a rule amendment has no bearing on the tax position of a fund, then Inland Revenue has no grounds to revoke approval even if the rule amendment is not submitted to them as required by the ITA.




Governments must beware the lure of free money

“It is sometimes said that governments wasted the global financial crisis of 2007-09 by failing to rethink economic policy after the dust settled. Nobody will say the same about the covid-19 pandemic. It has led to a desperate scramble to enact policies that only a few months ago were either unimaginable or heretical. A profound shift is now taking place in economics as a result, of the sort that happens only once in a generation. Much as in the 1970s when clubby Keynesianism gave way to Milton Friedman’s austere monetarism, and in the 1990s when central banks were given their independence, so the pandemic marks the start of a new era. Its overriding preoccupation will be exploiting the opportunities and containing the enormous risks that stem from a supersized level of state intervention in the economy and financial markets.

This new epoch has four defining features. The first is the jaw-dropping scale of today’s government borrowing, and the seemingly limitless potential for yet more. The IMF predicts that rich countries will borrow 17% of their combined GDP this year to fund $4.2trn in spending and tax cuts designed to keep the economy going. They are not done. In America Congress is debating another spending package (see article). The European Union has just agreed on a new stimulus funded by common borrowing, crossing a political Rubicon (see Leader).

The second feature is the whirring of the printing presses. In America, Britain, the euro zone and Japan central banks have created new reserves of money worth some $3.7trn in 2020. Much of this has been used to buy government debt, meaning that central banks are tacitly financing the stimulus. The result is that long-term interest rates stay low even while public-debt issuance soars.

The state’s growing role as capital-allocator-in-chief is the third aspect of the new age. To see off a credit crunch, the Federal Reserve, acting with the Treasury, has waded into financial markets, buying up the bonds of AT&T, Apple and even Coca-Cola, and lending directly to everyone from bond dealers to non-profit hospitals. Together the Fed and Treasury are now backstopping 11% of America’s entire stock of business debt. Across the rich world, governments and central banks are following suit.

The final feature is the most important: low inflation. The absence of upward pressure on prices means there is no immediate need to slow the growth of central-bank balance-sheets or to raise short-term interest rates from their floor around zero. Low inflation is therefore the fundamental reason not to worry about public debt, which, thanks to accommodative monetary policy, now costs so little to service that it looks like free money.

Don’t fool yourself that the role of the state will magically return to normal once the pandemic passes and unemployment falls...”

Download the full article in the Economist of 23 July 2020 here...


Portfolios need to be more active and flexible to ensure returns

“It is time to take a more active investment approach and be more flexible when constructing portfolios to ensure better returns, says international asset manager Schroders.

Its research has found that a balanced portfolio, traditionally investing 60% in equities and 40% in bonds, may not perform as well over the next 10 to 15 years as it did during the last decade.

These static 60/40 portfolios have delivered a strong performance in recent years as both equities and bonds have benefitted from favourable policy tailwinds. It has been an unusual period in history as correlations between these key asset classes have been negative. Bonds benefitted from falling interest rates to generate strong returns while, at the same time, equities have enjoyed the longest bull run in history,” says Michael Devereux, multi-asset fund manager at Schroders.


Challenges

However, he warns that there are serious challenges for such static portfolios going forward.

“Both equity and bond returns are likely to be lower in the future than during the past 10 years. Equities are facing economic headwinds and record valuations, while interest rates are at record lows and likely to remain low for years, affecting both the income and price appreciation potential for bonds.”

Schroders believes that investors should take a more active approach and consider a globally diversified portfolio of equities, fixed income and alternative assets....”


Read the full article on a new Schroder investment product for South Africans by Adriaan Kruger in Moneyweb of 17 August here...



Celebrating the phenomenal woman

Women often take on multiple roles and stretch themselves in so many different directions. They are used to multi-tasking, and often excel at this and make it look easy.

From being a daughter, sister and friend, to being a wife, mother and homemaker. Add in a full-time job and financial pressures and life becomes interesting.
  • Setting boundaries with family, friends and work may sound harsh, but my experience has shown me that it's necessary.  Boundaries not only allow for greater productivity, but for better interpersonal relations as well.
  • Have a definite off-switch for work life.  Give 100% while at work, but leave work at the 'office'.
  • Take time out for yourself at home.  After work or when you're back from the school run, take 10 mins alone in your room to recharge your batteries.  Read, check your phone, but be on your own.  
  • Take time out for yourself on weekends.  Be it running, walking, reading or shopping, do something for 'you'.  Your family will survive without you for an hour here or there.  Trust me.  Taking time out for yourself is so important to remain positive.
  • Be present.  Give your full attention to your children and family when with them.  Make the most of the time you spend together.  Sometimes that is as simple as just communicating without distractions from your phone.
It's often the small changes that make the biggest difference.

Words of encouragement by Caryn Edwards, accounts manager, ‘TomorrowToday’.


SARS gets blown in Lesotho number plate case

“The floodgates have opened for thousands of people whose foreign-registered vehicles have been impounded over the decades...

When Sars refused to return the vehicle, Alves took it and the SA Police Service to the high court in Bloemfontein and won his case. Sars hung on to the vehicle while appealing the case...

Last week Sars’s appeal was blown out of court and it was ordered to pay the legal costs...

What this means is that anyone with a vehicle registered in any Southern African Customs Union [Sacu] country is free to drive that vehicle in SA without hinderance,” says Mkhosi Radebe of MC Radebe Attorneys in Pretoria, which is representing Alves in this case...

Most people just meekly pay the penalties to get their impounded cars back again. In my case, I decided to take Sars and the police on in court to prove a point. And I am prepared to take it to the top court in the land,” says Alves.

This is a matter begging for a constitutional hearing, and it’s perhaps surprising that it hasn’t happened yet...

Sars argued that the seized vehicle was “imported” and could not be driven in SA without an import permit. If so, thousands of cheap imported vehicles driving around SA sporting number plates from Lesotho, Botswana, Namibia and eSwatini – all Sacu member nations – are prone to seizure in the same way.

Radebe says to classify these foreign-registered vehicles from Sacu countries as “imports” when driven on SA roads makes a mockery of the Sacu agreement.

We have a common customs union and once goods are cleared through Durban and any excise paid, they can no longer be deemed ‘imports’. These goods can move freely through the entire customs union area...”

Read the full article by Ciaran Ryan in Moneyweb of 4 August 2020, here...             


Is the financial services industry missing something?

“...It’s becoming extremely apparent that the pandemic will change the way Financial Advisors operate indefinitely”, says Derek. “COVID-19 has hit everyone very hard, and not only in their pockets. Clients are looking to invest with real purpose and need compassionate, honest, practical guidance about their financial futures. It’s not an afterthought anymore.”

Derek continues, “Therein lies an opportunity. COVID-19 has become the catalyst for Advisors to have far more meaningful interactions with their clients. We’re going to see the advent of a new style of advising that will be more personal, cultivating longer-term relationships between client and Advisor, that are ultimately more successful financially.

“Isolation has increased the need for human interaction. And collective fears about the future have made bonds of trust more valuable as we all navigate this strange time together. Up until this point, the focus of the South African Financial Services industry and the media has largely been on financial planning during the accumulation phase. But now, more than ever, it’s time for Advisors to highlight the decumulation phases of life for their clients – because that future everyone is worrying about is closer than they might think.

“In these trying times, we should be focusing on how to guide clients and their families on their journey towards and beyond retirement. For us, as Advisors, this is a unique opportunity to upskill ourselves through a wide range of educational and knowledge enhancement programmes...”

Read the full article by CWDi in Cover of 3 August here...




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

"Women are like teabags, you never know how strong they are until they're in hot water."
~ Eleanor Roosevelt

 
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