|In this newsletter:
Benchtest 07.2020, RFS celebrates, penalties and fines under FIM Act and more...
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.
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
Pension fund governance - a toolbox for trustees
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In ‘Tilman Friedrich’s industry forum’ we present:
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!
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:
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!
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
How do you benchmark the cost of fund administration?
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 $36.93) during this period. This is the largest decline since a 34.3% decline which occurred in quarter 4 of 2008, when the global financial crisis struck global economies. This is evidently the result of COVID-19 and the lockdown imposed on the US economy.
S&P 500 Change in Bottom Up EPS
What is further worrying is the fact that the S&P 500 index continued to increase despite the collapse in earnings estimates for this index as depicted in graph 2. Where the S&P 500 index represented about 68 times earnings per share estimates at the end of March, this multiple has now doubled to 136 times at the end of June.
S&P 500 Change in Q220 EPS vs change in price
In the July 2020 column in this newsletter, we pointed out that the 4 largest reserve banks globally have grown their balance sheets by 300% from US$ 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:
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.
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.
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:
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.
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
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”
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:
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:
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:
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.
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.
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