NAMFISA levies

• Funds with year-end of October 2020 need to have submitted their 2nd levy returns and payments by 25 November 2020;
• Funds with year-end of April 2020 need to have submitted their 1st levy returns and payments by 25 November 2020; and
• Funds with year-end of November 2019 need to submit their final levy returns and payments by 30 November 2020.

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 ‘Tilman Friedrich’s industry forum’ we present:

• FIMA bits and bites;
• What if COVID is the pretense to save the world?
• Circumventing investment regulations – brokers, insurance companies beware!
• Pensioners beware - this is not the time to raise your investment risk!

In Kai Friedrich’s administration forum read about:

• New CoA guidelines issued by NAMFISA.

In 'On fund governance' –

• FIMA webinar series concluded;
• Will provident funds survive the FIMA.

In ‘News from RFS’ -

• Status of ITAS project;
• Long-service awards complement our business philosophy.

In news from the market place read about –

• Old Mutual acquires PwC Research Services (Pty) Ltd;
• !Kharos Benefit Solutions welcomes new payroll client.

In ‘News from NAMFISA’ read about:

• New CoA guidelines;
• Reporting of late payment and non-payment of contributions.

In ‘Legal snippets’ read -

• Can Inland Revenue recover outstanding tax debts from your bank account?
• Criminal conviction insufficient for withholding withdrawal benefit.

Monthly Review of Portfolio Performance
to 31 September 2020

FIMA bits and bites

As a pensions practitioner who deals with the Pension Funds Act like every second day, it is astounding that one reads something new out of the Act nearly every time one is confronted with a specific matter in practice and this is after having been applying the Act for the past 30 years!

With FIMA the experience will be similar except that it will be incredulously worse. Firstly because of the size and complexity of FIMA being incredulously greater but also because it is all new to everyone from the regulator to the courts and the practitioners and there will absolutely not legal certainty for many, many years to come during which our courts will be confronted with ambiguities and conflicts in FIMA.

Below are some such bits and bites that we have come across, that stakeholders should take cognisance of. We do confess that these bits and bites reflect our interpretation which may be as accurate or as inaccurate as anybody else’s until such time as a court has handed down judgement on how FIMA is to be interpreted.

1. Retirement funds and the Income Tax Act

FIMA does not distinguish between pension and provident funds nor does it prescribe whether a fund must offer lump sum benefits or income benefits. The choice of receiving a lump sum benefit or an income benefit can be left to the member if the rules so provide.

The Income Tax Act, however, prescribes that a fund must be either a pension fund or a provident fund as defined in the Act. These definitions are mutually exclusive so that every fund will have to decide whether it wants to obtain tax approval as a provident fund or as a pension fund. As in the past, where a fund is approved as a pension fund, it must offer a pension or annuity upon retirement and the capital of such pension or annuity must represent at least 66.67% of the balance of the member’s individual account.

2. Death and disability benefits

Subsection (a) of the definition of defined contribution fund in section 249 reads “each member receives a benefit the amount of which is determined by the balance in that member’s individual account on the date of the retirement, death, disability, withdrawal or termination of employment of that member;”
The definition of ‘member’s individual account’ in section 249 reads “member’s individual account” means the account operated for the member as defined in the rules of the fund…”

Firstly, the above implies that any insured death or disability benefit, must first be allocated to the member’s individual account upon receipt from the insurance company so that the balance in the member’s individual account, including the insured amount allocated, can be paid out. By implication no fund will be able to offer disability income benefits, as pension funds were able to do in the past, as the benefit in such event will not be determined by the balance in the member’s individual account. Provident funds of course were already not allowed to offer any benefit other than a benefit for the member upon retirement or for dependants or nominees of the member upon death before retirement, in terms of the Income Tax Act. As in the past, provident funds may not offer funeral benefits other than a benefit payable upon death of the member. As in the past, pension funds may offer funeral benefits for dependants and nominees of the member upon his death before retirement.

Secondly we read the phrase “…a benefit the amount of which is determined by the balance in that member’s individual account…” to require a single benefit, in other words, either an annuity or a lump sum but not both. Therefore, a provident fund can only pay a lump sum and not an annuity while a pension fund member must use the full capital to purchase a pension or an annuity.

3. Payment of annuities

Subsection (b) of the definition of defined contribution fund in section 249 reads “any benefit payable on retirement must be fully secured through an annuity policy owned by the fund or purchased in the name of the member or paid to the member in accordance with such other form of payment that is permitted under the standards;”

Reading this sub section together with our second conclusion in 2 above, this subsection implies that the benefit on retirement, representing the balance in the member’s individual account, must be transferred to an insurance company to be used to secure an annuity, since only insurance companies may issue a policy, or it must be paid to the member. In my understanding there are only two permissible payments to the member. Firstly a lump sum payable by a provident fund. Secondly, an annuity the fund, in which the member retired, pays to the member. Any payment to another entity in my understanding does not constitute ‘payment to the member’.

4. Maintenance of reserves

Subsection (c) of the definition of defined contribution fund in section 249 reads “no reserves [other than an expense reserve as referred to in subsection (d)] for guarantees in respect of capital, investment income or rates of return, longevity or other contingency affecting the amount or duration of benefits or of annuity purchase rates or adequacy of expense charges or amounts held in such respect, are required to be held by the fund; and”

The only manner in which any reserve can be held by a fund is if the rules provide for such reserve. However, if the rules do provide for the holding of any such reserve, it would be a requirement for the fund to hold such reserves, which would then be contrary to subsection (c). Consequently, a defined benefit fund  may only hold an expense reserve.

5. Employer obligations

Under the Pension Funds Act, the employer only had one obligation towards the fund being the payment of contributions within 7 days of the month in respect of which they were deducted. Failure to pay contributions as required constitutes and offence and the offender is liable to a fine not exceeding N$ 200 upon conviction.

Under FIMA the employer’s obligations and liability for fines will take on new dimensions.

6. Late payment interest due from employer

As pointed out in 5, the employer’s liability for fines will take on new dimensions under FIMA. For late payment of contributions to the fund, the employer will be liable to pay late payment interest and the way the calculation formula is designed, it presents a strong penalty element. The formula is in fact so complex that no fund will be able to automate this calculation. Probably worse, it is not possible to apply this formula, other than ex post facto as late payment interest accrues on a daily basis and the basis can change daily, until its accrual is ended through payment by the employer.

What if COVID is the pretense to save the world?

For years now media, politicians and, of course, Greta Thunberg have warned of global warming, which is blamed on man-made carbon-dioxide emissions caused by motor vehicles, planes and ships, exacerbated by every increasing global travelling.

For proponents of this theory, a highly welcome side effect of COVID 19 must have been the dramatic reduction in carbon-dioxide emissions as the result of the global shut-down. Since many of these proponents occupy powerful positions in politics and industry, COVID 19 may just offer a unique opportunity to realise their goals for reducing carbon-dioxide emissions on a sustainable basis, in other words mass tourism will be shut down permanently while other steps will be taken to move to clean energy, at this stage primarily a move from fossil fuel to EV energy.

So, if the COVID 19 induced shut down is considered the most effective way to reduce global travelling, a permanent reduction in global travelling will not be achieved until the average man on the street has undergone a mind shift away from aspiring to see the world to rather staying in the safety of your home. This can conceivably be achieved through the ‘carrot and stick’ method. The digital world offers an ideal mechanism to lure people into their houses and to keep them occupied at home, if one just looks at how cell phones have taken over the lives of people. If this lure goes hand-in-hand with measures that make it unattractive and risky to move around outside your house, such a mind shift can conceivably occur in a rather short space of time. In some European countries, for example, travellers who return home after having visited a so-called high-risk country, and are tested COVID positive, will be responsible for the cost of their medical treatment and will lose their sickness benefits. Under these circumstances, let alone the challenges of getting back home, there will be few so courageous to still travel.

Since tourism represents a major generator of income for the Namibian economy, this would be devastating for our economy. One of Namibia’s competitive strengths in the global tourism market, being its untouched nature, wide open spaces and sceneries, will no longer be an effective draw card. That is to say unless our tourism industry will be able to change its approach to the tourism market. Tourism will never disappear altogether but the future tourist will be a different kind of person with different expectations and requirements. The trick will be to recognise and define the new kind of tourist and how to adapt to best meet his needs and expectations, before everyone else gets onto the ‘bandwagon’. Some lateral thinking and joint and coordinated action should stand our tourist industry in good stead to win the heart and mind of the new tourist!

Circumventing investment regulations – brokers, insurance companies beware!

Why do we have a regulation 13, formerly known as regulation 28 (or regulation 15, its equivalent for insurance companies) that sets certain caps for how much a fund may invest in certain assets classes, in foreign markets and in certain specific script? Well the purpose of this regulation, that has evolved over many years of trial and error, is to protect pension funds, but importantly and ultimately their members, against potential loss resulting from having taken excessive risk. It has unquestionably been serving a good purpose for many years, in that it has limited losses to members to a significant extent – thinking about Steinhoff et al!

Opportunistically, in growing numbers, product providers are circumventing the purpose of these regulations. This development is exacerbated by the fact that in the insurance industry, the investment caps are applied at company rather than at fund level while for retirement funds they are applied at fund level. Generally, most retirement funds and more so insurance companies, are far off the caps set by the investment regulations, as the result of maintaining reserves and members investing in low risk portfolios. As the result, some retirement funds and insurance companies use this ‘slack’ in their investment structure to allow individual members to invest up to 100% of their capital in equity, offshore, in a specific asset such as gold, in a specific company, such as Steinhoff, etc. Since neither the retirement fund nor the insurance company stand in for any losses that a member may incur as the result of having taken risks that the investment regulations intended to avoid, the member will have to carry any loss, certainly in the first instance.

Unfortunately, prevailing economic and market conditions offering poor investment returns to pensioners and fund members, encourage and promote this development.

I will caution retirement funds, insurance companies and the brokers that have pounced on this loop-hole. If I was the member that incurred a loss as the result of having circumvented the caps set by the investment regulations, I would in the first instance sue the broker as the ‘weakest link’ in this chain. I do not believe the argument that the member was fully informed about the risk etc will be sufficient to get the broker, the retirement fund or insurance company off the hook, as all of them will have been aware of the purpose of the investment regulations and the risks of circumventing these for individual members.

In this context it is relevant to point out that in SA this loop-hole was closed in that the investment regulations must be applied at member level on a ‘see-through’ basis.

Pensioners beware - this is not the time to raise your investment risk!

As we all know, COVID-19 has changed the world and global economies. Closer to ‘home’ for fund members and pensioners, it has changed financial markets across the world and this has impacted investment performance of all asset classes.

In the first instance, all asset classes barring gold, took a deep dive. Central banks then intervened by flooding markets with money and reducing interest rates to zero and even into negative territory. As the result, key equity markets took an about turn recovering to pre-COVID levels. This was until the later part of September when equity markets have let off quite a bit of steam again, and rightfully so as the recovery is by no means supported by any economic recovery. It’s really only been hot air driving this apparent recovery in equities. At the same time, developing countries’ currencies such as the Rand took a deep dive and are still very far from where they were just before COVID measures struck. Against the US Dollar the Rand currently is around 17. At the end December it was at 14 and just before the global financial crisis at the end of December 2007, it was at 7! Clearly this change in the exchange rate could have significantly impacted investment returns, either positively or negatively, depending on where one was invested.

Neither of these crises could have been foreseen. Despite the ferociously negative impact of these crises on markets and economies, a few investors could have been fortunate, had they for example speculated on currencies or specific assets such as gold and a few other commodities or more recently certain IT based shares. Others will have had the opposite experience. Both by their good or bad luck rather than by knowledge or skill.

Retirement capital should not be exposed to speculative investment. Over many, many years, the typical prudential balanced portfolio has shown to be the most appropriate investment for a pension fund member with a long-term investment horizon. We have been tracking over a 20-year period, the performance of the typical pension fund portfolio, which is a medium risk prudential balanced portfolio that invests primarily in equities, to the tune of between 60% and 75% maximum, the cautious portfolio that typically only invests in equities to the tune of around 40% and the bond and cash portfolio with not equity exposure. The other asset classes all these portfolios invest in are property, bonds, treasury bills and cash. Besides the prudential balanced portfolios, the other more cautious portfolios are capped with regard to their equity exposure by their mandates, whereas the prudential balanced portfolio effectively grants the manager a free hand with regard to which asset classes to invest in and to what extent to invest in these, capped only by the limits set by regulation. The relevant regulation referred to has evolved over many, many years of experience with the view to ensure that a pension fund member’s investment is not subjected to undue risk.

Graph 6.1 shows the performance of the prudential balanced portfolios that have been around for the past 20 years to the end of August, compared to the returns on cash and.

Graph 6.1


It is interesting to note that over the past 20 years, cash delivered a return of 8.1% per year, equities, the asset class to which the prudential balanced portfolios have the largest exposure by far, returned 9.8% per year while the average prudential balanced portfolio produced a return of 12.5%, ranging between 12.2% and 16.2%. What is also to be noted is that the average prudential balanced portfolio outperformed CPI (at 5.8% per year) by 6.7% per year, well in line with the implicit real return of typical pension fund benefit structures. So, the average is nearly 3% higher than the return on the biggest component of the total return. This speaks volumes of the skill of the managers of prudential balanced portfolios to outperform all the constituent asset classes of their portfolios. How do they manage to achieve this? Well, they move between the constituent asset classes constantly based on what they expect the asset classes to return going forward and they have evidently done a great job over the past 20 years!

Unfortunately, over the last 5 years, reserve banks’ intervention in financial markets led to a distortion in the markets and returns have not been great, as depicted in graph 6.2.

Graph 6.2


Here you can see that the average prudential balanced portfolio has only outperformed inflation by 2% per year, and that is before fees. However once again, the managers have outperformed equities as the biggest constituent, by 4.4% per year!

When one has been used to the longer-term achievements of the prudential balanced portfolio managers, one can understand that pension fund members and pensioners will be disappointed with the shorter term returns their pension investment will have produced. Tragically, shrewd brokers out in the market have seen this state of affairs as an opportunity to discredit proven prudential balanced portfolios and to coerce pensioners to transfer their retirement capital into high risk portfolios, using shorter-term investment returns some of these managed to produce, as the result of the distortions that occurred in the markets since the global financial crisis. In group schemes of course, reason is more likely to prevail than when a broker talks to a pensioner who may not have a proper appreciation of the background, the risks and the reasons for some specialised portfolios having done well over the last couple of years. By the same token there will have been a majority of these specialist portfolio that would have done atrociously, and I hope the reader does not fall into that category! Pensioners, however, are likely the ones who can least afford to take a higher risk than the prudential balanced portfolio that has been shown over many years, to be structured more conservatively, in the best interests of pension fund members in the long-term.

What is worse, insurance companies and investment platforms actually allow a pension fund member/ pensioner to circumvent the regulated prudential investment limits that have shown over many years to best protect a member’s/ pensioner’s interests in the long-term, by investing up to 100% in equities and within equities, in highly focused and specialised portfolios.

To put this into context, since December 2007, just before the global financial crisis struck, gold returned 14.9% per year in local currency and since December 2019 to end of August, gold produced an annualised return of 96.8%. Over the same periods, the average prudential balanced portfolio produced a return of 9.1% and 2.2% respectively. Who would at this stage put his retirement nest egg all into gold?

Being invested in a prudential balanced portfolio should give the pension fund member/ pensioner the peace of mind that his investment is looked after by the best investment experts in the market. The investor can easily compare the return he earned to the returns other prudential balanced portfolios earned and this information is readily available.

Where a member/ pensioner places his investment in a specialised, focused portfolio on the advice of a broker, he literally puts himself at the mercy of the broker. Comparable investment returns will often not be available. Benchmarking the returns of such a specialised and focused portfolio with those of prudential balanced portfolio, or any other portfolio that is not constructed in exactly the same manner is meaningless and it is a given that they will behave totally differently. The pensioner will be very difficult to relate to its returns as they are impacted by specific circumstances that may not be evident to the fund member/ pensioner. Certainly, the broker will not offer the level of expertise that professional portfolio managers offer. While the portfolio manager of the specialist portfolio is probably an expert as well, the most important element of timing investment ins and withdrawal from a specialist investment portfolio and switching between asset classes, is the responsibility of the broker and this requires expertise that a broker will not have.

Another important consideration for a member/ pensioner contemplating to put himself at the mercy of his broker is the cost the member incurs. One may argue that it is the investment return generated that is all important. And, yes, the return is important, but if I can earn the same underlying return but pay substantially less for investing my capital, I am still losing out and this can easily accumulate to significant amounts over the long-term. Generally, when one invests in a ‘retail product’ such as an investment platform or insurance product, the product provider charges retail fees for the management of the capital, whereas when one invests in a group pension fund, an institutional fee would apply. The difference in these costs can easily be 1% per year of the capital invested or a difference of 6% in the value accumulated at the end of 10 years at current returns.

Finally, before resolving to put oneself at the mercy of a broker, one should be sure to understand what termination conditions apply in the event one would want to move one’s capital to another party and at what cost this will happen. Moving capital from one provider to another will mostly involve additional costs for no benefit other than the prospect of better returns that only the future will show.

Conclusion

I strongly advise pensioners, in particular, to be cognisant of the following before taking a decision concerning the investment of their retirement capital:

• The prudential balanced portfolio has proven itself to offer the best risk adjusted returns to the pension fund member/ pensioner in the long-term;
• Clamouring for returns higher than what the prudential balanced portfolio typically produces, means taking higher excessive risk as a matter of course;
• Retail products are generally more costly than institutional products; latter offer economies of scale, former offers more personalised structuring;
• Do not put yourself at the mercy of a single individual who may no longer be around tomorrow;
• Understand how the investment returns of your capital are produced;
• Have a benchmark for comparing your returns;
• Understand all the costs associated with your investment that detract from the returns your capital earns; and
• Understand the termination conditions of the product you intend to invest in.

Last but not least, as a pensioner, you will lose confidence in taking your own decisions as you grow older. In a retail product you will then increase your dependence on your broker ever more, while many institutional products offer default options that the managers manage in the best interests of the member/ pensioner and that can relieve the member/ pensioner of the responsibility to take decisions when he no longer has the confidence or knowledge to do so. As a pensioner you must ascertain that you are at peace with the party/ies in whose custody your retirement capital is. You cannot afford and do not want to lose sleep over this.

1. The Balance Sheet has to balance;
2. The previous month’s fund and reserves closing balance plus the current month’s movement on the income statement should agree to the current month’s fund and reserve closing balance on the Balance Sheet;
3. Amounts in the Balance Sheet should tie back to the breakdown provided under Additional Financial Information, e.g. unclaimed benefits, benefits payable;
4. Certain member reconciliation balances should tie back to other member statistics.

 
Successful FIMA webinar series concluded

 
Compliment from an HR officer of a Benchmark client

Read more comments from our clients, here...
   


Status of ITAS project

RFS concluded the project of uploading all monthly returns for the period 1 March 2019 to 29 February 2020 on ITAS in respect of all funds it administers.

Unfortunately, after we uploaded all tax files it was revealed that Inland Revenue will question the allocation of pensions received under ‘income from employment’. This is the section in the ITAS upload file that provides for pensions paid. It was now revealed though that it should be reflected under ‘annuities’ in the upload file as the pensions end up as ‘income from employment’. This miscommunication means that ITAS has to delete all files we have uploaded already and that we will have to upload all files once again.

While the deletion and uploading will happen in the background between Inland Revenue and RFS, taxpayers should not be affected and should be able to submit their returns for the 2020 year of assessment. After submission of the return during the time of deleting all files and RFS uploading them again, taxpayers may get a notification that their return is incomplete, until RFS has uploaded its files again. We envisage that this process should be complete within a week of Inland Revenue having deleted all files. The period during which such messages may be generated should thus not be for much longer than a week.

Long service awards complement our business philosophy

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

The following staff member celebrated her 20-year work anniversary at RFS! We express our sincere gratitude for her loyalty and support over the past 20 years to:

• Frieda Venter

Old Mutual acquires PwC Research Services (Pty) Ltd

Old Mutual Life Assurance Company (South Africa) Ltd announced on 13 October that it had acquired PwC Research Services (Pty) Ltd. The more familiar name to many employers of this PwC enterprise will probably be its Remchannel remuneration survey and the company is due to be renamed Remchannel (Pty) Ltd under the Old Mutual auspices.

In the announcement, Old Mutual assures clients of Remchannel that strict data privacy will be observed. Download the announcement here…

!Kharos Benefit Solutions welcomes new payroll client

!Kharos Benefit Solutions welcomes Aucor as new payroll client with effect from 1 October.

!Kharos Benefit Solutions (Pty) Ltd is a joint venture between Logos Holdings (Pty) Ltd and Retirement Fund Solutions Namibia (Pty) Ltd. The company offers payroll and HR administration solutions. !Kharos brought ‘Symplexity’, a web- and cloud-based payroll and HR management and administration platform to Namibia. 

If you are interested to hear more about the service offering of !Kharos Benefit Solutions, please contact Harold Mbuende at 061 -446 024 or send a mail to This email address is being protected from spambots. You need JavaScript enabled to view it..
   

  
New COA guidelines
 
NAMFISA recently issues a new COA guidelines with validation rules that were incorporated since the previous version.
 
These guidelines downloaded here…
 
Reporting of late payment and non-payment of contributions
 
In accordance with the directive PI/PF/DIR/02/2014 issued by the Registrar, Principal Officers are required to submit information as pertains to the non-payment or late payment of pension contributions in contravention of section 13A of the Pension Funds Act to the Registrar within 1 month, from the date of contravention.
 
In order to ensure consistent, adequate and efficient transmission of S13A data, the Registrar has created a standardized form to be utilized by Funds (who are reporting non-compliance) when submitting the said information.  The said report should be made via ERS by completing the form below, within 1 month from the date of contravention of the section 13A.

 

Can Inland Revenue recover outstanding tax debts from your bank account?

“The Business Insider published an article on 6 July 2020 titled “SARS can’t just order a bank to pay over your tax debt, court rules”. The article referenced the conditions that must be met before SARS can recover amounts from your bank account, which were noted as: “there must be a tax debt; the due date for payment of the tax debt must have expired; a letter of demand must be delivered to the taxpayer at least 10 days prior to issuing a notice to a third party who holds monies for and on behalf of the taxpayer concerned; the letter of demand delivered to the taxpayer must set out the recovery steps to be taken should the tax debt not be paid; and the letter of demands must also specify the relief mechanisms available to the taxpayer.”…

Read the PWC Tax First Newsletter – October 2020, for a more detailed exposition, here...

Criminal conviction insufficient for withholding withdrawal benefit

The facts of this case can be summarised as follows:

• B Motlhoki (BM) worked for Fleetwood Adventure Playgrounds (FAP)
• FAP was a participating employer in the Orion Money Purchase Pension Fund (OMPP)
• BM was a member of OMPP as an employee of FAP
• OMPP was administered by Old Mutual Life Assurance Company (OMLA)
• FAP conducted a disciplinary hearing after BM was charged with misconduct and dishonesty pertaining to the abuse of the employer’s petrol card for a number of years that caused a loss of N$ 19,200 to the employer
• FAP laid a criminal charge against BM.
• BM was found guilty and sentenced to pay a fine of R 3,000 or serve a term of 8 months imprisonment
• FAP approached OMPP to deduct from BM’s withdrawal benefit the amount of the loss suffered
• OMPP refused to deduct the amount citing that there was no written admission of liability or judgment as envisaged in section 37D of the PF Act
• FAP argued that BM has been convicted by the court satisfying the requirement of a court judgment and that section 37D made no mention of the Criminal Procedures Act compensation order
• OMLA then responded by arguing that the criminal conviction alone did not amount to a judgment envisaged in section 37D(1)(b)(ii). In addition to the conviction the court should have issued a compensatory order in terms of the Criminal Procedures Act for OMPP to be entitled to deduct the amount of the loss. FAP must theefore institute civil proceedings against BM and only upon obtaining judgment can OMPP make the deduction.

The adjudicator elaborated that while BM was successfully convicted by a criminal court it must be determined whether or not his conviction amounted to a judgment as envisaged in section 37D(1)(b)(ii). The criminal conviction, which was based on the requirements of criminal law did not amount to a judgment in respect of compensation. Section 37D(1)(b)(ii) requires a judgment that, firstly determines liability, and secondly, determines the monetary value of the liability. A criminal conviction without compensatory order does not amount to a judgment as envisaged in section 37D(1)(b)(ii), despite the fact that extensive investigation may have been carried out that may have lead to the court accepting the accusations against a person, such conviction only finds the person concerned guilty as charged. It does not say whether the person is liable to compensate the employer and if so how much he is liable to pay. Only where a compensatory order was sought and granted in terms of the Criminal Procedures Act, would the employee become liabile to compensate the employer. Only in such instance may the fund deduct the amount of the liability towards the employer from the persons pension fund withdrawal benefit.

Read the full report on this case here… 



Do Western government bonds still have a place in a portfolio

 Ninety One’s Michael Power thinks they’re losing their ‘axiomatic role’, calling into question traditional asset allocation models.

“It is becoming increasingly difficult to make the case for western government bonds, because you are not going to be getting any return, especially in real terms,” said Power. “In the UK and US bonds carry negative real yields, and in most of Europe and Japan nominal yields are negative.”

Around the world, 70% of sovereign debt has a negative real yield.

Subsidised cost of capital

“The reason for this is that in democracies where there is now a huge clamour to support consumption, the only way that this can be done is by financing it through what is essentially free government borrowing costs,” said Power. “The result is we’ve seen state debt underwritten by zero for longer interest rates, and capital investment, such as companies are doing it, subsidised by negligible costs of capital.”

This is not just a problem for investors, in Power’s view. It has negative long-term consequences for the ‘industrial landscape’ of the west.

“It leads to intense zombification,” said Power. “We are seeing weak companies survive on life support because they can get this artificially negative yield debt.

“This essentially breaks the capitalist dynamic which Schumpeter captured called ‘creative destruction’. There is no destruction taking place, so there is no release of capital that can then be redeployed.”

Asset allocation

Bonds are therefore no longer serving their traditional purpose.

“If Modern Monetary Theory means that government debt issuances are quickly monetised, the axiomatic role of government bonds is being undermined,” said Power.

This is all leading to “profound questions” being asked about traditional models of asset allocation.

“The 60/40 split between equities and bonds is being jettisoned because it is simply not yielding enough,” said Power.

Anyone investing in bonds with negative yield is simply detracting from their overall portfolio performance.

This is also raising questions about what investors should be using as the risk-free rate.

“The standard answer is tending to be high-quality corporate debt,” said Power. “However, for many international investors, I think it is becoming cash in a strengthening currency, with the annual capital appreciation result being a substitute for yield.”

Preserving capital

One possibility in this regard is the Singapore dollar.

“It is the best stepping stone into Asia,” said Power. “You are going to get a small yield and the possibility of capital appreciation over time.”

Outside of that, finding assets for investors looking to preserve capital is difficult.

“Bonds are no longer playing the critical anchoring role in a portfolio that they once did,” said Power. “Property can offer some downside protection, but beware: post-Covid, some US real estate valuations are down 25%. There is a famous Dutch global property investor whose share price is down 70% over the course of this year.”

Other options are Asian real estate and bonds. These offer positive, if marginal, yields but also potential protection against a weakening US dollar.

“Gold is also an option and can offer protection against the US dollar, especially when there is no yield from US bonds,” said Power. “It was always said that the reason you shouldn’t invest in gold is because it doesn’t give you any yield. Well, neither do US bonds any longer.”

6 Retirement-planning mistakes to avoid when you are in your 60’s

“Once you hit your 60s, it’s time to figure out when you want to retire — and whether or not you can make it happen… Now is a good time to take a look at what you have, what you’ll need in retirement and what you have to do now to get there.There are also common mistakes people tend to make while nearing retirement:

1. Not enough in stocks [shares] – “One of the biggest mistakes I see people make when they get close to retirement is to totally reduce the equity exposure in their investment portfolio. That money has to last a long time, and it has to grow with inflation… He suggests creating mental buckets of assets: very short-term, mid-term and long-term. When the markets go down, don’t touch the long-term.”
2. “As retirement nears, you’ll want to make sure you are maximizing your…retirement account contribution and decreasing your debt and spend…”
3. “You may feel great now, but you don’t know what the future may bring. That’s why it’s important to figure out how to pay for any long-term care you’ll need down the road.”
4. “Long-term care insurance is a must. If you wait too long to buy it, it will get really expensive. The longer you live, the greater the likelihood is you are going to need care. Some people may prefer to self-insure, which means putting money aside to pay for that care….”
5. “Not understanding your taxes.”
    
6. “At the very least, you’ll want to keep active and engaged in retirement. You may also need the extra income. We always talk about how when you retire, take out no more than 4% of your retirement assets…”

Although this article is referring to retirement in the US, it does contain universal retirement wisdom that should be heeded by anyone about to retire. Read the full article by Michelle Fox in CNBC of 28 September here...

One rare leadership trait for success

“Warren Buffett says success will come after you learn this 1 rare leadership trait. To entrepreneurs and working professionals everywhere, this may be your secret weapon.

…One of his best pieces of advice is rather counterintuitive. It relies on Father Time as the "friend of the wonderful business." Plainly stated, it is having the faith to believe that good things will happen to those who wait. Here's Buffett:

“No matter how great the talent or efforts, some things just take time. You can't produce a baby in one month by getting nine women pregnant….”

To entrepreneurs getting a business off the ground, instant gratification is a mere pipe dream. That speaks to Buffett's point; he's a firm believer in the important lesson of thinking long term.

The long and hard journey and trials of 14-hour days and sleepless nights will eventually yield results and pave the way to success, making the journey that much sweeter. The operative word to make that happen boils down to one rare trait: patience.

Other research also found that patient people tend to experience less depression and fewer negative emotions and can cope better with stressful situations.

Additionally, they feel more gratitude, more connection to others, and experience a greater sense of abundance. That goes a long way when you're building a business….”

Read the full article by Marcel Schwantes in Inc.com of 15 October 2020 here…

Incarceration is not an excuse for not timeously dealing with tax matters  

“The court judgment in the case of Joseph Nyalunga versus Sars (South African Revenue Service) had to consider whether being in jail is a good enough excuse for someone not to have fulfilled their tax obligations, such as objecting to an assessment or furnishing Sars with information.

On the other hand, it raises the problem that those with access to funds, even criminals, can delay justice for a very long time…

In 2013, while Nyalunga was incarcerated, Sars sent him an ‘intention to audit letter’ regarding “possible under-declaration of taxable income”. Later that year, Sars issued an ‘audit findings letter’. Nyalunga was provided with the opportunity to provide further information. Nyalunga did not respond, and Sars issued the ‘finalisation of audit letter’.

Nyalunga responded to that, informing Sars that he was still in prison and couldn’t provide any documents.

The assessment

Sars raised an assessment in late 2013 for the years 2006 to 2013, and Nyalunga was given 30 days from the date of his release (April 8, 2014) to object to the assessment.

Briefly, Sars obtained a tax judgment in the amount of R15.2 million on June 23, 2014. During 2016, the sheriff unsuccessfully attempted to execute the warrant against Nyalunga.

In 2018 the sheriff managed to attach goods, and Nyalunga then brought an urgent court action…

Nyalunga said he could not participate as a normal taxpayer as he was incarcerated, also arguing that Sars’s procedures and processes were unfair.
The court found that incarceration is not a good enough reason for the delay in Nyalunga’s review application, and that it would not be in the interests of justice to overlook the delay…

The applicant was required by the Tax Administration Act to first exhaust all internal processes before he made the application to review. The applicant did not raise any objection to the assessment.

The court found that on the basis that Nyalunga had not submitted any tax returns, and that he had failed to raise an objection to the estimated assessments raised by Sars, and that three years had lapsed since the assessment (in fact, four years), the assessment has prescribed.

The review application failed and the assessment stands…”

Read the full article by Barbara Curson in Moneyweb  Select of 6 October 2020, here…   



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

"He who has a why to live for can bear almost any how.”
~  Friedrich Nietzsche