NAMFISA levies

• Funds with year-end of November 2020 need to have submitted their 2nd levy returns and payments by 24 December 2020;
• Funds with year-end of May 2020 need to have submitted their 1st levy returns and payments by 24 December 2020; and
• Funds with year-end of December 2019 need to submit their final levy returns and payments by 31 December 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:

• NAMFISA sees pension fund industry in a sorry state!
• Undermining the purpose of your own retirement fund?
• FIMA bits and bites - fines;
• FIMA and the future of stand-alone funds;
• It’s tough times for any investor!

In ‘News from RFS’ -

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

In ‘News from NAMFISA’ read about:

• Industry meeting set for 26 November;
• NAMFISA raised red flags about non-compliance amongst pension funds.

In ‘Legal snippets’ read -

• What makes a valid will?
• Ensuring and equitable distribution of lump sum death benefits.

Monthly Review of Portfolio Performance
to 31 October 2020

NAMFISA sees pension funds industry in a sorry state!

On 9 November, The Namibian reported on the NAMFISA annual report released on 22 September. The report in the Namibian unfortunately paints an out-of-context, sorry picture of the state of the non-banking financial institutions industry in general and of the pensions industry more specifically.
 
I find this report quite interesting, for placing a huge question mark over the pension funds industry in general and potentially creating the fear amongst retirement fund members that retirement funds are on the brink of collapse and that one should get out one’s money sooner rather than later, because after all, who would want to have his retirement nest egg exposed to the risk of ending up in an insolvent retirement fund?
 
RFS being a stakeholder and having served the industry for the past 20 years, cannot vouch for this negative experience with regard to the funds we are serving. Most of these funds have been around for 30 years and longer and we are not aware of any having incurred losses because of the trustees having failed in their duties and responsibilities or that any trustee has been found guilty of such failure.
 
The report makes reference to NAMFISA ‘failing in its supervisory and regulatory mandate because of ill-advised decisions’. Reading this, one may wonder what ‘ill-advised decisions’ this may refer to. This could refer to a decision taken by the minister of finance about 3 years ago to substantially reduce the proposed drastic increase in levies that NAMFISA had in mind.
 
Of course, a lower funding rate for its activities will impact negatively on NAMFISA meeting its supervisory and regulatory mandate. The question is, what is a reasonable funding rate? Sure, with more funds one can do more to “…foster and enhance the soundness of NBFIs, maintain the highest standards of business conduct by reducing and deterring financial crime, and ultimately, solidify confidence in the financial system.” Since the member has to carry not only the levies, but also increased costs of governance and of service providers, who are responsible for complying with ever increasing requirements, and since the incremental benefit of increased governance requirements gets ever smaller, there must be a cap on how much members should fairly expect to pay for the benefit of NAMFISA looking after their interests.

We fear that already high costs of compliance, supervision and regulation, due to increase significantly once FIMA is effective, discourage saving with non-banking financial institutions, looking for alternative savings vehicles and contemplating investment in more risky assets.
 
We have been agitating for proper benchmarking of costs of supervision and regulation for many years. In a ‘desk study’ we carried out and reported on in Benchtest 09.2018, the conclusion we arrived at, given that it is extremely difficult to compare due to different mandates held by other national regulators and supervisors, the cost of supervision and regulation is Namibia is already very high by a number of different measures, even before FIMA becomes effective, as the following table indicates:

1. Maximum fine - N$ 500,000 or 12 months imprisonment:
   1. Contravention with regard to a NAMFISA inspection;
2. Maximum fine - N$ 1,000,000 or 2 years imprisonment
   1. NAMFISA not notified within prescribed period of appointment of principal officer;
   2. New member or beneficiary not provided with a free copy of the rules;
   3. Fund failed to send free copy of the rules to every member;
3. Maximum fine - N$ 2,500,000 or 5 years imprisonment
   1. Trustee or principal officer did not inform NAMFISA in writing of matter that may seriously prejudice the fund’s financial position;
   2. Trustee or principal officer did not inform NAMFISA in writing within 30 days of year-end of payment or consideration received from fund or a fund contractor;
   3. Board fails to send to NAMFISA and to employers a copy of the valuation report within 180 days of valuation date;
   4. Board fails on request of member to provide him a copy of an additional copy of the rules, the annual financial statements or valuation report or fails to allow him to inspect these and make extracts at the fund’s principal office;
   5. Board, trustee or principal officer fails to inform NAMFISA of auditor’s appointment or its termination or to submit annual financial statements to NAMFISA within 90 days of year-end or obstructs auditor in performing his duties;
   6. Board, trustee or principal officer fails to inform NAMFISA of valuator’s appointment or its termination or to submit the valuation report to NAMFISA within 180 days of year-end or obstructs valuator in performing his duties;
   7. Board, trustee or principal officer fails to comply with NAMFISA directive;
   8. Board, trustee or principal officer fails to comply with NAMFISA directive issued after an inspection;
   9. Board, trustee or principal officer fails to comply with written undertaking in relation to a condition with regard to the fund’s registration;
   10. Board, trustee or principal officer contravenes a provision relating to prohibition on disclosing confidential information;
   11. Board, trustee or principal officer knowingly or intentionally makes a false or misleading or deceptive statement, promise or forecast or conceals any material facts, in general or specifically for the purpose of inducing a person to enter into or desisting from entering into any contract with the fund or any rights under such contract.
4. Maximum fine - N$ 5,000,000 or 10 years imprisonment
   1. Board, trustee or principal officer carries on business of a fund without being registered under FIMA;
   2. Board, trustee or principal officer uses the designation ‘retirement fund’ without being registered;
   3. Board or Fund carries on business of a ‘retirement fund’ for more than 12 months after FIMA being effective without being registered;
   4. Fund carries on business other than that of a ‘fund’;
   5. Fund provides a financial service without being registered under FIMA;
   6. Existing fund provides a financial service after failing to register under FIMA within prescribed time period;
   7. Fund fails to provide information as requested by NAMFISA where NAMFISA suspects its operating without being registered;
   8. Board, trustee or principal officer engages in misleading or deceptive conduct in relation to a financial service or makes a false representation about a financial service;
   9. Board, trustee or principal officer carries on irregular or undesirable practice after it has been declared as such by NAMFISA, or the fund fails to rectify, repair or repay any damage or consequence which arose out of such practice;
   10. Fund fails to report any change in control of the fund. 

 
Last month I suggested in this column that this is not the time to increase your investment risk. This statement is immediately vindicated by looking at the 1-month performance of portfolios monitored by us per Graph 1 below. It will be noted that equity (green bar), the highest risk conventional asset class produced a negative 2.2% return for the month. Only portfolios holding no equities or very little in equities (no colour bars) have managed to produce just slightly positive returns while the special mandate portfolios with lower equity exposure (grey bars) in general produced better returns than the typical prudential balanced portfolios (blue bars) with a high equity exposure.
 
Graph 1

 
Looking at graph 2 below, it will be noted that the SA Allshare index in nominal terms (blue line) turned down since the beginning of 2018 while, adjusted by the change in the CPI index (red line), the peak was reached in April 2015 and since then the line trends downwards noticeably.
 
Graph 2

 
Drilling down into the main sectors within equity as per graph 3 below, it will be noted that since the beginning of 2020 all sectors, except ‘Technology’, produced zero or negative returns for the year to end September. The stellar performance of technology is to be expected in the light of the COVID pandemic.
 
Graph 3

 
‘Turning the clock back’ exactly 12 months though, graph 4 shows that for the year to end September 2019, only one sector, ‘Consumer Goods’, produced a decent return, while the other sectors, such as technology, produced hardly any return or negative returns. Last year September, no-one would have increased his exposure to the technology sector. This experience emphasises the role timing plays and the futility of speculating as one is most likely to miss the bus when making a call.
 
Graph 4

 
Evidently equity overall, as the mainstay asset class of retirement fund portfolios, failed to produce a positive real return since April 2015. This is clearly a problem for the investor, more specifically for someone trying to build up enough capital to enable his retirement in comfort. One may be forgiven for thinking that perhaps foreign equities may have been the place to be while SA equities are failing us. Looking at graph 5, however, we see that all main foreign share market indices produced zero return, except the US S&P 500 that produced a meagre 5% return for the year to the end of September.
 
Graph 5

 
To complete the picture, let’s look at graph 6 below. It depicts the cumulative out – or underperformance of the main asset classes in typical retirement fund portfolios relative to the average prudential balance portfolio (yellow line) since 2002. We see that bonds (green line) and cash (red line) initially out-performed equity (blue line) and the average portfolio for about 3 years to 2005. The table then turned in favour of equity against cash and bonds that started to seriously under-perform equity and the average portfolio up until 2008. Interestingly the under-performance of bonds and cash relative to the average portfolio was severe while the out-performance of equity relative to the average portfolio was muted. Since then the performance of all asset classes has been below that of the average portfolio on a cumulative to date basis. However, one can detect a slight improvement of fortunes of cash and bonds relative to the average portfolio while equity, the mainstay asset class, continued to weaken its relative position ever since 2014.
 
Graph 6

 
While the average prudential balanced portfolio achieved its implicit return objective of inflation plus 5% over a period of 10 years or longer, the return on an investment in that portfolio has fallen significantly short of the long-term return expectation, and the shorter the period the bigger the shortfall.
 
While we have not looked at property, it is common knowledge that property is in the doldrums in Namibia, in South Africa and in many other countries of the world as the result of the knock global economies took from COVID measures. It is also common knowledge that interest rates are negative or zero in many parts of the world, particularly in the developed world.
 
As COVID continues and most countries in the world are severely over-indebted and cannot afford any increase in interest rates, there is simply no silver lining on the horizon for the foreseeable future. Interestingly it was reported in the media recently that US value investment fund AJO Partners is closing down its fund after more than 35 years and is returning US$ 10 billion to its investors. CEO Aronson explained “Our relative performance has suffered because our investment edge, our ‘secret sauce’, is at odds with many forces driving the market.”
 

 
Compliment from a spouse of a deceased fund member

Read more comments from our clients, here...
   


Status of ITAS project

RFS concluded the project of correcting the category for uploading pension payments and once again uploading all monthly returns for the period 1 March 2019 to 29 February 2020 on ITAS in respect of all funds it administers. Taxpayers should not experience any trouble submitting their return for the year ended 29 February 2020 and there should be no ITAS queries relating to information we have uploaded on ITAS for the past tax year.

• Salome Sloa

• Submissions on ERS (RFS 2020.11-15)

  
Industry meeting set for 26 November
 
NAMFISA recently sent out an invite to trustees, principal officers and other officers of pension funds to the last industry meeting this year. The meeting will be held on 26 November at NIPAM conference hall, ground floor starting 8h30 until 10h30. All are invited to submit annotated agenda items to Ms Martha Mavulu, This email address is being protected from spambots. You need JavaScript enabled to view it.
 
NAMFISA raises red flags about non-compliance amongst pension funds

This is according to an alarmist report in The Namibian of 9 November on the 2020 NAMFISA annual report. The message in this report may have come across as rather disturbing to many readers.

• Funds with liabilities exceeding assets, and funds that did not have enough assets to match the liabilities promised to members, meaning should there be any retrenchment or sudden retirement of a number of people, the fund might struggle to liquidate and pay them out.
• Contravention of Regulation 13(3), in that domestic assets consisting of shares acquired in companies incorporated outside Namibia exceeded the limit of 10% of the market value of a fund's total assets.
• Funds not drawing committed capital for investment in unlisted assets, despite the outcry of access to capital, certain funds sit with capital.
• Funds holding assets in transaction rather than investment accounts, thereby losing out on optimal growth.
• Conflicts of interest were inherent in cases where board members held key positions at the fund's service providers, thereby casting doubt on the independence of key personnel.
• Recommendations by the valuator are not implemented.
• Board subcommittees taking uninformed due to the absence of clear written mandates and lack of feedback from service providers.

• The exposure or risk emanating from the inability to implement new legislation effectively.
• Delayed promulgation of legislation is leading to delays in regulatory transformation, e.g. FIM Bill.
• Non-compliance with the new legislative framework is becoming a reputational risk.
• Namfisa is failing in its supervisory and regulatory mandate because of ill-advised decisions.

1. The testator must be mentally capable of appreciating the nature and effect of his action.
2. The testator needs to sign the end of the will.
3. If the will consists of more than one page, each page must be signed.
4. Two competent witnesses must be present when the testator signs the will.
5. The witnesses must sign the will in the presence of each other and of the testator. 

1. A witness may not benefit from the will he signed.
2. Executors, trustees and guardians are considered beneficiaries in terms of the Wills Act and may thus also not benefit.
3. The testator can make any subsequent change to the will, provided he and two competent witnesses must sign next to the change in each other’s presence.
4. A mark is as valid as a signature. But in such instance a commissioner of oaths must be present, must sign and certify that he is satisfied that the will is in line with the wishes of the testator. 

1. Review your will regularly and promptly after significant changes in your life such as marriage, divorce, birth of a child and retirement.
2. Earlier wills and codicils should be revoked when a new will is made as the earlier wills may be in custody of different persons. If not revoked, the earlier wills could be read together in the event of death.
3. If an entity or institution is appointed as executor, the testator should agree on the fee for which the executor will administer the estate and this should be stated in the will.
4. An executor must provide security to protect the estate from the executor stealing all the money in the estate, but if it is a trusted individual such as a family member this requirement can be excluded by introducing a specific clause to such extent.
5. If a mortgaged property is bequeathed, clarify whether this includes or excludes the mortgage. Common law is that the property is bequeathed without the debt unless the will directs differently.
6. Minor children cannot inherit cash or immovable property. Such bequests can be administered in a trust for the minor child but in the absence of such a directive in the will, the money will be held by the Guardian’s Fund.
7. A substitute beneficiary should be nominated in the event of the beneficiary predeceasing the testator, as the bequest to the beneficiary would otherwise devolve in terms of the Intestate Succession Act. 

1. Deceased member’s will as expressed in a written nomination addressed to the fund concerned.
   1. Although the will of the deceased is relevant, the primary purpose is to ensure that those financially dependant on the deceased during their life time are protected.
   2. Trustees should not place too much emphasis on the will of the deceased.
   3. An exclusion of a dependant by the deceased must be ignored.
2. The beneficiaries’ financial affairs
   1. Beneficiaries’ current financial position should play the most important role.
   2. Automatically favouring legal over factual dependants will amount to improper exercise of discretion.
   3. Trustees must establish whether there are any legal procedings which may have an impact on a beneficiary’s financial situation.
   4. Even if the children of deceased are completedly dependent on another person for financial support, they should still be considered as possible financial dependants.
   5. The deceased’s arrear maintance payments to a beneficiary may be a relevant factor in assessing the beneficiary’s financial situation.
3. Other benefits awarded to the beneficiaries
   1. Benefits due from another group life scheme or insurance policy or bequest from the deceased’s estate may impact the financial situation of the beneficiary and must be taken into account.
4. Extent of beneficiaries’ dependency
   1. Specifically it must be established whether the beneficiary lived in the deceased’s home on a permanent basis at the time of death of the deceased.
5. Beneficiaries’ future earnings potential
   1. Trustees must establish whether the beneficiary is employable and capable of working and a preference not to work (e.g. looking after the children) should not detract from the fact that the beneficiary is employable and capable to work.
6. Age of beneficiaries
   1. The trustees’ main aim should be to ascertain that minors and dependent children are assisted and financially protected until they become self-supporting.
   2. The needs of minor children are more pressing and compelling than those of major children.
   3. Major children still studying should be considered for their financial need.
7. Relationship of beneficiaries with the deceased
   1. Family problems and bad relationships between deceased member and beneficiary should not overshadow the decision of the trustees based on all the above factors.
8. Amount available for distribution
   1. Where the capital available was insufficient to cater for the needs of the widow, minor children and major children, the SA adjudicator held that the interests of justice would be served by awarding the entire benefit to the widow and the minor children based on
      1. The respective ages of the beneficiaries, especially minors as opposed to the majors.
      2. The widow being unemployed and totally dependent on deceased.
      3. The educational level of the major children and the possibility of them securing satisfactory employment.
      4. The close relationship between the deceased, his widow and the minor children.

Living annuities: Is a draw down best taken from a local fund? 

In this article a fund member is contemplating to retire from a retirement annuity and to have maximum offshore exposure on the two-thirds to be applied to provide an annuity income. The member is posing the following questions

1. Is a drawdown best taken from a local fund such as a money market or income fund or drawdown proportionately from all funds including the global funds?
2. If the aim is to get maximum global exposure and the drawdown is taken 100% from local funds (depending on the answer to question 1), how much money should be invested in the local fund? Is it calculated on enough to cover 2/3/10 years of drawdown before needing redistribution?
3. Is an exchange-traded fund (ETF)) an absolute no-no in a living annuity because of brokerage fees, with the caveat that drawdown will NOT be taken from the ETF except if a top-up may be needed for funds where drawdown is taken monthly? Therefore, brokerage fees won’t be incurred on a regular basis.
4. Is tax like capital gains tax (CGT) paid on drawdown?
5. If a large percentage is invested globally, and my risk is moderate, should the investment be diversified, and which groups of funds (equity, bonds, cash) should be considered?  

These questions are expertly answered by Richus Nel in this Moneyweb article of 10 November 2020 here…
 
Note: Capital gains tax is currently not applicable in Namibia but the tax aspects addressed in the article are equally applicable to the Namibian situation.
 
What to consider when choosing an annuity income
 
“Retiring from a retirement fund marks the transition from savings towards your retirement to drawing from your retirement capital and selecting the most appropriate annuity for your personal circumstances can be challenging… One of the first decisions a retiree will need to make is whether or not to commute one-third of their savings when retiring from the fund… There are a number of factors that you will need to take into account when deciding on a cash withdrawal such as… whether you have any immediate capital outflows you need to provide for, the extent of your debt, and whether or not you have discretionary funds to provide additional liquidity in retirement…
 
Leaving a legacy – If leaving a financial legacy for your loved ones is important to you, you may favour the idea of a living annuity as opposed to a life annuity…
It is important for retirees to bear in mind that a living annuity is an investment and, as the investor, the retiree takes all the investment risk. This means that poor investment returns can negatively impact on the amount you are able to draw from your living annuity…

Marital status – Your marital status will also play a role in choosing an appropriate annuity income. Most life annuities can be purchased on a single-life or joint-life which means that the annuity continues to pay until the death of the last-surviving spouse.

Propensity for risk – It is important for retirees to bear in mind that a living annuity is an investment and, as the investor, the retiree takes all the investment risk. This means that poor investment returns can negatively impact on the amount you are able to draw from your living annuity…

Capital amount – The amount of capital that you have at retirement is also a factor in determining which annuity vehicle is most appropriate for your needs. According to the Actuarial Society of SA Convention 2019, many South Africans choose to invest in living annuities even though they don’t have sufficient retirement capital to warrant their use…

Financial needs of loved ones – The financial needs of your loved ones in the event of your passing is another factor to consider. If you purchase a life annuity and pass away soon thereafter, there may be no benefit for your heirs – depending on the type of life annuity you purchased – and this is a risk you take in return for passing the investment risk onto the insurer…

Inflation – When purchasing a life annuity, you can choose upfront the manner in which your annuity income will increase. Generally speaking, you have the option to choose a level annuity that offers no annual increase bearing in mind that, while offering a higher income initially, will result in your purchasing power decreasing in value as a result of inflation…

Tax efficiency – …living annuities fall outside of the deceased’s estate and are not estate dutiable, neither do they attract executor’s fees. Therefore, from an estate planning perspective, living annuities can be effectively used to reduce costs if required.

Ongoing advice – Another consideration is that living annuity investors will generally require ongoing advice with regard to navigating investment risks, returns, cash flow and investment strategies and, as such, advice fees must be factored into the equation.

Transparency and flexibility – Living annuities provide annuitants with full transparency in respect of values, fund composition, investment performance and fee structures. Annuitants have full flexibility to choose their underlying investments and are free to move investment strategies…”

Note: The references in this article to capital gains tax, taxation of interest and dividends, taxation of a portion of the lump sum commutation do not apply in Namibia. The minimum and maximum draw rate in Namibia is 5%, respectively 20%. The reference to regulation 28 is also not fully relevant to Namibia.
 
Read the full article by Craig Torr in Moneyweb of 2 November 2020, here…

Investment lessons from a terrible, horrible, no good, very bad year 

“…2020 has reset the bar, with the world hammered by a deadly pandemic, communities ripped by police brutality, plunging global growth, the loss of hundreds of millions of jobs, protests and corporate collapses. 

However, this year has not been awful by all measures. The S&P 500 is 5% higher in November than it was in January and the gold price is up almost $500/oz, making for a bonanza for gold miners... 

Others have experienced the full force of the annus horribilis, with the magnitude of bankruptcies ranked by assets in 2020 towering over 2008. Collapsed companies include car-rental company Hertz …But overall, the signs point to recovery, and with this in the frame, the experiences of the annus horribilis offer at least three valuable investment lessons for building future-proof portfolios: 

1. Prepare to be surprised: First, forecasting is a dangerous activity. This doesn’t mean you shouldn’t think about the future. Instead, know that the future will be filled with unexpected shocks and surprises – sometimes good, sometimes bad, but always unknowable ahead of time. The implication is that investments should not be built for the known or the widely anticipated. Rather, they must be built to withstand the harshest and worst circumstances…
2. Be guided by principles, not crowds: Second, whilst following the crowds may feel right or seem sensible, rather choosing to focus on sound investment policies and principles will prepare you for times of stress. Notably, investing is ultimately about owning good assets that have been bought at the right price, and then holding the line though periods of economic stress.
3. Choose wisely: Third, investing is as much about what you own as what you don’t own. Consider Catherine Wood’s ARK Invest, well known for its exceptional record in cutting-edge themes, whose successful investments in leading innovators have also flagged industries and sectors most at risk of disruption. For example, investments that you will not have wanted to own in 2020 are bricks-and-mortar retailers and travel businesses…” 

1. Capital protection: These investments are typically for a set period, and your initial capital amount invested is fully protected. Therefore, even if the index the investment is linked to has an overall negative return over the period, you’ll still receive your initial investment amount back
2. Enhanced returns: These investments typically also offer an enhanced upside, should the index have an overall positive return over the period. This varies between different guaranteed investments but could be up to four times (400%) of the return over the period.
3. Certainty around returns: The level or percentage of enhanced return will be confirmed at the beginning of the investment term, removing uncertainty.
4. Tax advantages: Many guaranteed investments are set up in tax-efficient structures such as endowment or sinking fund policies. This means that you have no tax administration burdens as an individual investor, as the tax administration is taken care of within the policy on your behalf…

1. Liquidity: – you only benefit from the capital protection and enhanced returns if you remain invested for the full investment term – say, five years.
2. Default risk – this simply means the risk that the bank that undertakes to provide for the return profile, is unable to do so…Before investing in any solution, investors should always understand their own risk profile and tolerance, and what role the investment will play in their overall strategic financial plan. We encourage investors to seek the advice of a qualified financial planner before investing.”

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

"Our greatest glory is not in never falling, but in rising every time we fall.”
~  Confucius