 |
||||
| Issued January 2024 | ||||
  This email address is being protected from spambots. You need JavaScript enabled to view it.   |
||||
| In this newsletter... | ||||
| Benchtest 12.2023 – another great war looming, employer arranged death benefits and more... | ||||
| Jump to... | ||||
 |
||||
| IMPORTANT NOTES AND REMINDERS | ||||
NAMFISA levies
After its December meeting, BON announced that the repo rate remains unchanged at 7.75%. The interest rate on funds’ direct loans remains at 11.75%. Registered service providers Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2023, here... |
Retirement calculator Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here... If you need help with your financial planning, get in touch with
RFS provides comprehensive support for trustees. Find a list of downloadable documents to assist with governance and management of private funds, registered as of June 2023, here... |
|||
 |
||||
| IN THIS NEWSLETTER... | ||||
|
In this newsletter, we address the following topics:
|
||||
|
In 'Tilman Friedrich's industry forum' we present...
|
In 'Snippets for the pension funds industry,' read about...
As always, your comment is welcome, so open a new mail and drop us a note! Regards Tilman Friedrich |
|||
 |
||||
| TILMAN FRIEDRICH'S INDUSTRY FORUM | ||||
| Monthly Review of Portfolio Performance to 31 December 2023 |
||||
| In December 2023, the average prudential balanced portfolio returned 1.70% (November 2023: 5.9%). The top performer is Namibia Coronation Balanced Plus Fund, with 2.4%, while Ninety One Namibia Managed Fund, with 0.8%, takes the bottom spot. Namibia Coronation Balanced Fund took the top spot for the three months, outperforming the ‘average’ by roughly 1.7%. Hangala Capital Absolute Balanced Fund underperformed the ‘average’ by 1.9% on the other end of the scale. Note that these returns are before (gross of) asset management fees The Monthly Review of Portfolio Performance to 31 December 2023 reviews portfolio performances and provides insightful analyses. Download it here... |
||||
| Is anyone out there concerned about another ‘great war’? | ||||
| I observe with trepidation how the US got half the world to firmly toe its line in meeting the concerted challenge to its dominance relating to Russia, the Middle East and the Far East. I perceive a vigorous US will to reinforce itself by all means. Its economic measures proved to be ineffective against Russia. It has not yet instituted any determined economic measures against China, as it could be a double-edged sword. As for Europe, in the case of Russia, the US prefers to let its European allies carry the costly burden of its economic measures. While there is still too much at stake for sanctioning China, shifting manufacturing away from China will make it easier to put the thumbscrews on China. In the cases of other smaller countries, in particular the smaller BRICS member states, the US will pursue its maxim of ‘divide et empera’. The unjustified Rand weakness is a symptom of political pressures on ‘unruly’ countries. However, Africa has the market and the natural resources to withstand any pressure from anywhere, provided it stands together to the motto, ex unitate vires. The US is now left with one of two options. Either it accepts the establishment of a multipolar world and finds its best fit into the new global order, or it embroils all its geopolitical adversaries in a third World War. Reading European media, one must become very concerned about the evident shift from a pacifist tone since World War II to creating a war atmosphere more recently. I believe the stakes for the US are too high to give up its global dominance. It does not seem that its major global adversaries will relent in their challenge of US dominance. Because the Ukraine proxy war is unlikely to subjugate Russia, and because China will unlikely backtrack on its chosen path, the US will only have a chance to maintain its dominance by going to war. European leaders have stated in unison that Russia may not win this war. It becomes evident that Ukraine will not withstand the Russian pressure for too long. The fact that one reads more regularly about peace initiatives supports the assertion that Ukraine is losing this war. Russia’s progress in the war would leave the European leaders with only one face-saving alternative: to get involved actively. If it were left to Ukraine, NATO would have been drawn into the war a long time ago with claims of a Russian missile attack on Poland that later proved to be a Ukrainian missile. Now, Poland wants NATO to help it protect its airspace. In my reading, it is another pretence for drawing NATO into the war, unleashing World War III. It seems governments worldwide believe another great war will be good for the world and solve many problems it is currently facing. In the Monthly Review of Portfolio Performance to 31 December 2023, we elaborate on the strategies an investor should follow under the above circumstances. It also reflects the editor’s views on current developments and their impact on investment markets Download the Monthly Review of Portfolio Performance to 31 December 2023, here... |
||||
| Moving death benefits out of your fund | ||||
| Following NAMFISA’s insistence that trustees may not abdicate their responsibility to third parties, such as insurance companies, and that fund rules, therefore, cannot refer to their underwriting policy for risk exclusions and limitations, many funds are moving their death benefits out of the fund to an employer-owned policy. Any benefit arising under an employer-owned life policy is due to the employer, even if the insurer would pay it directly to a beneficiary per the employer’s instruction. While the distribution seems simpler and quicker than the section 37C process trustees must follow, it entails various important differences. Firstly, persons dependent on the deceased employee may not receive any benefit as the employer does not carry the fiduciary duty of trustees under section 37C. Secondly, any benefit paid to a beneficiary does not enjoy the protection of sections 37A and B. A beneficiary may never enjoy the benefit because of a default judgment against him. The employer would also be entitled to deduct any amount the deceased employee owed. Thirdly, the benefit will not enjoy the beneficial tax treatment a retirement fund benefit would. The tax treatment of a policy pay-out could be pretty tricky from the employer’s and employee’s perspective and would depend on the contract between the employer and employee. The proceeds on an employer-owned policy could become taxable for the employer or the beneficiary. The amendment of the Income Tax Act by Act 15 of 2011, stopped the practice of insurance companies paying out death benefits on employer-owned policies directly to beneficiaries, tax-free (read ‘Employer-owned life policies and the Income Tax Act’ under ‘Legal Snippets’). Now, employers must ensure that they treat death benefits correctly for tax purposes and should consult a tax expert. The tax expert should review the employer’s standard employment contract to ensure it provides the most beneficial tax arrangement. The legal framework for paying a death benefit under an employer-owned policy differs significantly from a retirement paying a death benefit under the Pension Funds Act, section 37C. In the former case, labour law, the employment contract and the Income Tax Act relating to employment constitute the legal framework. In the latter case, the Pension Funds Act and the Income Tax Act relating to pension fund benefits form the legal framework. Beneficiaries and prospective beneficiaries enjoy different rights under each arrangement. I suggest that it is inappropriate to task pension fund trustees with distributing the death benefit under the employer’s policy in the same way they will distribute the pension fund death benefit under section 37C. The employer could end up short-changed and might not even have recourse to his insurer because the board of trustees serves a different legal entity and is not an extension of the employer. The employer may establish a committee comprising the same persons to deal with the death benefit under its policy. The committee acts in a different capacity under different rules. The rules applying to the benefit under the employer’s policy are less stringent than those under the Pension Funds Act. The employer committee must consider the employment contract and precedent set in previous cases. It can distribute the death benefit much sooner than the trustees would generally be able to. When considering how to distribute a death benefit from the pension fund, trustees must take cognisance of the death benefit distribution under the employer’s employment contracts. |
||||
| Housing loans and homeowner’s insurance | ||||
| After a trend away from in-fund to pension-backed housing loans some years ago, we noticed a reversal of this trend in the last two years. The trustees must ensure that in-fund loans comply with all legal requirements. In the case of pension-backed loans, the compliance responsibility is outsourced to the bank. Trustees often wrongly believe they do not need to be overly concerned about legal compliance as the member uses his money to take up a loan. Although the Pension Funds Act is not very explicit, trustees should take guidance in NAMFISA’s pronouncements. NAMFISA issued but later retracted circular PF 3/2003 on housing loans that revealed some of its thinking. It suggested the trustees must deal with a loan as if it were a fund investment. NAMFISA also believes a fund may not offset an outstanding housing loan balance against a member’s fund credit until the member exits the Fund. Should a property be destroyed by fire, it will have no investment value. The fund may also not simply offset the loan until the member exits the fund. The result is that the fund has a loan which has no value. Strictly speaking, retracted PF 3/2003 would have required the loan value to be written off. When the member eventually exits the fund, and it deducts the value previously written off, it would record a recovery. Until the recovery realises years later, the fund’s write-off would reduce its reserve available for distribution to members. Members who then exit the fund before the loan recovery will have lost out. The borrowing member would have to continue repaying without the house’s utility value. He would likely have to rent a dwelling, which could put him in a difficult financial position. Property insurance could address the problem for the trustees and members. I suggest the trustees consider requiring the member to submit proof of property insurance before granting a loan to purchase or construct a dwelling. Proof of insurance renewal should be required annually, and procedures must be implemented to administer these requirements. Alternatively, the fund may consider establishing a group scheme at its cost to avoid the administrative burden. |
||||
| What is your performance benchmark? | ||||
| A large fund recently announced that its investments returned 7.23% for six months, against its benchmark of 6.85%. A look at the investment returns produced by prudential balanced portfolios in our Benchtest performance review revealed that the average portfolio returned 7.67%. Clearly, the peer fund does not constitute this fund’s benchmark. It raises the question of whether the trustees should be satisfied with their fund’s return. If the fund’s benchmark return was 6.85%, it has outperformed its benchmark but has underperformed the average of its peers. Typically, trustees would be guided by their investment consultants when constructing a benchmark portfolio that will be used to calculate the benchmark return of the fund. Do trustees understand how their benchmark portfolio is constructed and how the particular portfolio structure will respond to varying market conditions? Do trustees know whether the benchmark portfolio captures the desired outcomes for the fund’s investments under different market conditions? Should trustees then not be concerned about outperforming their benchmark, as this may indicate the live portfolio structure is taking higher or lower risks than intended? I would suggest that, despite any internal benchmarks, every fund whose membership represents a typical demographic profile should also measure its performance against its peers, which essentially represents ‘best practice’ for funds with an average demographic profile. Ideally, the investment consultant would analyse and explain the difference in performance between the peer manager and the benchmark portfolio. |
||||
 |
||||
| COMPLIMENT | ||||
|
Compliment from the Chairperson of a prominent pension fund
3 January 2024 |
“Dear C Thank you so much for your quick and expeditious response. It was a pleasure working with you, as it always is working with A. Highly appreciated. L.” |
|||
|
Read more comments from our clients, here...
|
||||
 |
||||
| BENCHMARK: A NOTE FROM GÜNTER PFEIFER | ||||
| Important circulars issued by the Fund | ||||
| The Benchmark Retirement Fund issued no new circular since the previous newsletter Clients are welcome to contact us if they require a copy of any circular. |
||||
 |
||||
| NEWS FROM RFS | ||||
| Long services awards complement our business philosophy | ||||
|
RFS places a high value on its employees and recognises the importance of their contributions to the company’s success. Long service awards are a great way to acknowledge and celebrate the commitment and loyalty of employees who have been with the company for a significant time.
In addition to recognising employees’ contributions, long service awards can be a powerful retention tool, demonstrating that the company values and appreciates its employees’ dedication and hard work. These awards can help to create a positive and motivating work environment where employees feel supported and encouraged to continue to grow and develop within the company. Janolene Rittmann, the friendly face and voice in our reception, celebrates her fifth work anniversary at RFS on 1 February 2024! We express our sincere gratitude for her loyalty and support over the past five years. We look forward to her continued dedication and commitment to the company, its clients and colleagues! |
||||
| Important circulars issued by RFS | ||||
| RFS issued no new circular since the previous newsletter. Clients are welcome to contact us if they require a copy of any circular. |
||||
 |
||||
| NEWS FROM NAMFISA | ||||
| Complaint handling procedure | ||||
|
NAMFISA issued circular MCD/2/2023 on 20 December 2023, on Complaint Handling Procedures to all pension funds and other non-banking financial institutions. The new procedure intends to streamline the complaints process and avoid submitting complaints to NAMFISA before the relevant institution can respond to a complainant.
The following outlines the responsibilities of complainants before involving the regulator and the steps financial institutions and NAMFISA should take to handle complaints effectively in the non-banking financial service sector. Complainant’s Responsibilities Before Submitting a Complaint to the Regulator:
Financial Institution’s Responsibilities in Complaint Handling:
NAMFISA’s Complaint Handling Process:
You can download the circular here…
|
||||
 |
||||
| LEGAL SNIPPETS | ||||
| Late payment interest on unpaid contributions and prescription | ||||
This complaint deals with the case filed by the Legal Provident Fund (the complainant) against MSM & Associates (the employer), an employer participating in the fund, who failed to pay employer and member contributions.
|
||||
| Complaint about undue delay in death benefit payment | ||||
This case deals with a complaint by Mrs L Naidoo, spouse of a deceased fund member, against the Massmart Provident Fund, Sanlam Employee Benefits as the fund administrator, and the employer, Cambridge Food, for the undue delay in paying the deceased member’s benefit.
|
||||
| Employer-owned life policies and the Income Tax Act | ||||
| The Income Tax Act was amended by Act 15 in 2011 regarding the tax treatment of employer-owned life policies. Paragraph (m) of the definition of „gross income‟ was substituted. In short, this section sets out as “gross income”, “any amount received or accrued under or upon surrender or disposal of, or by way of any loan or advance granted by the insurer…, any policy of insurance upon the life of any person who at any time while the policy was in force was an employee… or director of the company, if any premium paid … was deductible… under section 17…”. Any loan or advance previously included in „gross income‟ is to be excluded. If a policy is terminated and a paid-up policy is issued, the two are deemed the same policy. Section 17(1) deals with “general deductions” which are allowed. Act 15 of 2011 expanded it by adding subsection (w). It deals with “expenditure incurred by the taxpayer in respect of any premiums payable under a long-term policy of which the taxpayer is the policyholder, where…” any of the following conditions apply:
|
||||
 |
||||
| SNIPPETS FOR THE PENSION FUND INDUSTRY | ||||
| The competence of retirement fund trustees | ||||
| The article emphasises the importance of efficient governance in retirement funds, highlighting potential risks such as misappropriation, bad investment choices, and higher operating expenses. Trustees are crucial in making prudent investment decisions, but the Pension Fund Act lacks clarity regarding their requirements and fiduciary obligations. The Namibia Financial Institutions Supervisory Authority (Namfisa) has issued guidelines that are not prescriptive. The article suggests that good governance is essential for successful fund management and the protection of member benefits. It calls for more explicit regulations on appointing trustees, including qualifications, financial stability, ethical conduct, and experience. The Fit and Proper requirements under the Financial Institutions and Markets Act (2021) are mentioned, but their implementation has been postponed. The article recommends a more proactive approach by Namfisa in crafting a directive outlining “fit and proper” requirements for trustees. Additionally, it proposes establishing a framework for evaluating potential trustees, making governance standards mandatory, and ensuring regular trustee training. The article concludes by emphasising the need for regulators and retirement funds to enhance trustee recruitment procedures to benefit pension beneficiaries. Download the article by Vincent Shimutwikeni in The Namibian, here... |
||||
| In search of well-rounded investment capability | ||||
| The article discusses the challenges investors have faced in navigating volatile markets over the past three years, including market corrections, global bonds and equities retreats, a banking crisis, and recent fallout in bond and stock markets. Amid uncertainty, investors may question the safety of holding cash versus investing in assets. The author, Dirk Jooste, a Fund Manager at PSG Asset Management, emphasises the importance of careful asset selection, especially during market turmoil. PSG Asset Management follows a price-sensitive, bottom-up stock-picking approach and sets a high bar for including assets in their portfolios. Despite market challenges, their portfolios have not retreated to cash, and high allocations to equities are maintained. Periods of market stress allow selective investors to find overlooked gems and deliver positive returns. However, he acknowledges the anxiety and fear that investors may experience when committing money in uncertain markets. The article presents evidence of PSG Asset Management’s success in adding value to investors through their bottom-up 3M investment process. The focus on quality, price, independent thinking, and in-depth research allows them to replicate their process across asset classes and territories. The performance analysis, particularly in global equities, demonstrates the reliability of their investment approach. In conclusion, investment processes and philosophies matter significantly to investor outcomes. He suggests that in the current investment environment, where the market is undergoing a structural inflection, bottom-up stock pickers who conduct robust research and set high standards for asset selection are well-positioned to excel, especially in overlooked and unloved areas of the market that may become future market leaders. Read the full article by Dirk Jooste of PSG Asset Management in Cover of 11 December 2023, here... |
||||
 |
||||
| SNIPPETS OF GENERAL INTEREST | ||||
| Interest rate relief for South Africa [and Namibia?] is coming | ||||
| South Africa will likely join the global trend of cutting interest rates as local and global inflation declines. Investec’s chief economist, Annabel Bishop, believes that the United States may cut its interest rates for the first time in the first half of 2024, possibly in March. This move could positively impact the rand and influence South Africa’s Reserve Bank to consider rate cuts. The South African Reserve Bank (SARB) typically aligns its decisions with the US Federal Reserve owing to their impact on global markets, the rand, and inflation. Bishop notes that the SARB’s monetary policy committee prefers CPI inflation to average around 4.5% year-on-year before considering rate cuts. If the US cuts rates in the first half of 2024, it could lead to a wider interest rate differential, potentially strengthening the rand and justifying rate cuts in South Africa. The inflation outlook for South Africa in 2024 is expected to be volatile, with a slight increase in the early months but an overall downward trajectory, reaching an anticipated average of 4.5% for the year. The SARB may seek consistent lowering of inflation in the second half of 2024 to support rate cuts. Although there are still risks to inflation, the SARB could cut interest rates earlier if it is confident of controlling inflation. However, under current forecasts, no further interest rate hikes are expected in South Africa, with rate cuts anticipated by the second half of 2024. Read the full article by Staff Writer in Businesstech of 8 January 2024, here… Editor’s note: The Bank of Namibia will likely bring its repo rate on par with the SARB if the SARB lowers its repo rate, as this article suggests. |
||||
| The average salary increase you can expect in 2024 | ||||
|
The article projects that South African employers plan to increase average salaries by 6.1% in 2024, aiming to attract and retain staff amid high inflation and a challenging labour market. However, recent trends show that salary increases have consistently lagged behind inflation rates. The 6.1% forecast for 2024 is slightly lower than the 6.6% actual average rise in pay budgets in 2023, according to a report by global broking and solutions company WTW.
Inflationary pressures and a competitive labour market are the primary reasons companies should consider raising compensation budgets. The forecasted salary increase is higher than the global average of 5.0% predicted for 2024. Despite the optimistic outlook, recent salary indices indicate a declining trend in real incomes in South Africa, with salary increases well below inflation rates. Statistics South Africa reports the current average monthly salary as R26,086, and with a 6.1% increase, an individual would have an extra R19,095 annually or R1,591.25 more per month. However, real salary increases have slowed, with October 2023 showing a 1.8% year-on-year increase, significantly below the 5.2% inflation rate. In real terms, there was a -3.4% year-on-year drop in take-home pay. Read the full article by Seth Thorne in Businesstech of 18 January 2024, here… Editor’s note: The South African salary increase scenario may provide a backdrop for salary reviews in Namibia due to the similarity in inflation rates between the two countries. |
||||
 |
||||
| AND FINALLY... | ||||
| The latest RFIN newsletter Download it here… Wise words from wise men |
||||
| The insights from ancient philosophers still resonate today and offer timeless wisdom on the relationship between money, virtue, and well-being.
Confucius stresses the importance of prudence in financial matters and the distinction between ethical considerations and mere profitability. |
||||
| Unsubscribe If you do not want to receive these newsletters {unsubscribe}click here...{/unsubscribe} Disclaimer Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Fund Administrators (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager. |
||||