2024-03

Issued March 2024

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In this newsletter...

Benchtest 02.2024 – offsetting housing loan debt, do we need the ILO for our NPF, new PFA regulations and more...

Jump to...

Important notes & reminders
In this newsletter...
Tilman Friedrich's industry forum
Compliments
Benchmark: a note from Günter Pfeifer
News from RFS
News from NAMFISA

News from the market
News from RFIN
Legal snippets
Snippets for the pension fund industry
Snippets of general interest
And finally...

IMPORTANT NOTES AND REMINDERS

NAMFISA levies

Funds with March 2024 year-ends must submit their 2nd levy returns and payments by 25 April 2024;
Funds with September 2024 year-ends must submit their 1st levy returns and payments by 25 April 2024;
and funds with March 2023 year-ends must submit their final levy returns.

Repo rate unchanged in March

After its February 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

Annemarie Nel (tel 061-446 073)
Christina Linge (061-446 075)

Toolbox for trustees

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...

Monthly review of portfolio performance – 29 February 2024
More on suspicious transactions under the FIA
When may a fund offset a delinquent borrower’s housing loan?
Does Namibia need an ILO to tell us all about a National Pension Fund?
NAMFISA proposes substantial changes to the PFA investment regulations

In Compliments, read...

A compliment from a Principal Officer of a large fund

In 'News from RFS', read about...

RFS welcomes new staff member
Long service complements our business philosophy
Important circulars issued by RFS

In news from NAMFISA, read about

First pension funds industry meeting of 2024

In 'Legal snippets', read about...

More on withholding of benefits

In 'Snippets for the pension funds industry,' read about...

What happens to a living annuity if there is no will?
The free lunch from guarantees may come at a hefty cost

In ‘Snippets of general interest', read about...

Key risks for directors and officers
Storytelling that drives bold change

And make a point of reading what our clients say about us in the ‘Compliments’ section. It should give you a good appreciation of who and what we are!

As always, your comment is welcome, so open a new mail and drop us a note!

Regards
Tilman Friedrich

TILMAN FRIEDRICH'S INDUSTRY FORUM

Monthly Review of Portfolio Performance
to 29 February 2024

In February 2024, the average prudential balanced portfolio returned 0.7% (January 2024: -0.2%). The top performer is Namibia Coronation Balanced Plus Fund, with 1.8%, while Lebala Balance Fund, with -0.3%, takes the bottom spot. Namibia Coronation Capital Plus Fund takes the top spot for the three months, outperforming the ‘average’ by roughly 1.8%. Ninety One Namibia Managed Fund underperformed the ‘average’ by 1.6% 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 29 February 2024 reviews portfolio performances and provides insightful analyses. Download it here...

The band keeps playing while the Titanic is sinking

Watching the situation in and around Ukraine and listening to US and Western media, I perceive the US wanting to rid itself of any further financial commitments to the Ukraine war and to put the Europeans in front of that cart. It seems the US wants to push the Europeans into a major confrontation with Russia, and be ‘the laughing third’. Both sides will be badly bruised militarily and economically. Russia already stated that it will use its nuclear arsenal if its national survival is threatened. The European media are on a mission to prepare their citizens for a war against Russia, and too often in history, such war propaganda has become a self-fulfilling prophecy.

In such a prospective conflict, China cannot sit on the sideline as NATO would advance to its border should Russia lose. We will inevitably have World War III! Investment markets will take a severe knock during such a conflict and remain in the doldrums. Once the conflict ends, the world will move to a new economic order, likely multipolar, unless the West prevails. Investment will not be what it has been since the Second World War. In the run-up to such a war, only very few investment managers will take bold action in preparation for the great conflict. The action will, in most cases, also be too late. I perceive that we are sailing into troubled waters, but the band keep playing while the Titanic is sinking!

In the Monthly Review of Portfolio Performance to 29 February 2024, 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.

In the Monthly Review of Portfolio Performance to 29 February 2024, 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 29 February 2024, here...

More on suspicious transactions under the FIA

In a previous newsletter, we reported on the shortening of the reporting obligation to “promptly”, which means without delay but not later than three (3) days after the suspicion arose. After the article was posted on social media, a few interesting questions were posed that I will try to answer. I will start by summarising the key requirements of the FIA read together with the POCA and then use this summary to address the questions posed.

What the FIA prescribes
The FIA creates the obligation to report a suspicious transaction on any person carrying on any business and by accountable and reporting institutions. The obligation only relates to the matters covered by the FIA, being activities relating to possible money laundering or the financing of terrorism as defined by parliament, relying on the OAU's Convention on the Combating and Prevention of Terrorism of 1999. These activities must involve the proceeds of, or the collection and provision of funds for unlawful activities, being any conduct that constitutes an offence or contravenes any law in Namibia, wherever it occurred and of which a person had or ought reasonably to have known. Money laundering covers disguising the unlawful origin of property and assisting someone else to benefit from the proceeds of or the acquisition, possession or use of the proceeds of unlawful activities.

First question
When is a transaction suspicious? As I interpret the requirement, is it in relation to money laundering or financing of terrorism? If a business person were to evade taxes, it might be criminal but not be suspicious.

My response
If you carry on any business and know, or reasonably ought to have known, of someone who collects and provides funds to someone else to undertake tax evasion, I would argue it is reportable as tax evasion contravenes the Income Tax Act. However, if there is no transaction by way of funds involved, I would say that you have no reporting obligation.

Second question
With specific reference to tax evasion. There are no proceeds as you have not received something. You have just not paid the tax authority its fair share? Surely, this will have to be litigated under the Tax Act and not the FI Act? Or could it be both?

My response
If you evade your tax obligation, there is no transaction, therefore, no unlawful origin of property or provision of funds for this unlawful activity; no one else is benefiting, acquiring or possessing any unlawful proceeds. Hence, the reporting obligation under the FIA does not apply.

When may a fund offset a delinquent borrower’s housing loan?

Section 19(5) allows retirement funds to grant housing loans to members under certain circumstances (refer to last month’s newsletter) against the security of the member pledging his benefit, a first mortgage or both. If a fund wants to grant housing loans, NAMFISA insists that the rules must provide for granting loans. Funds usually append sections 19(5) and 37D to their rules.

While sections 37A and 37B strictly protect members’ benefits even when the member wants to dispose of them, sections 37A and 37D make certain exceptions.

Section 37A
This section allows a fund to deduct a maintenance order by the Maintenance Court and income tax.

Section 37D
This section deals specifically with deductions a pension fund can make from pension benefits:

Deductions for Loans (37D(a)):
- The fund may deduct any amount due to the fund for:
  - A loan granted to a member in terms of section 19(5)(a)
  - Any amount for which the fund is liable under a guarantee furnished regarding a loan by some other person to a member.
- The deduction cannot exceed the amount permitted by the Income Tax Act.
Deductions for Employer-Related Debts (37D(b)):
- The fund may deduct amounts due by a member to their employer, such as:
  - A loan granted by the employer to the member for any purpose referred to in section 19(5)(a)
  - any amount for which the employer is liable under a guarantee furnished in respect of a loan by some other person to the member,
- on his retirement date or on which he ceases to be a fund member. [Note that I underscored this proviso, which section 37D(a) does not have and must result in different conditions when applied in these two scenarios.]
- The deduction cannot exceed the amount permitted by the Income Tax Act.

Analysis:
Based on the wording of sections 37D(a) and 37D(b):

For loans granted by the pension fund (37D(a)):
- The fund may deduct the loan amount from the member's benefit.
- The deduction cannot exceed the amount permitted by the Income Tax Act.
- There is no specific mention of the deduction timing in this section, which implies it can be made before or after the member exits the fund as long as it does not exceed the limit set by the Income Tax Act.
For loans granted by the employer or guaranteed by the employer (37D(b)):
- The fund may deduct the loan amount from the member's benefit.
- However, the deduction under 37D(b) appears contingent on the member's retirement or when they cease to be a fund member.
- This deduction also cannot exceed the amount permitted by the Income Tax Act.

Conclusion:

Loans Granted by the Pension Fund (37D(a)):
- Deductions can be made before or after the member exits the fund as long as they do not exceed the limits set by the Income Tax Act.
Loans Granted by the Employer or Guaranteed by the Employer (37D(b)):
- Deductions are tied to the member's retirement or when they cease to be a fund member.
- The deduction cannot exceed the limit set by the Income Tax Act.

So, for a housing loan:

If the loan is granted by the pension fund (37D(a)), deductions can be made before or after the member exits the fund.
If the loan is granted by the employer or guaranteed by the employer (37D(b)), deductions are linked to the member's retirement or when they cease to be a member of the fund.

The timing of deductions for loans granted by the employer or guaranteed by the employer (37D(b)) is specified to occur at retirement or when the member ceases to be part of the fund. However, deductions for loans granted by the pension fund (37D(a)) can be made before or after the member exits the fund as long as they do not exceed the limits set by the Income Tax Act.

A word of caution:
Despite the above conclusion, funds must note that NAMFISA interprets section 37D(a) differently. It insists that a loan or payment for a guarantee furnished by the fund may only be deducted once the member exits the fund. Funds may apply their interpretation and leave it to NAMFISA to challenge it in court. Although some legal experts believe the fund rules do not explicitly have to allow the granting of loans or furnishing of guarantees and deducting amounts owing in this regard, it is advisable to include section 37D verbatim in the rules.

Does Namibia need an ILO to tell us all about a National Pension Fund?

The Social Security Act of 1994 provides for the Maternity Leave, Sick Leave and Death Benefit Fund, and a National Training Fund, a National Medical Fund and a National Pension Fund (NPF). A National Medical Fund is currently not yet topical. The Ministry of Labour identified the NPF as a priority. It tasked the Social Security Commission (SSC) to formulate a proposal for a compulsory, contributory NPF under a tripartite steering committee comprising the SSC, organised labour and the employers in person of the NEF.

After more than 20 years of deliberation and extensive consultation with local and South African experts, the SSC submitted its first report and recommendations to the Ministry of Labour in 2018. After the Ministry raised some concerns and objections, insisting on a defined benefit model, further consultation and deliberations followed, and the final report and recommendations were submitted in 2022. These recommendations still envisaged a defined contribution model with a defined benefit and redistribution element and providing for conditional exemption of existing arrangements. Dissatisfied with the proposed model, the Ministry engaged the ILO to submit its proposals. During 2023, the ILO conducted a few meetings presenting its thoughts to interested parties. It proposes a pure defined benefit model without an exemption.

Early this year, the NEF also conducted a member meeting to sensitise them on the proposed SSC and ILO models for an NPF. The SSC requested employers and labour to consider the SSC model and to provide feedback on their preferred option. The SSC granted the NEF time until the beginning of February 2024 for its feedback.

Even before the NEF presented its conclusions to the SSC, it received information that the Ministry of Labour already adopted the ILO proposal for the NPF in December 2023. At this stage, it is unclear how the Ministry of Labour plans to proceed. Presumably, they will take (or have taken) their decision to Cabinet.

As a global labour union, it is clear that the ILO will promote socialist economic principles. The IMF is a free-market-orientated international multilateral institution and will, therefore, have different economic principles. Why should Namibia follow the ILO principles and not the IMF’s?

The following are some of the ILO’s principles from its presentation.

Similarly:

Some benefits should be DB, and some could be DC

The administration should generally be public, but there can be some private administration.

Graph 1

Graph 1 above is one of the slides used by the ILO expert to show the defined contribution replacement ratios (blue line) from 1980 to 2020 relative to the defined benefit contribution ratio (orange straight line). The defined contribution model’s apparent underperformance was one of the expert’s main arguments to substantiate the ILO’s NPF preference for a defined benefit arrangement. The blue line is suspiciously similar to the US ten-year government bond yield. Note the steep decline of defined benefit yields since 2000. The graph conveniently ends just before an equally steep reversal since the middle of 2020. I suspect that the graph depicts a portfolio primarily invested in government bonds and property, which have performed very poorly since the Global Financial Crisis in 2007 to 2009 due to heavy central bank intervention.

The ILO’s argument would imply that the NPF’s assets are primarily invested in government bonds. It would look quite different if it were to depict the yield of the average prudential balanced portfolio of the typical defined contribution fund in Namibia investing in a much wider spread of asset classes. Clearly, much depends on how the assets are invested. Typically, Western social security systems invest primarily in interest-bearing assets.

Both models, principally, invest in the same assets and will have the same investment experience. In the defined benefit model, however, the collective membership would have carried the burden of that underperformance by spreading the underperformance across future generations. In contrast, in a defined contribution model, each generation would carry its investment experience, positive and negative.

The presentation further claims that the DB system has much lower volatility because the impact is assumed collectively. The same result can be achieved in a DC system through investment smoothing.

The ILO then raves about gender equality in the defined benefit system because males and females get the same income benefit after retirement. A male would get a higher pension in the defined contribution system due to a shorter life expectancy. How is this gender equality if my retirement capital must also provide for my wife after my passing? In the case of a female, statistically, no provision is made for a surviving husband who would have passed away before the wife.

Clearly, we are dealing with a philosophical question. One model is not superior to the other. They are principally different, and each coin has two sides. The defined benefit model principally represents a socialist philosophy with inter-generational cross-subsidisation. In contrast, the defined contribution model principally represents a free-market philosophy. A socialist philosophy is more appropriate for homogenous societies, but it leads to social friction in heterogenous societies, which is becoming more pronounced in Western countries.

NAMFISA proposes substantial changes to the PFA investment regulations

In last month’s newsletter, we informed you that NAMFISA issued draft revised regulations for comment on or before 31 March 2024. The revised regulations will affect the short-term and long-term insurance and pensions industries.

Most changes relate to fund investments, special purpose vehicles and unlisted investment managers. They are very technical, and funds’ asset managers must ascertain that they comply with the new requirements.

A few changes will affect the fund administration. They are as follows

Reg No	Regulation Heading	Remove	Change
2(1)	Private funds: documents and particulars to be furnished.		Form for submission of application now prescribed
2(2)	Private funds: documents and particulars to be furnished.		Fees may now be paid by direct deposit or EFT
6	Furnishing of financial statements and statistics	Form 2 of Annexure C	The form as determined by the body responsible for regulating the public accounting and auditing profession
7(1) and (2)	Reports and statements by valuator		Introduces a form for an application for the approval of the appointment of a valuator must be made.
9(2)	Annual accounts and statements		Certification must be on the cover of the annual financial statements
11(3)	Audit requirements		The auditor's report must be in the form prescribed by the body responsible for regulating the public accounting and auditing profession
Annexure A, item 13	Housing loans		It is proposed to limit the exposure to this type of investment to 20%. The intention is for pension funds to be able to grant such loans up to a limit of 20% of the value of its assets, as opposed to limiting members to 20% of the value of their shares in the fund for such loans.
Annexure A, item 14	Other claims		Deletion of reference to “natural persons”. Although these are secured claims, there remains a risk in granting loans to individuals and there is no rationale for granting such loans outside of the housing loans provided for in the Pension Funds Act, 1956.
Annexure A, item 15	Other assets		It is proposed that the ceiling for “other assets” be increased from 2.5% to 5%, to allow for more scope to classify assets that are not adequately/expressly provided for in Annexure A to the regulations.
41	Amendment of rules of fund		Regulation 41(4) is amended by the deletion of the requirement for prescribed fees to be paid for the inspection of documents at the office of the registrar.
42(2)	Administrative penalties	A person who contravenes or fails to comply with any provision of regulation 22 is liable to the payment of a penalty of N$1 000 for every day during which the person remains in default.	A person who contravenes or fails to comply with regulation 7, 11(1), 11(2), 13(11), 16(2), 20(3), 21(2)(b), 21(2)(d), 22(3), 23(1), 26(2), 30(2)(k), 32(3), 33(1) or 40(2) is liable to the payment of a penalty of N$500 for every day during which the person remains in default.
42(3)	Administrative penalties	A person who contravenes or fails to comply with any provision of regulation 22 is liable to the payment of a penalty of N$1 000 for every day during which the person remains in default.	A person who contravenes or fails to comply with any provision of regulation 13, 31 or 34A is liable to the payment of a penalty of N$ 500 for every day during which the person remains in default.
43	Prescribed interest rate	For the purpose of section 19(5)(b)(iii) of the Act, the rate of interest is equal to the sum of the percentage of the repo rate charged by the Bank of Namibia plus an additional 4 per cent per annum with effect from the date of publication of these regulations in the Gazette.	For the purpose of section 19(5)(b)(iii) of the Act, the rate of interest is equal to the sum of the percentage of the repo rate charged by the Bank of Namibia plus an additional 3 per cent per annum with effect from the date of publication of these regulations in the Gazette.

COMPLIMENT

Compliment from the Principal Officer of a large fund
5 March 2024

“Dear Marthinuz and Sharika,

If memory serves me correctly, I believe it’s the first time since my involvement with the …. Retirement Fund that all Certificates of Existence were submitted to RFS, achieving the Fund’s aim of zero suspended pensioners.

Please convey our appreciation to J… and R… for their consummate support and dedication in making this possible.

Kind regards…”

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 '202309 – Changes to survivor annuity investments'.

Clients are welcome to contact us if they require a copy of any circular.

NEWS FROM RFS

Long service 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.

Yolinde Titus celebrated her tenth anniversary on 15 March 2024;
Amanda O’Callaghan celebrated her fifteenth anniversary on 16 March 2024;
Belinda Carlson celebrated her fifteenth anniversary on 16 March 2024;

We sincerely thank Yolinde, Amanda and Belinda for their dedication, loyalty and support over the past years since joining RFS. We look forward to their contribution to the good of RFS, our clients, and our colleagues!

RFS welcomes new staff member

We are delighted to announce that Reneva Diergaardt joined our permanent staff complement on 1 March 2024. She grew up in Kalkfeld and matriculated at Paresis Secondary School in Otjiwarongo in 2006. She started her career as a switchboard operator at Telcom and later at the Ministry of Education. In 2010, she changed careers and began working in different banking industry positions. In 2017, Reneva moved to the insurance industry as a service broker with FNB Insurance Brokers and later at King Price as a manager assistant at the Otjiwarongo branch.

Important circulars issued by RFS

RFS issued no new circular since circular ‘RFS 2024.01-01 – Static Member Data’.

Clients are welcome to contact us if they require a copy of any circular.

NEWS FROM NAMFISA

First pension funds industry meeting of 2024
By Sebastian Frank-Schultz

The first industry meeting was held on 4 March. Our Sebastian Frank-Schultz attended the meeting and prepared the following notes of the discussions, referenced to the agenda:

4.1. RFIN Update

Block submissions: submission outside of blocks for rule amendments
- If urgent and can be justified as such, rule amendments are accepted outside of blocks for rule amendments
- Blocks not for new (initial) special rules registration
- Submissions are accepted outside of blocks if in terms of section 12, or rule amendments which affect member benefits
FIMA news on implementation date?
- No news
Information Act
- Question regarding the need for appointing an Information Officer (unnecessary admin costs and burden for funds)
  - To be taken offline

4.2. Statutory submissions feedback

78 registered funds as of 30 June 2023
- Active funds: 70
- Dormant: 7
- Deregistering: 1
Q3 2023
- Un-insured funds: 49
- Insured: 22
- Inactive: 7
235.8bn total investments in Q4 2023
Asset allocation:
- 47% equity
- 35% bonds
- 6% property
- 8% credit balances
- 1.5% unlisted
- 3% other
50% invested in Namibia
32% invested offshore

Q1-Q4 2023 off-site inspection findings

Inaccurate reporting for regulatory purposes (financial data, unclaimed benefits and member data), e.g. member data does not include gender and age and active members with zero balances.
Weaknesses noted in quality of risk management (QRM), e.g. lack of risk management policies, risk registers, conflict of interest policy, communication policy, and to provide admin reports.
Non-compliance with fund rules, e.g., board composition not in line with fund rules or fund rules inconsistent with section 11(d) of the PFA.
Non-compliance with or unclaimed benefit strategy inconsistent with Administration of Estates Act.
Lack of performance appraisal and assessments of the trustee and other service providers.
Fund’s service providers’ tenures are more than ten years.
- RFIN: Is the risk not higher if service providers are rotated constantly?
- NAMFISA: Specific risk to the Namibian landscape as limited service providers
  - Complacency risk to be addressed by performance appraisals.
- RFIN: risks identified based on findings or assumptions?
  - NAMFISA: Service providers do not take responsibility as they refer to funds to pay for penalties. Board of trustees hide behind auditors/actuaries/consultants while they are responsible.
- The industry questioned the need for “forced” change.
  - NAMFISA: There is no requirements for change just for the sake of it, but the market should be tested and service providers assessed regularly.4.3 Complaints Lodged with NAMFISA

Last five quarters – 153 complaints

Last five quarters – 153 complaints
26 complaints in the last quarter (Oct-Dec 2023)
11 resolved in favour of the complainants
Eight resolved in favour of funds
N$ 2.3m paid to complainants in the last quarter
Complaints:
1. Non-payment of pension benefits (S.37D – employer requesting fund to withhold benefits)
2. Non-payment of death benefits (beneficiaries not understanding s.37C and the fiduciary duty of the fund.
3. Dispute – correctness of amount paid (lack of communication)
4. Non-cancellation of a policy (terms and conditions not well explained)
5. Fraudulent policy (issued without complainant consent)
6. Service not delivered/acceptable (lack of communication)

Circular MCD/2/2023 complaints handling procedure issued 20 December 2023.

4.4 Regulatory Framework Update

Update on three draft standards

Six hundred and one comments were received from the industry.
GEN.S.10.10 was presented to EXCO on 30 January 2023 and will be submitted to the Board now
Fit and Proper and Treating Customers Fairly standards were presented to EXCO on 27 February 2024 and will now be submitted to the Board.

NAMFISA will publish all comments after final deliberation.Standards will only be published once FIMA is implemented.
These are the last standards issued before FIMA will be implemented.

6. Other matters:

Industry question: Can long-term insurer brokers also be exempted from FIA requirements like short-term insurance brokers?
- NAMFISA answer: A broker who exclusively deals with annuities or pension products can be excluded from FIA. Life products cannot be excluded.

NEWS FROM THE MARKET

M&G CEO leaves

M&G informed its stakeholders of the resignation of its CEO, Chris Sickle. In November 2021 Sickle replaced Bernard Fick, who resigned as CEO after 14 years at the company, then called Prudential Portfolio Managers. Group Chief Risk Officer for M&G Group, Marius Botha, will serve as interim CEO.

NEWS FROM RFIN

RFIN’s trustee training calendar

The RFIN website is a valuable resource for pension fund trustees and other industry stakeholders. It will be worth your while rummaging around on it here…

If you missed the RFIN’s latest quarterly newsletter, find it here…

LEGAL SNIPPETS

More on withholding of a benefit in Kutting vs Old Mutual

KUTTING SA (PTY) LTD, the complainant, requested the Old Mutual Superfund Provident Fund to withhold the withdrawal benefit of their former employee, Mr J Mabunda. This request was made under section 37D(1)(b)(ii) of the Act due to alleged debts incurred by Mr Mabunda, including a substantial stock loss and a loan obtained under false pretences.

Facts of the Case (as Established by the Adjudicator):

1. Employment and Membership:

Mr J Mabunda was employed by KUTTING SA (PTY) LTD from 18 June 2018 until 30 June 2021.
He became a member of the Old Mutual Superfund Provident Fund on 1 February 2019 .

2. Withdrawal Benefit and Withholding:

Upon Mr. Mabunda's exit from the fund, a withdrawal benefit became due.
KUTTING SA (PTY) LTD requested the fund to withhold Mr Mabunda's benefit under section 37D(1)(b)(ii) of the Act due to alleged debts.
The alleged debts included:
Massive stock loss due to alleged theft: R44 913
Loan obtained under false pretences: R9 000
Other debts, as listed in the Acknowledgement of Debt (AOD).
The total outstanding debt was R53 913, and Mr Mabunda had a fund credit of R50 653.

3. Acknowledgement of Debt (AOD):

Mr Mabunda signed an AOD admitting liability for various amounts, including:
- Notice period not worked: R15 433.60
- Salary advance from 25-31 May: R2 849.28
- Stock loss in February 2021: R25 242.09
- Stock loss in May 2021: R19 671.58
- Traffic fine: R470.00
- Damage to company vehicle: R4 350.00
- Unpaid delivery note: R5 444.48
- Loan repayment: R9 000.00
- Lost company cell phone: R2 500.00
- Repayment of issued PPE: R1 800.55
The fund could not affect the AOD, as Mr Mabunda disputed it.
Mr Mabunda alleged that the complainant had recovered the damages from its insurance.

4. The Fund’s Rules

The FUND may also reasonably withhold payment of a portion or the whole of any benefit payable in respect of a MEMBER or a BENEFICIARY provided that:
a) The amount of benefit so withheld does not exceed the amount that may be deducted in terms of the ACT;
b) The FUND is satisfied that the PARTICIPATING EMPLOYER has established a prima facie case against the MEMBER concerned;
c) The FUND is satisfied that the PARTICIPATING EMPLOYER is not at any stage responsible for any undue delay in the prosecution of the proceedings;
d) Once the proceedings have been finally determined by a competent court of law, or settled or withdrawn, any benefit amount to which the MEMBER or BENEFICIARY is entitled and which was withheld is paid immediately.
The complainant confirmed that it is not insured for stock losses, and no claim was submitted to its insurance company. It provided a letter from its insurance confirming the same.

Adjudicator's Analysis and Determination:

The Adjudicator reviewed the relevant section 37D(1)(b)(ii) of the Act. Deducting amounts due to an employer for damages caused by theft, dishonesty, fraud, or misconduct is permissible. Rationalising this conclusion, the Adjudicator stated that on a plain reading of the provision, section 37D(1)(b)(ii) does not authorise the withholding of a member’s benefit where he is potentially liable for theft, fraud or misconduct against the employer. However, the Supreme Court of Appeal (“SCA”) in the matter of Highveld Steel and Vanadium Corporation Ltd v Oosthuizen [2009] 1 BPLR 1 (SCA) held at paragraph [19] that: “Such an interpretation would render the protection afforded to the employer by section 37D(1)(b) meaningless, a result which plainly cannot have been intended by the Legislature. It seems to me that to give effect to the manifest purpose of the section, and its wording must be interpreted purposively to include the power to withhold payment of a member's pension benefits pending the determination or acknowledgement of such member's liability.
The Adjudicator found that the following amounts listed on the AOD were permissible for deduction:
- Notice period not worked: R15 433.60
- Salary advance from 25-31 May: R2 849.28
- Stock loss in February 2021: R25 242.09
- Stock loss in May 2021: R19 671.58
- Traffic fine: R470.00
- Damage to company vehicle: R4 350.00
- Unpaid delivery note: R5 444.48
- Loan repayment: R9 000.00
- Lost company cell phone: R2 500.00
- Repayment of issued PPE: R1 800.55
However, the Adjudicator found that the claim for the massive stock loss due to alleged theft (R44 913.67) and the loan obtained under false pretences (R9 000.00) were also permissible for a deduction based on Mr Mabunda's admission of liability in the AOD.
The Adjudicator concluded that the complainant was entitled to withhold Mr Mabunda's withdrawal benefit to cover these amounts.

Determination:

The withholding of Mr Mabunda's withdrawal benefit is lawful.
The fund is ordered to deduct the following amounts from Mr Mabunda's fund credit and pay them to the complainant:
- Notice period not worked: R15 433.60
- Salary advance from 25-31 May: R2 849.28
- Stock loss in February 2021: R25 242.09
- Stock loss in May 2021: R19 671.58
- Traffic fine: R470.00
- Damage to company vehicle: R4 350.00
- Unpaid delivery note: R5 444.48
- Loan repayment: R9 000.00
- Lost company cell phone: R2 500.00
- Repayment of issued PPE: R1 800.55
The fund should then pay Mr Mabunda any remaining balance of his fund credit.

Read the determination, here…

SNIPPETS FOR THE PENSION FUND INDUSTRY

What happens to a living annuity if there is no will?

This article suggests it is very important to align investment choices with individual financial goals, particularly in the context of retirement planning. It warns against common investment pitfalls that can lead retirees into financial difficulty during their retirement years.

Firstly, it cautions against overspending on luxurious houses, which may result in excessive mortgage debt, especially for retirees with modest incomes.

Secondly, it advises against investing in cryptocurrencies, highlighting their volatile nature and potential for significant losses.

Thirdly, it suggests diversifying away from holding too many company shares, emphasising the need for a balanced portfolio and avoiding emotional investment decisions. Additionally, it warns against relying too heavily on property investments, which may lack liquidity and income generation during retirement.

The article also discourages single-strategy portfolios, advocating instead for a diversified approach to mitigate risk. It advises against investing in souvenirs or collectibles, which typically offer low liquidity and uncertain returns.

Lastly, it cautions against financially supporting family members at the expense of one's own retirement savings, emphasising the importance of preserving capital.
In conclusion, the article underscores the need for careful consideration of investment choices and alignment with individual financial circumstances and goals. It stresses the importance of seeking guidance from experienced financial planners to navigate the complexities of retirement investing effectively.

Read the article by Michael Haldane in Moneyweb here…

Six rules of thumb to save enough for retirement

In this article, the two commentators answer the following three questions:

Is there a difference between a living and a life annuity?
Must a living annuity be declared in a person’s will as a means of income for whoever might be nominated to take over?
Can the state take over the living annuity payments if there is no will?

Living vs. Life Annuities:

Living Annuities: Francois le Clus explains that a living annuity offers flexibility in fund choice and income levels. Investors take on investment and longevity risks. They can select from various investment components tailored to their strategy and change income levels annually. The income is restricted between 2.5% [Namibia – 5%] and 17.5% [Namibia – 20%] of the total investment value. Upon death, nominated beneficiaries can choose a lump sum withdrawal, remain invested in the annuity, or combine the two. The death benefit becomes part of the deceased's estate if no beneficiaries are nominated.
Life Annuities: Craig Torr describes a life annuity as an insurance-based investment guaranteeing income for life. The insurer takes on investment and longevity risks. Annuities do not outlive the annuitant. With a life annuity, the investor can choose a single life or joint-life option. In the case of a joint life annuity, payments continue until both annuitants pass away. If a guarantee term is chosen, beneficiaries will continue to receive monthly payments until the end of the guarantee period. If the last annuitant dies before the end of the term, some insurers pay a lump sum or continue payments until the term ends. Without a guarantee term, payments cease upon the last annuitant's death.

Treatment of Annuities on Death without a Will:

Living Annuities: Francois le Clus mentions that nominated beneficiaries receive the investment value upon the annuitant's death. If no beneficiaries are nominated, the annuity becomes part of the estate and is distributed according to the will or Intestate Succession Act. [In Namibia, Inland Revenue Practice Notes 1 of 1996 and 1 of 1998 prescribe that the balance of the capital must be paid as a life annuity over a minimum of five years at a draw-down rate of not less than 5% and more than 20% of the capital, as determined on the anniversary date.]
Life Annuities: Craig Torr explains that a life annuity's remaining funds typically go to the insurer upon the annuitant's death unless provisions for a spouse or additional or another beneficiary are in place. Some life annuities may pay a portion of the income to the surviving spouse or other beneficiary until their death.

Key Points from Both Commentators:

Both emphasise the importance of understanding the differences between living and life annuities to make informed decisions.
For living annuities, nominating beneficiaries is crucial to minimise estate costs.
For life annuities, individuals should ask insurers about options for beneficiaries and additional policies.
A valid will is essential to ensure proper estate distribution regardless of the annuity type chosen.

In conclusion, both commentators advise readers to carefully consider their needs and the features of each annuity type before making a decision. They stress the significance of nominating beneficiaries and having a valid will to ensure that assets are distributed according to their wishes.

Read the article in Moneyweb of 6 February 2024 here...

The free lunch from guarantees may come at a hefty cost

In this article, retirement annuities are presented as an alternative to trusts in estate planning and financial management. It highlights the complexities and costs associated with managing a trust and suggests that retirement annuities can serve as effective substitutes. Retirement annuities offer tax advantages and are powerful tools for estate planning, aiming to foster asset growth outside of one's estate.

The recent increase in tax deduction limits and the allure of tax-free investment growth make retirement annuities an appealing option. Despite differences, retirement annuities and trusts share benefits such as protection against creditors, asset growth outside the estate, and fiduciary duties. However, there are liquidity restrictions associated with retirement annuities, requiring careful financial planning.

The decision between a retirement annuity and a trust depends on individual financial goals, estate planning needs, and tax considerations. Consulting with a financial or estate planning professional is crucial to tailor the decision to one's specific circumstances and ensure a comprehensive and aligned financial strategy. The article emphasises the importance of seeking advice from certified professionals in navigating the complex financial landscape.

Read the full article by Wouter Fouries of Ascor Independent Wealth Managers in Moneyweb of 12 February 2024 here…

SNIPPETS OF GENERAL INTEREST

Key risks for directors and officers

This article highlights the increasing liability risks board members and company executives faced in 2024. Factors such as economic pressures, geopolitical issues, the implementation of innovative technologies like GenAI, and environmental, social, and governance (ESG) challenges contribute to the possibility of lawsuits against companies and their Directors and Officers (D&Os).

While D&O insurance buyers have seen favourable pricing and broader coverage up to 2023, risks remain significant. Inflation, higher settlement values, increased defence costs, rising insolvencies, geopolitical uncertainty, cyber risks, and ongoing ESG challenges pose substantial risks to D&Os and their insurers.

The article emphasises the need for D&Os to be prepared for these challenges and have adaptable strategies. It also mentions the importance of diversity in the boardroom to enable varied approaches to problem-solving. Economic growth remains disappointing globally, with an expected rise in business insolvencies by 10% in 2024. Inflationary pressures, debt refinancing challenges, and scrutiny of capital expenditure decisions add to the difficulties companies and their leadership face.

Geopolitical risks are also highlighted, including the war in Ukraine, Middle East conflicts, and worldwide tensions. Political risk was at a five-year high in 2023, placing pressure on directors to ensure their companies can withstand business interruptions and ensure employee safety, especially in higher-risk territories.

Lastly, the article discusses GenAI (generative artificial intelligence), describing its impact on business processes. A third of organisations regularly use GenAI in at least one business function, indicating its growing importance in corporate operations and decision-making.

Read the full article by Vanessa MaxwellGlobal, head of financial lines and Allianz Commercial, in the January edition of the Cover magazine, here…

Advice for becoming a self-disciplined person

This article discusses the challenges of driving change in organisations. It presents insights from a Harvard Business School webinar by Frances Frei and Anne Morriss on leveraging storytelling for bold change, based on their book "Move Fast and Fix Things."

The authors highlight four ways to use storytelling for organisational change:

Understand deeply describe simply: Understanding and explaining a subject in simple terms is crucial. The test is whether others can convey the message as intended, emphasising the importance of simplicity in communication.
Honour your past and acknowledge the good parts of your history: When driving change, it's essential to acknowledge the positives from the past. Not everything needs to change; even problematic aspects often had valid reasons initially.
Articulate a mandate for change: The authors use Domino’s Pizza as an example, where the new CEO, Patrick Doyle, displayed customer comments on a digital billboard in Times Square to galvanise the organisation for change. This bold move created urgency and spurred action.
Lay out a rigorous and optimistic path forward: Rigor must be paired with optimism. Optimism without rigour lacks credibility, and rigour without optimism is demoralising. The example of Ørsted, a Danish firm's transformation into a renewable energy leader, illustrates this balance.Overall, the article emphasises the power of storytelling to drive organisational change effectively, highlighting the importance of simplicity, acknowledging history, creating urgency, and balancing rigour with optimism.

Read the full article in the Harvard Business Review magazine November - December 2023, here…

AND FINALLY...

Wise words from wise men

The insights of ancient philosophers still resonate today and offer timeless wisdom on the relationship between money, virtue, and well-being.

“Not what we have, but what we enjoy, constitutes our abundance.”

~ Epicurus (341 BC – 270 BC)

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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.