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In this newsletter:
Benchtest 04.2021, FIMA and risk benefits, FIMA and the Income Tax Act and more...



NAMFISA levies

  • Funds with year-end of May 2021 need to have submitted their 2nd levy returns and payments by 25 June 2021;
  • Funds with year-end of November 2021 need to have submitted their 1st levy returns and payments by 25 June 2021;
  • andFunds with year-end of June 2020 need to submit their final levy returns and payments by 30 June 2021.
Pension fund governance - a toolbox for trustees
  • Download the privacy policy here...
  • Download a draft rule dealing with the appointment of the board of trustees here...
  • Download the code of ethics policy here...
  • Download the generic communication policy here...
  • Download the generic risk management policy here...
  • Download the generic conflict-of-interest policy here...
  • Download the generic trustee performance appraisal form here…
  • Download the generic investment policy here...
  • Download the generic trustee code of conduct here...
  • Download the unclaimed benefits policy here...
  • Download the list of fund service providers duly registered by NAMFISA here... 
  • Download the Principal Officer performance appraisal form here...
  • Download the revised service provider self-assessment here...

Registered service providers
UPDATED May 2020


Certain pension fund service providers need to be registered by NAMFISA and need to report to NAMFISA regularly

These service providers are:-

  • Registered Investment Managers
  • Registered Stockbrokers
  • Registered Linked Investment Service Providers
  • Registered Unit Trust Management Companies
  • Registered Unlisted Investment Managers
  • Registered Special Purpose Vehicles
  • Registered Long-term brokers
  • Registered Long-term insurers

If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...

Check out our retirement calculator


Our web based retirement and risk shortfall calculator has been enhanced and updated to assist you to determine how much you should contribute additionally, either by way of lump sum or regular salary based contribution, to get to your target income at retirement, death or disablement.

Try it out. Here is the link...


If you need any assistance with your personal financial planning, you are welcome to get in touch with Annemarie Nel (tel 061-446 073) or with Kristof Lerch (tel 061-446 042)



Dear reader

In this newsletter we address the following topics:

 In ‘Tilman Friedrich’s industry forum’ we present:

  • FIMA bits and bites – what benefits may a retirement fund offer?
  • FIMA bits and bites – will the Income Tax Act be aligned in time?
  • FIMA bits and bites – housing loans: what’s different?
  • Why the prudential balanced portfolio is the answer for pension funds

In our Benchmark column, read about new employers who have joined the fund.

In ‘News from RFS’, read about:

  • RFS renovates Eros Girls’ School
  • RFS welcomes new staff
In ‘Legal snippets’ read about:
  • Fund forms and the Electronic Transactions Act
  • Death of a retired member – how to dispose of remaining capital
  • Withholding of withdrawal benefit – trustees must consider all facts of civil litigation by employer

In media snippets, read about:

  • Mentally prepare for retirement: 21 tips – Part 5
  • No cheap lunch in cash and money market funds
  • Be the fire and wish for the wind
  • How to prevent [and handle] unethical situations at work
...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



Monthly Review of Portfolio Performance
to 30 April 2021


In April 2021 the average prudential balanced portfolio returned 1.5% (March 2021: 0.6%). Top performer is Hangala Prescient Absolute Balanced Fund with 2.4%, while Allan Gray Balanced Fund with 0.7% takes the bottom spot. For the 3-month period, Hangala Prescient Absolute Balanced Fund takes the top spot, outperforming the ‘average’ by roughly 1.8%. On the other end of the scale Investment Solutions Balanced Growth Fund underperformed the ‘average’ by 1.4%. Note that these returns are before (gross of) asset management fees.

The Monthly Review of Portfolio Performance to 30 April 2021 provides a full review of portfolio performances and other interesting analyses. Download it here...


Understanding Benchmark Retirement Fund Investments

In the next few issues of our monthly Performance Review, I will be providing background and guidance on investments to assist Benchmark Retirement Fund members to take charge of their fund investments.
  • Parties to fund and their roles and responsibilities
  • Investment choice and return objectives
  • Investment range and portfolio composition
  • Performance characteristics of asset classes and portfolios
  • The default portfolio
  • The default portfolio vs the smooth growth portfolio
  • Income replacement ratio and contribution rates
  • Selection of investment managers
  • Combining investment portfolios and when to switch
  • Investment manager risks and manager diversification
  • Performance measurement
In this issue I will cover the following topics:
  • Parties to fund and their roles and responsibilities
  • Investment choice and return objectives
  • Investment range and portfolio compositio
Read part 6 of the Monthly Review of Portfolio Performance to 30 April 2021 to find out what our investment views are. Download it here...

FIMA bits and bites – what benefits may a retirement fund offer?

As we understood a side remark by a senior official of NAMFISA at the instance of a recent meeting, FIMA may actually prohibit retirement funds to offer ancillary benefits like funeral cover, death benefits or disability benefits. If true, this is a shocker! We all know that FIMA is charting new waters and I have repeatedly expressed my concern about the years of legal uncertainty we are facing with these new laws, turning the financial services industry upside down in an unprecedented legal revolution. The problem we are faced with is that NAMFISA may have its own interpretation and a legal expert may have another interpretation, while a court may finally conclude differently and only once a court has pronounced itself will we know where we stand.

To interrogate this side remark, let’s start where one should start, namely the definitions. A ‘retirement fund’
“means an association of persons established with the objects of receiving, holding and investing contributions of individuals and their employers for the purpose of providing retirement benefits in accordance with the rules of the fund adopted for such purposes and includes such other funds as the Minister may prescribe by regulation;” A retirement fund in terms of regulation RF.R.5.1 lists as retirement funds: pension fund, provident fund, preservation fund and retirement annuity fund – all creatures of the Income Tax Act.
 
Since the definition of ‘fund’ in chapter 5 of FIMA also includes a beneficiary fund, the definition of ‘beneficiary fund’ is also relevant and reads – [it] “means any association of persons or any business carried on under a scheme or arrangement established with the object of receiving, administering, investing and paying, on behalf of beneficiaries, benefits as contemplated in, or in accordance with, section 276(2)(c), payable on the death of one or more member or members of one or more funds”
 
From the above it does indeed seem as if a retirement fund can only pay the fund credit while a beneficiary fund can only pay benefits received in terms of section 276 upon the death of a member.
 
This begs the question: where do ancillary benefits such as death benefits, disability benefits (lump sum and income benefits) and funeral benefits fit in?

The only other possible ‘financial institution’ one now can consider is the ‘friendly society’. The objects of a ‘friendly society’ as set out in section 285 of FIMA are very broad but include “the relief or maintenance during minority, old age or widowhood, or sickness or other infirmity, whether physical or mental, of members  or their spouses, widows, widowers, children or other relatives or dependants” (285(1)(a), “the granting of annuities, whether immediate or deferred, to members or their nominees or the endowment of members or their nominees” (285(1)(b), “the payment of a sum of money or other benefit to be paid or provided – (i) on the birth of a child of a member; (ii) on the death of a member or any person referred to in paragraph (a), which may be in the form of an endowment insurance on the life of the member or that person; towards the expenses incurred in connection with the death or funeral of a member or any person referred to in paragraph (a)” (285(1)(c). These are indeed benefits commonly provided by pension funds under the Pension Funds Act.
 
I do not profess to be an expert on FIMA at all and we have therefore approached Andreen Moncur, a pension funds lawyer who spent a lot of time on FIMA. Her opinion is as follows:

“When it comes to the demarcation of the types of business that retirement funds, beneficiary funds and friendly societies will be permitted to conduct under FIMA, I draw your attention to the definition of “retirement benefits” that reads as follows:

“ ‘retirement benefits’ means benefits payable to individuals on or after their retirement or on their disability, death or termination of employment prior to retirement or on separation from a retirement fund or to their survivors, dependants or nominees.”

Reading this definition with the definition of “retirement fund” does not mean that retirement funds can only pay fund credits. Neither “retirement benefits” nor “retirement fund” are prescriptive regarding the nature or type of benefits that may be paid. Within the Income Tax Act parameters and subject to the FIMA prescribed minimum benefits, retirement funds are free to decide what benefits they will offer on death or disablement. In other words, a retirement fund may offer the risk benefits provided for in its rules. Whether a retirement fund is approved as a pension fund, provident fund, preservation fund or retirement annuity fund will determine its benefit structure. The Income Tax Act determines if a retirement fund may pay a funeral benefit at all, a disability income benefit instead of a lump sum, an insured multiple of salary at death or a refund of contributions with interest. The word “investing” includes undertaking all the activities to enable a fund to pay the benefits provided for in the rules. Investing thus includes paying risk premiums to the insurer underwriting the risk benefits. A retirement fund “receives, holds and invests contributions” to provide the benefits promised in the rules, not to return the contributions to the member with interest, net of expenses.   If retirement funds are not allowed to provide benefits other than a member’s fund credit, there would be no need for:
  • RF.S. 5.4 prescribing what the rules must contain. Clause 3(i) requires a retirement fund’s rules to stipulate the nature and extent of the retirement benefits it offers. This requirement would be unnecessary if the benefit payable in all instances is fund credit;
  •  RF.S. 5.7 prescribing the minimum benefits every retirement fund must offer. Clause 17 of RF. S. 5.17 states, “Notwithstanding that this Standard identifies the minimum benefits that a fund must provide to its members, the board is required to identify, maintain and pay all fund benefits as provided for in the rules of the fund to the members of the fund, and not just those identified as minimum benefits.” Since the definition of “Minimum Individual Reserve” in RF.S. 5.7 virtually mirrors that of “Member’s Individual Account”; there would be no need for the Standard if a retirement fund can only ever pay the Member’s Individual Account as a benefit.
I also draw your attention to section 285(2)(b) of FIMA, dealing with the objects of a “friendly society”. Said section states that “An association or business is not a friendly society if any of the activities of the association or business are those of a retirement fund governed by Chapter 5.” I believe this section was deliberately inserted in FIMA because offering death and disablement benefits are the activities of a retirement fund. It is my considered opinion based on principles of statutory interpretation that a fund offering benefits that a friendly society may also offer will be able to register as a retirement fund if those benefits are retirement benefits as defined. Once so registered as a retirement fund, chapter 6 of FIMA is not applicable.”

FIMA bits and bites – will the Income Tax Act be aligned in time?

When NAMFISA invited comments on the FIMA for the first time a number of years ago, we raised the concern that FIMA needs to be aligned with the Income Tax Act, or vise-versa. Since FIMA explicitly overrides all earlier laws, it overrides the Income Tax Act (‘the ITA’). The implication is that Inland Revenue is faced with the daunting task of aligning the ITA with the FIMA. We are certainly not aware that Inland Revenue has started a project to align the ITA with the FIMA and we question whether FIMA can actually be implemented before the ITA has been aligned.

To demonstrate our doubts, take the following examples:
  1. The definition of pension fund, provident fund and retirement annuity fund require explicitly that these funds must be registered under the Pension Funds Act, 1956 for acquiring tax approval. Although the business of these funds, meet the definition of ‘retirement fund under the FIMA, and they are considered to be ‘retirement funds’ under the FIMA, and they therefore have to be registered under it, Inland Revenue cannot approve funds registered under the FIMA.
  2. The types of annuities a retirement annuity fund may provide under the FIMA include annuities other than life annuities that the ITA does not allow to be provided.
  3. A provider of an annuity can be any financial institution encompassed in the FIMA. Although Inland Revenue accepts that retirement capital may be paid to an insurer for the acquisition of an annuity, provided the rules of the paying fund oblige the fund member to purchase an annuity from another institution, it is doubtful that Inland Revenue is aware that funds may pay retirement capital to other financial institutions, recognized under the FIMA, such as a collective investment scheme, a trust, insurance company or a friendly society. From the tax perspective, retirement fund capital is untaxed money including contributions that were tax deductible. The ITA recognizes annuities provided from capital that was taxed already and makes concessions on the capital element of the annuity so as not to tax the capital twice. Since an annuity purchased with capital from a retirement fund had the tax concessions regarding contributions being tax deductible, and investment returns being tax free, and may not be taxed prior to being paid to such other financial institution, the annuity is fully taxable. When retirement capital from a retirement fund is paid to a financial institution that is taxable on income that constitutes gross income, such as trusts and insurance companies, the annuity will be fully taxable even though some of the income earned on the capital from which the annuity is paid, may have been taxed in the hands of the financial institution. This implies possible double taxation, which the ITA is trying to avoid as a matter of principle.
  4. FIMA provides for the preservation of retirement fund capital on early withdrawal from a retirement fund to preserve this capital in any recognised financial institution offering preservation products. The ITA does not recognise any institution for this purpose other than a pension fund, a preservation fund, a provident fund and a retirement annuity fund registered under the Pension Funds Act, 1956. The definition of gross income in the ITA explicitly considers a benefit due upon early withdrawal gross income, and only exempts this income in the event of it being transferred to one of the approved funds listed in the aforegoing. Any transfer to any other financial institution under the FIMA, even though the FIMA obliges members to preserve at least 75% of their benefit, will be taxed. When the capital is eventually paid out in the form of an annuity by such financial institution it will be taxed once again. This of course is against the principle of no double taxation.
FIMA bits and bites – housing loans: what’s different?

NAMFISA currently interprets the PFA to prohibit the deduction of an outstanding housing loan until a benefit becomes payable to the member. Under the FIMA an outstanding housing loan may be deducted from the member’s accumulated capital in the fund should the member default on his housing loan repayments.

Regulation RF.R.5.5 makes provision for the granting of loans. It explicitly states that no loan may be granted in respect of a right of occupancy by virtue of the operation of an agreement of lease or 'similar temporary measure'. Furthermore, only one loan may be granted at a time. This is understood as referring to the property in respect of which the loan is granted. A second advance or increase in an existing loan in respect of the same property should be in order, but not loan may be granted in respect of a property if a loan was granted to the member in respect of another property. The loan amount that may be granted may not exceed the lowest benefit in terms of the rules, net of income tax and the fair value of the property. As we pointed out in this column in last month’s newsletter, this effectively reduces the loan to 16% of the member’s fund credit in a pension fund and to 63% in a provident fund as opposed to the current maximum of 33% in a pension fund and 63% in a provident fund.

Section 277 provides scope for other loans “…as prescribed by the regulations…” as well. Currently there is only one regulation, RF.R.5.5 that makes reference to loans, being housing loans specifically, as referred to in the aforegoing and to loans that may not be made, namely loans to, or investment in shares in an entity controlled by an officer or member of the fund, or by a member of the board or a director of a participating employer or of any of its subsidiaries. This indicates that further regulation/s will be forthcoming that deal with other loans.


Why the prudential balanced portfolio is the answer for pension funds

A typical statement made by fund members, in particular when markets are not doing so well, is that the Benchmark Default portfolio has been performing poorly over the past so many years and one should have rather been invested in the money market.

Well, when someone makes such a statement, one needs to establish what the commentator’s benchmark is for saying that the portfolio has been doing poorly. One also needs to understand what this portfolio aims to achieve before one can put such a statement into context. This statement is similar to saying ‘my Ferrari’s fuel consumption is horrific’. Really an empty statement when made out of context. The fuel consumption of a Ferrari will certainly be significantly higher than that of a 1.4 litre Golf TSI. Would you not have expected this, when comparing the technical specs of these two cars, particularly in terms of engine output? It’s simply an unreasonable comparison and a matter of ‘horses for courses’!

The default portfolio’s technical specs are those of the typical prudential balanced pension fund portfolio, having been a significantly more conservative portfolio to the end of 2010. The portfolio’s technical specs have changed to mirror those of the prudential balanced portfolio only since the beginning of 2011. Due to the fact that the default portfolio comprises of 3 different portfolios, its performance should mimic the performance of the average prudential balanced portfolio. This it does by-and- large. Cumulatively, an investment of N$ 100 in the default portfolio since its restructuring at the end of 2010, would be worth N$ 285 while the same investment in the average prudential balanced portfolio would be worth N$ 268 at the end of January 2021. That out-performance of the default portfolio was not by design, but rather by coincidence. The fact that the portfolio is currently structured more conservatively than the average prudential balance portfolio, with an equity exposure of only around 45% vs the average prudential balance portfolio’s 65%, has benefited it over the past 11 years and is the result of high market volatility and poor performance of equities relative to other asset classes. This more conservative structure is by design in the face of market volatility.

Relative to what the default portfolio is designed for, namely mimicking the average prudential balanced portfolio, one clearly cannot say that the portfolio has performed poorly, in fact over the past 11 years it has actually done slightly better that what may be expected. Over the past 10 years to end of January 2021, both the default portfolio (annualised return of 10.8%) as well as the prudential balanced portfolio (annualised return of 10.3%) out-performed the All-bond Index (annualised return of 10.1%), equities (annualised return of 7.1%), money market (annualised return of 6.8%) and listed property (annualised return of minus 2.6%). These returns were as at specific point in time and the picture will change if one looks at different points in time. These two portfolios’ 10-year returns were not far short of the annualised return on gold of 11.4%. There will be other specialist portfolios that have out-performed these portfolios. For example, an investment in the S&P 500 index would have yielded 19.5% in Rand terms, excluding dividends, or about 21.7% including dividends, helped on by an annualised Rand depreciation by 7.7%. Property was hailed as the answer for quite some time, but where property markets are today, we do not even have to take this topic any further!

Measuring investment performance on a point in time basis is always extremely misleading as the performance depends on when the period measured starts and when it ends and just one month can make a significant difference. For this reason, I believe it is much more illuminating to look at relative rolling return performance. Graph 6.1 reflects rolling returns over time relative to the average prudential balanced portfolio. It reflects the volatility of the different lines and how they perform relative to each other. Anyone who wants to assess whether or not an investment has performed well, needs to first establish the context within which he/she then can determine whether the performance was good, bad or indifferent and that is what these rolling return performance graphs do.

Graph 6.1


This graph establishes the context as being the relative cumulative performance of the average prudential balanced portfolio. This is reflected as the yellow line on 100%. The actual annual performance of this notional portfolio over this period from August 2002 to January 2021 was 13%. Annual inflation over this period was 5.3%. The notional portfolio has thus out-performed the inflation by 7.7% per year! Now, let’s look at the blue line, representing the JSE Allshare index. An investment in this index would have only been ahead of the notional portfolio from February 2006 to August 2008. Before and after that short period of out-performance, the JSE Allshare index never managed to produce a cumulative out-performance of the notional portfolio, ending up 25% below the notional portfolio at the end of January 2021. Neither did any of the other asset classes. In order of cumulative under-performance, the graph shows that the Allbond Index under-performed the notional portfolio by 38% and right at the bottom, money market with an under-performance of 64%, cumulatively to the end of January 2021.

For those investors who question from time to time why the Benchmark Default portfolio was not moved to money market instead of being invested in prudential balanced portfolios, mimicking our notional portfolio above, one needs to ask: When would you have moved to money market and when would you have moved back to the prudential balanced portfolio? I believe we are all agreed that the prudential balanced portfolio in the long-run substantially outperforms the money market as also evidenced by graph 6.1 above, be it only over a close to 20-year period. Clearly, with hindsight one can say that only when the red line moves up, the money market out-performed the notional portfolio cumulatively. As the graph shows, these times were only short spells, the longest one having lasted from October 2007 to April 2009.


Conclusion

From this deliberation, it should be evident that the average prudential balanced portfolio has actually done very well and their managers can only be complimented for managing the balance between the various asset classes very effectively, in the face of highly volatile markets. These portfolios can also be employed by private investors with their discretionary capital. I would recommend that unless the investor has money ‘to play with’ that he can expose to higher risk and he understands the risk and manages the portfolio actively, the prudential balanced portfolio is your best bet. These managers all manage to the good old fashioned investment principle to not put all your eggs in one basket, but diversify your risk by spreading it across assets and asset classes as widely as possible. They also spread their investment globally and they have the mechanisms in place to switch and move swiftly where circumstances require, unlike the individual investor who will first have to establish what all the legal and regulatory requirements are before he/she can implement a decision. Of course, your time horizon is important and our commentary above deals with people who invest with a time horizon of at least 3 years.


What is important to realise though, is that the investment portfolios are likely to behave differently after the change in the business model to what it was before, meaning that one cannot apply the same criteria to an evaluation of performance after the change that one has applied before the change.
 
Tilman Friedrich is a chartered accountant and a Namibian Certified Financial Planner ® practitioner, specialising in the pensions field. Tilman is co-founder, shareholder and Chairman of the RFS Board, and retired chairperson, and now trustee, of the Benchmark Retirement Fund.
 

 

Compliment from payroll manager of a large company
Dated 25 March 2021

“Og!! Jys n AGTERMEKAAR vrou!! Thank you for your service.

Read more comments from our clients, here...


 
The Benchmark Retirement Fund welcomes new participating employers

Benchmark Retirement Fund takes further strides on its course to become the biggest retirement fund in Namibia (just joking... it will never get anywhere close to the GIPF). Nevertheless, it could by now be the 4th largest fund in Namibia in terms of assets under management, including the GIPF, thanks also to the latest sign of confidence by Letshego Bank and Unitrans, that have taken the decision to join the Fund. We welcome Letshego Bank and Unitrans and their staff and look forward to a long and smooth journey into the future and to serving you beyond expectation for many years to come!
 
Günter Pfeifer is Principal Officer and was formerly a trustee of the Benchmark Retirement Fund. He holds a Bachelor of Commerce (Cum Laude). He completed his articles with Deloitte & Touche. He completed the De Beers ‘Program For Management Development’ at Gordon Institute for Business Science, and the Advanced Development Program at the London Business School. He was formerly Financial Manager of De Beers Marine.
 


RFS welcomes new staff
 
RFS welcomes on its permanent staff from 1 May 2021, Kredula Amutenya who joined the company at the beginning of November 2020! Kredula grew-up in Windhoek and matriculated at Concordia College in 2009. She studied at NUST, initially on a full-time basis after school, but later on a part-time basis. She obtained an Honours Degree in Business Management in 2017. As student she did holiday work at Hope Real Estates and also at the National Planning Commission. She started her formal working career at Entrepo Finance as a loan consultant in 2014. She resigned in 2016 from Entrepo to join MMI as a Fund Administrator in the employee benefits department. Kredula assumed a portfolio of clients in the Benchmark division and will apply all her skills and competence to service her clients beyond their expectation! We wish her a long and rewarding stay and career at RFS!
 

Long service awards complement our business philosophy

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

The following staff member celebrates her 15 years work anniversary at RFS on 1 June 2021! We express our sincere gratitude for her loyalty and support over the past 15 years to:
  • Hilde Towe
RFS renovates Eros Girls’ School

Some organisations prefer to blow their bugle about the sums of money spent on their social responsibility programmes. Typically, that is the ‘easy way’ – blow the shareholders’ moneys and make yourself look good.
 
This is not RFS philosophy. We support efforts of our staff or their families, who personally engage with their time and resources in projects that benefit their communities. In this manner our Louis Theron, whose wife teaches at Eros Girls’ School, took it upon himself to purchase material and supervise renovation work on a number of classrooms of Eros Girls’ School, with a significant financial contribution by RFS and supported by Neo Paints. And while at it, Louis managed to convince his fellow shareholders to donate a number of intelligent terminals and screens that were decommissioned by RFS.

 
   

Important administrative circulars issued by RFS

RFS has not issued any fund administration related circulars to its clients over the last month.

 


Fund forms and the Electronic Transactions Act
A contribution by Carmen Diehl, senior manager: projects and fund accounting

Questions:
  • Is an original signed hard copy document required where retirement fund members complete fund forms online?
  • Is the electronically completed document legally binding?
  • What needs to be taken into account in order to roll out electronic fund forms?
Background:

Due to the advances in technology and the efficiencies that come with it, there is a general move away from paper documentation and towards online forms or electronic fund forms. In addition, the increased interaction by the fund with its members as required by various FIMA provisions also necessitates a move towards electronic communication in order to keep the resulting cost increases to a minimum.

For example, in terms of Standard RF.S.5.9 Compulsory beneficiary nomination forms, “members are entitled to amend their beneficiary nomination forms at any time by completing a new beneficiary nomination form, in which case any and all preceding beneficiary nomination forms will be invalid and of no force and effect” (section 6). Compliance with this requirement will be much more efficient if the member can complete an online electronic beneficiary nomination form that will automatically supersede the previous version.

Examples of electronic fund forms include: Beneficiary nomination forms; switching instructions (investments, contribution categories etc); exit/ withdrawal forms; new member application forms; etc.

The Electronic Transactions Act, 2019 was promulgated on 29 November 2019 and came into operation on 16 March 2020. The general purpose of this Act is, among others, to provide for a general framework for the promotion of the use of electronic transactions in the Republic of Namibia and to provide for the legal recognition of electronic transactions.
 
This Act was therefore studied in order to reach a conclusion on the questions above.
 

Conclusion:

Electronic forms are legally binding and fund forms can be converted to electronic forms, subject to the following:
 
It should be established whether any of the excluded laws (as defined) apply to the fund form. If so, a signed hard copy document might be required instead of/ in addition to the electronic form.

The information must remain complete and unaltered from the time when it was first generated in its final form in order to qualify as ‘original’ documentation. The information as entered by the member and confirmed when submitting the document should not be able to be altered afterwards, not by the member or anyone else. Access should be restricted to the member’s account via personalised username and password.

In terms of s17(2), persons may by agreement regulate the effect, use and requirements for data messages as it relates to dealings among themselves. This should form part of the new fund/ employer/ member application forms and agreements. Access should be restricted to the member’s account via username and password. The member should acknowledge in writing to the fund that he/she understands that it is the member’s responsibility to not share the username and password. 


Death of a retired member – how to dispose of remaining capital
 
A number of defined contribution pension funds pay a lump-sum benefit equal to the remaining capital, in the event of the death of a person who retired in the fund and was in receipt of a pension. The rules would describe how this remaining balance is to be calculated. The rationale for this benefit is the principle of the member retaining ownership of his or her retirement capital when he or she passes away after retirement.
 
When the pensioner then passes away, the rules will have to be followed by the trustees in disposing of the remaining capital. Therefore, if the rules say that the remaining capital must be paid as a lump-sum, that is what should happen. However, this is not consistent with NAMFISA opinion and a circular it issued nor is it consistent with the Income Tax Act though.
 
NAMFISA is of the opinion that this capital must also be distributed in accordance with section 37C and that is what the trustees have done. The Income Tax Act states that at least 51% of the benefit must be paid as an annuity of which one-third may be commuted tax-free.
 
The trustees are faced with the dilemma that if the benefit is paid in a lump-sum as prescribed by the rules, the payment will be inconsistent with Income Tax Act and may lead to tax approval of the fund being revoked by Inland Revenue. If the benefit/ at least 34% of the benefit, is paid as an annuity, the trustees are in breach of the fund’s rules and can be challenged by the beneficiary/ies. The trustees are thus in an awkward position. The only way out is to amend the rules so that they are consistent with the NAMFISA circular and the Income Tax Act.
 

Withholding of a withdrawal benefit – trustee must consider all facts of civil litigation

This case deals with a complaint by JAE de Beer (the Complainant) versus Iliad Provident Fund (the Fund), Alexander Forbes Financial Services (the Consultant) and Steinhoff Doors and Building Materials (the Employer).
 
De Beer complained that the Fund had withheld his withdrawal benefit in terms of section 37D(1)(b)(ii) of the PFA.
 
While section 37A of the Pension Funds Act offers strong protection of a member’s benefit, it provides for certain exceptions, the relevant provisions in this case are set out in section 37D(1)(b)(ii).
 

Section 37D(1)(b)(ii) provisions

Note that this section is verbatim the same as the equivalent section in the Namibian act.

A registered fund may-
  • deduct any amount due by a member to his employer on the date of his retirement or on which he ceases to be a member of the fund, in respect of-
    • compensation (including any legal costs recoverable from the member in a matter contemplated in subparagraph (bb)) in respect of any damage caused to the employer by reason of any theft, dishonesty, fraud or misconduct by the member, and in respect of which-
      • (aa) the member has in writing admitted liability to the employer; or
      • (bb) judgment has been obtained against the member in any court, including a magistrate's court,
      • from any benefit payable in respect of the member or a beneficiary in terms of the rules of the fund, and pay such amount to the employer concerned;
Facts of complaint

The complainant was employed as a General Manager of the Employer for 9 years from 23 April 2008 until8 April 2016. In April 2016 he was investigated for authorising the supply of building supplies to a customer in contravention of the rules of the Employer. The employer consequently opened a criminal case against the complainant after it became evident that the company failed to pay its outstanding invoices for good supplied to a customer during August and September 2015. The Employer informed the complainant that it was contemplating disciplinary action against him in April 2016. The disciplinary hearing was scheduled for 14 April 2016, but complainant resigned on 8 April 2016.
 
Complainant admitted to the tribunal that he had indeed supplied goods to the customer in excess of its credit facility and in contravention with the Employer’s rules. He explained that he kept records of all goods supplied in this manner and agreed with the customer to supply goods to the customer in the manner he had been purchasing from the employer for the past 9 years. Complainant further explained that the customer visited the business premises of the Employer at least once a week to make payments for goods supplied, including regular settling of his outstanding account. The Complainant submitted that he had authorised the supply of goods to the customer for about one and a half year and monitored all payments made. These were always made punctually. However, in September 2015, the customer advised the Complainant that his vendor was blocked from providing the goods to certain mines as the result of a contractual dispute and therefore could not settle his outstanding invoice for goods supplied during August and September 2015 by the customer.
 
Complainant submitted that he gave his full cooperation to the Employer in its investigation. Employer ordered two forensic investigations and both reports supported Complainant’s version. The Employer threatened to prosecute complainant for colluding with the customer, alleging that Complainant had an interest in the customer’s business and that he was receiving benefits and hunting trips from the customer. Complainant denied all these allegations but admitted that he had established a good relationship with the customer. He did not derive any benefit from the supply of goods to the customer and submitted that he had not admitted liability for the amounts to be recovered from the customer nor did he sign any acknowledgement of liability and that the Fund thus was not justified to withhold his benefit in terms of Section 37D(1)(b)(ii). He submitted that these developments caused a complete breakdown of the employment relationship and as a result he tendered his resignation w.e.f. 8 April 2016. He stated that there is no basis on which the Employer will succeed in proving any fraud or theft against him as he did not wilfully deceive the Employer regarding the customer’s account. Complainant submitted that the Employer had applied for liquidation of the customer to recover the debt in accordance with its standard practice. Had the Employer intended to recover the debt from him, it should have joined him in civil proceedings against the customer.
 
The Consultant submitted to the tribunal that it had established that the Employer opened a case with SAPS with a view to obtain judgement against the complainant and that the Employer had consequently requested the fund to withhold payment to the Complainant, as provided for in the rules of the Fund. The withdrawal benefit of R 245 907 was substantially less that the amount of N$ 654 000 the Complainant allegedly owed the Employer. The criminal case was later transferred to another police office for investigation by the Hawks, due to the value of the alleged theft.
 
No further submission was made to the tribunal by the Employer.
 

Matter to be determined by the tribunal

The tribunal needed to determine whether the withholding Complainant’s benefit by the Fund pending the finalisation of the criminal investigation is permissible and justified in terms of section 37D(1)(b)(ii).
 
In its considerations, the tribunal stated that the board of the Fund may only do what is set forth in the rules of the Fund.  Making reference to Tek Corporation Provident Fund and Another v Lorentz and found that the rules of the Fund do make provision for the withholding of a benefit, subject to certain requirements, but of relevance being the requirement that the Employer has instituted legal proceedings in a court of law of laid a criminal charge against the Member concerned for compensation in terms of section 37D. The tribunal confirmed the following principles to be met before a deduction can be made in terms of section 37D(1)(b)
  • There must be a benefit payable;
  • An amount must be due by a member to his employer;
  • The damaged caused to employer must be by reason of theft, dishonesty, fraud or misconduct by the member;
  • The member must either admit liability in writing or judgement must be obtained in any court;
  • Judgement or the written admission of liability must relate to the compensation due in respect of damaged caused to the employer.
The tribunal state that the object of section 37D(1)(b)(ii) is to protect the Employer’s right to pursue the recovery of money misappropriated by its employees. It might take some time for the case against the Complainant to be finalised but payment of a benefits to a member whilst awaiting the outcome of a civil or criminal case might render the outcome futile.
 

Findings of the Tribunal

Citing the submissions by the Complainant and the Consultant the tribunal found as follows:
  • In the present matter the Employer cannot recover the debt from both the complainant and the customer. The Employer has already instituted civil litigation against the customer to recover the debt from the customer. Therefore, it cannot recover the same amount from the complainant as it will be unjustifiably enriched.
  • Although the rules of the Fund provide for withholding of a benefit under certain circumstances, the fact that there is a criminal case being investigated does not automatically authorise the Fund to withhold the Complainant’s benefit. Withholding the benefit is thus not in line with section 37D(1)(b)(ii).
  • The Fund failed to consider all the facts of the matter and should have found upon further investigation that the Employer has taken measures to recover its loss by instituting civils litigation against the customer.
  • The decision by the Fund to withhold the benefit is unreasonable.
  • The Fund must pay the Complainants withdrawal benefit without any further delay.
Order of the Tribunal

The Fund was directed to pay the Complainant the withdrawal benefit within two weeks of the date of the determination together with interest at 10.5% p.a. from May 2016 to date of payment and to provide the Complainant with a breakdown of the payment.
 
Read the full determination PFA/GP/00028131/2016/MCM, here...


Comment

The tribunal does not venture into much discussion concerning the fact that a criminal case was opened by the employer and was still under investigation but concentrates purely on the civil litigation the Employer instituted against the Complainant.

Andreen Moncur, B.A. Law, explains as follows:

Even if the criminal case against de Beer were to be successfully prosecuted, it does not mean that the employer will be able to recover the money. Steinhoff would only be able to do so if a compensatory order were also to be issued. The prosecutor would have to apply for the compensatory order under the Criminal Procedure Act and the court would have to grant it, in addition to any sentence it hands down for a guilty verdict. 


Compensatory orders are rare and usually reserved for class actions or cases where the victim does mot have the means to sue for compensation in a civil matter. Criminal matters primarily concern the state punishing offenders for crimes, not compensating victims of those crimes.
  

Mentally prepare for retirement: 21 tips – Part 5
 

In the previous newsletter, we brought to you the first 11 tips for mentally preparing for retirement. In this newsletter we present the next 4 tips.

  “Retirement is a major life change, that not everyone is prepared for. The following guide contains excellent tips how to mentally prepare for retirement. As it is a lengthy document, it will be presented in multiple parts over the next few newsletters, so make sure you don’t miss any of these. (Note: the source of this guide in not known.)
 
To Mentally Prepare For retirement, You:
  • Start preparing in advance: 1 – 5 years
  • Think about what to do in retirement
  • Communicate with spouse & family about retirement
  • Know that retiring is a process
  • Discover your new identity & purpose in life
  • Create a plan & set goals
  • Replace work routines with new routines
  • Find a support team 
These are just a few tips, but to fully understand, you need to know more. And in this article, [the author] shares 21 tips where [he] thoroughly explains what you can do to prepare for retirement mentally in the best way possible.” 
 

12. Learn to be a positive thinker

Everyone reacts differently to major life changes, and you can’t predict how you will respond to things. Many people underestimate the fact that retirement is a drastic life change. Positive thinkers see it as an exciting time in their life and have full faith in the future. And people with a more pessimistic view on life can experience a lot of anxiety and worrying. But the upside is that you change this by training your mind to become more positive.  

If you start learning to be more of a positive thinker, you immediately will be more mentally prepared for retirement. Positive thinking can transform your life tremendously, and it will only improve your retirement experience for the better.
Here are some tips for training positive thinking:
  1. Practice awareness with meditation (Headspace app)
  2. Know that you’re not your thoughts
  3. Feed only positive thoughts
  4. Transform negative self-talk into positive self-talk
  5. Surround yourself with positive people
  6. Use positive affirmations throughout the day
  7. Focus on the good things, however small 
  8. Find humor in bad situations 
  9. Turn failures into lessons
  10. Focus on the present
13. Be physically fit for retirement

Physical exercise has many benefits. If you exercise regularly, you strengthen your muscles, manage your weight, and reduce the risks for many deathly diseases. It increases your chances to live longer so you can enjoy your retirement longer. But exercising also improves your mental health. 

According to Harvard Medical School: “Exercise reduces levels of the body’s stress hormones, such as adrenaline and cortisol. It also stimulates the production of endorphins, chemicals in the brain that is the body’s natural painkillers, and mood elevators.” So exercising keeps your body strong and your mind happy.

And getting physically fit for your retirement you are also more prepared for the different activities you have planned. If you have a desk job and you have plans to travel or do a lot of physical activities in retirement, its best to get yourself physically ready. It would be unfortunate if your body isn’t prepared for all the fun you have in mind in retirement.  


14. Re-evaluate your social circle

Maintain social connections is crucial for living a happy retired life. When you stop working, you need to replace the daily social interaction you had at your job with other connections like family, (new) friends, your community. But you want to allocate your time in the way you want it and not by obligation.

Re-evaluate your social circle. Who are the people you love the most and want to spend the most time with? And who are people you like to only see once a week or month for coffee or a movie? Spend time with the people you love most first and leave spaces in your agenda for the circle of friends and family that come after them. But make sure you maintain or grow your social circle.

Social interaction has an enormous effect on people’s mental and physical health. Multiple studies have shown that socializing has both physical and emotional health benefits. And daily social interaction is a significant part of the lives of the people who live the longest in the Blue Zones. Which is one of the nine lessons we can learn from the people who live the longest, according to National Geographic Explorer Dan Buettner who wrote a book about it.


15. Accept your reality

You can do all the preparation in the world, but if you don’t accept your reality, you won’t feel happy in life. You need to accept all your flaws and imperfections to be happy. So don’t be afraid to see yourself for who you really are. 

And sometimes, life doesn’t always go as we expected or planned. And the only way to find happiness in it is to accept it. And then we can change it and move forward in life.

Acceptance: It’s a simple recognition of the truth that this is the way things are at the moment. 

Maybe you’re not ready for retirement, but you have to retire from your boss. Perhaps you want to retire, but you don’t have enough finances. Or you feel a certain way, and you try to hide it. The best way to find a solution is to accept your reality first. 

Read more: How To Plan Your Life After Retirement”

Further parts of this interesting guide will follow in the coming newsletters.      

                    
No cheap lunch in cash and money market funds

“In South Africa, for the first time in decades, we might be heading to a world where cash and money market funds produce negative returns relative to inflation for a meaningful time period.  We all know the only free lunch in financial markets is diversification.  Parking investments in cash and money market funds over the past few years, if not free, certainly felt like a cheap lunch as these assets produced steady inflation beating returns while local equity markets produced anemic returns. 

For the past five years, investors have moved to the ‘safety’ of cash and money market funds at a relatively low opportunity cost. However, the opportunity cost might become much higher, for several reasons. 

Globally, interest rates have been low for some time, without the expectation of substantial increases for a good few years looking forward.  In South Africa, on the back of aggressive policy action by the Monetary Policy Committee (MPC) last year, the benchmark repo rate has almost halved from 6.5% to 3.5%. With no pressure from global rates and a weak economy, low rates are probably here to stay for the next few years, directly impacting the interest rate…

Although inflation is currently very low, it should start to pick up from these levels and, in order to assist our economy in its recovery from the current recession, the MPC may not react to rising inflation as quickly as in the past. Consequently, investors seeking inflation beating returns on their local income assets will need to take on a bit more risk and short-term volatility by investing in slightly longer dated government, bank and corporate paper…”


Read the full article by Bryn Hatty, CIO Stonehage Fleming SA in Cover of 20 January 2021, here…
 


Be the fire and wish for the wind

“In financial markets, we too often see an inherent pessimism about the future, and this is one of the first mistakes that investors make – using a linear approach to problem-solving, which is to assume that events occur in a linear fashion when the truth is that nonlinearity is the prevailing paradigm…In financial markets, we too often see an inherent pessimism about the future, and this is one of the first mistakes that investors make – using a linear approach to problem-solving, which is to assume that events occur in a linear fashion when the truth is that nonlinearity is the prevailing paradigm…In a nonlinear world, investing in the future is an inherently difficult thing to do successfully. Let’s look at an example: If we had only invested in tech stocks over the past 20 years, we would have been enormously successful, and the temptation would be to say, “If it ain’t broke, why fix it?”  It’s hard to argue against 20 years of data points.  Just as very few would have argued a year or two back to avoid airlines because a time was coming when there would be no flights, it would likewise be very hard to argue that one should avoid all tech stocks because some way down the line a cyberwar or attack will erupt that will close down internet connections for months on end. One cannot though look at future scenarios and then decide to avoid all risk.

This almost always points us to three basic principles to embrace in a sound investment portfolio that balance risk and return:
  • Diversification - Embracing risk without knowing the future means having exposure to different risks.  It is one of the reasons why gold (and yes, even cryptocurrencies) invariably comes up as a key portfolio component, because of its lack of correlation to other economic fundamentals…
  • Inflation - Don’t ignore inflation – always be aware of how a portfolio of assets protects against inflation and do not necessarily rely on past returns as a predictor of future returns…
  • Avoid get-rich-quick schemes - …This is where the old saying of “If it sounds too good to be true, it probably is” is very relevant…”
Read the full article by Arno Lawrenz, CIO Sasfin Asset Managers, in Cover of 28 April 2021, here…

How to prevent [and handle] unethical situation at work

“Your boss asks you to adjust some figures on a client's account. You catch your new hire fudging his timesheet. You notice a colleague behaving inappropriately around the new intern at the office. When faced with these kinds of situations in the workplace, it's hard to know how to respond…when you're employed somewhere and you're worried about your employment, you're not inclined to volunteer that you think there's something dodgy going on.

The reality is that workplace conflict is likely to emerge. And learning how to prevent problems before they arise, and know how to deal with them once they're here, are skills all workers should master…our day-to-day tolerance for those who cut ethical corners sets the standard for the 'normal' way to get things done. Remaining silent while a boss lies to a client may be only a small step, but it's a step down the wrong road. You are letting yourself be led by your fears instead of choosing to lead with your conscience. Managers can help employees work out their concerns by creating open forums for discussion. Employees need "a safe space for people to share issues they're perceiving," Shell said, "and the leadership should encourage the dialogue…”


Read the full article by Hope Reese in CXO of 12 April 2021, here…



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

"Magic is believing in yourself, if you can do that, you can make anything happen.” ~  Johann Wolfgang von Goethe

 
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