|In this newsletter:
Benchtest 06.2021, the state of employers’ funds, the Benchmark Default Portfolio’s performance, and more...
In light of the unfolding COVID-19 situation, our offices will be closed for any visitors until further notice. We have a skeleton staff complement in the office while other staff members are working from home.
We appeal to our clients and the general public -
We apologise for the inconvenience caused and appeal for the indulgence of our clients and the public.
Although the President signed FIMA, our information is that it is currently being reviewed and that there is a delay in promulgating this new financial services law.
‘News from NAMFISA’ (below) reports that the Parliament removed the Financial Services Adjudicator Bill (FSA Bill) from the parliamentary roll. According to NAMFISA, the FSA Act is critical to the NAMFISA Act and the FIM Act.
One may thus speculate that unidentified issues in the FSA Bill require the Parliament’s further consideration. NAMFISA mentioned that it is also waiting to hear from the Minister on the way forward.
Pension fund governance - a toolbox for trustees
Registered service providers
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...
In a note from our Managing Director, Marthinuz Fabianus examines the state of employers’ pension funds.
In our Benchmark column, read about our new, unique member communication platform!
In ‘News from NAMFISA’, read about –
In ‘Legal snippets’ read ‘Withholding of benefit upon dismissal’
...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!
Monthly Review of Portfolio Performance
to 30 June 2021
In June 2021 the average prudential balanced portfolio returned 0.4% (May 2021: 0.3%). Top performer is Prudential Managed Fund with 1.0%, while Hangala Prescient Absolute Balanced Fund with -0.4% takes the bottom spot. For the 3-month period, NAM Coronation Balanced Plus Fund takes the top spot, outperforming the ‘average’ by roughly 1.2%. On the other end of the scale NinetyOne Managed 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 June 2021 provides a full review of portfolio performances and other exciting analyses. Download it here...
Understanding Benchmark Retirement Fund Investments
In the next few issues of our monthly Performance Review, I will provide background and guidance on investments to assist Benchmark Retirement Fund members taking charge of their fund investments.
The Benchmark Retirement Fund Default Portfolio performance in perspective
The Benchmark default portfolio is by far the biggest portfolio on the Benchmark platform. The Fund’s trustees manage the default portfolio, and the Fund’s expert investment adviser assists them in delivering the best returns at an acceptable level of risk. Fund members, or their employer on their behalf, choose this portfolio because they do not understand enough about investments and prefer to leave investment decisions to the trustees. Looking at the investment returns of this portfolio, we accept that many fund members who have invested their retirement nest egg in this portfolio will not be happy with the returns of this portfolio over the past five years relative to the average portfolio. For longer periods, though, and since the trustees restructured the portfolio at the end of 2010, it stood its ground well.
The following table depicts the performance comparison between the default portfolio and the average prudential balanced portfolio up to the end of May 2021:
The objective of the default portfolio is to produce investment returns in line with the average portfolio’s return but with lower fluctuation and, therefore, lower risk. The trustees raised the default portfolio’s performance return objective soon after the global financial crisis struck in 2008/ 2009 from moderate-low to moderate risk. Since then, market conditions did not allow the trustees to move fully to a moderate risk profile. Throughout these ten years to the end of May, the default portfolio only held about 47% in shares. In contrast, the average portfolio held about 63% in shares.
As a result, the default portfolio was, and still is, much better protected against a severe drop in share prices than the average portfolio. Looking back over the time since COVID hit markets last year, share prices increased substantially across the globe. The table above clearly shows that the default portfolio lost out on the increase in share prices relative to the average portfolio over the past twelve month. Of course, it was not possible to foresee that shares will recover so soon, and it was not possible to foresee how long COVID will make its impact felt. Where we are today, can we say that we overcame COVID? I do not think so in the light of all the mutations.
One must realise that we live in an abnormal world, not only because of COVID but also because of the global central bank’s massive intervention in financial markets. This intervention produced abnormally low interest rates and caused share prices to increase materially, particularly since April of last year. As we know, everything abnormal will revert to normality. Many experts expected this to happen around the time COVID struck. When COVID struck, central bankers threw all their good intentions overboard, and consequently, we still live in abnormal times today.
We think share prices will have to revert to normal. The trigger will probably be when interest rates return to normal. Currently, one earns negative interest on government bonds and treasury bills in the larger economies if one takes inflation into account. Negative interest is not sustainable as it erodes the investor’s capital. Investment capital is therefore flowing into shares and other assets instead. In the US, for example, the average inflation over 20 years to the end of 2007 (just before the global financial crisis) was 3.1%, and the average 10-year bond rate was 4.8%. In other words, the real average interest rate was 1.7%. Since then, the average inflation rate was 1.74%, and the average 10-year bond rate was 0.75%. In other words, a real average interest rate of minus 1%. At the end of May, US inflation was 5%, and the 10-year bond rate is 1.6%, a real interest rate of minus 3.4%.
This situation is unheard of! Who in his right mind will be happy to lose 3.4% per year on his investment? Either the Fed must increase its policy interest rate massively, or inflation must decline significantly in the medium term. Many experts believe that the Fed will reduce its bond-buying programme, or raise its policy rate sooner than expected, or both. If inflation maintains its current upward trend, the increase will be faster than expected. Once the Fed reduces or stops printing money, inflationary pressures will decline, and investment in shares and other assets will also decrease. When less money is flowing into shares, share prices will drop. The strong growth the share markets experienced since last year will not continue and will likely reverse sooner rather than later, and the Fed’s tapering or an increase in the repo rate, or both, will likely herald this reversal. Under these circumstances, the default portfolio’s low equity exposure gives me comfort even though the portfolio sacrificed some returns over the past year. Once circumstances allow, the trustees will raise the default portfolio’s equity exposure closer to the average prudential balanced portfolio’s exposure.
FIMA bits and bites – did the President sign a law never approved by Parliament?
The Namibian reported on 28 June that the President finally signed the FIMA into law. In last month’s newsletter, we concluded that Parliament did not approve FIMA version B.7-2021. This version contains changes different to the version introduced in the National Assembly that it or National Council never required. We compared version B.7-2021 with the version the President signed, and we understand that these two documents are identical. Therefore, we are not convinced that the document presented to the President to sign is Parliament’s finally adopted version. Unfortunately, we did not get any conclusive or satisfactory answers from the relevant parties. If the President indeed signed a FIMA version into law not approved by Parliament, it would be a sad day for our democracy and puts a question mark over our law-making process.
Pension fund death benefits: the ITA and the PFA must be aligned
According to Inland Revenue’s interpretation of the Income Tax Act, pension funds must pay at least 51% of any death benefit in the form of an annuity. A beneficiary of one of our pension fund clients challenged the Fund’s decision to pay 51% of the death benefit in the form of an annuity. Our client consulted lawyers, who advised the Fund that section 37C of the Pension Funds Act obliges the Fund to pay the death benefit in a lump sum. The lawyer pointed out that section 37C overrides “…anything to the contrary contained in any law or in the rules of a registered fund”.
In short, the situation is the following:
The introduction of FIMA will not change this challenge.
Inland Revenue and NAMFISA must urgently find a solution for this challenge.
Compliment from a Principal Officer
Dated 29 April 2021
Og J jy bly maar net ‘n Ster, baie dankie vir jou puik diens, waardeer baie.
Read more comments from our clients, here...
Our new, unique member communication platform!
The Benchmark Retirement Fund recently introduced an exciting member communication platform. Our staff is busy rolling out this platform to all participating employers. This facility comes at no extra charge to participants, and the Fund offers this as part of the asset levy all participants are paying.
The communication platform offers the following features:
FIMA will make extensive member communication obligatory.
If you are a member of an employer fund participating in the Benchmark Retirement Fund, follow these steps to register
1. Save Benchmark telephone number +264 61 446 000 on your smartphone;
2. Text ‘Hi’ to the Benchmark number on WhatsApp or per SMS;
3. Submit your identity number and tick box accepting terms and conditions;
4. Answer the security questions you will receive.
5. Have a look at any information of your interest.
…and tell us if you like what you see.
If you would like to know more about this facility, call your relationship manager or client manager.
Don’t wait – register today!
Important circulars issued by the Fund
RFS issued the following fund administration-related circulars to its clients over the last month.
Christina Linge joins wealth adviser team
Christina Linge recently joined our wealth adviser team. She matriculated at Swakopmund's Deutsche Oberschule Senior Secondary School in 1995 and speaks English, Afrikaans, Oshiwambo, and Damara/Nama fluently. Christina completed a diploma in marketing at NUST and is busy with her Higher Certificate in Financial Planning.
Christina’s career started as a switchboard operator at FNB. She then entered the insurance industry with Metropolitan in 1999. She gained solid experience as a fund administrator during her four years at Metropolitan. She then spent a few years at Prosperity Health in various positions. From Prosperity Health, she moved to Old Mutual to build her career as a wealth adviser and gained extensive experience in this field over the past eight years. Christina won several awards and achievements at Old Mutual and is well-positioned to add a lot of value to our retail team.
We extend a sincere welcome to Christina and look forward to her making her mark amongst RFS clients!
We invite prospective clients of Christina to contact her at 061 446 073 or 081 323 1645 for advice and assistance.
RFS sponsors Okanti Foundation
RFS became one of the most consistent sponsors of the Okanti Foundation over the past fourteen years. Through our director Günter Pfeifer’s involvement in the foundation over many years, he decided to allocate his corporate social responsibility budget to the foundation for purchasing an oxygen concentrator.
Here is the report in The Allgemeine Zeitung:
Long service awards complement our business philosophy
RFS’ 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. 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 ourselves, we focus on personal service and on the persons delivering that service to foster customer acceptance and service satisfaction. This philosophy has proven itself in the market, and we place great emphasis on staff and corporate memory retention through long service.
The following staff member celebrated her fifteenth work anniversary at RFS! We express our sincere gratitude for her loyalty and support over the past 14 years to
Industry meeting of 16 July 2021
If you missed the industry meeting of 24 March 2021, download the presentation here...
Following is a brief overview of the content of the presentation:
Update on status of bills
The tribunal ordered the Fund to pay the Employee within two weeks of the determination, the amount due less permissible deductions, and to provide the Employer with a breakdown of the payment.
Read the determination, here....
Diversification key in future-proofing investment portfolios
“…If you look at the historic data over the last 50 years or so, we can obviously see that interest rates are at record-level lows, both locally and abroad – and with this yield curves have also fallen, which is typically good for bonds. But at this stage interest rates have only one way to go and that’s up, and obviously the bond yield curves will adjust for that, so yields should move higher. The implications are quite profound... if you look at US equities, and the S&P 500 in particular, it’s really not much better, to be honest. We are seeing many valuation metrics at this point in time signalling that the market is overheated. So, if you compare some of the valuation metrics relative to their 25-year averages, they do signal that the market is significantly overpriced.
We expect a tougher time. If you were to look at price/earnings (PE) ratios, for example, they already are at roughly that 22 level on forward PE, which is already quite generous in terms of earnings forecasts that still look to improve quite a bit. If those earnings don’t materialise, you sit with a problem and PEs in themselves are also quite high. The same can be said for dividend yields as a valuation measure, priced-to-book, priced-to-cashflow yields and so forth.
It does look quite lofty. If you learn from history and see what equity portfolios in particular have done, from these valuation levels over a one-year period you can maybe expect single-digit returns… If you consider some of the key drivers behind emerging markets (EMs), they all seem intact. If you look at relative valuations, for example, as I mentioned, some of the developed markets do look quite pricey, whereas on the other end you’ve got emerging markets that have been downrated in the previous cycle and are actually now rebounding. That could persist.
Earnings revisions – we currently see more momentum in the emerging-market side to sustain positive upward revisions taking place, where a lot of that’s priced in the offshore space…”
Read the full article by Ciaran Ryan in Moneyweb of 14 July 2021, here…
Retrenched before retirement age? Keep the following in mind
“…let’s discuss some of the main considerations when planning for retirement after you have been retrenched:
The tax saving you earn from contributing to your retirement savings is perhaps your biggest friend. You not only grow your savings immediately with the amount that you save in tax, but you also decrease your entire earnings for the tax year through your pension fund contribution, which means that you pay less tax overall.
If you decide to withdraw some of your pension fund savings because you have been retrenched, there is a very real risk that you will pay a lot of additional tax…
Preservation and pension funds
…If your retirement savings were saved in a retirement fund, you can draw a third of the money in your fund in cash and you should invest the remaining two thirds in an income annuity.
In contrast, you used to be able to withdraw everything at once from your preservation fund… [Under FIMA you can in future only withdraw 75% of your accumulated retirement capital before retirement.
Keep it where it is
While you may have specific feelings about your employer if you have been retrenched before retirement age, it may be the best option to sit on your hands and leave your retirement funds untouched.
While you may not be able to leave your funds in your old employer’s pension fund, you may be able to move it into a preservation fund, a new company’s fund (should you be reemployed) or into a retirement annuity fund.
While you might incur some costs by moving your retirement funds, it its best not to access it until you have some clarity on your future and your cost of living….”
Note: Although this article is based on SA law, the principles also apply to Namibian retirement fund members.
Read the article by Wouter Fourie of Ascor Independent Wealth Managers in Moneyweb of 7 July 2021, here…
The hazards of a “nice” company culture
“In far too many companies, there is the appearance of harmony and alignment but in reality, there’s often dysfunction simmering beneath the surface. The intention behind cultivating a nice culture is often genuine. Leaders believe they’re doing a good thing that will motivate people and create inclusion. But often it has the opposite effect and the result a lack of honest communication, intellectual bravery, innovation, and accountability. To combat a culture marked by toxic niceness, the author suggests leaders use four tactics: Clarify expectations and performance standards. Publicly challenge the status quo, even if you helped create it. Provide air cover for people who speak up. Confront performance problems immediately…”
There are many reasons why leaders pursue niceness. Based on my experience working with hundreds of organizations and thousands of leaders over the past 20 years, here are the top four
Read the full article by Timothy Clark, in Harvard Business Review of 25 June 2021, here…
Generational wealth planning: A family affair
“The success of generational wealth planning is dependent on honest and transparent communication across generations, while at the same time ensuring that family relations are protected, respected, and nurtured. Such communication can be challenging, particularly where families are separated around the world. Further, having members of the same family living in various parts of the world can give rise to jurisdictional issues which, if not attended to by an expert in the field, can give rise to delays in winding up an estate, unintentional tax consequences, and unforeseen costs…Naturally, a valid and well-drafted will is key to ensuring that your intended legacy has a voice, although this is often more complicated than it seems….”
The article raises important considerations a testator must bear in mind –
Read the full interview of Craig Torr in Moneyweb of 29 June 2021, here...