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In this newsletter:
Benchtest 06.2021, the state of employers’ funds, the Benchmark Default Portfolio’s performance, and more...



NAMFISA levies

  • Funds with a July 2021 year-end need to have submitted their 2nd levy returns and payments by 25 August 2021;
  • Funds with a January 2021 year-end need to have submitted their 1st levy returns and payments by 25 August 2021; and
  • Funds with an August 2020 year-end need to submit their final levy returns and payments by 31 August 2021.
Temporary closure of RFS offices for the public

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 -
  • to please call 061 446 000 for any assistance or in the event of any queries;
  • to please drop off all documents, properly marked with the name of the addressee and the address in a box provided for that purpose at our reception. 
These arrangements are aimed at protecting the health and wellbeing of our clients and of our staff alike.

We apologise for the inconvenience caused and appeal for the indulgence of our clients and the public.


FIMA stalled?
 
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
  • 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 June 2021


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 a note from our Managing Director, Marthinuz Fabianus examines the state of employers’ pension funds.

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

  • The Benchmark Retirement Fund default portfolio performance in perspective
  • FIMA bits and bites – did the President sign a law never approved by Parliament?
  • Pension fund death benefits: the ITA and the PFA must be aligned

In our Benchmark column, read about our new, unique member communication platform!

In ‘News from RFS’, read about -

  • Christina Linge joins wealth adviser team
  • RFS sponsors Okanti Foundation
  • Long service awards complement our business philosophy
  • Important administrative circulars issued by RFS

In ‘News from NAMFISA’, read about –

  • Industry meeting of 16 July
  • Update on status of bills

In ‘Legal snippets’ read ‘Withholding of benefit upon dismissal’

In media snippets, read –

  • Diversification key in future-proofing investment portfolios
  • Retrenchment before retirement age? Keep the following in mind
  • The hazards of  a ‘nice’ company culture
  • Generational wealth planning: a family affair
  • SARS get kicked into touch in ‘Lesotho number plate case’

...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



The state of the employers’ pension funds
 
Namibia currently only offers a 3-tier pension system.


The first tier is an old age social pension, named the Basic Social Grant (BSG) which is paid by the Namibian government to all Namibia’s residents over 60 years of age on a monthly and unconditional basis. The old age social pension is currently paid by the Ministry of Gender Equality and Child Welfare. Also responsible for social welfare is the Social Security Commission, which is the custodian of the Social Security Act which provides for various funds; these include the Maternity Leave, Sick Leave and Death Benefit Fund (MSD), the National Pension Fund, the Development Fund and the National Medical Aid Benefit Fund. At the moment, only the MSD and the Development Fund are active and provide benefits. The National Pension Fund and the National Medical Aid Benefit Fund have not been implemented by the Social Security Commission as yet. The National Pension Fund when implemented, is meant amongst others to provide for compulsory retirement savings.

The second tier comprises of the employer sponsored (also referred to as occupational) pension funds offered by the employers across sectors (i.e. government, public enterprise, non-government and private sector employers). Currently, employers offer pension fund schemes for the benefit of their employees without being compelled to do so by law. Membership of occupational pension fund schemes is usually a condition of employment and thus compulsory for new employees taking up employment with an employer with an existing pension fund scheme. Occupational pension schemes are supervised by NAMFISA in terms of the Pension Funds Act (PF Act 24 of 1956).   


The third tier comprises of individual contractual retirement savings schemes mainly offered by insurance companies and popularly referred to as retirement annuity funds. Retirement annuity funds can be taken up by anyone willing and able to afford making savings on a voluntary contractual basis and serve to complement and supplement occupational pension fund savings and the government’s basic social grant. Retirement annuity Funds are also supervised by NAMFISA in terms of the Pension Funds Act.  

This article mainly serves to appraise the state of the employers’ pension funds and the retirement annuity schemes, particularly in the light of the ravaging effect of the Covid-19 pandemic.

Occupational pension fund schemes in Namibia are by far the most popular form of retirement provision, are socio-economically impactful and are well established amongst most employers. When Namibia gained her independence from South Africa in March 1990, just about all the employer groups that had pension fund schemes in place for their employees, decided to liquidate the funds and allowed members to commute their savings into cash or transferred to individual retirement annuity policies with insurance companies. However, the new Namibian government decided to adopt the South African crafted pension fund law (Pension Funds Act 24 of 1956). Most employers were encouraged by this development and decided to continue with the pension fund schemes for their employees under a new Namibian name. Employees who did not take their money from the previous pension fund schemes were allowed to continue with their savings under the new Fund, whilst those that transferred their savings to retirement annuity policies or commuted it for cash had to start saving from scratch. The dominant providers of services to pension fund schemes at the time were insurance companies. Statistics regarding the number of employer sponsored pension funds shortly after Namibia’s independence are unfortunately hard to come by, if not non-existent.


Over the years since Namibia’s independence, the occupational pension fund arrangement gained momentum and has become both a moral as well as competitive imperative for employers. Today based on most recent and better available NAMFISA statistics, there are 132 employer pension fund schemes registered with NAMFISA as at March 2020.  Of the 132, about 13 funds are commercial funds (i.e umbrella pension funds and retirement annuity funds) that host many unrelated employer groups. These umbrella pension funds host hundreds of employers). Employer pension fund arrangements for a single employer (i.e., the fund is exclusive to the employees of one employer or group of companies) make up the remaining number of 132. The pension fund for government employees, popularly known as the GIPF, as well as pension funds of other large but also medium sized employer groups make up the remaining list of the 132 excluding the umbrella funds. Members of active occupational pension funds and retirement annuity funds are close to 300,000, whilst assets exceed N$ 170 billion.    

Clearly, the socio-economic impact of employer sponsored pension funds is doubtless, given that retirement savings’ assets exceed Namibia’s GDP of around N$ 160 billion. A sizeable amount of pension fund assets has been used since Namibia’s independence to invest in Namibian businesses across sectors such as financial services (like banks and insurance companies), manufacturing, infrastructure developments, housing developments, health establishments etc. Pension fund assets have also been used to assist with fiscal policy by assisting government to meet their borrowing needs through investments in bonds and treasury bills.

Despite the severe impact of the Covid-19 pandemic on the country’s economy and also on the rest of the world’s economy, pension fund assets have surprisingly held up and actually continued to grow. Pension fund assets continue to serve as the main, if not only source of retirement security for a majority of our economically active persons going into retirement. Most people who unfortunately lost gainful employment through retrenchment as a result of the impact of the pandemic on their employers, would be destitute were it not for the employer sponsored pension fund savings that the former employees would have used to keep them afloat.

Of course, managing pension funds during current pandemic times had to be adapted, so as not to be left behind. The current reality dictates that most pension fund members have to access services remotely through virtual means. The entire business of managing pension funds; from the contact between employers and services providers, meetings of boards of trustees as the custodians of pension fund assets, the exchange of relevant fund documents etc., is now predominantly done electronically. There is no doubt that some of the new learnings and new ways of doing business will become the new norm.        

The employer sponsored pension fund arrangement has proven itself, having filled a vacuum in the absence of a any legal compulsion to contractually save towards the retirement wellbeing of the Namibian employee. The Namibian employee and labour organisations will not easily look kindly upon any employer who feels no moral compulsion to provide for the retirement wellbeing of employees and for other life events, like death or incapacity. Employer pension funds have become a standard condition of employment and anyone not giving them the space they deserve, will have a severe handicap when trying to employ staff.

Marthinuz Fabianus graduated from Namibian University of Science & Technology with a Diploma in Commerce and Bachelors in Business Management. He completed a senior management development programme at University of Stellenbosch and various short courses including a macro-economic policy course which he completed at the International Training Centre of the ILO in Turin, Italy. Marthinuz also serves as trustee on the board of the Benchmark Retirement Fund and is a member of the board of the Retirement Funds Institute of Namibia. Marthinuz also served as a Commissioner on the Social Security Commission from 2015-2017.
 


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.
  1. Parties to a fund and their roles and responsibilities
  2. Investment choice and return objectives
  3. Investment range and portfolio composition
  4. Performance characteristics of asset classes and portfolios
  5. The default portfolio
  6. The default portfolio vs the smooth growth portfolio
  7. Income replacement ratio and contribution rates
  8. Selection of investment managers
  9. Combining investment portfolios and when to switch
  10. Investment manager risks and manager diversification
  11. Performance measurement
In parts 1 and 2 of the previous two newsletters, I covered the first four topics. In the Monthly Review of Portfolio Performance, paragraph 6, I will cover the next two topics; the default portfolio and the default portfolio vs. the smooth growth portfolio.

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:

 
Period Default portfolio
% p.a.
Average portfolio
% p.a.
1 year 10.4 17.3
2 years 7.6 9.3
3 years 7.0 8.2
4 years 6.9 8.0
5 years 5.9 6.8
6 years 7.6 7.3
7 years 8.0 8.1
8 years 8.7 9.0
9 years 10.6 10.7
10 years 10.9 10.5

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:
  1. Section 37C of the PFA (and similarly section 276 of FIMA) requires the payment of lumpsum amounts to designated beneficiaries.
  2. This provision of section 37C overrules any conflicting provision of the rules and any other law, such as the Income Tax Act.
  3. The definition of ‘pension fund’ in the Income Tax Act requires that pension fund benefits are paid mainly in the form of annuities.
In my understanding, the consequence of this is that Section 37C and the definition of ‘pension fund’ in the Income Tax Act conflict. Inland Revenue, therefore, cannot approve pension funds for tax purposes.

The introduction of FIMA will not change this challenge.


Inland Revenue and NAMFISA must urgently find a solution for this challenge.
 
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 a Principal Officer
Dated 29 April 2021

“Wow,
Og J jy bly maar net ‘n Ster, baie dankie vir jou puik diens, waardeer baie.
Groete.


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:
  • Explanation of fund benefits;
  • Exposition of every benefit applicable to the Member;
  • Member contribution history and contribution break down;
  • Educational videos;
  • Fund information;
  • Fund forms and documents;
  • Fund announcements;
  •  Online benefit statement;
  • Financial wellness assessment;
  • Frequently asked questions;
  • Online updating of member personal information;
  • Beneficiaries;
  • Calculators; and
  • Chatbot.
The Fund would like to have all members registering for this essential facility soonest to enjoy the benefits offered at no additional cost! Members can register via the internet, Whatsapp, or SMS. Members can sign in via any of these channels once they are registered.

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.
  • Circular 202101 – Change of principal officer: appointment of Mr Günter Pfeifer
  • Circular 202102 – Changes to the board of trustees: appointment of Ms. Sabrina Jacobs
  • Circular 2021.07-07 – Cash Management Arrangement
  • Circular 2021.07-08 (Pensioners) – Requirement by Inland Revenue for Tax Identification Numbers
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.
 


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
  • Annemarie Nel
We look forward to Annemarie continuing her value-addition to her portfolio of key clients of RFS!



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:
  1. Complaints lodged with NAMFISA in respect of pension funds:
    • NAMFISA received 27 in the second quarter of 2021 (industry total – 159), of which 21 were resolved; 11 in favour of funds. Twelve of these complaints were about non-payment of benefits.
    • Reasons for non-payment of benefits:
      • The employer has not paid;
      • Inaccurate data from the employer;
      • Incomplete or unsigned withdrawal forms;
      • Pending section 14 transfer.
  2. FIMA
    • Date of commencement of FIMA or ‘retirement funds chapter’ unknown.
    • NAMFISA to publish all critical standards in the gazette for formal industry consultation.
    • At least 30 days will be allowed to make representations on standards.
    • There are ‘about’ 20 draft standards on retirement funds.
    • NAMFISA urges funds to take note of various timelines and to assess readiness for compliance.
    • Funds have twelve months from the date of commencement of date determined in applicable regulation or standard.
    • NAMFISA developed a FIMA compliant rules template and will share this with the industry for comments and inputs on 19 July.
  3. Housing loans – NAMFISA circular PF/Circ/03/2020
    • Circular address both direct loans (section 37D(a)(i)) and indirect loans (section 37D(a)(ii)).
    • Direct loans can only be deducted when a benefit becomes payable.
    • Section 37(a)(ii) does not deal with a deduction from benefits in the case of indirect loans. Industry participants interpret the PFA to allow deducting the loan when the bank calls it up.
  4. Rule amendment response times
    • NAMFISA takes too long to respond to rule amendments and then issues ‘7-day letters’ that require funds to address NAMFISA queries within seven days.
    • NAMFISA suggests that a more consultative approach (even a phone call or a virtual meeting) between the analyst dealing with a particular submission and the applicant be adopted to hasten the resolution of rule amendment queries.
  5. Treatment of dependants’ pensions after retirement
    • This deals with section 37C in the event of the payment of a surviving spouse’s pension.
  6. Number of active retirement funds – 79
    • Privately administered funds – 51
    • Insured funds - 28
  7. Total industry assets – N$ 190,670,516
    • Investment managers - N$ 168,639,300
    • Investment policies – N$ 22,031,216
    • Asset allocation –
      • Shares – 50%
      • Bonds – 30%
      • Bank balances  - 11%
      • Property – 5%
      • Other assets – 4%
      • Unlisted investments – 1%
    • Geographical allocation Q1/2021
      • Namibia – 48%
      • International  - 29%
      • CMA – 20%
      • Africa ex CMA – 5%
  8. Matters raised by NAMFISA from off-site inspections
    • Conflict of interest concerns with the service providers
    • Long-serving service providers
    • Non-Compliance with regulation 13(5) (minimum and maximum exposure to unlisted investments)
    • Non-compliance with section 16(1) (investigation by valuator)
    • Non-compliance with section 13(A) (payment of contributions)
    • Failure of auditors to prepare and sign management letters.
  9. Fund rules and the PFA
    • Non-compliance with section 5(1)(a)
      • Upon registration, the fund shall become a body corporate capable of suing and being sued.
      • Rules sometimes provide for trustees abdicating their powers to service providers such as insurers, employers, etc.
    • Non-compliance with section 11(d)
      • Fund rules do not clearly set out benefits (conditions, nature, and extent).
      • The fund offers the benefits, not the insurer, and rules should not be tied to insurers underwriting conditions.
    • Non-compliance with section 12(2)
      • Rule amendments are not submitted within one month of passing the resolution.
      • Special rules are only valid once registered.
      • Accepting contributions before the special rules are registered contravenes the Act.
  10. Provident funds
    • Offering benefits that are inconsistent with the ITA
      • Funeral benefits for family members of a member.
      • Offering ITA inconsistent benefits can lead to the fund losing its tax recognition, and NAMFISA expects funds to inform its members of this risk.
  11. Suspension or reduction of contributions by umbrella funds
    • Funds cannot suspend or reduce participating employer contributions if the master rules provide for this.
  12. Rule amendments that affect members negatively
    • Funds must inform members of such amendments, and the content of the communication is important.
  13. Recommendations concerning rules and amendments
    • Eliminate all spelling and grammatical errors.
    • Check that references are correct.
    • Submit all supporting documentation.
    • Revert to NAMFISA if the seven-day letter is unclear.
    • Respond to every query raised within seven days.
  14. Industry survey feedback: average rating of NAMFISA – 3.17
    • Responsiveness - 3.0    
    • Efficiency - 3.3    
    • Warmth/courtesy - 4.0
    • Accountability/ ownership - 3.0    
    • Reliability - 3.0
    • Quality - 2.7

Update on status of bills

NAMFISA circular 01/07/2021 provides the following update on the status of various bills:


NAMFISA bill

The bill was signed by the President.

FIM bill

The FIM bill was signed by the President. Once the FIM Act is published in the Government Gazette, NAMFISA will commence formal consultations on the standards, and these are to be concluded within nine months. Thereafter FIMA will be implemented.

The bill is accessible here...

Note that its title page still reads ‘As Read a first Time’.


Financial services adjudicator bill

The FSA Bill has been removed from the parliamentary roll as a different approach was counter suggested for implementation in respect of adjudicating complaints. Industry will be kept abreast of key developments.
   

Withholding of benefit upon dismissal

This case deals with a complaint by Ms. Ndebele (‘the Employee’) against South African National Blood Service Provident Fund (‘the Fund), Alexander Forbes (‘the Consultant’), and South African National Blood Service (‘the Employer’)

Facts of complaint

The Employee was a member of the Fund until 15 September 2015. The Employee was dismissed on 15 September 2015, after a prolonged disciplinary process for charges of dishonesty and a corrupt relationship with suppliers. The Employer opened a criminal case against the Employee in July 2015. The docket was referred for prosecution, but the prosecutor withdrew the case on 20 May 2016 due to lacking evidence. The Employee submitted his claim documents for his pension benefit of R 462,290 (on 19 May 2017) on 21 October 2015. The claim was put on hold pending the finalisation of the criminal investigation. After the prosecutor withdrew the case, the Employee followed up with the Fund. She was informed in writing on 29 July 2016 that the Employer has instituted civil proceedings against her. No summons had yet been served on her by 1 February 2017. Civil proceedings only commenced in February 2017, after the Employee lodged her complaint. The Consultant submitted that the Employer requested the Fund to continue withholding the claim as provided in the rules of the Fund and instituted civil proceedings against the Employee. The Fund’s board of trustees considered the withholding reasonable to protect the interests of the Employer as provided in PFA section 37D(1)(b)(ii). According to the summons, the Employee engaged in an irregular and fraudulent relationship. It provided details of actions perpetrated by the Employee that benefited her and caused a loss of R 3,746,298 to the Employer.
 

Matter to be determined by the tribunal

The tribunal must determine whether or not the withholding is permissible. The tribunal confirms that fund rules are binding on its officials, members, shareholders, and beneficiaries, and anyone claiming a benefit from a fund.

The Fund rules provide for deduction from benefits as follows:

  • “11.2 Notwithstanding any other provisions of these Rules, the Trustees may, where an Employer has instituted legal proceedings against the Member in a court of law and/or laid a criminal charge against the Member concerned for compensation in respect of damage caused to the Employer as contemplated in Section 37D of the Act, withhold payment of the benefit until such time as the matter has been finally determined by a competent court of law or has been settled or formally withdrawn provided that:
  1.  The amount withheld shall not exceed the amount that may be deducted in terms of section 37D(1)(b)(ii) of the Act;
  2. the trustees in their reasonable discretion are satisfied that the Employer has made out a prima facie case against the member concerned and there is reason to believe that the Employer has reasonable chance of success in theproceedings that have been instituted;
  3. the trustees are satisfied that the Employer is not at any stage of the proceedings responsible for any undue delay in the prosecution of the proceedings.”
The tribunal concluded that the rules of the Fund allow withholding a benefit pending the outcome of a criminal or civil charge.
  • Referring to PFA section 37D(1)(b)(ii), the tribunal highlighted the following provisions relevant to this complaint:
  • there must be a benefit payable;
  • there must be an amount due by the member to his employer on the date of his retirement or on which he ceases to be a member of the fund;
  • the damage caused to the employer must be by reason of theft, dishonesty, fraud or misconduct by the member;
  • the member must either admit liability in writing to the employer or judgment must be obtained in any court; and
  • the judgment or the written admission of liability must relate to compensation due in respect of the damage caused to the employer by the member.
The tribunal noted as follows:
  • the Fund rules correlate with the provisions of the PFA section 37D(1)(b)(ii);
  • the object of this section is to protect the employer’s right to recover money misappropriated;
  • there are often lengthy delays in finalising cases;
  • payment of a benefit while awaiting the outcome of a civil or criminal case might render the outcome futile if it benefits the employer;
  • civil proceedings only commenced in February 2017, after the Employee lodged his complaint;
  • the power to withhold a benefit must be exercised reasonably and within a reasonable time.
Findings of the Tribunal
  • There was an unreasonable delay in commencing civil proceedings;
  • The Fund’s board of trustees failed to act with due care, diligence, and in good faith;
  • The conduct of the board of trustees is unacceptable and amounts to dereliction of its fiduciary duties;
  • Withholding of a benefit for an unreasonable period is an abuse of power, and the Fund should not have facilitated such abuse;
  • Without an acknowledgment of debt or a judgment, the Employee is entitled to payment of his withdrawal benefit without further delay.
Order of the Tribunal

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...
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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:

Tax

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
  1. To avoid conflict and gain approval: As a reflection of their own desire to be liked, leaders often avoid conflict and stigmatize dissent;
  2. To replace genuine inclusion: Some organizations see niceness as a proxy for inclusion.;
  3. To show exaggerated deference to the chain of command: In fear-based organizations, niceness keeps you safe;
  4. To motivate people instead of holding them accountable.
The adverse consequences of niceness are not simply inconvenient, they can be catastrophic for an organization…”

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 –
  1. Many civil law jurisdictions, such as France, Holland, Germany, Portugal, Spain, as well as Mauritius, have mandatory succession rights or ‘forced heirship’ laws restricting the disposition of your assets;
  2. As you age, the possibility that you could become mentally or physically incapacitated;
  3. A general power of attorney allows someone else to manage the estate of a physically disabled person but not a mentally incapacitated person;
  4. Inter Vivos trusts are very effective estate planning tools to ensure that your assets can be managed and protected in the event of mental incapacitation;
  5. The testator must ensure retirement funding is adequate and that he will not become a financial burden on his adult children later in life;
  6. Assets intended for a special needs child must be protected and managed in its interests;
  7. A buy-and-sell agreement to provide cash for the transfer of the testator’s shares in a business and shareholder succession planning;
  8. Provide copies of all key documents to all children;
  9. Get certified copies of children’s identity documents as the Master will require these.

Read the full interview of Craig Torr in Moneyweb of 29 June 2021, here...

SARS gets kicked to touch in ‘Lesotho number plate case’

The Benchtest 07.2020 newsletter brought a media snippet about the so-called ‘Lesotho number plate case’. Many Namibian students are driving in SA with vehicles registered in Namibia. Therefore, this case is relevant to Namibians as well. Read the media snippet to refresh your memory, here...

“Last week the Supreme Court of Appeal (SCA) threw out an appeal by the South African Revenue Service (Sars) against an earlier judgment in the Free State High Court, brought by Ficksburg resident Joaquim Alves, whose Nissan Serena station wagon was impounded by customs officials in 2019…

A furious Alves [the vehicle owner] decided to take Sars to court, and he won his case in the High Court in Bloemfontein in 2019. Sars appealed the case all the way to the SCA, losing all the way…

…The law has now been clarified. If you own a vehicle, no matter where it was manufactured, and it has been imported into the SACU area, you are free to drive it without hinderance anywhere in the common customs area.


We are now preparing a class action suit against Sars for the tens of thousands of vehicles unlawfully impounded over the years.”

Read the full interview of Ciaran Ryan in Moneyweb of 30 June 2021, here…




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

"If money is your hope for independence, you will never have it. The only real security that a man can have in this world is a reserve of knowledge, experience, and ability.” ~  Henry Ford

 

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