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In this newsletter:
Benchtest 10.2021, transition to FIMA, no risk benefits under FIMA, brokers outlawed under FIMA and more...



NAMFISA levies

  • Funds with November 2021 year-end must submit their 2nd levy returns and payments by 24 December 2021;
  • Funds with May 2021 year-end must submit their 1st levy returns and payments by 24 December 2021;
  • and Funds with December 2020 year-end must submit their final levy returns and payments by 31 December 2021.
FIMA to come into force on 1 October 2022
 
According to NAMFISA, it is envisaged that the Financial Institutions and Markets Act (the FIMA) will become effective on 1 October 2022.
 
The FIMA provides for a further 12 months after the effective date for retirement funds and financial intermediaries to register under the FIMA, and for retirement funds to submit FIMA-compliant rules. However, the FIMA needs to be complied with from the effective date. This means that retirement funds can only apply the provisions of the existing Pension Fund Act compliant rules in so far that they are not inconsistent with the FIMA after the effective date and before the FIMA-compliant rules of the fund are registered.


NAMRA turning away manual submissions
 
ICAN reports that it has come to its attention that manual submissions are being turned away at NamRA’s offices. Senior management at NamRA has confirmed that manual submissions should be permitted. Fieda Muaine can be contacted for assistance should you experience this issue. Email This email address is being protected from spambots. You need JavaScript enabled to view it.


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), Kristof Lerch (tel 061-446 042) or with Christina Linge (061-446 6075)



Dear reader

In this newsletter we address the following topics:

In ‘Tilman Friedrich’s industry forum’ we present

  • FIMA bits and bites – the transition to the FIMA
  • FIMA bits and bites – retirement funds cannot offer insured benefits
  • FIMA bits and bites – insurance brokers are prohibited from doing business?
  • Not being the top performer is not good enough!

In ‘News from NAMFISA’ read about

  • Industry information session on NAMFISA Act and the FIMA
  • Industry meeting on risk benefits in pension funds
  • Floor now open for comments

In ‘Legal snippets’ read

  • How should you dispose of benefits when the fund member is institutionalised

In media snippets, read about

  • Investors should prepare for a market correction
  • Inflation: the bottom-up case for caution
  • Waiting to save: the cost of delaying your retirement funding
  • Four key financial lessons you sometimes only learn over time
  • Should I invest in a fixed deposit or unit trust for my child?
...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 31 October 2021


In October 2021, the average prudential balanced portfolio returned 2.2% (September 2021: -0.4%). The top performer is NAM Coronation Balanced Plus Fund with 3.7%, while Investment Solutions Balanced Growth Fund with 1.5% takes the bottom spot. For the 3-months Old Mutual Pinnacle Profile Growth Fund takes the top spot, outperforming the ‘average’ by roughly 1.5%. Hangala Prescient Absolute Balanced Fund underperformed the ‘average’ by 2.1% on the other end of the scale. Note that these returns are before (gross of) asset management fees.

The Monthly Review of Portfolio Performance to 31 October 2021 provides a full review of portfolio performances and other insightful analyses.  Download it here...


The folly of point-in-time performance measurement!

Interestingly, most investment performance reports present the performance by way of bar graphs. These bar graphs show the point-in-time investment performance, which is meaningless. It is like looking out of the window and concluding that Namibia must have a very humid climate because it happened to rain at that time. Weather bureaus usually present charts as line charts, or if they are bar charts, each bar will represent a month or a year over a specific time. You cannot judge investment managers’ returns by looking at bar chart performance tables. The folly of looking at bar charts becomes more pronounced when markets are very volatile.
 
To illustrate my point, let’s look at the one-year bar chart performance table for April 2020 and April 2021. For the twelve months to March 2020, shares (JSE Allshare Index) produced a negative return of 22.1%. For the following 12 months to March 2021, shares returned 49.4%!

Investment is not a one-game matter but rather like winning the league. One can follow similar approaches when investing. The speculative course means that the investor tries to identify opportunities in the market and invest in these, focusing on making a killing on the investment. How one identifies opportunities is important. Laypeople would consider what has done well over the recent past and jump onto that band-wagon. Experts would use benchmarks for assessing whether an investment presents an opportunity. Often the benchmark considers the investment relative to other similar investments, the market, or the investment’s historical metrics. In a planned approach, the investor would define his ultimate goal and a strategy for achieving this goal…

Read part 6 of the Monthly Review of Portfolio Performance to 30 September 2021 to find out what our investment views are. Download it here...


FIMA bits and bites – the transition to the FIMA
 
When the FIMA becomes effective, envisaged as 1 October 2022, all regulated entities will enter a 12 month transition period. In this transition period, all funds must register, adapt their rules, and ensure that they comply with FIMA. Every entity registered under the Pension Funds Act and any other non-banking financial services act is deemed to be registered under FIMA but will lose this status unless NAMFISA registers the entity under the FIMA during the 12 month transition period. Pension fund administrators and consultants were never required to register under the Pension Funds Act but are required to register under the FIMA as financial intermediaries. Under the FIMA a ‘pension fund’ will no longer be a ‘pension fund’, but it will be a ‘retirement fund’.
 
While pension funds have 12 months to adapt their rules to meet the FIMA requirements, any provision in their rules inconsistent with the FIMA is invalid. For example, a withdrawal rule that currently provides for the employer contribution only vesting in the member over a number of years is definitely invalid. FIMA prescribes a ‘minimum individual reserve’ that includes the employer and employee contribution. Even if the current rules provide for member and employer contributions to be paid to the member upon his withdrawal, the formula reflected in the FIMA standard RF.S.5.7 prescribes how the minimum individual reserve must be calculated. If that calculation produces a result greater than the rules currently offer, the calculation per RF.S.5.7 will apply.
 
The principal officer and the board will remain in office and the principal officer will now be a member of the board. These officers must apply for approval which means they must all be ‘fit and proper’ (per Gen.S.10.2) and must be independent of the fund (per Gen.S.10.8). The board must have at least 4 members, half of which must be elected by the members and it must hold at least 4 meetings per year. The fund rules must be amended by 30 March 2023 (assuming an effective date of 1 October 2022) to reflect these changes.
 
The auditor and the valuator may remain in office but the fund must re-apply for their approval and they must also be independent of the fund and fit and proper. For the financial year that ended before 1 October 2022, funds must submit the annual financial statements within six months of the year end, and the triannual valuation as of a date after 30 September 2019 but before 30 September 2022, within twelve months of the valuation date. Funds must submit financial statements and triannual valuations for a later date within 90 and 180 days, respectively.
 
All contracts a fund entered into before 1 October 2022 and that are still in force will remain in force but must be amended to meet the FIMA requirement upon their renewal.
 
All regulations issued under the Pension Funds Act that relate to investments (reg 12 to 39), remain in  force until replaced through a regulation or standard under the FIMA.
 
No rights or obligations that existed under the Pension Funds Act will expire due to the FIMA becoming effective.
 

FIMA bits and bites – retirement funds cannot offer insured benefits
 
As we wade through the quagmire washed ashore by the FIMA, every other day one comes across a provision the repercussions of which one never realised.
 
One of these repercussions is that, for all intents and purposes, a retirement fund in Namibia, other than the GIPF, can only offer its members benefits derived from the contributions the employer and the member paid to the fund. So if you pass away, or if you become disabled  in the month you joined the fund, your retirement fund will pay you a benefit of close to nil, or nil if it happened the day after you joined the fund.
 
Now, NAMFISA will probably say that this is not true. Funds may offer death benefits and disability benefits of more than the contributions received by and on behalf of the member. The problem is that the fund cannot make such benefits subject to any typical insurance terms and conditions, limitations and exclusions. The fund would have to manage its risk presented by the benefit it is obliged to pay in terms of the rules and the benefit it was able to reinsure. Exact reinsurance is no longer possible and the funds will end up in situations where it is under-recovering and has to stand in for the shortfall. A fund may try to mitigate this risk through building up and maintaining a ‘risk reserve’.
 
Unfortunately, as I understand the FIMA, a defined contribution fund may only maintain an expense reserve. Even if a defined benefit fund is allowed to maintain a risk reserve, it is not any consolation as the risk remains very high, particularly in respect of top management with high salaries and death- and disability risk benefits. I can relate my experience with a fairly small fund (about 200 members) that only insured its risk on an ‘approximate basis’. It lost two of its senior staff in one year and its reserves were hopelessly inadequate to cover the shortfall. For many years after, this fund had to withhold investment returns from its members to rebuild its risk reserve. If for any reason, the fund were to have terminated, it would not have paid members there termination benefit in terms of the rules.
 
Therefore, I repeat my earlier statement, that for all intents and purposes Namibian retirement funds cannot offer risk benefits under the FIMA anymore. This will probably present challenges to the employer in terms of the Labour Act. From 1 October 2022, most funds in Namibia cannot offer their members the same death and disability benefits at the same cost as before anymore. Death benefits will not enjoy the same protection as they did under the Pension Funds Act anymore. How does an employer sell this to his employees? NAMFISA is usually very wary of employees’ employment conditions being affected by any rule change, now the law obliges the employer to change his conditions of employment to the disadvantage of his employees!
 

FIMA bits and bites – insurance brokers are prohibited from doing business?
 
Section 5 of the FIMA (in the Insurance Chapter) deals with the prohibition to carry on insurance or reinsurance business unless registered. Sub-section 5(b)(iii) reads as follows:
  • “(5) For the purposes of subsection (1), a person, in the absence of evidence to the contrary, is regarded as carrying on the business of insurance or reinsurance in Namibia, if that person performs in Namibia -
    • (b) in relation to a policy referred to in paragraph (a), any act directed towards -
      • (iii) receiving, submitting, settling, assisting or otherwise dealing  with the settlement of a claim under such policy.”
 The prohibitions listed are typically the services an insurance broker would provide to his client. In my understanding this clause therefor outlaws insurance brokers (or insurance intermediaries) and this clause means that someone arranging an insurance policy for him or his employees must deal directly with the insurance comopany.
 
Interestingly, sections 53 of the FIMA defines an “insurance broker” as follows:
 
“insurance broker” means a person who, on behalf of a member of the public, deals directly with an insurer or a person acting on behalf of an insurer, in arranging insurance or acting or aiding in any manner in connection with the negotiation and, continuance or renewal of insurance or provides consulting services with respect to insurance or insurance claims…”
 
An insurance broker must register with NAMFISA. The definition of “insurance broker” says what his work entails, but section 5(5)(b)(iii) prohibits anyone other than a registered insurer to carry out this work.
 
Also, section 363(1)(c) includes in the definition of the “administration services” which a fund administrator can do, “claims and benefit payment services”. So if a registered fund administrator deals with an insurer with regard to “claims” of the fund it administers, that constitutes administration services even though section 5(5)(b)(iii) also considers it insurance business reserved for registered insurers only.
 
Will a broker and an administrator get away with it under the proviso “in the absence of evidence to the contrary” in section 5(5)? I would not have thought this proviso can refer to other sections of the FIMA but rather talks about a person accused of doing insurance business providing evidence that his doings do not constitute insurance business.
 
I am not a lawyer but it seems even lawyers have their difficulties understanding the FIMA! 
 

Not being the top performer is not good enough!
 
The Benchmark Default portfolio is currently experiencing a difficult time, investors taking the fund to task for not featuring at the performance table’s top end.
 
Investing is like a sports game, whether it is soccer, rugby, hockey, or whatever, and the investor serves as the coach. His investment is his team; the opponents are the investment market. The coach may take one of two routes, a speculative route or a planned route. Taking the speculative course, the coach would attempt to capitalise on the opponent’s weakness as the game progresses, focusing on winning the game. The planned route requires the coach to know his opponents and his team and what result he wants to achieve. This knowledge will determine the strategy he must follow. He may not always want to win each game if that means preserving his team’s completeness, fitness, and health for the next game.
 
Investment is not a one-game matter but rather like winning the league. One can follow similar approaches when investing. The speculative course means that the investor tries to identify opportunities in the market and invest in these, focusing on making a killing on the investment. How one identifies opportunities is important. Laypeople would consider what has done well over the recent past and jump onto that band-wagon. Experts would use benchmarks for assessing whether an investment presents an opportunity. Often the benchmark considers the investment relative to other similar investments, the market, or the investment’s historical metrics. In a planned approach, the investor would define his ultimate goal and a strategy for achieving this goal.
 
Pension fund investment is like the investor (fund member) participating in a league that will determine the winner when he retires. Now I hear the typical comments: how long must I bear the pain of my investment not featuring at the table’s top end. People get impatient and want the fund to get rid of under-performing managers and switch to outperforming managers. These persons are focusing on winning the game rather than winning the league. I do not consider myself an expert but well-informed. I have tried switching and, without exception, I regretted doing it because there are always two legs when one switches. Firstly it is the switching-out-leg, and then it is the switching-in-leg. The first leg is the easy one because it considers the past. The second leg is tricky because now one must consider the future, which none of us can with any certainty. In fact, most of us will get it wrong. The more often you switch, the poorer the result.
 
Graph 6.1 depicts the investor’s challenge very nicely, so I will explain what it shows. The yellow line is the cumulative performance of the average prudential balanced portfolio and our benchmark for this purpose. The period I chose to measure starts 1 January 2010, when the trustees restructured Default Portfolio and made it less risk-averse, until 31 August 2021. The other lines show their performance relative to our benchmark (the average prudential balanced portfolio). From top to bottom, we see the following:
  1. The black line is the Default Portfolio.
  2. The green line is the Namibian All-bond index.
  3. The blue line is the JSE Allshare index.
  4. The red line is the Money Market portfolio. 
Graph 6.1


Since the performance of the Default portfolio is currently the bone of contention, I will focus on the black line. For starters, we must understand what this line wants to achieve. We must also understand what the yellow line wants to accomplish since the black line’s and the yellow line’s goals are similar. The yellow line must achieve a long-term investment return of inflation plus 4% after fees, and the black line must achieve the same long-term return. Any investor who does not have the same goal must choose a different portfolio depending on his goal. If the goal lies ahead shortly, the goal is often different than if it lies ahead in the distant future. If the investor has more money than he needs to survive, he will have a different goal than the investor whose money is barely sufficient to survive. If an investor does not need any money when he retires and can keep it invested, he will have a different goal to the investor who needs a portion or all his capital to pay off debt. In summary, the investor must know who he is money-wise. (Your broker can help you to define who you are, money-wise.)
 
Because the yellow line and the black line represent a combination of managers (to diversify risk), they cannot feature at the top of the log, but they will not feature at the bottom of the log.
 
Now let’s look at the black line (the Default Portfolio) over the time shown. The Default portfolio held itself above the average all along. Yes, it was higher up at times but closed the gap, of late, still ending 3% above. We see that it fluctuates more than the straight, yellow line, mainly because it consists of fewer and more conservative managers. To understand its behaviour, we must look at the blue line (JSE Allshare index). The black line is more conservative than the yellow line because it owns fewer shares (as represented by the JSE Allshare index). The result of fewer shares is that when the blue line improves its performance (relative to the yellow line), the black line should do worse than the yellow line and the opposite. The black line’s behaviour is very consistent with its expectation when one follows the two lines. While the JSE performed poorly, the Default Portfolio performed better than the average prudential balanced portfolio. Since 2019 fortunes turned around for shares, and now the black line moves down, and the blue line moves up. Why did fortunes turn up for shares? Well, following the COVID 19 market crash, reserve banks pumped huge amounts of money into the global market. The US markets reached dizzy heights, as we can see in graph 6.2, and the US market is driving other markets.
 
Graph 6.2

 
I have no doubt that we will see a reversal, and this reversal will happen when central banks stop flooding markets with money or when they start increasing interest rates. Both events are on the table, and the media speculate widely that this may happen soon. One has already seen the US share market getting into a stuttering mode recently, as depicted in graph 6.3 (by courtesy of Capricorn Asset Management Daily Brief 211013). If you have a different expectation of markets, you must choose other investment managers.
 
Graph 6.3
 
 

Conclusion

Investment markets globally are in a sensitive phase but less so in the developing economies. Shares likely will experience a down-turn, and interest rates will probably go up soon. When interest rates go up, bonds will decline in value, and it means that the investor will lose on his share and his bond investment. For investors with a long-term horizon, it is advisable to invest cautiously rather than aggressively; in other words, rather invest less in shares and spread the investment more widely. One must select individual shares very carefully rather than investing in a share index in the prevailing conditions. One must focus on shares paying high dividends rather than the shares increasing in value.


In line with its goal (as described above), the Default portfolio is positioned well, in my opinion, as it only holds 47% in shares compared to the average prudential balanced portfolio’s 65%, and it uses managers known for their stock-picking skills. The Default portfolio is not the right option for all fund members but for most fund members. Those with a different expectation of global financial markets and a shorter investment horizon must not use the Default portfolio.
 
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.
 

 

From the chairperson of a large fund
Dated 1 November 2021

“Wow! I am impressed R and compliment RFS on the progress. I think this [new reporting] makes so much more sense…”

Read more comments from our clients, here...


 
Important circulars issued by the Fund

The Benchmark Retirement Fund did not issue any new circular since those reflected in Benchtest 10.2021.
 

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


Important circulars issued by RFS

RFS did not issue any new circular since those reflected in Benchtest 10.2021.
 

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


Industry information session on NAMFISA Act and the FIMA
 
NAMFISA held a virtual meeting with chief executive officer and principal officers of regulated entities on Monday 8 November. The purpose of the meeting was to convey how NAMFISA intends to roll out the formal consultations in respect of the sub-ordinate legislation of the FIM Act.
 
In summary, all standards will appear in the government gazette by the 5th of December for regulated entities to review these and submit any comments by 28 February 2022. The sub-ordinate legislation is already available on the NAMFISA website at this link https://www.namfisa.com.na/legislative-instruments/
 
It is envisaged that these two Acts will come into force by 1 October 2022.
 
If you missed the presentation, you can find it here...
 

Industry meeting on risk benefits in pension funds
 
We reported in previous newsletters that the pension funds are suddenly experiencing problems getting NAMFISA rule amendment approval where the amendment deals with death and disability benefits (and this applies to all funds whether they are umbrella-, or stand-alone funds and to new rules). RFIN then arranged a meeting between NAMFISA, RFIN, and several industry stakeholders for 11 November. On the part of RFS, its managing director and the principal officer of the Benchmark Retirement Fund attended the meeting.
Our managing director compiled the following notes from his recollection of proceedings:
  • NAMFISA acknowledged to have made a mistake in permitting an industry practice on which the law is clear and extended its apology.
  • NAMFISA indicated that FIMA is also clear and does not allow the current practice. Therefore he does not expect the problem to persist under FIMA.
  • The Regulator now faces the predicament of what to do with all the funds whose rules it approved and advised that he is currently busy applying his mind to the matter. He will inform the industry soonest regarding his decision.
  • The Registrar made it clear that he will not approve any other rules or amendments unless they comply with the law. He can no longer condone any wrongdoing even though he understands the business implications and dilemma of the funds affected by this decision. He referred to a previous NAMFISA Appeals Board ruling where the Appeals Board found NAMFISA found wanting for having perpetuated their wrong, especially after having become aware of it. 
After allowing for comments and questions, the Registrar agreed that the insured benefits funds provided to members were very important to members over many years. He invited the industry (RFIN and NASIA) to suggest amendments to the FIMA Standards and Regulations so that funds can offer the same benefits as before. Such suggestions must consider NAMFISA’s concerns and must ascertain that members are not impacted negatively in any way.
 
In response to the industry request to urgently issue a directive, the Registrar confirmed that he is giving the matter his urgent attention. However, he needs to ensure that the directive will not adversely affect the current entitlement of members and beneficiaries.
 
In closing the discussions Mr. Matamola acknowledged that NAMFISA treated applications for the registration of rules and rule amendments inconsistently and undertook to ensure that his office will in future treat all applications consistently.
 

Floor is now open for comments
 
NAMFISA just sent out an invitation to submit comments on FIMA subordinate legislation by 28 February 2022. Find the relevant subordinate legislation here...

The invitation is available here...


Stakeholders must submit comments on the standard template that is available here...
 

How should you dispose of benefits when the fund member is institutionalised

In this real life scenario a member of the fund was accepted for a disability income benefit on the grounds of a serious mental disorder by the fund’s insurer. The member was subsequently institutionalised without the fund having been aware. The disability benefit was suspended by the insurer after the member’s bank account was closed and no futher communication received from the member.

Upon investigation and a visit to the member’s family, the fund became aware of the true situation and of the the fact that the member’s dependants were left desitute without any support from the member or the fund.

Section 37 A of the Pension Funds Act directs that any benefit must be paid to the member and may not be reduced, transferred or otherwise ceded, pledged or hypothecated or be liable to be attached or subjected to any form of execution. Section 37 D further prohibits any deduction being made from a member’s benefit.

In this scenario the benefit was the disbility income that had accumulated by the member since he was institutionalised. Since the member’s bank account was closed and due to his mental incapacity, he is not able to open another bank account.

In order to assist the dependants of the member, the fund then contemplated to have a curator appointed by the court, to take care of the member and his dependants.

The question arose whether the fund can make an advance payment to pay for legal costs to have a curator appointed and whether such a payment can be recovered from benefits due to be paid to the member.

A study of the fund’s rules established that the “Powers and duties of the board of trustees” are defined as follows:

“(a) to invest, lend, put out at interest, place on deposit, make advances of, or otherwise deal with all moneys of the fund upon such securities and in such manner as they may determine from time to time…”

“(b) in general, to take such steps as shall, in its opinion, be in the interests of the fund;…

The powers, duties and authorities of the trustees set out in these rules shall in no way limit or usurp the generally accepted responsibilities of trustees.”

Rule (a) thus provides for the fund advancing the costs, or otherwise deal with the moneys, the latter avenue being very vague and potentially risky. However, to ‘advance’ costs would imply a later recovery of the amount advanced from a person. In this case there is really only the member or his beneficiaries from whom such advance could be recovered.

Section 37D of the Pension Funds Act deals with the reduction of benefits due to a member. This section is very specific and does not provide the means to recover such an advance payment from the member’s benefit.

Once a curator has been appointed, it is within the curator’s powers though, to refund such an advance. The fund would however have no means to enforce such refund and would have to rely on the goodwill of the curator.

Rule (b) provides fairly wide powers to the trustees, if the exercise of such power is congruent with their ‘generally accepted responsibilities’. The trustees in our view, have a responsibility to ascertain that the needs of members’ and their dependants are cared for. If a member is unable to take care of his own and/or his dependants’ needs, no fault can in our opinion be found with the trustees taking steps to re-institute care for members and dependants under such circumstances. This would imply the fund incurring the costs and that such costs cannot be recovered from the beneficiaries.

The trustees would thus act within their powers if they resolved to carry the costs of having a curator appointed for this member, particularly in view of the fact that no one else assumed responsibility to take care of the member and his dependants, and in view of the fact that a benefit can only be paid to the member or his curator. The trustees may consider requesting the curator, once appointed, to refund these costs, although this would be totally within the curator’s discretion, taking into account the needs and interests of the dependants.
 
Where trustees exercise their discretion as envisaged, the rules would normally require the trustees to take a formal written resolution to this extent which must be signed by a quorum of trustees to be as valid as a decision taken at a properly constituted meeting.
 

Fund ordered to pay for costs of DNA test, if required 

Masakhane Provident Fund's {the fund) decision to distribute 50% of the death benefit was set aside and it was ordered to determine an equitable distribution of the whole of the deceased's death benefit (not just the remaining 50%).
 
The deceased member left behind his permanent life partner who was pregnant at the time of his death and financially dependent on him. The life partner gave birth to the child after the member died. The status of the life partner as a spouse and the paternity of the child appeared to be supported by the family members of the deceased . The deceased's son {from another relationship) had assisted the life partner in submitting her claim to the fund.The fund never contacted the deceased's son directly during its investigations and eventually decided to exclude the child and the life partner from the distribution of the deceased's death benefit.
 
The life partner heard about the fund's decision from a friend and upon enquiry with the fund was told to communicate with the family of the deceased about a DNA test. However, the family denied being aware of this. In her complaint, the life partner submitted that she requested a full explanation from the fund, However, this was met with threats by an employee of the fund that she would not receive anything without the paternity test. The life partner submitted that she did not object to a DNA test (and attached copies of correspondence exchanged with the fund as proof of same) but also pointed out that she was nominated by the deceased and, therefore , deserved to be treated with respect.
 
In response to the complaint, the fund submitted that it was willing to redistribute the death benefit on condition that the child undergoes a DNA test.
 
The response from the fund was found to be grossly inadequate and,in some respects,misleading because the mother of the child had always indicated to the fund that she was willing to subject the child to a DNA test. The PFA said with regard to the fund's response:
 
“ln the first instance, it fails to take into account that the complainant has already indicated her willingness to subject the child to a DNA test and submits that the complainant refused a DNA test. Unfortunately for the first respondent, this is not borne out in the correspondence attached to the complaint. In the said correspondence. the complainant clearly stated her position as not objecting to a DNA test."
 
Despite this, the fund requested the PFA to dismiss the complaint on the basis of her refusing to agree to a DNA test. Alternatively the fund requested that the PFA order the complainant to subject the minor child to a paternity test.
 
The PFA found that the fund was attempting to shift the blame for its failure to conduct a proper investigation and failed to explain its reasons for excluding the permanent life partner. In this regard, it was held that the fund's attempt to explain away its failure by relying on the absence of a DNA test conflated issues between that of the permanent life partner's dependency and the child's dependency.In this regard,the determination said:

“It is not clear how the complainant's dependency or nomination can be forfeited by the absence of a DNA test...”
 
The fund failed to answer the allegation made by the life partner that she was a nominee of the deceased and had also failed to respond to several attempts by the complainant to get an explanation. In this regard, the fund was found to have failed to comply with its fiduciary duties in terms of the Pension Funds Act.
 
It was found that there was no dispute  about the permanent life partner's status as a spouse of the deceased or the paternity of the child, and there was no need for a DNA test but that if the fund wanted to have one done then it should be ordered to pay for it.
 

The fund was ordered to pay for all costs associated with the DNA test including the costs of reasonable transport and accommodation where necessary, if the fund required a DNA test to be conducted. It was noted that the complainant may have to travel with the child for purposes of conducting the DNA test and,therefore, any travel and accommodation must be suitable.
 
Source: The 2020-21 annual report of the Office of the Pension Fund Adjudicator.




Investors should prepare for a market correction

 “Investors should brace themselves for a 10% market correction over the next month as they grapple to get a sense of the Federal Reserve’s thinking on interest rates, says deVere Group CEO Nigel Green.
 
The forecast from chief executive and founder of one of the world’s largest independent financial advisory, asset management and fintech organisations comes as the Federal Reserve is widely expected to announce on Wednesday that it will start unwinding its $120 billion monthly bond purchases.
 
Mr Green says: “Whilst the Fed Chair Jay Powell will be talking about the tapering of the massive bond-buying programme, the real story for the markets is how the Fed, the world’s de facto central bank, will talk about inflation.
 
“Inflation is running hotter and is becoming a bigger issue than most analysts previously expected. 
 
“As such, investors will be trying to get a handle on how the Fed intends to fight the trend of higher prices by starting to raise interest rates.”
 
He continues: “It’s highly unlikely that the central bank will now use their previous phrase ‘transitory’ to describe the current price surges. Inflation appears to be stickier than they had expected…”
 
Read this opinion of Nigel Greene, deVere Group, in Cover of 3 November 2021, here…


Inflation: the bottom-up case for caution

 “If headlines are to be believed, people are gravely concerned that inflation will rise. If market prices are to be believed, people are quietly convinced that inflation will fall. To us, markets seem a bit too relaxed about the risk of higher or more persistent inflation.
 
To be clear, we have no edge in forecasting inflation, and big macro questions are not the starting point for our decisions. Macro forces are influenced by a dizzying number of noisy variables, and big questions attract droves of smart people trying to find the answers, making it fiendishly difficult to be different and right. As bottom-up investors, we strongly prefer to make decisions based on narrower questions about individual companies.
 
That does not mean that we ignore the big stuff, as thinking through these issues can be useful to help manage portfolio-level risks. Today, we see plenty of risks to worry about when it comes to inflation.
 
Classically, printing money leads to inflation, but it didn’t after the global financial crisis because it got stuck in the financial system. Central banks pushed plenty of cash onto commercial banks’ balance sheets, but businesses and households were busy paying down loans rather than taking out new ones, and governments were more concerned with austerity than generosity. As a result, relatively little of that freshly printed money actually made it to the real economy. It boosted asset prices for stocks and bonds, but had a limited effect on consumer prices.
 
Covid has been very different...”
 
Read this perspective in the Orbis November newsletter 2021, here…
 

Waiting to save: the cost of delaying your retirement funding
 
“Putting enough money away for a comfortable retirement is a daunting task and, while we all know that starting early is critical, the numbers are alarming…While the government provides us with excellent incentives to invest through approved retirement funds so as to ultimately relieve the financial burden on the state, the uptake remains critically low, and the overwhelming majority of South Africans remain hopelessly underfunded for their retirement years. Many employed South Africans have the option of investing through their employer’s pension or provident funds although, with unemployment being at an all-time high, this option is now available to fewer people than before… However… it is important to start early, consistently invest enough for your goals, invest appropriately and avoid dipping into your retirement savings.
 
Simply put, the best time to start saving is right now – and if you’re still waiting to save, consider the following scenarios which demonstrate the cost of delaying your investment journey. In developing these investment scenarios, we have used the following assumptions:
  • Siya is currently aged 25 and is formally employed earning R35 000 per month.
  • He would like to plan for a comfortable retirement at age 65, and would like to draw a post-retirement income of R25 000 per month, which is approximately 70% of his pre-retirement income in real terms.
  • His retirement income will increase annually at a rate of 5%.
  • As he is relatively young, he would like to assume a life expectancy of age 100.
  • Given his investment horizon, Siya knows he can invest more aggressively and, as such, would like to assume that his investments achieve returns of inflation plus 4.5% per year during the accumulation phase.
  • At retirement, he will move his invested capital into an investment that targets annual returns of inflation plus 4%.
  • Any investment premiums will increase annually at a rate of 5%. 
Scenario 1: Investing from age 25
If Siya begins investing today with his first paycheque, he will need to invest an amount of R4 500 per month towards his retirement, which is approximately 13% of his pre-tax income.
 
Scenario 2: Investing from age 35
If Siya delays starting his savings until he reaches age 35, he will need to invest an amount of R8 500 per month which translates into 24% of his current income. This means that a 40-year investment horizon reduced by 10 years has the effect of almost doubling the required investment premium to achieve the same outcome.
 

If nothing else, the Covid-19 pandemic has highlighted the need to prioritise saving and investing, and to ensure that one’s financial plan is able to withstand unexpected, unforeseeable eventualities…”
 
Read the full article by Craig Torr of Cru Invest, in Moneyweb of 2 November 2021 here…




Four key financial lessons you sometimes only learn over time
  1. Not investing/saving for retirement – from the very beginning - It is critically important to start saving for retirement as soon as you start working. For women, I believe this is especially important. We know that, still today, women often earn less than their male counterparts. But, statistically, women also outlive men by several years… One of the key things I always recommend is that people consider increasing their pension or provident fund contributions by at least a percentage point when they receive a salary increase.
  2. Don’t leave your own financial status off your “worry list” - Of course, it’s very important to worry about children, education, and saving enough to provide for your dependents. But, in doing so, it is critical that we don’t neglect saving for our own retirements. If we don’t have enough money in retirement, the very same children we constantly worry about will likely end up burdened with our care when we are elderly and retired…
  3. Debt and credit – don’t live beyond your means - A credit card should not be your go-to ‘account’ when you want to buy something you cannot actually afford. Rather learn to be patient and save enough money to purchase the item you need…
  4. Over-insuring for funerals - stick to one policy, and save the rest - It is considered “unAfrican” to let people leave without having had something eat at your home, and it is also considered impolite to leave without accepting something to eat if it has been prepared for you. All of this costs money, you often find people signing up for multiple funeral policies. But, I strongly believe there is a better way to meet this cultural need than just taking out multiple funeral policies and hoping to have enough…”  
Read the full article by Nowana Sobopha of Momentum, in Cover of 27 October 2021, here...
 

Should I invest in a fixed deposit or unit trust for my child?
 
Question: I am a 56-year-old man with a six-year-old daughter. I have R36 000 that I am thinking of investing in an African Bank fixed deposit account (10.5% interest) for my child for five years. Is this the right thing to do? Or should I open a unit trust account for her?
 
Answer: When comparing interest-bearing investment options it is important to understand how the quoted interest is calculated. Does the rate refer to simple interest, which is a rate calculated on the principal investment amount, or does it refer to compound interest, which is the effective interest rate earned when you do not withdraw the interest earned every month?
 
Fixed deposit investments often quote the simple interest rate which can be confusing when comparing the return to that of other investments indicating compound growth, like unit trust funds.
 
A simple interest rate of 10.5% on a principal amount of R36 000, would earn you R3 780 per year for five years. If you were to reinvest the interest, you would receive five times this amount plus the principal amount at the end of the five-year term. This equates to a payment after five years of R54 900. This converts to a compound annual interest rate of 8.81%, which represents the effective interest earned if you reinvest rather than withdraw the interest earned.
 
Another important factor to consider is whether you require flexibility. Do you require access to the funds within the five-year period? Would you like to make additional contributions to the investment?
 

Read the article by Tanya Joubert in Moneyweb of 4 November 2021 here…
 
Note: This article is based on SA tax law. Namibia has no exemption for interest income. Instead the institution will deduct withholding tax on interest at the rate of 10%.




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

"Honesty prospers in every condition of life.” ~  Friedrich Schiller

 
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