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Monthly Review of Portfolio Performance
to 30 April 2022
In April 2022, the average prudential balanced portfolio returned -0.7% (March 2022: -1.0%). The top performer is Allan Gray Balanced Fund with 1.2%, while NAM Coronation Balanced Plus Fund with -2.4% takes the bottom spot. For the 3-months Hangala Prescient Absolute Balanced Fund takes the top spot, outperforming the ‘average’ by roughly 1.2%. NAM Coronation Balanced Plus Fund underperformed the ‘average’ by 1.6% on the other end of the scale. Note that these returns are before (gross of) asset management fees
The Monthly Review of Portfolio Performance to 30 April 2022 provides a full review of portfolio performances and other insightful analyses. Download it here...
Invest in what you consume to hedge against inflation?
Little has changed in global investment markets since last month’s commentary. Energy costs, inflation, and international interest rates, including S.A. and Namibia, continue to increase. Food shortages are growing, and the Ukraine crisis shows no sign of remission; instead, it is heating up further.
The Ukraine crisis is just a symptom of politics that investors must understand before investing. Politics constitute the outer framework within which economies and markets operate. As much as one may think that we live in a free-market economy, the market is not really free as the political framework sets it narrow constraints.
The Monthly Review of Portfolio Performance to 30 April 2022 provides a full review of portfolio performances and other insightful analyses. Download it here...
FIMA bits and bites – compulsory preservation postponed
One must give it to Dr Job Amupanda. When he speaks out on something, people listen, even at the highest levels of government. Although RFS spoke on this in our newsletters no-one bothered to listen. I trust we can take the credit through raising the matter again in this newsletter two months ago. We know and understand our environment. We always new that unions will not accept compulsory preservation. Unfortunately, even union members on boards of trustees did not bother to pay attention to our cautioning, or they under-estimated the potential resistance from their members.
Like all things in life have two sides, so does compulsory preservation. For those who can afford to preserve, compulsory preservation is in their and the country’s interest. But, where people cannot afford it, compulsory preservation is simply inappropriate. The trick is to find a formula addressing both sides of this coin and hopefully a good answer will come out of the further consultation (unfortunately there was no consultation before).
I must add again though, this will not be the last time we will hear unions and other stakeholders shout and scream about surprises coming out of FIMA; for years to come.
I suggest we still have an opportunity to go back to the drawing board with FIMA. The key principles of this monstrous law must be properly understood and considered for starters. As a point in case: the omnibus principle. It is a great principle for a regulator and its 200, or so, staff members. It’s a monster for everyone else, our courts, the legal fraternity, the regulated subjects and all investors in non-banking financial institutions, and that is probably 500,000 subjecst! As another point in case: the regulator will become the judge, the jury and the executioners and can legislate around parliament! This very principle was bemoaned by a parliamentarian recently in the compulsory preservation discourse.
FIMA bits and bites – significant changes from PFA (part 1)
The FIMA introduces significant changes from the Pension Funds Act to the retirement funds industry and all stakeholders. These changes will raise the cost levels of retirement funds significantly, which members will ultimately bear. This newsletter and the following one will present an overview of these wide-ranging changes.
- The board of trustees -
- The duties of the board of a fund are now defined
- The board of trustees, principal officer, and other offices must meet fit and proper requirements as determined by NAMFISA
- Certain persons (administrator, actuary, valuator, and others) may not serve on the board of trustees
- The members must elect at least half of the number of board members
- A trustee must inform NAMFISA on becoming aware of any material matter seriously prejudicing the financial viability of the fund
- The board must advise NAMFISA when it replaces a trustee or terminates his service and must give the reasons for the removal of a trustee before the expiration of his term
- Enhanced reporting requirements -
- The fund must submit an annual report to NAMFISA
- The fund must report to its members-
- An annual report with minimum prescribed information
- Annual benefit statement with minimum prescribed information;
- A quarterly report on contributions with minimum prescribed information
- The fund must provide the following documents to each member, free of charge-
- The rules of the fund
- Any rule amendments
- The most recent annual financial statements
- The most recent valuation report
- Payment of benefits –
- The fund must affect the transfer of a member’s benefits within 60 days from receipt of a prescribed notice of transfer, and prescribed penalty interest applies on any transfer after 60 days
- Payment of contributions –
- The employer must pay prescribed penalty interest on the payment of contributions from day eight after becoming due
- Allocation of death benefits –
- Funds must apply a vastly different death claims process
- Damages or losses caused by an employee –
- The employer cannot claim against a member’s benefit anymore for any reason
- Beneficiary nomination form –
- Every member must submit a beneficiary nomination form annually
- Fund administrators must register with NAMFISA and -
- The shareholders, every other person who controls the fund administrator, the principal officer, and other fund officers, and the directors of the fund administrator must meet prescribed fit and proper requirements
- Must have relevant qualifications and experience
- Have a fiduciary responsibility to the fund
- Must avoid any conflict of interest
- Must maintain proper records
- Must employ adequately trained staff
- Must maintain adequate financial resources for commitments and risks
- Provide monthly reports on administration services to the board of the retirement funds
FIMA bits and bites – legislating around parliament
The media hype Dr Job Amupanda recently caused rudely awoke a dozing community. Now no one wants to have known about the FIMA. Yet, RFS has been cautioning about this law for years. For years, RFS has tried to draw decision-makers and stakeholders’ attention to the FIMA and its numerous regulations and standards, and more of these are to come! Together with the RFIN, RFS tried to mobilise the parliament’s appropriate standing committee, unfortunately to no avail. Perhaps an incident where the former Minister of Finance nearly assaulted a parliamentarian who dared to question the lacking consultation did not promote the parliamentarian’s courage to any further challenges of the FIMA.
The FIMA affords NAMFISA carte blanche to legislate around parliament. RFS cautioned that such an approach is not reflective of a parliamentary democracy. Dr. Amupanda picked up on the compulsory preservation packaged as the Minister’s regulation, thereby circumventing the parliament. Interestingly, this unpopular determination was still a NAMFISA standard when first released for comment. To date, NAMFISA issued 38 standards that impact the retirement funds industry alone. There are numerous more standards and regulations applicable to the other financial services industries covered in the FIMA. Who will take the trouble to work through all of these from the worker’s perspective? Much will come to the fore in drips and drabs over the coming years!
FIMA bits and bites – where are the employers?
In our previous newsletter, I highlighted the impact of the FIMA on employers, and it was not the first time! I fail to understand how employers can let this happen without resisting. Employers voluntarily participate in retirement funds to provide for needs employees typically neglect to provide for even though it is in their best interests. Why should employers now face the severe punishment the FIMA holds in store for doing something that benefits their employees, the government, and our economy? Employers will only realise how expensive the FIMA really is compared to the old Pension Funds Act in time to come.
Have employers’ organisations done enough informing and mobilising their members?
FIMA bits and bites – who supervises the supervisor
Following the media hype on compulsory preservation, NAMFISA explained that it had consulted stakeholders on the FIMA and its standards and regulations. Various stakeholders said in the media that NAMFISA had not consulted them. Where is the truth?
I experienced the process as follows. NAMFISA circulated the FIMA and its standards and regulations to RFS and the Benchmark Retirement Fund and invited us to comment on these documents. I do not know who else received such invitations but being technical and complex material, I am not aware that NAMFISA invited the unions or employers to comment. Commentators were straight-jacketed from the start through a predetermined format for submitting comments. The prescribed format discourages commenting. While it is often simple to identify a concern, suggesting how to deal with it as the prescribed format requires is not so simple. One then had to submit the comments to NAMFISA, who would consider them and decide on the fate of the comment in its wisdom. In my understanding, that is not consultation. I expect consultation to be an exchange of thoughts and the finding of the midway. Alternatively, I would suggest that NAMFISA should have forwarded stakeholders’ submissions and its contrasting views to relevant experts and policymakers in its line ministry, but that did not happen either.
Insured benefits outside the retirement fund – implications for the employer
The rather inconspicuous NAMFISA directive PF/DIR/01/2022 cites a few sections of the Pension Funds Act and directs that pension funds must observe these sections in their rules. Of course, one must observe the law! No one would argue with that!
The snag of the directive is how NAMFISA interprets and applies the law whenever a fund submits rules or rule amendments for approval. In short, NAMFISA decided at the beginning of last year that industry practice of the past 30-plus years, and condoned by NAMFISA all along, is inconsistent with the Pension Funds Act. Since last year, NAMFISA stopped approving rules and rule amendments.
While all know what they may not do, it is not clear what one may do, particularly because of past industry practice that is no longer allowed. NAMFISA officials have insinuated that funds can retain insured benefits within the fund but only if the fund assumes all risks, terms, conditions, and exclusions the insurer does not carry. If funds were to do that, NAMFISA really would have a problem managing the risks that funds have taken upon themselves. Of course, level-headed trustees would never have their fund assume any risks they cannot place with an insurer.
So, more and more funds, in collaboration with the employer, are now moving the insured benefits out of the fund to employer-owned insurance policies.
Employers may not be aware of what this could entail.
Firstly, such an arrangement may have tax implications regarding the premium paid by the employer. Could it become a taxable fringe benefit for the employee? When the insurer pays out a lump sum that ends up with the employee or his survivors, is it taxable in the hands of the employer, the employee, or maybe even both? If the employer receives the lump sum and pays it to the employee or his beneficiaries, is he taxable on the receipt, and can he deduct the payment to the employee? There is no argument about an income benefit as it is an annuity, which is taxable in the recipient’s hands.
Secondly, removing the insured benefits from the retirement fund means that the employer must amend the employment contract. Sometimes a separate employer-owned policy cannot mirror the pension fund benefits. In any event, it will not offer the legal and procedural protections that the pension fund provides. Employees may see this as a change in conditions of employment, particularly in a unionised environment. That means that the employer must institute the Labour Act requirements for a change in conditions of employment.
Lastly, the employer must now process two payments with administrative and accounting implications. The employer must put new procedures and controls in place. The employer may want to engage a broker to assist in dealing with the insurance company.
Tilman Friedrich is a chartered accountant and a Namibian Certified Financial Planner® practitioner, specialising in the pensions field. He is co-founder, shareholder, and Chairman of the RFS Board and retired chairperson, and now a trustee of the Benchmark Retirement Fund.
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