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Benchtest Newsletter

Issued September 2022

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In this newsletter

Benchtest 08.2022 – FIMA and costs, disability benefits and tax, and more...

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Important notes & reminders

  NAMFISA levies
  • Funds with August 2021 year-ends must submit their 2nd levy returns and payments by 23 September 2022;
  • Funds with February 2021 year-ends must submit their 1st levy returns and payments by 23 September 2022; and
  • Funds with September 2021 year-ends must submit their final levy returns and payments by 30 September 2022.
Registered service providers

Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2022, here...
  Retirement calculator

Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here...

If you need help with your financial planning, get in touch with
  • Annemarie Nel (tel 061-446 073)
  • Kristof Lerch (tel 061-446 042)
  • Christina Linge (061-446 6075)
Toolbox for trustees

RFS provides comprehensive support for trustees. Find a list of download documents to assist with governance and management of private funds, registered as of June 2022, here...



In this newsletter, we address the following topics:
  In 'Tilman Friedrich's industry forum' we present...
  • Monthly review of portfolio performance – 31 August 2022
  • The FIMA – a narrow-minded focus on costs
  • Disability benefits and tax
    Amendment of Administration of Estates Act
  • Cost to company and your rules
  • Dismissal – a major risk for the employer 
In 'Benchmark – a note from Günter Pfeifer' read about...
  • Important circulars issued by the Fund
In 'News from NAMFISA' read about...
  • Re-registration under the FIMA
In 'Legal snippets,' read about...
  • Death benefits – a few basic facts
  • Fund not entitled to withhold benefit when no legal proceedings pending
  In 'Snippets for the pension funds industry,' read about...
  • ·South African fund managers outperform AI portfolios
  • With interest rates rising, is now a good time to invest in income funds?
In ‘Snippets of general interest', read about...
  • What happens to your debt and tax when you pass away?
  • How watertight is your will
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!


Tilman Friedrich
Tilman Friedrich's industry forum
Monthly Review of Portfolio Performance
to 31 August 2022

In August 2022, the average prudential balanced portfolio returned 0.0% (July 2022: 2.9%). The top performer is Hangala Prescient Absolute Balanced Fund with 0.6%, while Old Mutual Pinnacle Profile Growth with -1.0% takes the bottom spot. For the 3-months Allan Gray Balanced Fund takes the top spot, outperforming the 'average' by roughly 1.0%. Momentum Namibia Growth Fund underperformed the 'average' by 2.3% 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 August 2022 provides a full review of portfolio performances and other insightful analyses.  Download it here...
Foreign investment – a time to reassess your risk
For local pension fund investors, one probably needs to take a different view of the risks of investing offshore. In the past, developing countries, particularly in Africa, were loaded with a political risk premium. The Cyprus experience has exposed the political risk in developed countries. To quote John Mauldin's assessment of the Cyprus debacle for investors back in 2013 - "Capital controls have shattered the monetary unity of EMU. A Cypriot euro is no longer a core euro…. The complicity of EU authorities in the original plan to violate insured bank savings – halted only by the revolt of the Cypriot parliament – leaves the suspicion that they will steal anybody's money if leaders of the creditor states think it is in their immediate interest to do so. The IMF doesn't get off easy here, either: The IMF's Christine Lagarde has given her blessing to the Troika deal, claiming that the package will restore Cyprus to full health, with public debt below 100pc of GDP by 2020."

John Mauldin's suspicion that "authorities … will steal anybody's money if leaders … think it is in their immediate interest to do so" was justified! The US-lead western sanctions on countries such as North Korea, Iran, Venezuela, and Russia more recently, and the freezing and impounding of their foreign investments, caused severe losses for all who invested in those countries. These countries raised the irk of the US for challenging its dictates, and it can quickly happen to any other country, including SA and Namibia. Namibia already accommodates a Chinese space station in Swakopmund that may double up to guide intercontinental rockets. Imagine what the US will do to Namibia, and Namibian offshore investors should it come to an open conflict with China. It is currently a very realistic scenario! Add huge demographic risks for a more callous view on investment in developed countries. In contrast, the political and demographic risks in Africa are readily comprehensible.
The Monthly Review of Portfolio Performance to 31 August 2022 also reflects the editor’s views on current developments and their impact on investment markets. Download it here...
The FIMA – a narrow-minded focus on costs
FIMA standard Gen.S.10.10 lays down requirements for funds outsourcing services. When assessing the options for outsourcing services, clause 6(2)(b) expects the retirement fund to demonstrate that the cost of the services will not exceed the fair value of like services an arm’s-length service provider could provide.
Providing services to a retirement fund is not a science in most cases. It is like requiring a patient to prove that the surgeon he consulted will not charge more for the operation than any other surgeon would. It ignores elements making up the patient’s value-for-money assessment. As cost is quantifiable, but the value is not, when Gen.S.10.10 forces the fund to demonstrate that the cost is in line, it would naturally be coerced to ignore the value factor.
Another risk of the cost focus is that service providers on the brink of collapse may undercut market prices to save the business but expedite its demise instead.
Narrow-mindedly forcing funds to focus on cost without mention of value is not in funds’ or their members’ interests. It demonstrates an input-based approach to regulation instead of an output-based approach and militates the propagated principle of risk-based supervision!
Disability benefits and tax
Retirement funds usually offer disability benefits. Such benefits can be:
  • an income replacement benefit; or
  • a lump sum payable upon the member becoming totally and permanently or temporarily unable to pursue any occupation; or
  • a so-called dread disease benefit payable should a member contract a defined disease (such as stroke or blindness) or becomes physically incapacitated (such as losing a limb or body functions). 
Because Namibian funds are mostly too small to carry the risk of a member’s disablement, they have to place the risk with an insurance company at a monthly insurance premium.
The retirement fund’s rules must describe how it will pay the benefit.
Income replacement benefits are paid monthly, like a salary, and the disabled person usually stays on as a member and has to contribute. Because the member no longer earns a salary, his contribution is deducted from his benefit and paid to the fund. Usually, the insurance company will assume responsibility for the former employer’s contribution and pay it to the fund with the member’s contribution deducted from the member’s benefit. This benefit is an annuity under the Income Tax Act (ITA) and is taxed like a salary.
The strict interpretation of the definition of ‘provident fund’ in the ITA does not allow a fund to pay a benefit except when the member retires or passes away. A provident fund, therefore, cannot offer a disability income benefit, although NamRA appears not to object.
When a fund offers a lumpsum dread disease benefit, the member can often return to work after medical treatment. The ITA taxes the benefit differently between a pension fund and a provident fund. Section (d) of the definition of gross income does not consider the lumpsum gross income if it was derived from a pension fund. Section (dB) includes the lumpsum in gross income when paid by a provident fund, but section 16(1)(aa) exempts one-third of the lump sum. The dread disease could also mean the member cannot return to work and must retire. Read on to find out how the benefit is taxed.
A lump sum disability benefit means the member is totally and permanently disabled and cannot return to work. The member must now retire. The rules will state whether the member receives the disability lump sum and a retirement benefit or the two amounts are lumped together and paid out as a retirement benefit. A pension fund retirement benefit must always comprise a one-third portion the fund may pay out tax-free. The balance it or another fund must pay out as a monthly pension. Any separate disability lump sum is tax-free. A provident fund must pay out both or the aggregated amounts in cash. One-third of the cash payment is tax-free (treated like the dread disease benefit), and the balance is taxed.
The fund and its administrator are both responsible for deducting tax from all taxable benefits. Schedule 2 of the ITA requires that they must request a tax directive on any lump sum amounts that are gross income. Obtaining a tax directive on any lump sum that is not gross income is unnecessary. Therefore, no tax directive is required on lump sums paid by a pension fund, unlike when paid by a provident fund. The implication is that NamRA the request for a tax directive prompt NamRA to impound any provident fund lump sum if the member owes tax but not a pension fund lump sum. Finally, the provident fund lump sums are taxed at the member’s maximum marginal tax rate.
Amendment of Administration of Estates Act
The National Assembly agreed to the Minister of Justice amending the Administration of Estates Act, 1965, by repealing the provision that requires the payment of certain moneys in respect o minors and persons under curatorship into the guardian’s fund. The debate on the amendment bill in its second reading was adjourned to 21 September.
Cost to company and your rules
Today many companies are on a cost-to-company remuneration system. It means, to employ you, the company will incur total employment costs of N$ 20,000 per month. If you want a rental allowance of N$ 1,000 per month, your cash payout declines to N$ 19,000 per month. If you also want a medical aid fund costing N$ 2,000 per month and a pension fund costing N$ 2,000 per month, your cash payout declines to N$ 15,000 per month.
It appears from comments by officials that NAMFISA’s view is that the contributions paid into the fund belong to the member. Because it’s the member’s contributions, the member must, from reading the rules, know precisely how the fund applies the contribution for management costs, for providing death- and disability benefits, and the balance allocated to his fund credit.
NAMFISA expects that the rules of a fund applying for registration or the amendment of its rules must set out the detail of how the contributions are used and show that its members were informed. It is a new requirement of NAMFISA based on a fresh interpretation of the Pension Funds Act. It was not the case for the previous thirt years. Considering that Namibia took over the Pension Funds Act from South Africa, it is interesting that the South African regulator interprets the Act as was the practice in Namibia since before independence. SA courts merely concluded that a member must be able to establish how the contributions are applied, for example through a letter, brochure, or other means.
Getting rules or amendments approved in Namibia has become challenging and often takes months. Every time a cost element changes, NAMFISA now requires the fund to submit a rule amendment and show that members were informed. As such changes occur regularly, funds may have to submit amendments more than once a year.
Worse, the approval process is subject to NAMFISA’s discretion which is undefined and creates uncertainty. It impedes the ease of doing business in Namibia instead of promoting it as the government pronounces regularly. Starting a business in Namibia today in the belief that you can offer your new employees a retirement fund from day one has become unpredictable. Employers cannot provide their employees a retirement fund until the rules are registered, often leaving employees without protection for an extended period.
Dismissal – a major risk for the employer

While the dismissal of an employee may appear to be purely a matter of following the correct procedures as envisaged in the Labour Act, the implications for the employer may be a lot more profound than just a possible reinstatement.

Consider the scenario of dismissing an employee. HR will now complete a withdrawal form and forward it to the pension fund administrator. The Fund rules would prescribe that membership of the Fund terminates upon termination of employment by the employer. Consequently, the administrator must process a termination benefit. The administrator will not know if the employer was within its rights to initiate the termination of this person’s membership. The fund administrator will therefore terminate the employee’s membership and pay out the benefit due to the employee in terms of the fund’s rules.

Now the employee challenges his dismissal. Before the matter is concluded, the employee passes away or becomes disabled. The court then finds the dismissal unfair and orders the employee’s reinstatement. The employee is now entitled to the death- or disability benefit, and the employer must compensate the employee for the fund benefit he lost.

The dismissal of an employee can create a dilemma for the employer, given that the employee can challenge such dismissal. At the same time, the fund is obliged to terminate fund membership once it receives the employer’s notification.

To avoid being held liable to make good the loss of the benefit that would have been due to the employee from his fund upon death or disability, the employer should instead consider suspending contributions to the fund where there is any possibility of the dismissal being challenged by the employee. The employer would thus not contribute to the fund in respect of the employee but the fund would maintain death and disability benefits. The cost of keeping cover in force will be a fraction of the cost of making good the loss of the benefit to the employee.

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.



Compliment from a member
Dated 7 September 2022
  “Dear H,

I am an Accountant and I am also involved in managing an administrative environment for about now 22 years.  In my life I have never come across a company such as Retirement Fund Solutions who continuously has the tendency to always surprise me with their ability to deliver results same day.  Never have I experienced this anywhere elsewhere in my career in Namibia.  Retirement Fund Solutions you are simply the best.  Every time I deal with you I get same-day response on old rusted queries.
I thank you so much H and my appreciation to the management and leadership of the Retirement Fund Solutions.  Keep it up guys.
You are worth all my recommendations.”

Read more comments from our clients here...

Benchmark: a note from Günter Pfeifer
Important circulars issued by the Fund

The Benchmark Retirement Fund issued the following circular. Clients are welcome to contact us if they require a copy of any circular.
  • 202207 – Changes to the Benchmark Default Portfolio
Günter Pfeifer 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.
News from RFS
Important circulars issued by RFS
RFS did not issue any circular since the previous newsletter. Clients are welcome to contact us if they require a copy of any circular.
News from NAMFISA

Re-registration under the FIMA
At the industry meeting held on 27 July, NAMFISA introduced a timetable for funds submitting their application for re-registration under the FIMA and invited these funds to consider and revert. Following funds’ comments, NAMFISA issued an updated time table.
Find the updated timetable here…
Legal snippets
Death benefits – a few basic facts
  • A nominated beneficiary must survive the member of the fund to qualify for the benefit payable upon the member’s death. It means that the estate of the nominated beneficiary cannot benefit anymore.
  • A nominated beneficiary does not acquire any right to a member’s benefit during the member’s lifetime. The nominated beneficiary only becomes entitled to a member’s benefit upon the member’s death and the fund is obliged to consider the beneficiary in the distribution of the benefit. Until the member’s death, the nominee has no right to the benefit.
  • A nominated beneficiary is only entitled to the portion of the benefit allocated by a deceased fund member to him if there is no dependant and no shortfall in the deceased member’s estate.
  • The member’s beneficiary must be a natural person. A fund member cannot nominate his/her estate or any legal person (a company or a CC) as a beneficiary (with a narrowly defined exception). The benefits payable by a fund upon the death of a member shall not form part of the estate of such a member, as per section 37C(1) of the Pension Fund Act. The trustees may therefore not consider the member’s nomination of his estate. Benefits are only payable to the estate if the deceased fund member has not nominated any beneficiary and leaves no dependant.
  • If a fund member did not have any dependants but nominated a beneficiary who does not qualify as a nominee, such as having predeceased the fund member, the other nominees would not be entitled to receive the non-qualifying nominee’s share. The board of trustees is only allowed to pay such a portion of the benefit as is specified by the member. This portion would then have to be paid to the deceased’s estate.
Fund not entitled to withhold benefit when no legal proceedings pending 

If an employee commits theft, fraud, dishonesty or misconduct against their employer then section 37D(1)(b)(ii) of the Pension Funds Act has been interpreted by the Supreme Court of Appeal to mean that a pension benefit may be withheld by a pension fund at the request of an employer if the employer is pursuing legal proceedings against the member for theft, fraud, dishonesty or misconduct. Once the employer has obtained judgment against the member for theft, fraud, dishonesty or misconduct, it can instruct the pension fund to deduct any amount granted in its favour from the member's pension benefit.
In this matter, the member exited the service of the employer in 2014. The employer requested the fund to withhold the pension benefit pending the outcome of criminal proceedings against the member for theft/ fraud. The member lodged a complaint with the Adjudicator in 2014 and the complaint was dismissed in early 2015 because the Adjudicator held that the fund was entitled to withhold the benefit.
In 2019, the member obtained confirmation from the Pretoria Magistrates Court that the criminal charges against her were withdrawn. She lodged another complaint with the Adjudicator in August 2019 requiring payment of her pension benefit.
In response to the complaint, the fund submitted that the charges were only provisionally withdrawn pending further investigations by the SAPS.
It was held that the period allowed for the institution or conclusion of legal proceedings must be reasonable. Four years and eight months lapsed since the previous complaint was dismissed before the current complaint was lodged. As at 24 July 2020, the criminal charges remained provisionally withdrawn. It was held that an unreasonable amount of time had lapsed for the criminal proceedings against the member to be finalised. After five years, and even with the assistance of the employer’s forensics department, the NPA was still not satisfied that it had sufficient evidence to provide a reasonable prospect of prosecution against the member.

It was further held that a decision to withdraw a criminal charge is not taken lightly by the NPA. There has to be compelling reasons to do so. Once a decision to withdraw a criminal charge has been made that decision is final. Prosecution may only be recommenced in very specific circumstances. The fund owed the member a fiduciary duty and it ought to have interrogated the reasons why the charges were withdrawn. Instead, the fund too readily accepted the explanation given to it by the employer without the fund investigating the circumstances for itself. In this regard, the fund failed to uphold its fiduciary duty.
In the circumstances, the complaint was upheld and the fund ordered to pay the complainant’s withdrawal benefit together with interest.
Reported in the SA Adjudicator’s annual report 2020 – 2021

Snippets for the pension fund industry
South African fund managers outperform AI portfolios

 The latest data from NMRQL Research shows that its Artificial Intelligence (AI) driven investment funds failed to outperform South African fund managers or the market.
Artificial Intelligence has grown in prominence in the investment industry over the past decade and is widely used by fund managers today.

AI includes machine learning, where computer systems can learn and adapt without human intervention. It achieves this by using algorithms and statistical models to analyze patterns in data.
Fund managers rely heavily on data analyses, and many incorporate machine learning results into their investment decisions.

They believe using AI gives them an advantage because of its ability to analyze big data quickly and identify relationships that humans can’t spot.

Investment portfolios based on AI and machine learning are also marketed as eliminating biases influencing human behaviour.
These biases could cause irrational behaviour by portfolio managers, leading to poor decisions and losses for investors.

Another selling point is that AI-managed funds have lower management fees, which further benefit investors.
It is time to see whether the AI-managed funds lived up to their promise of higher returns and lower fees…”
Read the article by Drikus Greylingin Daily Investor of 8 September 2022 here...
With interest rates rising, is now a good time to invest in income funds? 

Question: “Is it now a good time to invest in income funds, with the rising interest rates? I ask because I have R1 million in living annuities, and I withdraw 4% p.a. quarterly. I would also like growth as close to inflation as possible. I am 77 years old, my wife is 72.”
Answer: “The answer is a more loaded one than just a straight yes and no. Firstly, one must understand what happens to income funds when interest rates increase. Income funds consist of various underlying assets which act differently to interest rates.
Floating rate notes (FTNs) will benefit directly and mechanically from increasing (short-term) interest rates, as these instruments pay a spread over three-month Jibar rates (Johannesburg interbank average rate). Bonds, however, have an inverse relationship with interest rates, meaning that if interest rates go up bond prices go down and vice versa. It is believed that in most cases the bond yields have factored in and discounted these increases already.

Keeping the above in mind one then has to look at the current inflation rate. The South African inflation rate has breached the target band of 3-6% for the first time since March 2017 and is now sitting at 6.5% as of the end of June 2022.

Your average income fund investment will yield around 7% per annum before any fees have been taken into account. Add to this calculation a drawdown rate of 4%, as mentioned in your question and you are facing the reality of depreciating your capital year-on-year…”
Read the article by Suzean Haumann and Mauro Forlin in Moneyweb of 20 July 2022 here...


Snippets of general interest

What happens to your debt and tax when you pass away?
“In the event of someone’s death, his assets and liabilities are transferred to their estate, and the estate is then responsible for paying off debts and distributing assets as per will specifications. If the assets are distributed to them before the debts are settled, heirs may have to pay the debts from their share of the estate.

How debt is dealt with after death is largely informed by whether the debt is secured or not…when it comes to secured debt and the person owing passes away, it is the responsibility of the person who inherits the house to pay off the balance of the mortgage on the deceased’s behalf…

On the other hand, the repayment of unsecured debt is solely dependent on whether there is enough money or assets to service the debt in the deceased’s estate…

If an estate earns income after death, it must pay taxes. The heirs of the estate may also have to pay taxes on inherited income…”
Read the article by a Staff Writer in Businesstech of 17 September, here…
How watertight is your will?

 “…Love [the author] cautions that when drawing up a will, there will be terms and phrases, which you may not be familiar with. It’s important to ask as many questions as necessary to ensure you are 100% happy with the contents of your will before you sign it.
Some top tips when drafting a will:
  1. Does your will have a revocation clause? A revocation clause states that the will you are signing is your last will and testament and that all previous wills should not be considered when determining your wishes…
  2. Who is your Executor? Friends and family may not have the time or expertise needed to carry out these duties so you should consider appointing a professional Executor…
  3. Who are your heirs? Appointing your heirs may seem straightforward, but if there are minor heirs, it’s important to specify whether a trust should be set up, if the payment must be made to a guardian, etc. Love recommends that you review and update your will when your personal circumstances change…
  4. Making sense of some Will terminology:
    • Per capita and per stirpes: These terms determine the way in which your heirs inherit, either equally per person.
    • Collation: The basis for collation is that a parent is presumed to have intended that his estate will be equally distributed to his children. Substantial gifts or advances of money given to a child from the testator during his lifetime must be considered in the distribution of that child’s inheritance…”
 Read the article by Love and the Private Client Holdings in Cover of 15 September 2022 here…


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

"Never doubt that a small group of thoughtful, committed citizens, can change the world. Indeed, it is the only thing that ever has." ~ Margaret Mead


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Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Namibia (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager.

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