Season's greetings!

• We wish you a joyous festive season and a prosperous 2018!
• Ohatu ku halele efimbo loshivilo layambekwa, nomudo 2018 una elao!
• Wir wünschen frohe Festtage und ein erfolgreiches 2018!
• Ons wens u ‘n geseënde feesseisoen en ‘n voorspoedige 2018!

Thank you sincerely for your valued support! We look forward to being at your service in 2018, and beyond.

Please note, we will close on 22.12.2017 and will reopen on 03.01.2018.

Important notes and reminders

New levies due

Funds with June month ends and funds with December year ends are required to determine their 1st and 2nd levy payments, respectively for the 2 months to December 2017 and to pay over the levy by 25 January 2018.

Annual ERS returns due

The annual ERS returns as at 31 December 2017 will, presumably, once again be due by 31 January 2018.

Quarterly SIH returns

The quarterly SIH return for the quarter ending 31 December is due by 15 February 2018.

Newsletter

Dear reader

In this newsletter we review the new NAMFISA levy structure, we question whether it serves any purpose to provide comment on documents issues by NAMFISA, we suggest that it now becomes urgent for stakeholders to be prepared for the new legislative environment, we ask whether the envisaged National Pension Fund is affordable, we investigate whether provident funds can also offer annuities, we consider whether death benefits can be paid in instalments to the beneficiary, we encourage trustees to consider the umbrella fund as an alternative, we provide insight into our corporate governance activities and in our Benchmark Monthly Performance Review of 30 November 2017, we relay cautionary commentary on the state of the US equity markets and its unsustainable debt levels and the implications for investors across the world.

The topical articles from various media should not be overlooked – they are carefully selected for the value they add to the management of pension funds and the financial well-being of individuals...

...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

Tilman Friedrich's Industry Forum

Monthly Review of Portfolio Performance
to 30 November 2017

In November the average prudential balanced portfolio returned 0.40% (October: 1.20%). Top performer is Stanlib (1.20%); while Nam Asset (-0.20%) takes the bottom spot. For the 3 month period, Investec takes top spot, outperforming the ‘average’ by roughly 1.37%. On the other end of the scale Nam Asset underperformed the ‘average’ by 1.07%.

The key to outperformance is to think different and better!

In a special newsletter of 9 December John Mauldin paints a grim picture of public finances in the US and the state of its financial markets. He points out that unfunded pension liabilities at state and local levels quintupled over the past decade to between US$ 4 to US$ 6 trillion and that a number of cities such as Detroit, Stockton and Harrisburg have filed for bankruptcy and that there are likely more to follow. Total federal debt has ballooned by over 120% over the past decade to US$ 20 trillion, more than US GDP of US$ 18 trillion. The interest burden will soon become unaffordable and will require drastic steps that “…will have a profound effect on our lives and portfolios.” That is, in the US in the first instance, but with knock-on effects on the rest of the world.

The Benchmark trustees have taken a clue from these concerns and have reduced the risk of the Benchmark Default Portfolio from an equity exposure of close to 50% down to around 40%, as opposed to the average equity exposure of around 61% of prudential balanced portfolios. Investors who are equally concerned about global financial markets as the trustees of the Benchmark Retirement Fund, should take comfort in the Benchmark Default Portfolio under-performing the average prudential balanced portfolio when equities perform well for the sake of a strong downside protection over the next few years.

Read part 6 of the Monthly Review of Portfolio Performance to 30 October 2017 to find out what our investment views are. Download it here...

Merry Christmas and a happy New Year from the Managing Director

To our clients - we are sincerely grateful for your loyal support over the past so many years! We hope that we have been able to let you 'sleep in peace' over your pension fund administration as we unrelentingly pursued our efforts to provide ‘rock solid fund administration’ to your funds. We trust that you will not be intimidated by the so-called ‘familiarity risk’ but will consider our tenure as your fund administrator objectively and on the basis of merit and the peace of mind we have hopefully been able to provide to you!

We hope that 2018 will be an excellent year for you, not just in terms of achieving resolutions and goals, but also in terms of being a stress-free year. We hope that the economy will move from green shoots to full bloom and will allow us all to prosper and to raise employment levels for the good of Namibia.

On the regulatory side, the replacement of the Pension Funds Act with a new act is likely to happen in the course of 2018. This will certainly present extensive challenges to our clients. We will do our utmost to assist you in meeting all new obligations in terms of the act and its subordinate regulations and standards. Instead of dealing with an Act of some 50 pages we are faced with a new omnibus Act of over 600 pages, not all but a lot of which will apply to us including a new law for pension fund administrators. In addition to this new Act we will also have to be on top of numerous supplementary regulations under the new Act. On top of all of this come NAMFISA’s new reporting requirements. Another potential challenge that is likely to raise its head again in 2018 or 2019 is the envisaged National Pension Fund that may impact negatively in a big way on the existing pension funds industry. We call on our clients to make their voices heard and to ascertain that reason prevails!

Staff retention remains extremely important to us as we know that this will enable us to provide you with superior service levels. During 2017, 4 of our staff celebrated their 5 year anniversary, 3 celebrated their 10 year anniversary and another 3 their 15 year anniversary. We are proud and grateful of this achievement and an incredibly low staff turnover rate of only 3% during 2017 and hope to repeat the feat in the years to come.

Over the past few years, we have been talking a lot about succession planning and we have taken a number of steps to realise this plan. It is a fact of life that we grow older, that we all will at some stage transition into retirement and that the next generation has to take over the reigns. In this process Charlotte two years ago moved from active involvement in day-to-day operations into a more passive support role. I am reaching this point as well. I am thus planning to stand back as managing director on 1 July 2018 to hand over the reigns to Marthinuz, supported by a very competent management team! I will certainly remain involved. Initially I believe that there will be a transition period where I will still actively support Marthinuz in acquainting himself with his new responsibilities and taking them on. Once this is all in place I will assume a more passive role probably in the course of 2019 and will continue in this role for the foreseeable future.

With this perspective, I would like to once again express my sincere appreciation to our clients for your loyal support! I would also like thank our colleagues for their support, dedication and commitment over the past year and the years before! We are such a great team and I regularly count my fortunes that we have a team that we can really rely on!

On behalf of our staff and the board of directors, I wish you all a peaceful and joyous festive season and a prosperous 2018!

How NAMFISA defines ‘total assets’

In a client circular and our previous newsletter we suggested that ‘total assets’ for the purpose of determining the NAMFISA levies in accordance with a new dispensation that became effective 1 November 2018, is ambiguously described in the gazette.

We have made enquiry and were informed by NAMFISA that in accordance with its interpretation, ‘total assets’ means the aggregate of non-current plus current assets. Current liabilities should not be offset. This was the only answer one could have expected from NAMFISA as it maximises the levies payable to it.

Bills, standards, regulations, circulars - is it worth commenting?

NAMFISA is required by its line ministry to consult stakeholders whenever it issues draft legislation, regulations and standards. But is there really a sincere desire to consult stakeholders?

One cannot help getting the impression that the regulator has a pre-conceived opinion on all documents it issues for stakeholder consultation, as, in our experience, few comments are considered – the most common response being “we do not agree”, and that is the end of the consultation. Evidently very often our comments are qualitative, from the point of view of the practitioner. Having been practicing in the retirement funds industry for 30 years, one would have thought that some credit be given to experience. That does not seem to be the case, unfortunately.

We have over the last few newsletters reported on new draft regulations and standards that were issued for stakeholder comment. Should we now point out typos, ambiguities, errors in formulas, the word ‘credit’ used instead of ‘debit’ or vise-versa? To me that is not much of a concern. I do have serious reservations though about the practical implications for pension funds and their service providers. The requirements are overwhelming and the cost thereof will be unaffordable for most pension funds in Namibia. Or is this the intention?

As just one example, draft standard RF.S.5.17 requires every pension fund (90 of them) to now report on a quarterly basis to members, pensioners, employers, labour unions, fund bankers, fund investment managers, fund actuary, fund auditor, NAMFISA, the Financial Intelligence Centre and “…any other party who may have a similar interest…” [to these parties]. This report is to be in a standard tabular format setting out extensive detail on contributions due and paid. Administration IT platforms will have to be adapted at great cost to produce such reports. What are all these parties then going to do with this information? It will land in file 13. Wasted effort without these parties ever having been consulted whether they want or need such information. Have members ever been consulted whether they are prepared to sacrifice on their retirement nest egg for the sake of all these new regulatory requirements?

As service provider, we should be happy with these developments as this generates more work and more revenue for us, given that we know how desperately short of expertise Namibia is. However we look further than our own benefits and look at these from the member’s point of view, because we are also members of pension funds.

The industry has been ticking over quite well over the past 30 years at minimal regulatory and reasonable administrative cost and intervention. There have been very few major incidents, and those that did occur would in all likelihood not have been prevented by all the new requirements. The fees that NAMFISA used to charge, already represented a significant increase from the time that regulation still resided in the Ministry of Finance, and as we know they have been increased dramatically once more from 1 November 2017!

We have asked the question repeatedly before and never got a reasoned response – has the cost of Namibia’s regulatory effort ever been benchmarked to international norms? We go to the nth degree when we consider building a new dam, road, runway etcetera to ensure that the project is economically feasible and environmentally sound. But when it comes to regulation we ignore any possible consequences to the environment, be it the economic, labour and business environment in this instance. If regulatory effort does not generate a return to our national economy, it should not be undertaken, for the greater good of the country.

Can NAMFISA enforce statements under oath?

Further down we make reference to a new circular. PI/PF/Circ/02/2017 issued by NAMFISA in respect of statements under oath. NAMFISA has introduced a practice of demanding statements under oath by way of circular, i.e. normal correspondence. One of the instances where such statement is required is where a rule amendment is submitted to NAMFISA for registration.

On the basis of the circular communicating its requirement for a statement under oath NAMFISA will not register any rule amendment that effects member benefits, that is not accompanied by a statement under oath that the changes were communicated with the members. In other words, funds are coerced into providing such statement for the sake of having a rule amendment registered. The Pension Funds Act sets out very narrow parameters for the Registrar to disapprove a rule amendment and certainly does not require that a fund must communicate with its members on rule amendments. The Pension Funds Act also does not make reference to any requirement for a statement under oath and one must question whether NAMFISA actually has the authority to require such a statement or to insist on funds communicating with members on rule amendments. It appears that NAMFISA is currently relying on “…[its] functions and powers in terms of the Namibia Financial Institutions Supervisory Authority Act.”

Will any legal expert please assist with an opinion on this matter for the benefit of the pensions industry?

The FIM Bill – when will stakeholders be educated?

The imminent implementation of the FIM Act and subsidiary legislation in the form of regulations and standards will have massive implications for trustees, principal officers and service providers.

Having invested massive resources in this new body of law, it is a fair expectation of stakeholders that NAMFISA now takes urgent steps to prepare stakeholders for this new body of law in order to ensure a smooth implementation thereof.

The National Pension Fund – who can afford it?

Indications are that even if existing employer sponsored pension funds were to be exempted from participation, there will still be a compulsory ‘solidarity’ contribution of either 2% or 4% of payroll, where latter seems to be the preferred version of the Ministry of Labour. The additional cost burden government alone would have to bear is in the region of either N$ 320 million or N$ 640 million per annum depending on whether the contribution is to be 2% or 4% of payroll.

For the productive sector this bill will be footed by the employee and effectively represents an additional tax.

Can a provident fund also offer annuities or pensions?

Over a number of years, practices have evolved in the retirement fund industry, that are inconsistent with the Income Tax Act.  One example is that pension funds replaced dependants pensions upon the death of a member in service with lump sum benefits. Another example is that some provident fund rules provide for a member opting to receive a pension upon retirement instead of a lump sum.

The different types of tax approved retirement fund (i.e. pension-, provident-, preservation- and retirement annuity fund) are a creation of the Income Tax Act. The Pension Funds Act does not recognise these differences. Whether or not a provident fund can offer pensions or annuities or whether or not a pension fund can offer lump sums would have to be determined by reference to the Income Tax Act. Referring to the definitions of pension fund and provident fund in the Income Tax Act, one will note that these definitions are mutually exclusive. A provident fund is thus a fund other than a pension fund and vise-versa.

With the practice note 5 of 2003 debacle, it should have become clear to everyone that Inland Revenue insists that the definition of pension fund does not allow for the payment of more than 49% of a benefit due to dependants in the form of a lump sum, but has to rather provide annuities. The definition of provident fund in contrast has no provision for paying annuities. By implication a provident fund cannot provide annuities else it would become tax approved as a pension fund.

Although it is possible to run two different types of fund in a single legal entity, each type of fund would have to have its own structure and receive separate tax approval. The rules of the fund should thus create a pension fund section and a provident fund section if a fund wishes to offer its members a choice between annuity and lumps sum benefits.

Can a death benefit be paid in instalments?

In last month’s Benchtest newsletter we cited expert opinion on whether a lump sum death benefit can or must be paid within 12 months of the death of the pension fund member.

The article clarifies that a debt becomes due when the duty to pay arises. Where a debtor’s liability is dependent upon the performance of certain conditions, the debtor will not be in mora until a duty to pay arises, e.g. all dependants of a deceased needed to be and then have been determined.

Mora can arise where the debtor’s need is urgent and the creditor’s delay is unreasonable. The common belief that a fund’s duty to pay is contingent upon the expiry of the 12 month period referred to in Section 37c is not correct. The duty to pay is not dependent on this but rather whether the trustees are satisfied that they have investigated and considered with due diligence and are in a position to make a decision.

Although onerous, most trustees are familiar with the process they need to follow when faced with the disposition of a benefit due in respect of a deceased member. Section 37C (2) then stipulates that “…the payment…shall be deemed to include a payment made by the fund to a trustee contemplated in the Trustee Moneys Protection Act…for the benefit of a dependant…”

Section 37C thus makes no prescription as to the manner of payment but only explicitly allows for payment to a trust. As stated above the obligation of a fund making payment arises upon the fund being ‘in mora’ towards a dependant. This means that either all dependants have been identified or a dependant’s needs are urgent and a delay would be unreasonable.

In practice trustees often believe that they have identified all dependants, but cannot be certain. This is particularly relevant in case of a deceased male member where one can mostly not be certain. In such cases the trustees have to be cognisant that dependants can still appear to lay claim on sharing in a benefit until expiry of the 12 month period following date of death of the member.

In such a case the trustees need to assess the needs of those dependants they have identified. Should there be an urgent need, mora arises and the fund is obliged to pay. Since the quantum of the benefit due to the dependant in urgent need can only be determined upon expiry of the 12 month period following date of death of the member, in my opinion the only manner in which the trustees can reasonably meet their obligation is to make one or more interim payments to the dependants of a portion of the full benefit that would be allocated to him or her in the event of no other dependants being identified subsequently and up to expiry of the 12 month period.

What lessons can be drawn from the Steinhoff debacle?

As one insider of the asset management industry commented in so many words: what have those asset managers been doing that did not see the warning signs in Steinhoff. This commentator has such a strong view on the looming debacle that she suggests assets managers should refund their clients the losses incurred. Of course hindsight is always an exact science but going by this commentary, the warning signs were so obvious that the only reason for still investing in Steinhoff would have been a total, unquestioning trust in the CEO Markus Jooste. Is this good enough for highly paid professionals claiming to carry out in-depth analyses before they take an investment decision? The relevant asset managers certainly have something to explain. Investors can rightfully be disappointed with the asset managers who did not see the warning signs. Aren’t there also clear warning signs about Bitcoin, yet millions of people invest in Bitcoin and the New York Stock Exchange just polished the Bitcoin image by launching trading in Bitcoin futures? Let’s see what the future will bring.

The one consolation for pension fund members should be the fact that prudential investment guidelines place very restrictive regulatory caps on the maximum exposure to a single investment. Typically pension funds spread their investment across anything between 30 and 100 companies, and those are typically the large listed companies. No pension fund may invest more than 5% of its capital in a single property. It may invest a maximum of 10% of its capital in a company which has a market capitalisation of at least N$ 5 billion or a maximum of 5% if the market capitalisation is less than N$ 5 billion. It may not invest more than 20% of its capital in a single banking institution or in bills, bonds or securities issued by a single local authority or state owned enterprise. These are the caps and in most instances investment managers stay far clear of these caps.

In the case of Steinhoff it seems the maximum exposure to this share of any investment manager was 1.4%; a relatively small exposure that most members can still absorb, as annoying as it may be. When you convert such low exposure to an amount, in most instances it still represents a significant loss to the relevant pension fund!

The lesson for industry stakeholders is that pension fund investments in general are extremely tightly regulated and losses will mostly be within digestible limits. Investment risks are part and parcel of pension fund investments. Unfortunately there is no such thing as risk free investment and life in general is packed with risks.

• 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 service provider self-assessment 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...

Tilman Friedrich is a qualified chartered accountant and a Namibian Certified Financial Planner ® practitioner, specialising in the pensions field. Tilman is co-founder, shareholder and managing director of RFS, retired chairperson, now trustee, of the Benchmark Retirement Fund.

The Benchmark Retirement Fund
Flagship of umbrella funds in Namibia
By Paul-Gordon, /Guidao-Oab, Benchmark Product Manager

Benchmark umbrella fund - a way out of the conundrum?

In this newsletter you will have read a lot about the statutory, regulatory and reporting revolution that pension funds are facing once the FIM Bill becomes law with all its subordinate legislation. We sincerely believe that only a handful funds will survive this onslaught.

Joining an umbrella fund instead of maintaining your separate identity is not only a business opportunity for RFS, but it offers a workable solution to funds who cannot afford to employ full time fund officials, a likely consequence of the new law.

If you do consider this option, the sooner you do it the easier it will be as there are draft standards that will make it very difficult and onerous to move into an umbrella fund once the FIM Bill becomes law.

Paul-Gordon /Guidao-Oab joined RFS as Manager: Audit and Compliance in May 2016 and has then moved into the position of Benchmark Product Manager. Paul holds a B Compt degree from Unisa and has completed his articles with SGA

Rauha Hangalo started her career in retirement funds management as fund accountant at UPA in 1996, and joined RFS in July 2002. Rauha now heads up our Benchmark client services team while also providing client services to a portfolio of our prime private funds. Rauha obtained a BA (Business Administration) from Thiel College in the US. She holds an Advanced Postgraduate Diploma in Financial Planning (Employee Benefits) from University of Free State, the Certificate of Proficiency from Insurance Institute of South Africa and has completed a Programme in Retirement Fund Management through UNISA (IISA Licenciate). She also successfully completed the Programme in Advanced Insurance Practice from IISA and is now an Associate member of IISA.

In her 20 plus years in the retirement fund industry, Rauha gained very broad experience to all areas of fund management from fund accounting, fund administration and client servicing and is well placed to guide her pension fund clients wherever assistance may be required.

RFS staff in festive mood

RFS kids year-end party

As is the case every year the RFS social committee laid on a kids party that was thoroughly enjoyed by the RFS kids, their mummies and their daddies.


 

 

 


RFS staff year-end function

The year-end function for RFS staff with the theme of Gatsby was a singular occasion on a high level that will still be spoken about for some time, as the following pictures reveal:


 

1. The average Medical Aid Scheme uses a much less intricate system of investments, as the fund needs a defined monthly cash flow not far removed from its monthly income.  The type of investments Namfisa now wants us to report on, in most cases will simply not exist in the Medical Aid Fund environment, but we will have to complete the form every quarter;
2. The records we keep are not as extensive as those of the average Pension/Provident Fund where the type  of investment (cash/equities/property/etc.) may have an influence on the investment decision by the trustees.  Our trustees are (as they should be) much  more involved in service to the member than in financial growth;
3. Our aim in life is to "assist members in defraying the costs of medical services" and not in maximizing the income of the Fund.
4. It is my view that Namfisa is erring by micro-managing things they can handle by comparing figures on their computers and is neglecting their duty to oversee a multi-billion Dollar industry in terms of service delivery to members by all service providers, that is doctors, pharmacists, hospitals, medical aid schemes and all other.”

• Allan Gray – no exposure
• Stanlib  - less than 1%
• Momentum – approximately 1.5%
• EMH Prescient – no exposure
• Old Mutual Profile – 1.4%
• Old Mutual best investment view segregated – approximately 0.8%
• Prudential Inflation Plus – 0.2%
• Prudential Balanced – 0.6%
• Sanlam Inflation Linked – 0.6%
• Sanlam Absolute Return Plus – 0.5%
• Sanlam Stable Bonus – 1.2%
• Investec Namibia Balanced Fund – 1%
• Namibia Asset Management –  response outstanding

• A significant contributory state old-age pension, supplemented by occupational pensions arranged on a group basis;
• Strict rules to enforce financial disciplines and avoid leakages; and
• Significant economies of scale with limited individual choice.

• Less significant (contributory) state old-age pensions, supplemented by occupational pensions arranged on a group basis;
• Fewer rules to enforce financial discipline and avoid leakages; and
• Smaller economies of scale with more individual choice and retail options at retail prices.”

1. Right to the lump sum (after tax) is created as the lump sum accrues to the member (client) on date of withdrawal
2. Lump sum taken is taxed according to the Tax on Lump Sums from Retirement Funds Withdrawal Tax Table
3. Net amount paid out to member
4. This is now part of the client's estate
5. Client passes away and the cash received forms part of the estate (Property in the estate)

1. Client withdraws from fund
2. Right to the lump sum (after tax) is created as the lump sum accrues to the member (client) on date of withdrawal
3. Client passes away
4. The right to the lump sum has already accrued and therefore will be property in the estate
5. Lump sum taken is taxed according to the Tax on Lump Sums from Retirement Funds Withdrawal Tax Table
6. Net amount paid out to estate
7. This is now part of the client's estate, just as it was in the first scenario above

• How difficult was it to even start this experiment?
• What do you fear most about doing it?
• Does the difficulty decrease over time or increase the longer you do it?
• What are you learning about yourself through this experiment?
• What are you learning about others through this experiment?
• What / who have you missed the most? Why is that?
• What might change as you re-engage with social media?
• What has been the biggest surprise in doing this experiment?

• Start and close your meetings with a period of silence. I would suggest one minute.  you need not offer an explanation for doing this other than to say that this is what is going to happen. See what the reaction is and persist with the action for a period of time, maybe even gradually increasing the time of silence. See if it becomes a habit and finds a permanent place in your ‘meeting culture’. At this point step back and discuss what it was like and distil the benefits that have resulted (there will be benefits!)

• In whatever meeting you find yourself, be the last to speak