Dear reader

In this newsletter, we provide an update on staff movements in RFS, we review the latest draft of regulations 1, 26, 27 and 28, we discuss the risk of making payment of a pension fund benefit into a beneficiary’s bank account, we caution about the tax implications of dealing with foreign vendors and there are a few links to very interesting articles that recently appeared in various media.

Please feel free to comment: tell us what you value and how we can improve the content.

Regards

Tilman Friedrich

Tilman Friedrich's Industry Forum

Benchtest Monthly 04.2012

In April our average prudential balanced portfolio returned 1.32% (March 0.86%). Top performer is Stanlib (1.99%), while Allan Gray (0.33%) takes bottom spot.

Stimulating European economies is likely to provide an impetus to European equities and foreign capital is likely to prefer depressed European equity markets above those of the developing world who have returned to pre-crisis levels. As the result, our equity markets are unlikely to show the type of growth we have seen since the start of 2009. We would still expect our markets to produce reasonable returns while interest rates are likely to remain low, cash probably negative in real terms. Any recovery of the Rand should be used as an opportunity to diversify offshore and to invest in equity markets that were particularly hard hit by negative sentiment. These can mainly be found in Europe.

For further analyses and our views download the report, here...

RFS company news

RFS welcomes new clients

The Benchmark Retirement Fund continues to make us proud with its outstanding reputation, and through its continued growth. The fund passed the N$ 800 million mark in assets at the end of April, and has well over 6,000 members. This makes it the 4th largest fund in membership and one of the 15 largest funds in total assets.

We extend a hearty welcome to the Swaco group of companies, who moved from a private fund arrangement to participate in this umbrella arrangement, as well as Tulipamwe Engineering and Nampharm. The level of solidarity that this truly Namibian product experiences from Namibian institutions is exceptional and we express our sincere gratitude to these truly Namibian enterprises!

Between the Benchmark Retirement Fund and the privately administered funds that we currently administer, our total assets under management are now very close to N$ 10 billion, an exceptionally proud achievement over the 13 years of our existence!

RFS welcomes two new team members

Two new staff members joined our team on 1 February to create capacity within our two divisions. We extend a hearty welcome to Mariana Auene and to Martha Nakaambo.

Martha was employed by Metropolitan since the beginning of 2000, where she eventually served as a portfolio administrator on the Ondunda umbrella fund. She joined the administration team responsible for the Retirement Fund for Local Authorities, our largest privately administered fund client, as administrator, to follow in the footsteps of Salome Sloa.

Mariana joined us as a fund administrator to create capacity for new funds on our Benchmark team. She joins from Old Mutual, where she was last engaged as service consultant. Mariana holds a degree in Business Administration, a COP and is busy with her CFP. She started her career in 1999 as a part-time office administrator with the Namibia Wholesale and Retail Workers Union, then joining Old Mutual as a fund administrator in 2005.

The job history of both new appointees shows a great deal of perseverance and loyalty, characteristics that are extremely important to us and that made them candidates of choice for the vacancies that needed to be filled. In the short time they have been with us, both have realised that there is a big difference between fund administration as understood by large transnational companies and fund administration as practised by us, where everything from A to Z is done within our office.

Other team news and movements

Firstly we would like to congratulate Ina Bester (previously Jooné), who recently married Okkie Bester. And while we are on that topic, congratulations too, to Amanda O’Callaghan (previously Heath) who also recently married, to Barney O’Callaghan, earlier this month!

Our appointment as administrator of the Namdeb Retirement Fund effective 1 July 2012 and further growth prospects, have required more staff appointments and has required a few staff movements following the staff appointments referred to above.

• Salome Sloa will part with her responsibilities relating to the Retirement Fund for Local Authorities and will take on new responsibilities.
• Sylvia Kessler, our employee benefits trainee has made great strides in her new career, to move from the Benchmark division, where she was responsible for a portfolio of participating employers, to assume responsibility for the Pupkewitz Group Pension Fund.
• Belinda Carlson, previously responsible for the Pupkewitz Group Pension Fund, will take on new responsibilities.

More rewards for outstanding performance in education

For the second year running RFS sponsored prizes for top students in Office Management and Technology, of the Polytechic of Namibia. Marthinuz Fabianus, Director of Client Services, assumed responsibility for this project and handed over the prizes at this year’s awards ceremony.



Veronique Bezuidenhoudt received the award for best performance in the first year.

Lizelle Williams received the award for best performance in the fourth year.

News from Namfisa

Namfisa issues revised draft amendments
to regulation 1, 26, 27, 28 and 29

The full review of these regulations can be found here...

Important changes and some of our comments are set out below:

Regulation 26(1) is to be amended to the extent of raising the penalty for failure “…to make or to transmit or deposit a scheme, report, account, statement, other document or information within the time prescribed by … the Act or the Regulations or within any extended period allowed by the Registrar in terms of section 24 [sect 24 deals with enquiries by the Registrar] and 33(1) [sect 33 deals with the extension of certain peri0ds by the Registrar]…” from N$ 10 per day to N$ 500 per day.

Our comment:

The Registrar’s current position is not to grant extension for the submission of annual financial statements. This regulation, however, makes provision for extension being granted. Any unreasonable refusal to grant extension can be challenged as administrative injustice.

Besides the above penalties set by regulation, section 37 provides for a number of further statutory penalties upon conviction for contravention or failure to comply with various sections of the Act.

Regulation 26(2) is to be introduced, which provides for a penalty of N$ 1,000 per day for contravention or failure of a person to comply with any provision of regulation 28.

Our comment:

This is a new penal provision. Interestingly, it may not necessarily be imposed upon a contravening fund but also on any other person although it is only the fund required to comply with the Act. Perhaps Namfisa can clarify what the intention of this particular wording is.

Regulation 27 is to be amended by setting the interest rate on direct pension fund loans at BON’s repo rate plus 4%, currently 10% p.a.

Our comment:

Hitherto the interest rate was set at 16% since 1 August 1989. Employers whose fund offers direct loans need to ensure that salary deductions for employees’ housing loan repayments are adjusted in future whenever the repo rate is adjusted by BON. The same applies to administrators whose clients offer such loans.

Regulation 28 is to be amended by the following key changes:

• A definition of ‘domestic asset’ is introduced.
  
  Our comment:
  
  This definition appears to include corporate bonds of foreign companies as ‘domestic asset’. The annexure to the regulation restricts the investment in such bonds to 50% and requires approval of the country in which the entity is situated. It does not include loans to member, investments in the business of a participating employer, or any asset not listed in the Annexure (e.g. gold coins/bars, works of art) unless such assets are designated a ‘domestic asset’ by the Minister by notice in the Gazette. It appears that these issues may have to be reconsidered by Namfisa.
• A definition of ‘foreign asset’ is introduced, covering all assets that are not ‘domestic assets’.
  
  Our comment:
  
  The Annexure to the regulation only lists a limited number of assets in which a fund may invest. True Namibian assets may fall into the category of ‘foreign asset’ purely because of this, unless the asset is designated ‘domestic asset’ by the Minister by notice in the Gazette. Some of these are listed in our comment on the definition of ‘domestic asset’ above.
• A definition of ‘market value’ is introduced, setting out how different asset classes are to be valued.
  
  Our comment:
  
  For any assets held outside the common monetary area, can the principle of ‘willing buyer, willing seller’ upon an ‘arms-length’ sale in Namibia be applied, or does this definition in fact preclude any such investment?
• Maximum investment in property (sub max 25%), shares (sub max 75%), other claims against natural persons/companies (sub max 25%) and other assets (sub max 2.5%) is 95%.
  
  Our comment:
  
  This maximum implies that a minimum of 5% less the investment in unlisted investments (min 1.75% and max 3.5%) must be invested in banks, building societies, Post Office Savings Bank, Government bonds, bonds of SOE’s, local authorities, regional councils, Registrar approved Namibian corporate bonds or Registrar approved foreign bonds.
  
  It is also noteworthy that the previous sub maximum in shares is lifted once again from 65% to 75%.
• The previous reference to unlisted investments and the limits and conditions for investing in such investments, is removed from this regulation.
  
  However, the requirement to invest a minimum of 1.75% and a maximum of 3.5% of total fund assets in unlisted investments, remains in place. This is to be attained within a period of 12 months of publication of the relevant notice.
  
  Our comment:
  
  On many previous occasions we have raised the concern about the implication of enforcing any minimum investment in specific asset classes for funds offering member choice. Such minimum militates against a member choice to reduce his or her investment risk and volatility, often just prior to retirement and at a time where the member cannot afford any volatility. The procedure for exemption may be too onerous to be an option. It is to be hoped that the Minister will consider blanket exemption to such funds so that it becomes unnecessary for such funds to apply for exemption.
• The staggered time scale for reducing the maximum investment in shares in dual listed foreign incorporated companies is now linked to the date of publication of the relevant government notice.

• Funds must within 90 days of each calendar quarter report on their investment holdings in such format as the Registrar may determine.
  
  Our comment:
  
  Currently funds only report on their investment holdings annually. Asset managers are required to report quarterly, and their reports would cover the assets of not only pension funds but also of insurance companies but would exclude any direct investment by a fund such as direct housing loans, credit balances with financial institutions, direct property investments etc. These direct holding are minimal in the context of the industry as a whole. For funds to now report quarterly will provide a marginally more accurate picture, not without substantial additional costs though. Cognisance now also has to be given to the penalty of N$ 1,000 per day of failing to comply with any of the provisions of regulation 28.
• The concepts of ‘linked policies’ and ‘not linked policies’ is discarded. All policies are now considered not to be an asset of the fund. Policies issued to ‘privately administered funds’ are not subject to the requirement that the insurer must report on these in terms of regulation 15 of the Long-term Insurance Act while policies issued to so-called ‘insured funds’ are subject to that requirement.
  
  Our comment:
  
  Presumably insurance companies will be required to report on their assets in terms of regulation 15 of the Long-term Insurance Act. It seems though that the assets underlying policies issued to ‘privately administered funds’ can be aggregated by the insurer for the purpose of regulation 15 (the equivalent of regulation 28). This means that individual ‘privately administered funds’ may not need to comply. This creates uneven playing fields for ‘privately administered funds’ between assets administered by insurance companies and those held either directly or managed on their behalf by unit trusts. Furthermore any discrepancy between the provision of regulation 28 and regulation 15 of the Long-term Insurance Act must be avoided at all costs, failing which opportunities for ‘arbitrage’ would be created.
• Exemption from the provisions of the regulation may be granted by the Registrar, after having obtained approval from the Minister.
  
  Our comment:
  
  This new requirement of obtaining Ministerial approval is likely to introduce significant inflexibility and red-tape into our industry. Does the Registrar want to be shielded by the Minister from applications for exemption or does the Minister have any preconceived ideas about when exemptions may be granted to which the Registrar is not privy?
  
  The annexure to the regulation prescribing certain limits contains a few surprises.
  • Previously a fund could invest 100% of its assets in credit balances with local financial institutions. This has been reduced to 95%, a minimum of 1.75% to be invested in unlisted investments.
    
    Our comment:
    
    Funds offering members investment choice primarily for the purpose of members’ reducing any risk of volatility and negative investment returns, to the extent of being fully invested in cash, will now be faced with the problem that the lowest risk portfolio still has to hold a minimum of 1.75% in unlisted investments and another 3.25% in any of the other asset classes.
    
    On many previous occasions we have raised the concern about the implication of enforcing any minimum investment in specific asset classes for funds offering member choice. Such minimum militates against a member choice to reduce his or her investment risk and volatility, often just prior to retirement and at a time where the member cannot afford any volatility. The procedure for exemption may be too onerous to be an option. It is to be hoped that the Minister will consider blanket exemption to such funds so that it becomes unnecessary for such funds to apply for exemption.
  • The annexure contains no limit for an investment in direct housing loans to members or in moneys in hand, but with the minimum investment required in unlisted investments, this would imply an effective maximum of 98.25% in such assets.
    
    Our comment:
    
    The annexure does not recognise fairly commonly held alternative assets such as EFT’s, derivatives or structured products unless such assets are designated by the Minister by notice in the Gazette.

Regulation 28 Conclusion
The draft revised regulation represents a substantial improvement from its predecessor and has removed most of the previous ambiguities and serious drafting errors. It does give rise to a few serious concerns as elaborated in ‘our comments’ above. We trust that Namfisa and the Ministry will consider and heed our concerns and will still be prepared to discuss and negotiate the content of this regulation before its finalisation.

Law and legal snippets

Transacting with foreign vendors

Funds often acquire services and products from foreign vendors such as software, consulting services, training etcetera. Such transactions may have VAT and Withholding Tax implications read together with the provisions of any double taxation agreement in force between Namibia and the other tax jurisdiction, that need to be considered. Failure to comply with the VAT Act and the Income Tax Act, with regard to Withholding Tax will expose the fund to penalties and late payment interest.

As fund administrators we do not purport to be tax experts. Such expertise can typically be sourced from Namibian audit firms. In instances where invoices are presented to us for payment in respect of goods or services acquired from a foreign vendor, we presume that the fund has considered the potential implication of VAT (import or normal VAT) and of Withholding Tax the fund may be liable for, as well as any relief granted by the double taxation agreement between the two countries concerned.

The purchase of software from a foreign vendor in our understanding represents a VATable import and VAT should be paid at the same time payment is affected. The cost of attending training or seminars outside Namibia in our understanding does not represent a VATable import and VAT, if applicable in the foreign country, should be raised by the foreign vendor. Trustee fees and trainer fees payable to a foreign resident attract Withholding Tax unless relief is provided by the double taxation agreement.

On the topic of Withholding Tax, PWC recently published withholding tax guidelines concerning South African suppliers. Download the guidelines in PDF format here...

Payment of pension benefits into jointly held accounts

The Pension Funds Act obliges the fund to ascertain that any benefit due to a member is paid to the member for his/her exclusive benefit. Typically the fund administrator is responsible for making payment on behalf of the fund and is well advised to ascertain that it complies with the Act by verifying the ownership of the bank account into which payment is to be made.

Payment directly into a bank account that is not subject to a person’s exclusive authority and control may be regarded as being made in contravention of the Pension Funds Act.

The Banks Act does not prohibit the maintenance of joint bank accounts by Namibian banks. It is therefore prudent that pension funds do not allow payment of pension benefits into a joint account as this may be a contravention of section 37A of the Pension Funds Act.

An indemnity by a member issued to a fund for making payment into a joint account at the request of the member will, in our opinion, not protect the fund against a claim by the member and/or a prospective beneficiary and should not be accepted by a fund.

Interesting media snippets

The hidden dangers of standing surety

Standing surety can be a wonderful way to help someone in need, but your client could pay dearly if things go wrong. Old Mutual estimates that monthly, up to 1,000 clients give up rights on their savings. This would be to secure a loan for themselves or for another. Clients should be cautioned against signing surety for someone else's debt. Read this article, quoted from Personal Finance in Newsbrief May 2012 issue of the Financial Planning Institute.

Reasons for setting up a trust

If you consider setting up a trust, be sure to understand under what conditions it may make sense to set up a trust. Read more in this article in Money Marketing newsletter of 26 May 2012. Be sure though, to also understand the disadvantages of trusts.

Are we at the beginning of another ‘bull run’?

John Biccard, Investec Value Fund portfolio manager, shares his views on the outlook for South African equities and why recent market trends have increased his resolve to maintain the fund's strategic positioning in this article.

Glacier publishes consensus view of SA asset managers on investment markets prospects

The Bull & Bear report that is produced from a survey conducted by Sanlam’s Glacier Research, collates the performance expectations of leading South African Asset Managers over the coming 12 months. Asset Managers are asked to comment on expected performance for various asset classes and sectors, currency levels, commodity prices and the performance of selected global markets. These viewpoints are subject to change in line with changes in economic and market conditions. Download the article here...

Tilman Friedrich is a qualified chartered accountant and a Namibian Certified Financial Planner® practitioner, specialising in the pensions field. He is a member of the marketing committee of ICAN and a member of the legal and technical committee of RFIN. Tilman is co-founder, shareholder and managing director of RFS.