Dear reader

You will be relieved that this is a rather short newsletter after a short working month that did not produce much news in the pensions industry.

Although these newsletters may appear long, they contain vital information for you to conduct the practice and management of your fund or personal pension investments effectively, so please do read them carefully.

In this newsletter we question the style of the Regulator’s interaction with the industry, we report on the latest developments in respect of the recovery of costs for tracing unclaimed benefits. The newsletter contains and excerpt from our monthly performance review that questions the perception created by media that the low oil price is due to an oversupply of crude oil and we draw attention to reporting due dates coming up. We also would like to specifically draw all business owners attention to the New Equitable Economic Empowerment Framework that will impact on most businesses.

Of course as usual we also have links to topical articles from various media that reader should not overlook – they are carefully selected for the value they add to the financial well-being of pension funds and individuals.

As always, your comment is welcome, so open a new mail and drop us a note!

Regards

Tilman Friedrich

SIH and ERS returns for 31 December due by 31 January

Funds are reminded that as per NAMFISA circular of 7 December, the Statement of Investment Holdings report for the quarter ended 31 December 2015 and the unaudited annual ERS return for the year ended 31 December 2015  are due for submission by 31 January 2016.

Tilman Friedrich's Industry Forum

Benchtest Monthly 12.2015

In December the average prudential balanced portfolio returned 0.57% (Nov: -0.32%). Top performer is Allan Gray (3.69%); while EMH Prescient (-2.05%) takes the bottom spot. For  the 3 month period Allan Gray, for the 5th consecutive month takes top spot, outperforming the ‘average’ by roughly 3.6%. On the other end of the scale EMH Prescient underperformed the ‘average’ by 7.3%.

So we are told the oversupply of crude oil is depressing its price – right?

It is a well-known fact that the oil price has a significant impact on global financial markets and hence also on the global investor. It is therefore important to understand what is currently happening and how this may impact markets going forward. Many commentators claim that the collapse of the oil price is due to a global oversupply.

Let us therefore look in more detail at the global supply/ demand situation as illustrated by the below graph. It reflects the 12 month average world oil demand as a ratio of the 12 month average world oil supply, as published in the latest ‘Energy Briefing’ by Yardeni Research Inc.

Clearly if this information is to be believed there is actually still an oversupply of crude up until November 2015 although clearly on a steeply declining trend. So it is probably true that the oil demand is slowing as the result of slower global economic growth. However, the global economy is still growing even if only at a slower pace - China ‘only’ at somewhere around 7% - meaning that the global oil demand should still grow and it does rather liberally as reported by Yardeni . What about oil supply which is said to be increasing? This is also not really a convincing story, if one looks at what is happening in Iraq, Syria and Libya.

Read part 6 of the Benchtest 12.2015 newsletter to find out what our investment views are. Download it here...

Pension fund governance and a generic trustee appraisal form

(This is a repeat of an article from our December newsletter. As many of our readers were on holiday, and as this has implications for management and administration of funds, we repeat it here.)

The regulator’s expectations of funds in terms of governance have been increasing steadily and it is exerting pressure on funds through its so-called enforcement ladder. This enforcement ladder has 5 stages of intervention:

1. No significant problems;
2. Early warning;
3. Risk to viability or solvency;
4. Future viability in serious doubt;
5. Entity not viable or insolvency imminent.

Funds will be classified into a stage of intervention based on the Regulator’s supervisory and regulatory activities, such as on-site inspections. Each stage of intervention envisages increasing levels of intervention and reporting and compliance requirements by Namfisa. Download the circular here…

In our experience from past on-site inspections the more common issues raised by the Regulator are:

• Fund does not have an investment policy that makes provision for a strategic asset allocation;
• Fund does not carry out trustee performance appraisals;
• Fund does not have a code of conduct;
• Fund does not have a risk management policy;
• Fund does not have a conflict of interest policy;
• Fund does not have a communication policy;
• Fund rules do not set out how unclaimed benefits will be disposed of;
• Fund rules to not provide for a term of office of the trustees;
• Service provider agreements are not in place.

Do avoid being sucked further into the Regulator’s enforcement processes. Trustees should ascertain that their fund meets at least all the above requirements.

In the next few newsletters we will assist trustees with generic document templates that can be adapted to meet their fund’s specific objectives. If you do not have any of the documents in place yet, please have your consultant assist you to adapt these documents to your circumstances and objectives.

• Download the generic trustee performance appraisal form here…
• Download the generic investment policy here...

Where will the Regulator’s interaction with the industry lead to?

Over the past few years the Regulator issued a great number of directives, circulars and other instructions to pension funds and service providers. Typically these are issued under the threat of penalties for non-conformance. Mostly these contain detailed prescriptions and often reveal ignorance of pension fund management principles and practice.

When confronted with such concerns or when approached  for clarification, officials often dodge the question and resort to sarcastic, sometimes even humiliating statements such as “the Regulator cannot spoon feed the industry” or “we are not babysitters”, as if the industry players are not in full possession of adult mental virtues. What these caustic remarks seem to insinuate though is a realisation on the part of the officials that all these directives, circulars and other instructions are purely guidelines for the industry without any legal foundation. This of course also then implies that no penalties can be raised for non-conformance. At the same time it implies that trustees need to apply their minds before taking a decision that does not conform to the prescriptions.

As reported in Kai Friedrich’s column below, the regulator arranged a so-called ‘industry consultation meeting’ for 20 January 2016, to discuss comments by the industry on its 2nd draft circular on ‘Costs Incurred in the Administration of Unclaimed Benefits’. The rather one-sided mode of communication once again proceeded along the lines lamented above and lead to all industry participants having left the meeting with a great deal of frustration.

Below is some of the feedback we received from participants and it may help the Regulator appreciate how its conduct of meetings is generally perceived by attendees:

• I just experienced the most disturbing meeting /consultation ever.
• I found NAMFISA’s representatives quite arrogant and defensive. There were no straight answers to any questions.
• I had a question but opted not to ask it due to the manner in which the questions were being answered. I did not want to feel as if I was asking a stupid question and rather went back to the office with my question.

It is rather disturbing to experience the deteriorating relationship between the Regulator and the industry and the question is warranted – where will this manner of dealing with the industry lead to?

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.

Kai Friedrich's Administration Forum

3rd draft directive on “costs incurred in the administration of unclaimed benefits”

On 20 January 2016, the Regulator invited the industry for a so-called ‘industry consultation’ on industry comments on the second draft directive issued 29 October 2015. Again the Regulator managed to surprise attendees, representing a broad spectrum of the industry, by handing out a revised draft directive dated 11 January 2016 to all attendees at the gathering.

As the result industry was caught off-guard again, and no one except for the Regulator was able to prepare for this ‘consultation’ on the latest revised draft directive.

The official then went through the comments received from industry on the previous draft (dated 29 October 2015). However, due to the number of questions participants asked on the latest 3rd draft, no discussion took place on the comments submitted and NAMFISA’s responses to these.
In essence the latest draft was amended to remove the requirement for the creation of a reserve for the costs of administration of unclaimed benefits at member level, which was really the gist of most comments on the previous drafts. It now only requires funds to obtain NAMFISA approval if they want to deduct any costs relating to the administration of unclaimed benefits from unclaimed benefits.

After all, the Regulator must be applauded for having heeded most comments provided and for having come up with a revised version that reflects the essence of section 37A read together with 37D with regard to the reduction of benefits. This of course was always the case, applies to all benefits rather than just unclaimed benefits and should be no news to anyone.

Funds are thus reminded that they will need to consider whether they will recover costs from the benefit payable to the beneficiary or whether these will be recovered from a general expense reserve. Where costs are to be deducted from the benefit, the requirements of the directive, or rather the Pension Funds Act,  will have to be observed. This means that the fund will have to obtain the beneficiary’s consent (as proposed per circular Annexure B format) for deducting costs from his/ her benefit and will have to apply to the Regulator (as proposed per circular Annexure A format) for approval of any deduction of costs from a benefit.

Download the 3rd draft of this circular here...

Kai Friedrich Director: Fund Administration, is a qualified chartered accountant and a Namibian Certified Financial Planner ® practitioner, specialising in the pensions field. He holds the Post Graduate Diploma and the Advanced Post Graduate Diploma in financial planning from the University of the Free State.

News from RFS

RFS executive committee


Sharika Skoppelitus, Director and Senior Manager: Client Services plays a pivotal role in providing high level client service to a number of our largest pension fund clients. Sharika joined RFS in March 2007 fresh from Unam with a B Econ degree, and learnt ‘the ropes of our industry’ under the tutelage of Tilman Friedrich and Charlotte Drayer. Sharika has been a member of RFS’ executive committee since 1 July 2014.

News from the market

New Equitable Economic Empowerment Framework

The NEF recently circulated the new Equitable Economic Empowerment framework and comments as follows:

“The [NEF] Exco has understanding for, and agrees with, the concept that “The people of Namibia should own their country and its resources”. However, the manner in which this is being planned, in the minds of the Exco poses great concern for the development of the country, for investment and job creation. The rhetorical question being asked is; “do we really need such restrictive legislation 25 years after independence? Will this discourage instead of encourage investment? At the ILO Africa regional meeting in Addis Ababa in December the statement was made “ Investment in Africa should be in Education, Innovation, constructive social dialogue, NOT in bureaucracy and red-tape”. If enacted will there be sufficient guards to ensure that Objective 6 (below) will be effectively discouraged?
 
Special reference is made to inter-alia;

• Page 7, First full paragraph; “NEEEF shall be obligatory to all enterprises. Government shall use all the regulatory, licensing & market mechanisms at its disposal to ensure compliance.
• Page 8, Objective 6 “actively guard against the repugnant tendencies of window dressing, favouritism, nepotism and self-enrichment”.

We kindly request you to review this document as a matter of urgency and to let us have your comments, which we shall then consolidate for further action.”

Download the complete NEEEF document here...

SA introduces pension reform

The SA government has now taken the bold step to introduce pension reforms in SA that were mooted for a couple of years, and were to be introduced but were then put on hold again. Now it will happen effective 1 March 2016.

The long and the short of these reforms is that employers may no longer deduct pension fund contributions from tax. These will be added to the employee’s taxable income and the employee in turn may deduct his contributions up to 27.5% of his income with an annual maximum of N$ 350,000.

There will no longer be a distinction between pension and provident funds. There will be compulsory preservation and upon retirement all funds must pay a pension while the amount that may be taken in cash will be restricted for all funds.

There will be an awfully complex transitional arrangement for all provident fund arrangements transitioning to a pension fund arrangements aimed at preserving provident fund member’s vested rights as at 1 March 2016, also referred to a ‘T-day’.

Media snippets
(for investors and business)
 
7 Steps to overcome workplace depression

A July 2013 Gallup Poll found 12 percent of workers has been diagnosed with depression at some point. Workplace depression costs companies an estimated $23 billion in annual productivity loss due to absenteeism. Each year, depressed workers miss an average of four to five workdays because of depression alone.

Workplace depression is a serious challenge. If companies want a healthier, more productive environment for their employees, it’s time to take action. Here are some ways to avoid workplace depression, make employees happier and ultimately improve the bottom line:

• Develop a routine
• Change up the environment
• Encourage taking breaks
• Share family style office meals
• Work out with your team
• Bring some life into the work place
• Use a calendar

Read the full article here...

Here is why diversification matters

“Diversification is not an event. It’s a process and rebalancing is an important tool for any diverse portfolio. Once you’ve figured out what diversification you’re happy with, ideally with the help of a financial advisor, ensure you enforce regular check-ups where you take money off the table of asset classes (or stocks/sectors) that have run particularly hard. It’s not efficient to do this daily, weekly or even monthly. But you should be fine-tuning your portfolio a few times a year.

An example: North American equities had a massive year in 2013, up nearly 30%. If you were happy with, say, a 10% weighting in your portfolio and because of performance (and relative underperformance of other markets and asset classes), North American equities were 20% of your portfolio at the end of that year, you would need to rebalance.

Diversification, by its very nature, will never give you the best performance. However, it’s likely to give you results that are superior-to-average.
Also, there is such a thing as too much diversification. There’s noteworthy risk of being too-diversified, even on the JSE, especially if this diversification comes at a hefty price (in fees and costs).”
 
Read the article by Hilton Tarrant in Moneyweb of 18 December 2015, here...

More interest rate hikes to come but the cycle will be shallow

“We think the most recent hike was justified in an environment where we face inflationary pressures. Even in an environment with quite a benign growth profile, we are expecting another interest rate increase in March 2016. With inflation moving towards the upper end of the target band, any currency shock will push it beyond the 6% range. However, the Reserve Bank also has to consider the effect that further hikes will have on local economic growth. We think it’s very hard for the Sarb to do much more than another 25-basis point hike. They can’t affect growth by hiking too aggressively.”

Read the article by Patrick Cairn in Moneyweb of 26 November 2015, here...

Impending rate hike ahead

The market is expecting the Monetary Policy Committee (MPC) to respond to the deteriorating inflation outlook with a 0.5% rate hike at its meeting later this month, and a further 1% over the rest of 2016. (From the web version of  Cover of 20 January 2016)

And finally...

When insults had class - something to smile about

"I  am enclosing two tickets to the first night of my new play; bring a friend....  if you have one." ~ George Bernard Shaw to Winston Churchill