Newsletter

Dear reader

In this newsletter we continue our support to trustees with a generic code of ethics policy. This should of course be adapted to meet the needs of a particular fund. Find it below.

We comment on benchmarking of fund management costs, we report on the annual Benchmark member meeting and our client function both held recently, we consider a change in the method of payment of disability pensioners, a change in the taxation of trustee and principal officer fees and we examine our company’s extensive safety net for clients.

Of course as usual we comment on the global financial markets environment and also have links to topical articles from various media that readers 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

Tilman Friedrich's Industry Forum

Benchtest Monthly 06.2016

In June the average prudential balanced portfolio returned -2.85% (May: 3.44%). Top performer is EMH Prescient (-0.86%); while Namibia Asset Management   (-3.87%) takes the bottom spot. For the 3 month period Allan Gray, takes top spot, outperforming the ‘average’ by roughly 1.7%. On the other end of the scale Investec underperformed the ‘average’ by 1.2%.

Is a bad weather warning on the horizon?

The ‘ZIRP’,  acronym for zero interest rate policy that has been applied by many of the large global economies since the financial crisis, projects some bad weather warnings on the screen of pension investors the consequences of which are not all that clear.

More directly it has been eroding the social security systems of these countries as these systems are to a large extent dependent on fixed interest instruments delivering real returns. Those that are still actively contributing towards their social security systems will be on the losing end of this equation and will either have to pay in ever more or will experience ever declining old age provision and will have to make supplementary provision. Those that are already receiving benefits will be faced with a steadily declining standard of living as the result of the systems not earning real returns anymore.

More indirectly, savers have been turning their backs on fixed interest bearing assets in favour of equities, property and other assets that generate real returns. As the result global equity markets, property and a number of other markets are bloated. At some point in time this imbalance has to correct as no one can afford to invest in an asset returning negative yields in the long-term while flows into such assets will eventually dry up.

Read part 6 of the Benchtest 06.2016 newsletter to find out what our investment views are. Download it here...

Pension fund governance - a code of ethics policy

In this newsletter we present a code of ethics policy. 

Ethical principles are the values that set the ground rules for all activities of trustees of retirement funds. As trustees seek to achieve responsible business success, they are challenged to balance these principles against each other, always mindful of the promise to members that they will achieve responsible commercial success.

The following documents can be further adapted with the assistance of RFS.

• Download the code of ethics policy here...

AND

• 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...

In future newsletters we will consider the following matters also identified by NAMFISA as frequently missing:

• Fund rules do not provide for a term of office of the trustees; and
• Service provider agreements are not in place.

Fund governance - do you benchmark your management costs?

Readers will be forgiven for immediately having thought about administration costs when reading this headline – but no; this is actually not what this article addresses.

Stand-alone funds employ service providers who are paid in accordance with the service level agreement entered into between the fund and the service provider. But this is mostly not where things end. Funds often also remunerate their trustees and boards of trustees often incur discretionary expenditure on trustee compensation, trustee training, trustee meetings, travelling, entertainment, communication – going as far as employing staff renting office or investing in office space, effectively running a business.

Should trustees be concerned about all these costs their fund incurs? When considering administration fees and fees for other services provided by service providers, it is common cause for trustees to pay close attention to these costs. These costs also can generally be benchmarked to some extent if trustees bear in mind that barring auditors and actuaries, no standards exist as to what the consultant’s or the administrator’s services must entail as the result of which it will be difficult to compare apples with apples.

So what about the other costs incurred at the discretion of the trustees, particularly any costs incurred on and in respect of the trustees themselves? Undoubtedly, this area becomes a lot trickier but is the area that the trustees should probably be even more concerned about than the costs of services acquired in the ‘open market’. Trustees should not be complacent in this regard in the light of their fiduciary duties and the personal liability they may face should any court of law rule that trustees acted negligently. Those trustees that attended the recent trustee training seminar organised by Elite Consulting and conducted by Peter van Ryneveld, will remember that Peter cautioned delegates of trustees misusing their powers and incurring excessive expenses.

The Namibian pension fund industry being as small as it is, it is difficult to determine any norm in respect of what is reasonable and what is well over the top when questioning the discretionary trustee expenditure level. From our data base the following statistics should assist trustees to measure their fund’s expenditure levels, bearing in mind that the larger the fund the lower the expenditure levels should be:

*  The industry average for 2015 according to the Namfisa statistical bulletin was 0.58%.

Note that these amounts include the cost of all external service providers as well as trustee discretionary expenditure but exclude the cost of investment management.

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.

Gunter Pfeifer's Benchmark Notes

Benchmark announces 2015 results to members

The Benchmark Retirement Fund conducted its 7th annual member meeting at Safari Hotel on 21 July.

At this occasion the Principal Officer, Kai Friedrich (above) gave an overview of the key financial statistics of the fund as at 31 December 2015. Investments held by the Fund's members grew by N$345 million during the 2015 financial year, and the Fund had assets of N$1,963 billion under management for more than 8,800 members.

Günter Pfeifer, Director Operations of the fund presented recent changes to the rules of the fund that introduced new products into the fund.

• Download the presentation here...
• Download the 2015 Annual Report here...

The fund now caters for:

• Large funds that want to retain their stand-alone benefit and contribution structure while giving up their status as separate legal entity in the face of every increasing governance requirements;
• Medium to large employer groups who take comfort in a standard benefit structure at low cost;
• Small employer groups not catered for in conventional arrangements;
• Members who want to preserve their benefit upon resignation from their employer;
• Members who have reached retirement and want to arrange a pension;
• Beneficiaries of death benefits who need to arrange an annuity –
• ...and for those who want to be part of a fund with an exceptional reputation for unequalled service levels, offering low cost access to reputable, popular pension fund investment managers, monitored by professional trustees, supported by expert investment consultants.

For enquiries on any of these unique Namibian products, email This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it. or call either on tel 061 231 590 if this is a matter you are currently grappling with.

At the same event, Chris Tisdall of Allan Gray (above) gave an illuminating insight into the future of financial services with his talk on ‘Technology Disruption – A case for hope and caution for long-term investors’. Download the presentation here...

Email This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it. or call either on tel 061 231 590 if this is a matter you are currently grappling with.

Do not access your retirement funds when changing jobs, no matter how tempting it may be.

Gunter Pfeifer is former Principal Officer and now a trustee of the Benchmark Retirement Fund. He 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.

Kai Friedrich's Administration Forum

Disability income benefit to be paid by insurance company

We are currently on a drive to arrange for all funds we administer that the disability income benefit be paid by the fund’s underwriter directly to the disabled fund member instead of first paying it into the fund for RFS to then pay it to the disabled member.

The insurance company should then make the required deduction for housing loan repayments and pay these either to the fund in respect of a loan granted by the fund or to the employer for a loan granted either by the employer of by the Bank. The insurer should also deduct the member pension fund contribution and pay this to the fund together with any employer premium waiver.

This will avoid a duplication of effort between the insurance company and RFS as administrator in respect of payment of the benefit to the disabled member.

Trustee fees and principal officer fees are subject to PAYE

We have obtained a tax opinion confirming that the change in the Income Tax Act effective 1 January 2016 with regard to the treatment of directors’ fees for PAYE purposes also applies to all regular amounts paid to trustees and principal officers.

This implies that the fund must deduct PAYE from all regular payments by the fund to the fund’s trustees and principal officer. As for any salaried employee, it also implies that PAYE5 certificates will have to be issued by the fund at the end of every tax year. To manage PAYE deductions the fund will have to run a payroll at least as from the start of the 2017 tax year.

Our Safety Net – can any fund afford less?

For the peace of mind of trustees our safety net offers you:

• Fidelity cover of N$ 5 million, excess of N$ 250,000 1 July 2016 to 30 June 2017, Western National Insurance Company;
• Professional indemnity cover of N$ 50 million, excess of N$ 250,000 1 July 2016 to 30 June 2017, Western National Insurance Company;
• Directors' personal liability cover of N$ 5 million per director, 1 November 2015 to 31 October 2016, Santam;
• Full-time internal audit, compliance and risk management function supported by 2 independent chartered accountants on a part-time basis;
• Off-site disaster recovery data centre;
• Continuous data and system replication;
• On-site back-up generator;
• Secure IT production centre;
• High availability virtual server environment;
• 64 full-time staff focussed on fund administration only;
• Average of 14 years relevant experience per employee;
• 24 holders of a diploma or certificate;
• 18 graduates;
• 7 honours degrees;
• 3 qualified chartered accountants;
• 4 CFP® practitioners (the only pension fund related professional qualification);
• A track record and reputation second to none;
• And more...

How much is peace of mind worth to you as a trustee – can you afford to pay less for compromising on any of these credentials?

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 conducts its second client function

To cater for trustees of our stand-alone funds and managers of their sponsoring employers, RFS conducted its second client function at Safari Hotel  on 20 July. Instead of ‘wining and dining’ our clients, we prefer to convey a message of lasting value to our guests to achieve our intent of adding value in all we do.


This year we presented futurist Raymond de Villiers (above), whose topic was ‘Mind the Gap’ referring to the different generations, their typical profiles and how they respond to their environment. Employers and trustees must take cognisance of this and determine how to cater for these different generations to remain relevant.

Find the presentation and more information, here...


Above, Deputy Managing Director Marthinuz Fabianus at the 2016 client function.


Above, Director Sharika Skoppelitus at the 2016 client function.

Staff matters

In our environment long-term relationships are of great importance as our clients typically first become exposed to us when they join the job market as member of a pension fund and often continue this relationship until they retire and even thereafter as a pensioner. Trust cannot be bought but is earned over a long journey with clients.

Our company consequently places great importance on retaining staff in our efforts to cement relationships with clients, whether individuals or pension funds.

In this context we are proud of every employee who attains another long-service milestone. Of our 64 staff members, no less than 35 have been with us for 5 years, 15 have attained the 10 year anniversary milestone and 3 the 15 year milestone, in our 17 year history. Annemarie Nel has just been awarded the 10 year acknowledgement and on behalf of the company we express our sincere appreciation to Annemarie for her dedication and loyalty to the company. We look forward to her continuing serving her clients and cementing relationships with our clients.

Media snippets
(for stakeholders of the retirement funds industry)

Namibia should have a national pension fund within two years

Deputy minister of Finance, Natangwe Ithete made this statement at the recent Retirement Fund Institute of Namibia yearly conference and told the Republikein that he does not think that the national pension fund will get off the ground this year, but expects it next year. - The Republikein

The critical role of a consultant in an umbrella fund

“So what does a good governance model look like in the umbrella fund environment?

The fundamental first step for any company considering the move to an umbrella fund, or reviewing their current umbrella arrangement, is to appoint a consultant independent of any sponsor of an umbrella fund to oversee the tender process. Once in an umbrella fund, the appointment of an independent consultant should be a prerequisite. In fact, it is something that the regulators should insist upon. Once the consultant is in place he should be tasked with regular reviews of the quality of service provided by the umbrella fund, the investment performance delivered and the costs associated with the arrangement. Risk benefits should be put out to tender at least once every three years to make sure that members benefit from the lowest quotations.”

Read the full article by Magda Wierzycka in Moneyweb of 26 July 2016, here...

Fraudster exposed – DNA test rules out child from dead man’s estate

In this case a person claimed to have been in a polygamous relationship with the deceased and that the deceased had fathered her child. On this basis she claimed and the fund allocated a portion of the benefit to the mistress’ child. A DNA test carried out on a person who believed to be the father then proved that the deceased was not the father and the benefit for the child was reallocated to the wife of the deceased.

Once a fund has allocated and paid a benefit that subsequently proves to have been based on incorrect information, the fund may not be able to recover the benefit from the incorrect beneficiary anymore and may incur a loss. Once again, it is clear that trustees should not accept any statements, whether sworn or not, at face value but should ascertain that there is sufficient corroborative evidence in support of such a statement. At the end of the day it is advisable that trustees allow beneficiaries to submit any objection they may have to the benefit distribution they are proposing, to mitigate the risk of paying out on the basis of fraudulent statements and information.

Read the full article by Thuli Zungu in the Sowetan of here...

Fund allowed to withhold benefit for 5 years pending outcome of legal matter

In this case, a member resigned from his employer and his fund membership consequently terminated in 2011. A case of fraud and theft was opened against the member by his employer. However the matter was quite complex and a forensic investigation had to carried out first. After still not having been paid his resignation benefit by 2015, the member submitted a complaint to SA Pension Funds Adjudicator, Ms Lukhaimane.

In her determination, Ms Lukhaimane said save to the extent permitted by the Pension Funds Act, the Income Tax Act and the Maintenance Act, no benefit shall be capable of being reduced, transferred or otherwise ceded, or of being pledged or hypothecated, or be liable to be attached or subjected to any form of execution under a judgment or order of a court of law.

However, Section 37D provided for an exception to this general rule. A fund could deduct from any benefit due to a member an amount representing damages suffered by his employer by reason of his dishonesty, theft, fraud or misconduct. The condition is that the member concerned must have admitted liability to the employer in writing or a judgment should have been obtained against her in a court of law. The object of section 37D is to protect an employer’s right to pursue the recovery of money misappropriated by its employees.

A provident fund is entitled to withhold withdrawal benefit pending the outcome of legal proceedings against the member, the Pension Funds Adjudicator has ruled. However, the power of withholding must also be exercised reasonably and not indefinitely, Ms Lukhaimane said.

Read the full article in InsuranceGateway of 6 June 2016, here...

Media snippets
(for investors and business)

Technology is about to usher in the age of immortality

“The intersection of wearable devices capable of giving information in real time to algorithms aided by artificial intelligence, means that computers will be able to systematically eliminate thousands of potential (mis)diagnoses to get to the most likely cause. Something which can be done systematically and much quicker than any human is capable of (as Google and others have demonstrated with the speed in which artificial intelligence can learn to play games as complex as Chess and Othello).

We have already seen the development of early detection systems that can prevent heart attacks linked to smartphones and the Apple watch.”

And ‘medical diagnoses as you go’ of course is not the only area of incredible advancement of technology but medicine is soon at the point where it will be able to replace every part of the human body barring the brain. The implications of this for business and pension funds are unimaginable for those living today, but for those that will be borne into this world, it will become normal!

Read the full article by Warren Dick in Moneyweb of 10 June 2016 here...

Enhance employees’ loyalty and dedication

“According to a 2014 Global Workforce Study conducted by Towers Watson, career advancement opportunities matter most to employees when deciding to join or leave an organization… Here’s how companies can create and define specific career paths to retain top talent and attract the best of the best.”

• Establish training programs and criteria. This requires an evaluation of everyone, looking at how their skills align with company expectations.
• Encourage feedback. When companies invest time and energy in listening to their talent, they’re creating a trusting environment, which is crucial to retaining top talent and building a team dedicated to growing with the company.
• Create a trusting relationship. Keep employees satisfied by creating a relationship built on trust and respect.

Read the full article from in-sight-view, here...

And finally...

Politics... something to contemplate on

“Those who are too smart to engage in politics are punished by being governed by those who are dumber.”
~ Plato, ancient Greek Philosopher