NAMFISA levies

• Funds with year-end of December 2020 need to have submitted their 2nd levy returns and payments by 25 January 2021;
• Funds with year-end of June 2020 need to have submitted their 1st levy returns and payments by 25 January 2021; and
• Funds with year-end of January 2020 need to submit their final levy returns and payments by 29 January 2021.

• 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 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... 
• Download the Principal Officer performance appraisal form here...
• Download the revised service provider self-assessment here...

Registered service providers
UPDATED May 2020

Certain pension fund service providers need to be registered by NAMFISA and need to report to NAMFISA regularly

These service providers are:-

• Registered Investment Managers
• Registered Stockbrokers
• Registered Linked Investment Service Providers
• Registered Unit Trust Management Companies
• Registered Unlisted Investment Managers
• Registered Special Purpose Vehicles
• Registered Long-term brokers
• Registered Long-term insurers

If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...

Check out our retirement calculator

Our web based retirement and risk shortfall calculator has been enhanced and updated to assist you to determine how much you should contribute additionally, either by way of lump sum or regular salary based contribution, to get to your target income at retirement, death or disablement.

Try it out. Here is the link...

If you need any assistance with your personal financial planning, you are welcome to get in touch with Annemarie Nel (tel 061-446 073) or with Kristof Lerch (tel 061-446 042)



Dear reader

In this newsletter we address the following topics:

• A year end message by Marthinuz Fabianus, our managing director.

 In ‘Tilman Friedrich’s industry forum’ we present:

• FIMA bits and bites – fines the regulator may impose on anyone;
• FIMA and the future of stand-alone funds – part 2;
• Provident funds - a dying breed!
• Know and understand your options at retirement.
• Offshore diversification – an imperative for pensioners!

In ‘News from RFS’ -

• Impressions from RFS 2020 year end function;
• Staff improving their competencies.
• Important administrative circulars issued by RFS.

In ‘News from NAMFISA’ read about:

• NAMFISA issues revised housing loan circular

In ‘Legal snippets’ read -

• Interesting ruling in Heritage Health vs Registrar.
• Failure to observe fiduciary duties lands fund compensatory order.

...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



Year-end message

Dear Valued Stakeholder

The year has not quite ended yet, but I am sure there are many of us that cannot wait for it to come to an end.
 
Reflecting on the year about to bow out is customary to us and is a permanent highlight of our last newsletter for the calendar year. This allows us an opportunity to express our deep gratitude to our valued stakeholders, our business will not exist without you.
 
Of course, it is also an opportune time to reflect on our successes, challenges, highs and lows and our fortunes or misfortunes. For this part, I am weary not to bore you or worse depress you with what you will much rather forget. But we must face the elephant in the room head on. The saying that what doesn’t kill you, makes you stronger”, must hold some truth for all of us in this respect.
 
During 2019, our country suffered a severe and devastating drought that destroyed the wealth and means of survival for many and drastically reduced economic output from the agricultural sector. The last 2 years before that, saw our country struggling to emerge from an economic slump, with the construction sector hit the hardest but with a knock-on effect on other sub-sectors. Coming into 2020, everyone was holding their breath and even those not so religious found themselves praying along for rain with most major dams around the country barely holding enough water for a few months. The relief eventually came with widespread rain experienced throughout the country. Prayers were indeed answered as most major dams across the country filled up to the brim, rivers roared down in majestic floods and the spectacle of nature replenishing itself was evident across the whole country. There was a sense of hope and anticipation that 2020 was indeed going to be the best year in years.
 
Fast forward 11 months into 2020 and I can only remind you at this juncture that; ‘in life, no condition is permanent’, and ‘no one knows what tomorrow holds’. As someone once said; “fortune favours the prepared”. We may not have known that the country and the world at large will submit to a flu disease, the Novel Corona Virus (a.k.a. COVID -19). But as a forward planning and responsible corporate citizen, RFS had risk management contingencies in place that helped us to weather the severe effects of the lock-down in the country. Our business has been resilient and as a team, we have shown to have the necessary strength of character.
With hindsight of the past 8 months since a National State of Emergency was declared and eventually lifted end of September, we have a lot to be grateful for, but also some accomplishments to be humbly proud about. 
 
I would like to share with you some notable ones.

Disaster recovery and business continuity plans – we responded satisfactorily to the operational challenges resulting from COVID and the lockdown of the country. We swiftly obtained essential service provider status, successfully activated our disaster management protocols which included setting up staff to work from home and put in place safety precautions to safeguard health of our staff and visiting clients and ongoing communication of our responses to staff, clients and other stakeholders. I am particularly proud to report that we were able to maintain critical and even not so critical service activities to our clients almost as if operating business as usual.

Integrated Income Tax Administration System (ITAS) – The challenges posed by ITAS online submissions of returns and the registration of tax payers almost seem unsurmountable. To date, we have submitted the company’s 2019/2020 and up to date 2020/2021 recons on ITAS. We have also submitted all 2019/2020 returns for all funds under our administration and we are most up to date with 2020/21 monthly submissions for all our umbrella fund clients, where we manage more than 200 different employer groups.

!Kharos Benefit Solutions & Symplexity -  We successfully co-established our own payroll administration company !Kharos Benefit Solutions, which welcomed its first employee Harold Mbuende during April. We also went live on our fully web- and Cloud-based payroll system Symplexity, the only web- and Cloud-based payroll system in the country. We look forward to see !Kharos follow in the successful steps of RFS.

RFS administration system enhancements – we have seen a number of enhancements to our administration system and quite a number of developments initiated by our team that recently went live. Soon, our comprehensive monthly letters to clients will be generated from the system at the click of a button and various messages to members of our clients’ funds will be generated by the system to keep members up to date with key administration activities of their pension funds.

Review of our client fees – using the records of our time spent servicing our clients as per our time tracking system Chrometa, we have been able to more accurately determine the cost of servicing each one of our clients and ensured there is parity and equity in our fee recoveries vs services rendered to our clients. We are tremendously grateful to the excellent relations we continue to have with our clients which has allowed us to have win-win discussions with relevant clients on this touchy subject. This has cemented our reputation as a business with integrity and fostered our values.

FIM Bill Webinar Series – We successfully co-hosted webinar series over 6 weeks, which underscored the reputation of RFS as market leaders and being at the forefront of change in our industry. 

The above would not have been possible without the combined effort of our tremendous team.

As you know, we place high value on loyal and long-term relationships with our staff as we do with our clients.  In this respect, I would like to hail the tremendous commitment and hard work of our second employee to reach a 20-year milestone. Ms Frieda Venter joined RFS as fund account on 01 November 2020 and is currently the financial manager of our flagship umbrella fund, the Benchmark Retirement Fund.

As the only fully Namibian business of its kind in all respects, we continue to enjoy tremendous support from Namibian businesses. In this respect we would like to acknowledge and thank the Cymot Pension Fund, Metje & Ziegler Retirement Fund and the Nedbank Namibia Pension Fund for their continuous support and their decisions to move to our Benchmark Retirement Fund as participating employers. They will no doubt be in good hands, along with Motor Vehicle Accident Fund (MVA), as one of the major new comers, whom I would also like to welcome.
 
On a different note, many of our staff had to carry extra weights to assist or stand in for colleagues who were absent due to sickness, maternity leave, colleagues who had to carry out special projects etc. Often, not enough mention is made of these special and commendable efforts and commitment. It will be amiss if I don’t hail the special grace and favour upon some of our staff that successfully recovered after contracting the Corona virus.

On a sad note, we lost our colleague Zane-Lea Drotsky who succumbed to Covid related complications shortly after giving birth to a healthy baby boy. Zane-Lea departed from us on 04 September 2020 and her memory is still fresh with us – may her soul rest in eternal peace.
 
I am a proud optimist; I never lose hope that there is a better tomorrow. I am acutely aware that business is not managed successfully by hope, but through proactive action and continuous dedication to the tasks at hand. As we look forward to the new coming year, I am under no illusion that the coming year will pose challenges of its own. I can only assure you that we will continue to rely on the proven strength of the team as we look forward to the coming year.
 
On the above notes, may I now take the opportunity to once again thank you, especially our loyal clients and devoted staff for the support throughout the year. I wish you all a restful and peaceful festive and holiday period.

Do travel safely and make a point to support our local businesses!

Monthly Review of Portfolio Performance
to 30 November 2020

• FIMA or any regulation, standard, directive or other subordinate measures made under FIMA;
• a condition of registration, approval or authorisation issued or amended in accordance with FIMA or any other law; and
• a standard, guideline, rule, directive or other subordinate measure issued under section 409, 410, 411 or 412 of FIMA.

FIMA and the future of stand-alone funds
– part 2

Read part 1 of this article in our previous newsletter, here...
 
PWC SA recently published its regular retirement SA funds survey that gives an interesting glimpse of the future of retirement funds in Namibia, in my opinion.
 
Decline in number of stand-alone funds

• In SA, the number of stand-alone funds participating in this survey declined from 143 in 2010 to 21 in 2020 as the result of the consolidation that took place in South Africa, driven by the SA regulator.
• The number of specialist funds (preservation-, retirement annuity-, umbrella-, unclaimed benefit- and beneficiary funds declined from 100 to 29 over the same period.
• Namibia will have the same experience as the result of the introduction of the FIMA.

 Increase in size of stand-alone funds

• In SA, the proportion of small- and medium sized funds, considered to be funds with assets below R 1 bn, declined from 57% in 2016, to only 22% in 2020.
• In Namibia, most if not all funds with assets below N$ 1 bn will disappear because of the implications of the FIMA governance requirements.

 Size and composition of boards of trustees

• In SA the stand-alone funds on average have a board of trustees of 9 of which 3 are independent trustees.
• The average experience of member elected trustees is between 5 and 10 years; that of employer appointed trustees is more than 10 years.
• On average independent trustees and principal officers have more than 10 years’ experience.
• All independent trustees and 85% of principal officers have a degree and/ or a post-graduate degree.
• The majority of funds have 3 sub-committees (audit and risk-, investments- and benefits committee)
• Principal officers and chairpersons on average take 5 and 4 hours, respectively, to prepare for a meeting.
• Namibia is likely to follow the same trends.

Remuneration of trustees and principal officers

• In SA, approximately 80% of all preservation-, retirement annuity- an umbrella funds remunerate some or all their trustees while only about 30% stand-alone funds remunerate some or all their trustees.
• In SA about half the funds remunerate per hour, the other half pay a fixed or a retainer fee.

Remuneration of specialist funds:

Ordinary board members range between R 10,000 and R 200,000, about 60% paying between R 10,000 and R 100,000. The average remuneration is R 162,000, the maximum R 240,000. The average rate per hour is R 797 and per meeting is R 3,187.
 
Chairpersons range between R 100,000 and more than R 500,000, about 85% paying between R 100,000 and R 500,000. The average remuneration is R 387,000, the maximum R 670,000. The average rate per hour is R 3,452 and per meeting is R 6,084.
 
Professional board members range between R 10,000 and R 300,000, about 60% paying between R 10,000 and R 200,000. The average remuneration is R 277,000, the maximum R 402,000. The average rate per hour is R 3,636 and per meeting is R 6,820.
 
Principal officers range between less than R 150,000 and more than R 1,000,000, about 60% paying more than R 1,000,000. The average remuneration is R 1,544,000, the maximum R 2,600,000. The average rate per hour is R 1,318 and per meeting is R 4,611.
 
In Namibia we are likely to see similar levels of remuneration.
 
Remuneration of stand-alone funds:

Ordinary board members range between R 50,000 and R 500,000, about 70% paying between R 50,000 and R 300,000. The average remuneration is R 425,000, the maximum R 500,000. The average rate per hour is R 776 and per meeting is R 3,106.
 
Chairpersons range between R 100,000 and more than R 500,000, about 60% paying between R 100,000 and R 300,000. The average remuneration is R 337,000, the maximum R 600,000. The average rate per hour is R 3,500 and per meeting is R 5,712.
 
Professional board members range between R 50,000 and more than R 500,000, about 60% paying between R 50,000 and R 300,000. The average remuneration is R 294,000, the maximum R 550,000. The average rate per hour is R 3,000 and per meeting is R 5,329.
 
Principal officers range between less than R 150,000 and more than R 1,000,000, about 60% paying less than R 600,000. The average remuneration is R 594,000, the maximum R 1,846,000. The average rate per hour is R 1,266 and per meeting is R 5,692.
 
In Namibia we are likely to see similar levels of remuneration.
 
Assessment of cost implication

Going by the South African experience, large funds with assets over N$ 1 bn who want to retain their identity as stand-alone fund, are likely to have a board of at least 6 trustees plus a principal officer of whom at least 2 trustees plus the principal officer is likely to be professionals. The chairperson of the board is likely to be a professional trustee. Given this scenario and the average remuneration paid to these professionals in SA, the likely cost a stand-alone fund will incur in respect of these professionals is N$ 1,225,000 and could be as high as N$ 2,996,00 based on the maximum remuneration per above. The other 4 trustees employed by the sponsoring employer are likely to be remunerated per meeting. Based on the rate per meeting of N$ 3,100 and at on average per trustee at least 14 meetings per annum between the main board and the 3 sub-committees, the fund will be looking at least to another N$ 175,000.
 
Conclusion

In Namibia, an employer sponsored stand-alone fund will have to brace for the cost of a board of trustees and principal officer of anything between N$ 1.5 and N$ 3.2 million per year. Up until the FIMA, very few employer- sponsored stand-alone funds engaged professional trustees or principal officers. These officials were usually employees of the sponsoring employer and at best were paid notional allowances for serving on the board.
 
The level of expertise the FIMA will require of a trustee and a principal officer, is typically only found at senior manager level within the employer. However, to exercise their duties and responsibilities on the fund with the required level of care and diligence, these persons would have to apply much more time to retirement fund matters than before and the employer is likely to find that it will become increasingly difficult for these employees to fulfil both roles. I therefore foresee that eventually the employer designated trustees and principal officers who exercise their retirement fund role as side-line to a full-time position with the employer, will disappear and these persons will have to be replaced by professionals by the fund. Should this happen, the total cost of a board of trustee referred to above will effectively increase to between N$ 2.4 and N$ 5.2 million.
 
Note: PWC’s 6th retirement funds survey contains other interesting findings. If you are interested to read more about these, download the survey here…

Provident funds – a dying breed!
 
The concept of ‘retirement annuity fund’, ‘provident fund’ and ‘preservation fund’ has its origin solely in the Income Tax Act, which contains a definition of each of those and a separate definition of ‘pension fund’ as well. The Pension Funds Act only defines ‘pension fund’ and does not distinguish between any of the creatures of the Income Tax Act which are all therefor pension funds in terms of the Pension Funds Act. Under FIMA, recognition is given to these different types of fund by including them in the definition of ‘fund’, as directed in retirement funds regulation RF.R.5.1. However, FIMA does not override the Income Tax Act in terms of the benefits that may be offered but effectively complements it.
 
While the Pension Funds Act does not prescribe the types of benefits any ‘pension fund’ may offer, the Income Tax Act has quite explicit provisions in the definition for each of these funds. To enjoy the exceedingly tax beneficial treatment envisaged for these funds in the Income Tax Act, any person operating such a fund would have to obtain tax approval of the rules of the fund. The name given to the fund is quite irrelevant, i.e. whether the fund is called XYZ Pension Fund, or XYZ Provident Fund or XYZ Retirement Fund by itself says nothing about the tax regime that applies to the fund. Using a name that may mislead the fund’s members into believing that the fund is a provident fund while it is a pension fund, or believing that using the words ‘Retirement Fund’ in the name of the fund makes the fund a so-called ‘hybrid fund’ is a fallacy. There is no such thing as a ‘hybrid fund’ in the Income Tax Act. It must be one of the 4 types of fund separately defined in the Income Tax Act and must comply strictly to the conditions set out in the definition.
 
A ‘provident fund’ must only offer benefits for employees on retirement from employment, or only for spouses, children, dependants or nominees of deceased employees or deceased former employers, or only for a combination of these benefits and the fund is to be a fund other than a pension fund, benefit fund or retirement annuity fund. A provident fund can thus only offer a retirement benefit or a benefit to the defined survivors upon the death of an employee or former employee. Contrary to wide-spread practice in the industry, Inland Revenue quite correctly believes that provident funds cannot offer funeral benefits to anyone but the employee or former employee (i.e. not a child or spouse or parent of the employee or former employee), and it cannot offer a disability income benefit that allows continued membership of the disabled member.
 
These provisions with regard to ‘provident fund’ must be contrasted with the provisions with regard to ‘pension fund’. A ‘pension fund’ must only offer annuities for employees on retirement from employment or for widows, children, dependants or nominees of deceased employees, or mainly such benefits, and benefits other than annuities and it is to be a fund other than a preservation fund, provident fund or retirement annuity fund.
 
The definition of ‘pension fund’ thus provides for both lump-sum benefits and annuities and it states that the fund must provide mainly annuities, determined by Inland Revenue to mean more than 51% of benefits paid by the fund must be annuities.
 
When one considers the fact that the definition of pension fund and provident fund are mutually exclusive and when one looks at the other sections of the Income Tax Act that deal with the different types of fund, the intention of the legislator in my opinion is clearly that a provident fund should only offer lump-sum benefits, while a pension fund can offer both types of benefit, as long the larger portion is paid as annuities.
 
Unfortunately, when approving rules of funds, Inland Revenue does not indicate as what type of fund the fund is approved, for tax purposes. That does not mean that one can apply one’s own discretion is deciding oneself. To determine whether a fund is a pension fund or a provident fund, one must look at the benefits offered upon retirement to start off with. If the member is not obliged to apply at least two-thirds of the retirement capital to arrange a pension, then it is a provident fund. That is whether or not the rules of the fund allow a member to voluntarily apply the total retirement capital to arrange a pension. The crux of the matter is, that it is left to the discretion of the member. To have such a provision in the rules of a provident fund is really meaningless as it only states the obvious, namely that the member can dispose of his retirement capital as he pleases. In contrast, the rules of a pension fund cannot leave it to the discretion of a member, how much of the retirement capital is to be used to arrange a pension, except if the member intends to use more than the minimum required two-thirds of his retirement capital.
 
The problem we have with provident funds is ‘home-made’ so to speak. Industry in my opinion introduced benefits that are inconsistent with the spirit and the letter of the ITA as per definition of ‘provident fund’.
 
The fact that some funds were registered by NAMFISA and tax approved by Inland Revenue although they offer benefits inconsistent with the Income Tax Act, does not remove the problem industry has, and sooner or later it will pop up again and at some stage it may end up in such funds losing their tax approval. This could even be back-dated. It has always been our philosophy not to support anything we believe is inconsistent with the law. In my opinion provident funds should really be a ‘dying breed’ as they do not properly address the purpose of a retirement fund. Employers offering a provident fund to their members cannot offer a typical package of benefits addressing employees’ needs, without operating another scheme or schemes that offer complementary benefits that the provident fund cannot offer it is own capacity. Such complementary benefit schemes will not enjoy the same preferential tax treatment as the fund itself does. I am surprised that the concept is actually retained in the FIMA and wonder what was behind this. The concept was introduced into the Income Tax Act probably as the result of pressure from the unions in those days, and it was never thought through properly from a social security policy point of view. From a tax point of view, it also enjoys a less favourable regime than a pension fund considering that death, retirement and ill health lump-sum benefits, are taxed at the taxpayer’s maximum marginal rate, whereas the annuity arranged from the minimum required capital in a pension fund is taxed at the taxpayer’s average rate.
 
Know and understand your options at retirement
 
At the time of retirement, a member of a pension fund usually has the option to purchase a pension of his or her choice from any Namibian insurance company or other approved fund with at least two-thirds of the capital. Of course, a member may also apply the full capital at retirement to purchase a pension, however, from a tax point of view it is not advisable to do so. This is because the one-third would have been paid out tax free. It is now used to purchase a pension which pension is taxable. So, tax free money is effectively converted to taxable money. If the one-third available to be paid in cash is not required by the retiree, it can be invested either in a voluntary annuity (referred to in section 16B of the Income Tax Act), in which case only a portion of the annuity is taxable, or it can be invested for the investment returns, of which also only a portion may be taxable, to be drawn down to supplement the retiree’s income.
 
Two thirds used to purchase a pension or annuity
The pension or annuity will have to be arranged from a Namibian product provider, being either an insurance company or another approved retirement fund of your choice.  The annuity will be taxed in Namibia. Whether or not it is taxable in SA will depend on whether or not contributions to the fund during 2 years of the past 20 years were claimed as a tax deduction in SA.  If such contributions were claimed as a tax deduction in SA, a portion of the annuity will be subject to tax in SA and the balance will be taxable in Namibia.
Where this is not the case, any annuity paid by an institution in one country to a taxpayer in the other country, is taxable both in SA and in Namibia. The Double Taxation Agreement entered into between SA and Namibia, however, would in that case provide tax relief in SA in respect of any tax paid in Namibia.  Effectively the annuity would be taxed at the higher of the effective SA and Namibian tax rates. 
Note that only annuities may be paid from the two-thirds portion of the retirement capital from a pension fund, and the annuity is taxed as if it were a salary whether it is the annuity paid to the retiree or to a survivor of the retiree. The retiree is free to nominate a successor to his or her annuity or pension, however NAMFISA’s position is that the trustees of the retirement fund must distribute the benefit in accordance with section 37C of the Pension Funds Act (would just be interesting whether this position also applies if the source of the annuity is an insurance policy and not a retirement fund, or is this the proverbial uneven playing field?) No further lump sum will be payable and freedom of testation therefore has no bearing on the annuities or pensions paid.
   
ALTERNATIVE PENSION ARRANGEMENTS
The market offers two types of annuity as we will elaborate below. Firstly the guaranteed or pooled annuity and secondly the investment linked or living annuity. Some product providers also offer a combination of these two types of product.
 
Guaranteed Annuity / ‘Pooled Pension’
The more common arrangement, often referred to as ‘pooled pension’ or ‘guaranteed pension’, provides either for a guaranteed income for your life whatever happens, or alternatively for a guaranteed income for your life and the life of another nominated person who would continue to receive an income for his or her life, whatever happens, once the pensioner has passed away. The income can usually provide for an annual increase of 5%, 7% or CPI as desired, and this increase will also be applicable to the dependant or spouse that is nominated to continue receiving a pension after the death of the pensioner. Some insurers also offer inflation linked annual increases. Where provision is made for another nominated person to receive a pension for life following the death of the pensioner, the spouse’s or dependant’s pension needs to be determined as a fixed percentage (normally 50%, 75% or 100%) of the pensioner’s pension upon death of the pensioner. The pooled pension furthermore typically offers a choice of a so-called ‘guarantee period’ of 5 or 10 years, following date of retirement. This means that in the event of death of everyone that was provided for to receive a pension for life prior to the expiry of the ‘guarantee period’, the pension will continue to be paid up to expiry of the ‘guarantee period’. The ‘pooled pension’ is an insurance product and can only be offered by insurance companies.
 
This arrangement can also offer a ‘capital preservation’ option, in terms of which the pensioner takes out a life insurance policy that secures repayment of the original pension capital, in the event of death of the pensioner at any time after retirement, at the cost of an insurance premium borne by the pensioner or annuitant. Clearly, the risk to the insurance company only increases gradually from date of retirement in accordance with the erosion of the pensioner’s capital. Therefore, the longer the pensioner survives the less of the original capital will be left and the larger the amount to be borne by the insurance company, and vice versa. In times of high inflation, the real value of a pay-out of the original capital in the event of the death of the pensioner will obviously decline rapidly. The rationale for this option is usually to leave something behind for the pensioner’s heirs and can only be realized through the pensioner sacrificing a portion of his or her pension for the benefit of the heirs.
 
Pooled pensions purchased from a registered long-term insurer in Namibia will remain a Namibia domiciled and Namibia Dollar denominated pension. Current legislation requires a minimum investment inside Namibia of 45%, while a maximum of 35% of capital may be invested offshore. Most insurers currently do not make full use of this concession. Pension funds are currently not taxed in Namibia.
 
The principle of this arrangement is that the insurance company commits itself to the pension agreed between it and the pensioner at date of retirement, whatever may happen. The risk the insurer is taking upon itself (with regard to the ‘whatever may happen’) is, firstly that the income earned on the pensioner’s capital is lower than expected and, secondly, that the pensioner and/or his spouse/dependant live longer than expected. Conversely, if the pensioner and/or his wife/dependant died sooner than expected and the investment income was higher than expected, the benefit would accrue to the insurance company at the expense of the pensioner. Evidently, the pensioner loses where the insurance company gains and vice versa.
 
This type of pension is more appropriate for a pensioner who is wholly or mainly dependent on his/her pension income, and whose spouse/dependant is likely to be so, with few or no other sources of post retirement income, and who is thus dependent on drawing maximum income from his/her pension capital for survival. It is also recommended for persons who do not have appreciation and understanding of investment markets and investment risk and volatility. This arrangement fixes the contractual conditions of the retiree, for as long as the pensioner and his or her nominated ‘pension successor’ may live.
 
We caution the prospective retiree to enter into this arrangement under abnormal market conditions (such as historically low interest and inflation rates). When such conditions prevail, it is advisable to postpone retirement, to arrange an inflation linked annual increase or to initially enter into a ‘living annuity’ arrangement (refer to 3.2 below) until conditions have normalized, where after one can consider moving into the ‘pooled pension’ arrangement. Insurers are currently assuming a long-term interest rate on retirement capital of around 9.0%, which represents a real return of around 6% at the current prevailing inflation rate of just over 3%.
 
A distinct disadvantage of the ‘pooled’ pension is the fact that it is not a transparent arrangement and the pensioner will not be appraised of the actual investment returns or costs applicable to his or her investment in the pool. It is, of course, irrelevant to the pensioner as the capital no longer belongs to him/her, having lost its identity in the pensioner pool.
 
Living or investment linked Annuity
The alternative pension arrangement is where a pensioner’s capital is retained in the pensioner’s personal pensions account, often referred to as ‘living annuity’ or an ‘investment linked annuity’. The capital is thus not paid into a pool where it loses its identity. In this case, the appointed product provider purely administers the pension payments and the investment on behalf of the pensioner. It does not carry any risk regarding investment income or the pensioner’s and/or his spouse’s/dependant’s survival. This risk is borne by the pensioner. Negative experience in this regard is consequently at the expense of the pensioner him/herself while positive experience is to his/her benefit. The pensioner has a choice of the level of income desired, between a minimum of 5% and a maximum of 20% of the capital in the pensions account. The rate, at which the monthly pension is drawn, can be changed from time to time. The capital remains the pensioner’s property, whatever happens. Should investment returns be lower than the rate of pension drawn by the pensioner, the pensioner’s pension will decline over time, while the converse also holds true.
 
This alternative is more appropriate for a pensioner who himself, and his spouse/dependant, is not fully dependent and is unlikely to be fully dependent, on drawing maximum income from his/her pension capital for survival because of access to other sources of post retirement income. It is also recommended only for persons who have some appreciation and understanding of investment markets and investment risk and volatility. Pensioners under this system usually have a choice with regard to the investment portfolio within which the capital is to be invested. When abnormal market conditions prevail at the time of retirement (such as historically low interest and inflation rates), it is advisable to enter into a ‘living annuity’ arrangement until conditions have normalized, where after one can consider moving into the ‘pooled pension’ arrangement. A pensioner also needs to recognize that he is likely to become ever more averse to taking decisions with regard to investments and the pension withdrawal rate in future, as his age progresses. Reliance on a trustworthy individual such as a family member or a financial adviser is thus likely to become ever more important to the pensioner.
 
Living annuities can currently in Namibia be purchased from most registered long-term insurers and from some pension fund administrators. It will remain a Namibia domiciled and Namibia Dollar denominated pension. Current legislation requires a minimum domestic investment of 45% of capital and a maximum offshore investment of 35% of capital. As pointed out above, pension funds are currently not taxed in Namibia.
 
A distinct advantage of the ‘living annuity’ pension, is the fact that it is a totally transparent arrangement and the pensioner should at all times be fully aware of the actual investment returns and costs applicable to his or her investment in the fund. However, as a pensioner grows older, he/she will become increasingly averse to taking decisions concerning the underlying investments and the pension draw down rate and will increasingly require guidance in this regard.

Offshore diversification – an imperative for pensioners!
 
Table 6.1 below, depicts how the value of a local investor’s investment in foreign currency denominated assets have moved, since the beginning of this calendar year up until the end of April, when financial markets were just routed by Covid 19, and up until the end of October.
 
It covers the investment by a local investor the following assets: gold; the S&P 500 index; the DAX index; in the FTSE index; the JSE Allshare index.
 
Table 6.1

 
Graph 1 below, reflects the percentage changes of the various assets since 31 December 2019, per the above table.
 
Graph 6.1

 
Looking at these assets one by one we note the following:

1. Investment in gold 
   
   Had an investor already held an investment in gold at the end of December 2019, the investment would have generated a return of 47% in Rand terms to the end of April this year. Two forces drove this return in the same direction. Firstly, the depreciation of the Rand against the US Dollar by 32% and secondly, the appreciation of gold by 11%.
   
   From the end of April to the end of October this investment would have lost 2% in Rand terms. Now these two forces drove in opposite directions. The Rand appreciated by 12% while the gold price appreciated by 11%. A local investor who thought it wise to move into gold after the Covid 19 crisis struck, will be disappointed with the returns since then.
    
2. Investment in the S&P 500 index
   
   Had an investor already held an investment in S&P 500 index at the end of December 2019, the investment would have generated a return of 19% in Rand value to the end of April this year. Two forces drove this return in the opposite direction. Firstly, the depreciation of the Rand against the US Dollar by 32% and secondly, the decline of the S&P 500 index by 10%.
   
   From the end of April to the end of October this investment would have lost 2% in Rand terms. Again, these two forces drove in opposite directions, each one in the opposite direction of that of the preceding period. The Rand appreciated by 12% while the S&P 500 index increased by 12%.
    
3. Investment in the DAX index
   
   Had an investor already held an investment in the Dax index at the end of December 2019, the investment would have generated a return of 6% in Rand terms to the end of April this year. Two forces drove this return in the opposite directions. Firstly, the depreciation of the Rand against the Euro by 29% and secondly, the decline of the Dax index by 18%.
   
   From the end of April to the end of October this investment would show no change in Rand value. Again, these two forces drove in opposite directions, each one in the opposite direction of that of the preceding period. The Rand appreciated by 6% while the Dax 500 index increased by 6%.
    
4. Investment in the FTSE index
   
   Had an investor already held an investment in the FTSE index at the end of December 2019, the investment would have generated a negative return of 2% in Rand value to the end of April this year. Two forces drove this return in opposite directions. Firstly, the depreciation of the Rand against the British Pound by 25% and secondly, the decline of the FTSE index by 22%.
   
   From the end of April to the end of October this investment would have lost 14% in Rand terms. Now these two forces drove in the same direction. The Rand appreciated by 9% while the FTSE index declined by 5%.
    
5. Investment in the JSE Allshare index
   
   Finally, had an investor held his investment in the JSE Allshare index, he would have had a negative return of 12% to the end of April and a slight improvement of fortunes with a return of 3% to the end of October.

 When the Covid 19 crisis struck at the end of March panic hit financial markets. As the result, investors sold out of riskier investments and weak currencies, to move their money into cash in strong currencies. As gold is considered a safe haven in times of panic, gold actually increased in value over the Covid 19 crisis in US Dollar terms. Local investors benefited from this increase in value and the depreciation of the Rand at the same time had they already been invested in gold before the crisis. Since then, panic started to fade and rationality started to return to markets. As the result, the Rand has started to gain in value as investors are returning to riskier currencies and assets in the developing world.
 
Conclusion
 
This experience shows, that when panic strikes investment markets, foreign investments of local investors tend to serve as an effective hedge against a drop in foreign markets as the result of the simultaneous depreciation of the Rand. Panic, however, is usually only a temporary condition caused by unexpected and unforeseen developments. When panic fades, the increase in foreign markets is typically diluted by an appreciation of the Rand.
 
Since the end of April, the peak of the Covid 19 crisis, the bourses examined above, produced a neutral to positive return in Rand value, while the JSE Allshare dipped by 13%. Since then to the end of October all the bourses, as well as gold, produced a negative return while the JSE Allshare was just in positive territory.
 
A pensioner should try to protect his income from his retirement capital, in real terms. The panic we have seen earlier this year would have caused a loss in the value of the local pensioner’s offshore investment. However, the simultaneous depreciation of the Rand cushioned the decline in the value of the investment. In the longer term, a weak Rand would normally lead to accelerating inflation and the cost of living of the pensioner, as many of the goods and services consumed by a pensioner are import dependent and susceptible to inflation. In this instance, inflation has not really occurred due to other factors such as the decline in interest rates and in the price of fuel which in turn was cause by the Covid 19 panic and the slump in the global economy. To diversify the pension portfolio offshore is thus an imperative for every pensioner.
 
A strengthening Rand now once again offers an opportunity to achieve the objective of diversifying offshore. With interest rates offshore being as low as they are, equity is really the only conventional asset class that holds out the prospects of reasonable real returns, provided one does not buy into expensive markets or assets.

 

 
Compliment from a former fund member
Dated 12 November 2020

RFS’ purpose for existence is to enable retirement wellness. The following note is testimony to our wealth advisers going out of their way to pursue our purpose:

“...I need to congratulate you a brilliant professional service, it’s a pleasure to work with you.”

Christmas message from a principal officer

“To the RFS team
 
I do agree! This looks very tempting for a hardworking, and by now, an almost exhausted YOU.
 
More than ever before, YOU deserve a break from the 2020 challenges that came unexpectedly – sometimes it was fun and comfortable, but then also somewhat depressing and inconvenient.
 
RFS once again took honors in how you dealt with the entire situation.
 
Wherever you may be this festive season – take care, relax, and enjoy whatever YOU have planned for you and your family.
 
A special thank you for assisting with the ERS when usual password attempts failed, and for loading benefit statements for some eager members without delay. Your time and efforts were always appreciated when we needed it most.
 
Wishing you all a Merry Christmas and a Blessed New Year.”

Read more comments from our clients, here...



Testimonial from a fund who moved to Benchmark

Times are changing for retirement funds in the face of the impending implementation of the FIMA. A number of stand-alone funds have already made up their mind that their stand-alone fund will no longer be viable under the FIMA. Some have already moved to the Benchmark Retirement Fund. Understanding how such funds have experienced the transition into our umbrella fund is not only very important for RFS as administrator of the fund but can also assist other funds in their decision.
 
Here follows a testimonial we have received from one of these funds. For reasons of confidentiality we have removed information that can identify the client.

“.... GROUP WITHIN THE BENCHMARK RETIREMENT FUND
 
Looking back on just more than a year since we migrated as a Private Pension Fund to join Benchmark Retirement Fund, we are quite satisfied that this was the right option for us.

Since joining, we have been impressed with the professionalism of the team responsible for .... The staff has been most accommodating and ever ready to listen, help and walk the extra mile.

Our operation was thrown into disarray by events you are well aware of. These events were debilitating to our end, yet Mr. ... and Ms. ... were always ready to assist, patient with us and ready to help us along in an accommodating spirit.
We really appreciate this “soft landing”!

As for the way in which we were assisted with the rule amendments, contribution holiday, and the like – we are more than satisfied. We are grateful to know that things at the Benchmark side of affairs will ensure that we are in the right place. And, which is more, that our members are afforded the best possible service.

This is also true in day to day activities regarding member matters – resignations, retirements, new members, and the like. We can only express our gratitude for the way things went this first year.

The communication re member matters, the Pension Roll, etc. is always clear, prompt and helpful.

If there were glitches, most were due to our situation of disarray.... We trust that as we go along, this will be ironed out!

Thank you for the professionalism we experience with Benchmark!” 

  


Impressions from RFS 2020 year-end function

The 2021 social committee is introduced.	The 2020 social committee is relieved of its duties.
Posing for a photograph...	The Benchmark PO was in his usual good mood.
The RFS MD and Benchmark PO.	Dressed for the theme - summer.
Doing the 'Jeruselema'.	The old and the new.

• Chart of Accounts and Old Mutual AGP costing revision (RFS 2020.11-16)

  
NAMFISA issues housing loan circular
 
NAMFISA issued PF/PI/Circ/03/2020 on housing loans on 9 December, which revokes PI/PF/3/2003 on the same topic, that was issued on 13 June 2003. The previous circular allowed the offsetting of an amount due in respect of a loan from a member’s fund credit. The new circular considers such practice inconsistent with sections 37A and 37D of the PFA.
 
The new circular refers to unlawful current practices in the industry and provides clarity and guidance regarding housing loans granted by Funds or housing loan guarantees furnished by funds, as follows:

1. Loans may be furnished only for the purposes stipulated in section 19(5)(a) of the Act (i.e. property concerned must belong to the member or his/her spouse and must be occupied by the member or his/her dependants) and not for any other purpose.
2. The maximum loan or loan guarantee may not exceed –
   1. 90% of the market value where the loan is secured by a first mortgage on any property belonging to the member;
   2. 90% of the amount of the withdrawal benefit that the member would receive upon termination of membership of the Fund as at the time of taking up of the loan, where the loan is secured by a pledge of the member’s benefits in the fund;
   3. 90% of the aggregate of the market value of the property concerned and 90 per cent of the withdrawal benefit where the loan is secured by a pledge of benefits and a first mortgage bond as per a. and b. above.
   4. the cost of any addition, alteration, maintenance or repairs, where it is granted for such purpose.
3. The property concerned must be owned by the member or a spouse of the member and must be occupied by the member or dependant of the member.
4. A deduction for any loan due per above is only permissible when it is done at the time that such member or a beneficiary is (or becomes) entitled to the said benefit in terms of the Fund rules. Offsetting the amount due against the member’s fund credit at any other time is considered is inconsistent with sections 37A and 37D of the Act.

Editor’s comment: With all due respect I do not agree with the latest position of NAMFISA, and interestingly, both, the previous circular and FIMA actually makes provision for the offsetting. Interestingly too, the new circular does not provide for the situation regarding housing loan amounts due in case of a section 14 transfer, whereas, both the previous circular and FIMA allow the offsetting in such a situation.
 


Interesting ruling in Heritage Health vs Registrar
By Andreen Moncur BA (Law)
 
An interesting ruling was recently handed down in Heritage Health Medical Aid Fund v The Registrar of Medical Aid Funds (HC-MD-CIV-MOT-REV-2019/00411) [2020] NAHCMD 359.  The key finding that any change (increase or decrease) to the contributions payable to the fund amounts to an amendment of the rules of the fund that requires approval (registration) by NAMFISA will be binding on retirement funds too.  
 
The court held that Heritage Health’s view that the fund rules governing contribution rates need only be approved initially and from there on the fund can amend the contributions by giving one month’s written notice without obtaining the approval of the Registrar was wrong. The court further held that the annual contribution increase of medical aid funds does amount to a rule change and should therefore be approved by the Registrar of Medical Aid Funds.
 
Failure to observe fiduciary duties lands fund compensatory order
 
This SA adjudicator determination deals with the complaint about the non-payment of a death benefit by NG Mkhungo (‘daughter’ - complainant) against Trentyre Provident Fund (‘fund’ - first respondent), NBC Unclaimed Benefit Fund (‘UBF” - second respondent) and NBC Fund Administration Services (‘administrator’ - third respondent).
 
The deceased was the father of the complainant. He passed away on 1 August 2001 and a benefit of R 60,650 became available for distribution.
 
The employer had submitted all documents to the UBF. The employer later relocated and communication between the employer and the fund then ceased. The trustees of the fund resolved on the disposition of the death benefit in 2007 and the capital was later transferred to the UBF. In 2014 the daughter wrote to the fund which confirmed that the benefit was with it and requested the daughter to provide some additional information. All the additional requirements were finalised in 2015. The administrator now informed the daughter that the benefit for all beneficiaries was transferred to the UBF. The daughter was dissatisfied that the administrator transferred the benefit to the UBF some 16 years after the death of the former fund member and after she had been in touch with the administrator and approached the adjudicator.
 
Following the adjudicator’s request for submissions by the respondents, the administrator advised that the trustees of the fund as required in terms of section 37C of the PFA and in terms of legal precedent, fully complied with all requirements in terms of investigating, pro-actively identifying dependants, exercising their discretion in equitably allocating the benefit, taking into account all relevant facts and ignoring all irrelevant facts and not allowing their discretion to be fettered, and how to pay the benefit. The administrator further submitted that the trustees stand by their resolution. It was also revealed that the administrator was unable to locate the file that contained the rationale for the trustees’ decision how to dispose of the benefit, as more than 10 years had elapsed since the member passed away, and did not provide any reasons for the long delay in finalising the claim. In November 2016, the UBF advised that the amount available for distribution was now R 170,655. Payment would be made as soon as the required claim forms and bank statements are submitted.
 
The tribunal once again formulated the legal requirements as set out in section 37C and legal precedent as codified in Sithole vs ICS Provident Fund and Another and as briefly elaborated above, emphasising the fund’s obligation to pay the benefit within 12 months of the death of the former member. The tribunal concluded that the fund failed to investigate the matter within the prescribed period, failed to provide the adjudicator with the investigation report indicating how the allocation had been arrived at and failed to pay the beneficiaries after more than 15 years since death, although the allocation was made in 2007, and did not submit any reason for this delay. The tribunal expressed concern with the manner in which the claim was handled by the fund and pointed out that the fund should have acted in good faith towards the members and their beneficiaries. This conduct is undesirable, unlawful and dilatory as the result of which the beneficiaries suffered prejudice in having potentially  been denied access to the benefit due to them. The tribunal, like any court of law, has the power to grant compensatory damages in order to mark its displeasure with such conduct and ordered the fund to pay the complainant and other identified beneficiaries compensation in the amount of R 423,164, being 15% compound interest from 2008 for the delay, in addition to the benefit as determined and to be paid by the UBF.
 
Download the full determination, here...

 

4 signs you won't be ready for retirement
 
“...For anyone who has had a few years to save for retirement but is still decades from leaving work, you're probably starting to ask yourself some questions about how you're saving and if you're doing it right… Here are four very apparent signs you'll notice if you're not on track for retirement, even in your younger years.

1. You don't have at least three times your income saved by age 40 - The general rule of thumb is that you want to have an amount equal to your annual income saved for retirement by the time you're 30. You want to have two times [your income] by the time you're 35, and at age 40, you should have three times your annual salary saved...
2. You've taken money from your retirement accounts and not replaced it - ...If you're borrowing against retirement accounts now, you're really putting yourself at a disadvantage to be able to be ready.
3. You're still not saving at least 15% of your income for retirement - You should be saving around 15% of your income to go towards retirement your entire working life...
4. You haven't considered how your portfolio is invested - In retirement savings, having your portfolio invested appropriately is as important as saving itself...” 

1. Overspending - ...In order for this pool of assets to see you through retirement from your mid-sixties, we work on a rule of thumb of withdrawing no more than 5% a year. Anything less than 4% per year means you should have a very good chance to sustaining your wealth throughout your lifetime...
2. Family dynamics - ... But the biggest risk in most families is if one, dominant person makes all the decisions. This is compounded if that person fails to groom younger family members to continue the business, or they are not aware of what the legacy plan involves....
3. Concentration risk - ...The threat is that one cataclysmic event can change the rest of your life. And Covid-19 is a prime example of the type of “Black Swan event” that you need to look out for. So, you have to diversify your assets wherever possible.
4. Gearing _ One other way your retirement assets are threatened is if you are highly leveraged. Should some disaster happen, the income you derive from a rental property might dry up or the value of shares held by a bank as collateral on a loan might fall off a cliff...
5. Taxes - Failure to plan properly can result in sacrificing some assets that an efficient tax plan would otherwise have avoided. Common reporting standards and the international clampdown on tax havens means there is nowhere left to hide...
6. Scams, scandals and Ponzi schemes - ... Pensioners are an obvious target because they are forever searching for higher returns. It is no wonder then that people are attracted to schemes that offer higher “guaranteed” returns. But be aware that if the return is too good to be true, it is almost certain to be a scam.
7. Currency risk - ...If you find yourself at the wrong end of a currency movement, it can significantly affect your wealth...
8. Sovereign risk - ...Radical tax increases, expropriation, and exchange controls are examples of what governments can do. Reckless fiscal and monetary policy will create hyperinflation. Venezuela is an example...” 

• The accused pays an amount of R20 000 for a period of six years towards a fund to compensate the complainants;
• The accused cedes the total amount of an annuity in his favour (at least R1.2 million), payable in 2024, to the compensation fund;
• The accused obtains and maintains a policy on his life to the value of at least R2 million, for the benefit of the victims if he passes away.This novel approach to sentencing is welcomed by the FSCA and we congratulate the NPA on the work and speed with which they worked on this case...”

• Breathe in - reflect on your year.
• Your routine. Rest is important – it has been a challenging year.
• Raise your heart rate with an enjoyable form of exercise. Connect with your body. Dance!
• Eat well – make healthy choices when it comes to the fuel you fill your body with.
• Sunbathe – recharge outside, spend time in your 'lockdown' garden and take your shoes off sometimes!
• Look up more often – at the sun, at the birds, at the stars, at inspiration, at leaders.
• Communicate – authentically. Sing if you need to.
• Shut down and disconnect – still your mind.
• Show gratitude. Appreciate what you have, appreciate your relationships, knowledge you have gained, the life that you have lived, and your health.
• Release with an outbreath...” 

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

"Be yourself; everybody else is already taken.” ~  Oscar Wilde