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Benchtest Newsletter
Issued February 2022
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In this newsletter
Benchtest 01.2022, expropriation of umbrella fund sponsors, don’t over-insure, trustee fees, and more... Jump to...
Important notes & reminders
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NAMFISA levies
- Funds with January 2021 year-ends must submit their 2nd levy returns and payments by 25 February 2022;
- Funds with July 2021 year-ends must submit their 1st levy returns and payments by 25 February 2022; and
- Funds with February 2021 year-ends must submit their final levy returns and payments by 28 February 2022..
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Retirement calculator
Use our web-based retirement and risk shortfall calculator for your personal retirement planning. Find it here...
If you need help with your financial planning, get in touch with
- Annemarie Nel (tel 061-446 073)
- Kristof Lerch (tel 061-446 042)
- Christina Linge (061-446 6075)
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Registered service providers
Certain pension fund service providers must register with NAMFISA and must report to NAMFISA regularly. Download a list of service providers registered at June 2021, here... |
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Toolbox for trustees
RFS provides comprehensive support for trustees. Find a list of download documents to assist with governance and management of private funds, here...
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The name “RFS” made a criminal offense under FIMA
In last month’s newsletter we reported that FIMA now requires RFS to change its name to avoid criminal prosecution.
One reader and great promoter suggested that we should just drop the lettter ‘d’ from ‘Fund’ (‘Retirement Fun Solutions) as this will appropriately reflect his experience with RFS. Thank you for this wonderful compliment!
Unfortunately, by that time we had already submitted our application to BIPA and it approved our name change to RFS Fund Administrators (Pty) Ltd.
We will continue trading using our acronym “RFS”.
Administration of Estates Act amendment and other laws on parliamentary roll
Parliament will consider the following bills in its work session that commenced on 8 February. Amongst these, it will consider the repeal of the Administration of Estates Act Amendment Act that caused so much upheaval in the financial services industry
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Newsletter
In this newsletter, we address the following topics:
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In ‘Tilman Friedrich’s industry forum’ we present:
- Monthly review of portfolio performance – 31 January 2022
- Umbrella funds – expropriation without compensation?
- Watch out against over-insuring yourself
- FIMA bits and bites – What is the going rate for a professional trustee and principal officer?
- FIMA bits and bites – compulsory preservation has arrived
- Our outlook for investment markets for 2022
In Benchmark – a note from Günter Pfeifer read about
- Benchmark seeking to appoint an independent principal officer
- Important circulars the fund issued
In ‘News from RFS’ read about…
- Long service awards complement our business philosophy
- Member engagement platform takes some sting out of FIMA
- Staff improving their competencies
- Important circulars issued by RFS
In ‘News from NAMFISA’ read about
- NAMFISA issues PF/DIR/01/2022
- NAMFISA explains PF/DIR/01/2022
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In ‘Legal snippets’ read about
- Complainant failed to prove financial dependency
In ‘Snippets for the pension funds industry’ read about
- Mercer CFA Institute Global Pension Index 2021 - recommendations for pension systems
- Diversification, offshore investing and asset allocation
In ‘Snippets of general interest, read about
- Buying low and selling high? Maybe you’re doing it wrong
- 20 of the most in-demand skills that will help you get a job in the next five years
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
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Tilman Friedrich's industry forum
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Monthly Review of Portfolio Performance
to 31 January 2022
In January 2022, the average prudential balanced portfolio returned -1.3% (December 2021: 2.7%). The top performer is Allan Gray Balanced Fund with 0.6%, while Stanlib Managed Fund with -2.6% takes the bottom spot. For the 3-months Hangala Prescient Absolute Balanced Fund takes the top spot, outperforming the ‘average’ by roughly 2.2%. Stanlib Managed Fund underperformed the ‘average’ by 2.4% on the other end of the scale. Note that these returns are before (gross of) asset management fees.
The Monthly Review of Portfolio Performance to 31 January 2022 provides a full review of portfolio performances and other insightful analyses. Download it here...
Forget yesterday’s winners, instead find yesterday’s loser that may shine tomorrow
The disequilibrium in financial markets caused by low interest rates and fiscal stimulus is not sustainable and is up for correction this year. The Federal Reserve and the ECB are reducing their bond-buying programmes and contemplating lifting interest rates. The mere talk of rising interest rates caused the latest dip in the S&P 500. The stock markets produced clear winners and clear losers after the COVID crisis. Yesterday’s winners are unlikely to continue their winning streak while yesterday’s losers may shine again. I cannot see stock markets continuing their trajectory this year. Maybe I am over-cautious like I was in the run-up to the GFC.
Investors who align with my thinking and expectations should tread carefully. Forget to chase yesterday’s winners: instead, find yesterday’s losers that will shine tomorrow! If you find the right ones, you should achieve respectable returns on your shares investments this year.
The Monthly Review of Portfolio Performance to 31 January 2022 provides a full review of portfolio performances and other insightful analyses. Download it here...
Umbrella funds – expropriation without compensation?
In South Africa, the regulator distinguishes between two umbrella fund types, a type A and type B fund. A type A fund is a commercial occupational umbrella fund that requires main and special rules and provisions specific to each participating employer, regulating contribution rates, eligibility conditions, retirement ages, and risk benefits. A type B umbrella fund only has main rules that apply to all employers and cater to a specific industry or sector. SA law does not prescribe that the fund sponsor may not sit on the board of its commercial occupational umbrella fund.
In Namibia, the regulator does not distinguish between these types of funds, although they are vastly different. However, we have funds with special rules specific to each employer (type A fund) and funds with only main rules applying to all employers (type B fund). To the best of my knowledge, there is only one type B industry fund (5,300 members; N$ 247 million assets) and two type B sector funds not linked to one company or group of companies (8,300 members; N$ 5.5 billion assets.) FIMA dictates that the fund sponsor may not sit on its type A commercial occupational umbrella fund.
In contrast, seven providers offer nine type A commercial occupational umbrella funds covering more than 90,000 members with more than N$ 12 billion assets. They represent 30% of the membership and 7% of assets, respectively, of the entire pensions industry, including the GIPF. These commercial umbrella funds differ widely in their structures and offerings to the market.
Without any doubt, the type A commercial occupational umbrella funds fill a large void in the pensions market. If it were not for the sponsors' commercial interests in these funds, they would not have established such funds. As a result, 90,000 members enjoy pension coverage, securing the well-being of around 400,000 Namibians!
I would suggest the type A commercial occupational umbrella funds are a financial services sector that government should protect and promote. Unfortunately, the official view is that these umbrella funds are doing a disservice to Namibia, are poorly governed, and are overcharging for their services to promote their interests. FIMA, therefore, effectively expropriates the fund sponsors who may not sit on these type A funds' trustee boards. The trustees (unrelated to the sponsor) will determine whether to retain any of the sponsor's services and are duty-bound to fire the sponsor if they consider it appropriate.
If the fund sponsor believes his commercial interests are under threat, he is unlikely to apply any intellectual property to build the fund in the interests of its members. The trustees are unlikely to possess the operational insight or expertise to replace the sponsor's dynamics to the detriment of the fund's members. I venture to say that we will see a stale, stagnant commercial occupational umbrella fund industry under FIMA, and we will not see any new commercial occupational umbrella fund! Fortunately, Namibia has nine commercial occupational umbrella funds, but their attractiveness will decline steadily, and I foresee that they will eventually become extinct!
Expropriation without compensation contravenes Namibia’s constitution, and sponsors should consider challenging the relevant provisions in the FIMA. Still, the regulator should initiate an amendment of the FIMA as this is in the bests interests of all stakeholders!
Watch out against over-insuring yourself
Before you take out insurance cover against disability or incapacity, ask your retirement fund consultant what cover your retirement fund offers, should you become disabled or incapacitated. Do not overinsure yourself because you will not benefit from your premiums. Overinsuring means receiving a benefit higher than your salary after you become disabled.
An essential principle of insurance is that a person wanting to insure any risk must have an interest in the risk not materialising. It is called an “insurable interest.” If such an interest does not exist, an insurance company will not insure the risk. This principle is explained easily in the context of your life or car. Every person will have an “insurable interest” not to die; therefore, an insurance company will insure that risk. Similarly, you have an “insurable interest” that you do not damage your car in an accident and, therefore, an insurance company will insure that risk.
How does this principle apply to your disability or incapacity? Let’s assume you take out disability insurance cover replacing 100% of your salary with two insurance companies; you would receive twice your salary when you cannot work anymore. Who would not consider insuring the disability risk with more than one insurer if this were possible? You do not have an insurable interest to prevent your disablement.
When you apply for disability insurance with an insurance company, it will not know if you took out insurance with other companies. Most insurance companies’ policies contain a clause that allows them to deduct any other income you will receive after your disablement from the benefit it must pay you. You cannot earn more after than before disablement. As a result, you would have paid for a benefit that you will not receive.
FIMA bits and bites – What is the going rate for a professional trustee and principal officer
There is currently no norm for trustee remuneration in Namibia. Many funds do not remunerate their trustees, who are mostly still the sponsoring employer’s employees. Some funds do but only nominally. Funds will scramble to find suitable independent trustees. There are very few funds using professional trustees, and these funds will be a dying breed because of the demanding legal requirements and the risks their trustees face.
Trustee remuneration will depend on the size of the fund. Bigger funds present higher risks as all trustees are jointly and severally liable. The time trustees are required to spend will also play a role, and, to my mind, it should form the basis for setting the fee. Typically one pays a retainer fee and a sitting fee. In my experience, the retainer fee varies between N$ 5,000 and N$ 10,000 per month. The sitting fee is a function of the number of meetings, and the time a meeting would generally consume. One would double the time of the meeting to allow for preparation. Depending on the trustee’s expertise and experience, the hourly rate varies between N$ 700 and N$ 1,500 before the ‘big scramble.’ In addition, one would carry expenses such as subsistence and travelling. These rates are likely to increase a lot once funds must appoint professional trustees and principal officers. I would expect that a professional trustee will require an annual fee income of between N$ 1.5 and N$ 2.5 million before the ‘big scramble’ and will not serve more than two to four funds. It means that one can expect to pay between N$ 400k and N$ 1.2 million for a professional trustee or principal officer in the future, depending on the above factors.
Funds will have to get used to significantly increased fund management cost levels. Unfortunately, it means that members must expect lower returns in the future.
FIMA bits and bites – compulsory preservation has arrived
Trade unions successfully fought all government's previous attempts at compulsory preservation in Namibia and South Africa. While SA is only talking about it, FIMA has compulsory preservation. The FIMA obliges retirement fund members to reinvest at least 75% of their retirement capital when they resign. Two immediate questions members may ask are:
- Will the compulsory preservation apply to the retirement capital I accumulated up to the implementation of FIMA on 1 October 2022?
- Is the basis for calculating 75% of my gross benefit before or after deducting tax and my housing loan balance?As to question 1, we have it on good authority that the member must preserve 75% of his retirement capital independent of when it accumulated.
As to question 2, we saw arguments for both interpretations. We do not know who is right and who is wrong, and a court must first hand down its interpretation. This calculation basis, of course, is only one ambiguous provision in FIMA. There are many, and our courts must resolve all over time. Guess who will carry the costs of all these verdicts? The fund? Yes, in the first instance, but the poor member in the final instance!.
Our outlook for investment markets for 2022
The year 2021 produced exceptional returns for pension funds, primarily derived from equities in which funds typically invest between 60% and 65% of their total assets. Graph 6.1 depicts the returns on the various asset classes in which funds invest. The average fund produced a return of around 18%, representing a real return of about 13.5% for 2021. My expectation for 2021 was that the average fund would generate a real return of 5%, or a nominal return of 9.5%, with an inflation rate of 4.5%. My call on equities was wrong. I also cautioned that local bonds yielding between 5% (GC 21) and 13% (GC 50) at the time will only do this if you hold them to maturity. Looking at graph 6.1, the return a fund earned on bonds for 2021 would have only been 8.4%, and this is SA bonds. Namibian bonds only yielded 4.4% (IJG ALBI) in nominal terms, which equals zero % in real terms.
Graph 6.1
The fact that the average prudential balanced portfolio, over most periods, from 1 year to 20 years to 31 December 2021, produced returns of very close to or above the implicit long-term returns of 5.5%, before fees, should comfort pension fund members. Exceptions are the four years (4.9%), six-year period (3.7% p.a.), seven-years (4.3% p.a.), eight-years period (4.6% p.a.), and 15 years period (4.7%). The average prudential balanced portfolio achieved 8.6% p.a. over the two years, 5.5% over the five years, 5.9% p.a. over the nine years, 6.5% p.a. over the ten years, and 7% over the 20 years. Just one good year makes a big difference to the long-term returns!
At the beginning of last year, well-known US analyst, John Mauldin, provided well-substantiated arguments that the US equity market was at “nosebleed levels”. At the time, equities reached these levels mainly due to the so-called FAAAM shares (Facebook, Alphabet, Amazon, Apple, Microsoft). For 2020, the US S&P 500 was up 18%, while the FAAAM shares plus Netflix were up 55%, contributing 14.4% of the S&P 500’s growth of 18%. John Mauldin conceded that the market still offers pockets of value and suggested that 2021 is about rifle shots rather than a shotgun approach. In other words, he thought that good stock picking, rather than index investment, should still produce good returns.
In 2021 the S&P 500 produced a total return of 28.7%, far outperforming 2020’s 18%. Once again, tech giants Apple, Microsoft, Nvidia, Tesla, and Google produced 33% of the total return.
Although there is consensus amongst commentators that an increase in inflation would lead to a reduction in central bank bond-buying and an increase in interest rates, which would negatively impact equity returns, very few expected a rise in inflation at the beginning of last. My view was that inflation would increase, leading to the consequences to which I referred. One’s expectations in this regard would impact one’s investment strategy. My expectation would have dictated a cautious approach meaning a reduced equity exposure and value- in preference to growth stocks.
Well, 2021 proved me wrong as far as a cautious approach is concerned, and the careful investor would have lost out compared to the aggressive investor. However, my expectation of rising inflation was correct. Inflation rates globally are on the increase, particularly in the US, and, as we know, what happens in the US will have a significant impact on developments in the rest of the world. The Federal Reserve, and the ECB, for that matter, commenced reducing their bond purchases, and this process will accelerate. The Federal Reserve is now talking of running down its balance sheet and lifting interest rates in 2022. Equity markets are volatile, as bulls and bears weigh up more equally.
I accept that my expectations for last year were premature but believe they will be proven right in 2022, in the light of the prevailing conditions.
As a Benchmark member, I expect the Default portfolio to underperform the average portfolio when it invests more conservatively than the average, outperform the average slightly when it invests as aggressively, and outperform a lot when it invests more aggressively. Currently, the Default portfolio invests more conservatively, and I would be comfortable if it underperforms the average. I am also satisfied that it invests more conservatively in the light of the above exposition. However, as graph 6.2 shows, the more conservative Default portfolio still outperforms the average prudential balanced portfolio since January 2010, if only marginally by 1.9%.
Graph 6.2
Conclusion
The state of the global economy and financial markets makes it difficult to achieve the investment returns implicit in typical pension fund structures, of around 5.5%, before fees, in real terms, while we move into a phase of readjustment. This is the result of the disruption of financial markets by the intervention of reserve banks after the global financial crisis and now again in response to the COVID crisis. However, there is an end to what reserve banks can do, and they are at this stage left with very little ‘fire power’ to stimulate the economy. Since inflation has now set in and cheap money gradually disappears, interest rates will start increasing, and equities as an asset class will start declining. Hiding your money under your mattress bears its own risks, as does speculation with investments in less common assets where it is difficult to determine a price because of the absence of an active market.
The good old-fashioned investment principle still applies. Do not put all your eggs in one basket but diversify your risk by spreading it across assets and asset classes as widely as possible. Equities mirror the real economy and remain the asset class that should generate superior returns in the long run. Economic fundamentals should improve as the COVID-19 hysteria fades going forward. However, the time we find ourselves in requires a rifle shot approach of stock picking skills rather than the shotgun approach of index management. The focus should be on good quality, fairly valued, or cheap companies with high dividend yields. The investor should thus be able to expect at least a real dividend yield above 3% if equities manage to maintain their value. The general expectation is that the global economy will grow by around 3% p.a. for the next few years, which means that dividends should grow at the same rate and that shares should also appreciate over the next few years. This return may be low relative to what we have seen in years gone by, but it is still a respectable return on any equity investment. An investment in a typical balanced portfolio should generate a real return of around 5%, or about 10%, in the prevailing inflationary environment. Offshore diversification is essential, and the Rand's strengthening once again creates the opportunity for doing so. One needs to focus on this principle more than the timing, though, as the Rand tends to rise when offshore markets also increase, and vice-versa, often negating the effect of its strengthening or weakening. The Monthly Review of Portfolio Performance to 31 January 2022 provides a full review of portfolio performances and other insightful analyses. Download it here...
Tilman Friedrich is a chartered accountant and a Namibian Certified Financial Planner® practitioner, specialising in the pensions field. He is co-founder, shareholder, and Chairman of the RFS Board and retired chairperson, and now a trustee of the Benchmark Retirement Fund.
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Compliment
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From the daughter of a pensioner
Dated 24 January 2022
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“good morning miss S
compliments for the new year. i know i do this on a yearly basis and am really sorry for that. I am still working on my postal address..
kindly sent me my moms certificate of existence form on this email please.
i hope you are doing well.i do not even know if you are still with retirement fund but i am hoping you are.you have been an incredible assistance to us for the past years” |
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Read more comments from our clients here...
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Benchmark
A note from Günter Pfeifer
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Benchmark seeking to appoint an independent principal officer
Günter Pfeifer, director Benchmark, doubles up as the fund’s principal officer. However, FIMA prohibits RFS representation on the fund’s board of trustees, and we expect FIMA to become effective on 1 October 2022.
As a result, the fund’s board must now hire an independent principal officer who will soon replace Günter. Soon, the fund must also replace Marthinuz Fabianus and Tilman Friedrich; the remaining two RFS trustees FIMA prohibits serving on the board. All these changes will bring along higher costs that members must carry!
Important circulars issued by the Fund
The Benchmark Retirement Fund issued the following circular. Clients are welcome to contact us if they require a copy of any circular.
- 202201 – Section 37D claims
Günter Pfeifer is Principal Officer and was formerly 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.
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News from RFS
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Long service awards complement our business philosophy
RFS’ business is primarily about people and only secondarily about technology. Every time a fund changes its administrator, it loses substantial fund information and knowledge. Similarly, every time the administrator loses a staff member, our clients lose corporate memory. As a small Namibian organisation, we cannot compete with large multinationals technology-wise because of global IT systems' economies of scale and sophistication. We differentiate ourselves through excellent personal service and commitment to our clients. We are proud of our staff retention as we know that it is the key to our success!
The following staff members celebrated work anniversaries at RFS! We express our sincere gratitude for their loyalty and support over all these years and congratulate heartily: -
1. Victoria Nashongwa, 1 January for 20 years
2. Joan Böck, 18 February for 20 years
3. Sharika Skoppelitus, 1 March for 15 years
4. Anel Pieters, 5 March for 10 years
5. Glenrose Norich, 12 March for 10 years
6. Ashley Thlabanello, 15 March for 5 years
We look forward to their indispensable loyalty and dedication to the company in the years to come!
Staff improving their competencies
Learning should never stop, and “education is the greatest equaliser” – Nelson Mandela.
RFS actively encourages and supports staff wishing to advance their qualifications in various ways, and we are very proud of everyone successfully walking this arduous road!
We congratulate
on her having obtained a Certificate in Business Administration! Let this milestone be the beginning of the road to greater heights!
Member engagement platform takes some sting out of FIMA
RFS now offers The Benefit Counsellor, a unique member engagement platform, to its retirement fund clients. FIMA burdens retirement funds with extensive member communication requirements. The Benefit Counsellor will make it easy to meet most, if not all, requirements cost-effectively and efficiently.
For retirement funds, it offers the following features:
- Branded, customizable online portal.
- Facial recognition technology for members to register and log in.
- Effective communication with members.
- Reduced need for physical communication.
- Improved member education, financial decisions, and financial wellness.
Members may access the following services:
- Retirement counselling.
- Chatbot and online live chat.
- Member savings balance, contribution history, projected future benefit, benefit options, tax implications, and fund announcements.
- Member access via WhatsApp, SMS, and email.
Important circulars issued by RFS
RFS issued the following circulars. Clients are welcome to contact us if they require a copy of any circular.
- RFS 2022.01-01: Road to FIMA implementation #1
- RFS 2022.01-02: Road to FIMA implementation #2 – Contribution Schedules
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News from NAMFISA
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First consultation session on standards scheduled
NAMFISA gave public notice of formal consultations on FIMA subordinate legislation to take place on 16 February. I has not provided a venue and time in the notice.
NAMFISA will “…address the volumes of comments/queries from the regulated entities… in a structured manner within the process of formal consultations.”
NAMFISA issues PF/DIR/01/2022
Relying on the following provisions in the Pension Funds Act,
- the definition of ‘pension fund organisation’ that describes the purpose of a pension fund organisation;
- paragraph (c) of the definition of ‘rules,’ containing the provisions that relate to the benefits a fund may grant and the contributions which are payable to the fund;
- section 10 that prohibits a fund from doing any business other than pension fund business;
- section 11(c) that sets out the conditions of fund membership and circumstances for its termination;
- section 11(d) requiring the rules to set out the conditions, nature, and extent of any benefits becoming payable to any beneficiary; and
- section 13, which states that the rules of a fund bind the fund, members, shareholders, and officers of the fund and any beneficiary claiming under the rules;
Namfisa directs that -
- Funds whose approved rules are inconsistent with the Act, including sections 10 and 11, are invalid to the extent of the inconsistency and cannot be applied and or enforced by the Funds.
- The fund is solely responsible for preparing its rules. Funds must take due care and diligence in the preparation of fund rules. Funds must ensure that they prepare their rules per the requirements of the Act and such other matters as the Registrar may have approved.
- NAMFISA directs funds, whose approved rules are inconsistent with the Act, including sections 10 and 11 of the Act, to bring such rules in line with the provisions of the Act.
So, the directive states the obvious in mirroring what the Pension Funds Act states. The snag of the directive is how NAMFISA interprets and applies the law whenever a fund submits rules or rule amendments for approval. In short, NAMFISA decided at the beginning of last year that industry practice of the past 30 plus years, and condoned by NAMFISA all along, is inconsistent with the Pension Funds Act. Since last year, NAMFISA stopped the approval of rules and rule amendments, thereby throwing the industry into disarray.
NAMFISA explains PF/DIR/01/2022
NAMFISA explains PF/DIR/01/2022
NAMFISA called a meeting on 3 February to discuss its pension funds directive 1 of 2022, which it circulated to the industry earlier that morning. We attended the meeting and compiled the following notes:
Mrs. Indongo-Namandje (LI) chaired the meeting. She extended apologies for the absence of the Registrar and the Deputy Registrar.
She introduced the meeting, referring to previous discussions that recently surfaced around s10 and s11 of the Pension Funds Act, specifically around the inclusion of the terms and conditions for underwritten risk benefits in fund rules.
LI then referred to a directive circulated to industry reading out paragraph 5 of the circular.
She then opened the floor for questions.
Some of the questions raised and how we understood NAMFISA’s responses were the following:
- Q: What is the timeframe of implementing the directive?
A: Since LI is not the Registrar but merely the operations manager, she cannot give a conclusive answer. She referred to a debacle where the Registrar gave medical aids some time to implement a directive, and promptly this ended up before the Appeal Board. Our interpretation is that NAMFISA will not grant any time to implement this – it is effective on the date of the directive.
- Q: Will NAMFISA be able to deal with a high volume inflow of rule amendments by all affected funds and employers by 30 September 2022, when FIMA will come into effect?
A: No, NAMFISA will not have the capacity to deal with all rule amendments.
- Q: Are members still covered for risk benefits from the date of the directive until a rule amendment has been done and approved?
LI provided no concrete answer other than stating that the rules are ‘null and void’.
- Q: Can NAMFISA not consider amending the Pension Funds Act to accommodate what the industry has been doing in practice for many years?
A: This will take too long, and FIMA will be effective already by that time.
- Q: Is NAMFISA looking to assist the industry in coming up with a solution to this problem?
A: NAMFISA can only approve and decline rules in terms of the Act. It is not within NAMFISA’s mandate to come up with a solution (i.e., provide input how to word rules to get them approved).
Industry noted that the dilemma the industry is currently faced with is that even if the rules contain reassurance terms and conditions, as NAMFISA interprets the Act, NAMFISA would still not approve such rules as they believe the fund would then venture into insurance business.
Industry pointed out that members will lose a significant benefit and the socio-economic impact thereof. Many funds will also consider closing down if they cannot reinsure benefits fully, as the risk is too high. To have group schemes outside a fund would be an administrative burden and costly. The response by NAMFISA was that there may be new business opportunities opening in this regard.
- Q: What is the ‘evil’ in the way the Act has been applied for many years, which NAMFISA wants to root out?
No conclusive answer was provided other than that pension funds should only be providing retirement benefits. The trend globally is that individual industries are demarcated, and it also sounded as if this is the policy that the Namibian government is following and how FIMA has been drafted.
- Q: The sections that NAMFISA refers to which are problematic can be interpreted differently by different persons.
A: No, the Act is clear and leaves no room for interpretation.
Observation: The predecessors of LI and the Registrar never had an issue with the current practice inherited from South Africa and based on the South African Pension Funds Act also inherited from South Africa.
Editor’s note: If any of the NAMFISA responses are important to your planning or decisions, please confirm our understanding with NAMFISA before drawing any conclusions or taking any action.
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Legal snippets
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Complainant failed to prove financial dependency
A complaint by a deceased’s wife that she and her daughter were excluded from death benefits was dismissed by the Pension Funds Adjudicator, Muvhango Lukhaimane, as the complainant failed to provide proof of financial dependency.
Following the deceased's death, a death benefit in the amount of R899,743.85 became available for distribution to his beneficiaries. The board of the first respondent resolved to allocate the death benefit as follows: life partner’s two children with the deceased 26.84% (R241 510.35) and 33.16% (R298 336.10); the life partner 35% (R314 910.35); and the deceased’s mother 5% (R44,987.20).
The decision by the first respondent not to allocate a portion of the death benefit to the complainant and her daughter was the subject matter of the complaint.
The complainant confirmed that she was the surviving spouse of the deceased and they had been married in community of property since 23 January 2002. She said she had a minor child with the deceased. The complainant indicated that she had been living separately from the deceased for two years and during this period the deceased was financially supporting her and their daughter.
The complainant stated that she received a letter from the first respondent informing her that she was not entitled to any portion of the death benefit as she was not residing with the deceased at the time of his death. The daughter was also excluded from the allocation of the death benefit.
The second respondent confirmed that the first respondent received death benefit application forms on 16 August 2018 from the deceased’s mother, a pensioner who the deceased assisted with groceries and medical expenses.
The first respondent also received a death application document on 21 August 2018 from the deceased’s life partner on her behalf and her two minor children. She stated that she shared the same household with the deceased and they lived together from 2007 until his death. This relationship was confirmed by the deceased’s family.
The second respondent stated that the complainant also filed a death application form which was received on 21 August 2018. She confirmed on her claim form that she did not reside with the deceased and that she did not know about his funeral. She also stated in an affidavit dated 10 September 2018 that the deceased did not support her financially. The second respondent submitted that a paternity test report dated 18 March 2016 excluded the deceased as the biological father of the complainant’s daughter.
Upon receipt of the DNA results, the deceased requested that the maintenance garnishee order issued in respect of the complainant’s daughter be cancelled. The first respondent also received a letter from the maintenance court stating that the deceased was discharged from his maintenance obligations towards the child as at 29 June 2016.
The second respondent indicated that the complainant failed to provide any proof of financial dependency.
In her determination, Ms Lukhaimane said the respondents provided documentary evidence which showed that the deceased was discharged from his maintenance obligation in respect of the complainant’s daughter.
On the basis of the DNA test results, the deceased was not the father of the complainant’s daughter. By cancelling the garnishee order, the court would have satisfied itself that the DNA test results were not questionable and that a proper process was followed in obtaining blood samples.
“In light of the submissions, the exclusion of the complainant and her daughter from the allocation of the death benefit is justifiable and equitable. In result, the complaint cannot be upheld and is dismissed,” said Ms Lukhaimane.”
Source: The 2019-20 annual report of the Office of the Pension Fund Adjudicator.
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Snippets for the pension fund industry
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Mercer CFA Institute Global Pension Index 2021 - recommendations for pension systems
Mercer CFA Institute Global Pension Index 2021 -recommendations for pension systems
In chapter 5, this report makes several suggestions to improve each retirement income system. Although each design reflects a unique history, there are some common themes for improvement as many systems face similar problems in the decades ahead.
- increasing the coverage of employees and the self-employed in the private pension system, recognising that many individuals will not save for the future without an element of compulsion or automatic enrolment;
- increasing the state pension age and/or retirement age to reflect increasing life expectancy, both now and into the future, thereby reducing the costs of publicly financed pension benefits;
- promoting higher labour force participation at older ages, which will increase the savings available for retirement and limit the continuing increase in the length of retirement encouraging higher levels of private saving, both within and beyond the pension system, to reduce the future dependence on the public pension while also adjusting the expectations of many workers;
- introducing measures to reduce the gender pension gap and those that exist for minority groups in many retirement income systems;
- reducing the leakage from the retirement savings system prior to retirement thereby ensuring that the funds saved, often with associated taxation support, are used for the provision of retirement income;
- reviewing the indexation of public pensions as the method and frequency of increases are critical to ensure that the real value of the pension is maintained, balanced by its long-term sustainability;
- improving the governance of private pension plans and introducing greater transparency to improve the confidence of plan members.
You can download the report here…
Diversification, offshore investing and asset allocation
“A common misconception about diversification is that simply spreading risk across multiple asset classes is enough.
One of the most important goals for any investor is to avoid losing money, which can be achieved easily enough if you lower your risk. However, investing only in low-risk assets will deliver below-par performance and possibly lead you to miss your investment goals.
This is why you will hear advisors repeating the same thing over and over, diversify!
What this does is spread risk across different asset classes so that, if done properly, one asset class will outperform when others underperform.
Take this example of the difference in how two different funds have performed between February 2014 to end of January 2022.
The grey line represents the returns of a fund that has 50% exposure to international equities, whereas the red line is that of a fund with 50%-60% exposure to SA Equities…” Read the article Gustav Reinach in Moneyweb of 2 February 2021 here…
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Snippets of general interest
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Buying low and selling high? Maybe you’re doing it wrong
For decades there has been a prevailing belief to “buy low and sell high” in order to be profitable when investing. It’s time to retire that expression.
Legendary investor, Howard Marks, has publicly stated his opinion that selling an asset (even when you have made a profit) may be foolish.
His justification for this statement is that, although taking profits never made anyone broke, selling an investment interrupts compound interest and can cause you to lose out on excess returns.
Let’s explore why this sentiment holds true and how it can benefit you in the long term...
Marks says there are two situations where you should sell: either there is a better investment opportunity or when the reason you invested in something is no longer true.”.
Read the article by Partner in Businesstech of 8 February 2022, here...
20 of the most in-demand skills that will help you get a job in the next five years
“Online course provider Coursera has published its industry skills report for 2022, detailing the most in-demand skills across the world right now.
The list of skills has been created using data drawn from Coursera’s 92 million learners, 2,000 business customers, 3,000 higher education institutions, and 230 government entities.
Specific focus has been given to 10 ‘digital skills’ which are likely to become more prominent as technology in the workforce evolves.
| Rank |
Skill |
| 1 |
Product Design |
| 2 |
Plotting Data |
| 3 |
User Experience Design |
| 4 |
Statistical Visualisation |
| 5 |
Security Strategy |
| 6 |
Cloud Infrastructure |
| 7 |
Supply Chain Systems |
| 8 |
Social Media |
| 9 |
Operations Management |
| 10 |
Business Process Management |
Read the article by Staffwriter in Businesstech of 8 February 2022, here...
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And finally...
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Great quotes have an incredible ability
to put things in perspective.
"Wisdom is not a product of schooling but of the lifelong attempt to acquire it.”
~ Albert Einstein
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Disclaimer
Whilst we have taken all reasonable measures to ensure that the results reflected herein are correct, Benchmark Retirement Fund and RFS Namibia (Pty) Ltd do not accept any liability for the accuracy of the information and no decision should be taken on the basis of the information contained herein before confirming the detail with the relevant portfolio manager.
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