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Benchtest Newsletter
Issued July 2023
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In this newsletter
Benchtest 06.2023 – direct vs indirect loans, the Consumer Credit Bill and loans, and more...
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Jump to...
Important notes & reminders
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NAMFISA levies
- Funds with July 2023 year-ends must submit their 2nd levy returns and payments by 25 August 2023;
- Funds with January 2024 year-ends must submit their 1st levy returns and payments by 25 August 2023;
- and funds with August 2022 year-ends must submit their final levy returns and payments by 31 August 2023. .
Repo rate increases once again
- error correction
In last month’s newsletter, we advised that the repo rate increased from 7% to 7.5%. This information was incorrect. It increased from 7.25% to 7.75%. The interest rate on funds’ direct loans will, therefore, increase to 11.75% effective 1 July 2023.
Registered service providers
Certain pension fund service providers must register with NAMFISA and report to NAMFISA. Download a list of service providers registered as of June 2023, here... |
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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)
- Christina Linge (061-446 6075)
Toolbox for trustees
RFS provides comprehensive support for trustees. Find a list of download documents to assist with governance and management of private funds, registered as of June 2022, here...
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Newsletter
In this newsletter, we address the following topics:
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In 'A Note from the Managing Director' we present...
- Service to pension funds not like selling ‘kapana’!
In 'Tilman Friedrich's industry forum' we present...
- Monthly review of portfolio performance – 30 June 2023
- Tread carefully, but the point of inflection is nearing
- Direct vs indirect loans – which is better?
- The Consumer Credit Bill – does it apply to direct housing loans?
- Namibia should capitalise on the SA brain and capital drain
In Compliments, read...
- A compliment from a pensions administration officer
In ‘Benchmark: a note from Günter Pfeifer’, read about…
- Important circulars issued by the fund
In 'News from RFS', read about...
- RFS welcomes new staff members
- Long-service awards complement our business philosophy.
- RFS sponsors Namibia u-16 rugby team
- Important circulars issued by the fund
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In 'News from NAMFISA', read about...
- 27 June 2023 Industry Meeting notes
In 'Legal snippets'. read about...
- Benefits cannot be withheld based on a criminal complaint alone
- Interest on late payment of benefits
In 'Snippets for the pension funds industry,' read about...
- Do well-diversified portfolios translate to consistent returns
- The art of rebalancing your investment portfolio
In ‘Snippets of general interest', read about...
- Stress and the physical effects on your body
- Is a BRICS currency a viable reserve currency option
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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 Marthinuz Fabianus
A note from the Managing Director
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Service to pension funds not like selling ‘kapana’!
On Saturday and Sunday mornings, a visit to the Single Quarters in Katutura is a hive of activity, with lines and queues of cars parked and trying to secure parking, respectively, at the popular spot of international acclaim. This is where Namibians from all walks of life and international visitors frequent to experience and get a taste of the succulent flame grilled beef strips, commonly known as kapana. As you approach the different stands of kapana sellers, amidst the smoke, you are greeted by a frenzy of invitations by the sellers at each stand to taste their beef strips, initially free of any charge. Your taste experience informs which kapana stand you will support at the end.
My favourite service quote by an unknown author reads; “In today’s world meaningful differences between businesses are rarely rooted in price or product, but instead in customer experience!” How many of us really take the trouble to compare service providers and their products before transacting with them? Especially when it comes to financial services, what makes a person decides to bank with one or the other bank or to take out insurance with one and not the other insurer? To continue with the example of banks and insurance service providers, it is common knowledge that there are 4 commercial banks and similarly 4 well-known life insurance service providers in Namibia. So, what determines the size of market share or the overwhelming support of one bank or insurance service provider by individual customers? Knowing that the prices of bank and insurance products are not strictly regulated, the answer to this question will have to be left to each reader.
This brings me to pension funds in Namibia. As with the rest of the world, all Namibian pension funds make use of a long list of service providers. Amongst others, each pension fund makes use of the services of a pension fund administrator - to keep accurate records and pay benefits, an actuary - to determine financial soundness, an auditor - to test and report on financial records, investment managers - to grow assets of the fund, banks - for banking and save custody, etc. Pension funds, the new law that will, amongst others, regulate pension funds known as the Financial Institutions and Markets Act (FIMA) and along with these, some pension fund service providers have enjoyed social media coverage over the last 3 months or so. It is important to note here that pension funds are managed by a board of trustees. The board of an employer-sponsored pension fund is usually comprised of employer and employee representatives, whilst with a commercial umbrella pension fund, it is usually comprised of independent experts and some appointed by the founder of the umbrella fund. The underlying thread is that the pension fund board of trustees have fiduciary responsibilities to take care of the pension fund assets in a way that they would look after their own affairs.
The different service providers to a pension fund are appointed by the board of trustees for their professional know-how. Unlike the example of an individual choosing a kapana vendor, a bank or an insurance product provider, the process involved in contracting a pension fund service provider by the fund’s board is a lot more thorough and guided by governance codes. Whilst the reasons of a board to choose a preferred service provider may still come down to the same as used by an individual in choosing their service provider, it must be recognised that the pension fund service industry is one of the most complex and competitive sectors of our economy. Through prudent management, pension fund assets have grown exponentially to the point where it is now attracting a lot of attention. The growth of pension fund assets has no doubt been driven by the protectionist legislative framework.
I believe that the interest and focus on pension funds is a good thing, and it should help in creating overall awareness of the importance and benefits of pension fund savings. However, what has lagged substantially is the education of members of pension funds to go along with the growth and eventual right use of pension fund assets to eradicate poverty, especially in retirement.
Better informed members of pension funds and other users of financial products will not only help the choices but also improve the management, innovation and competitiveness of pension fund products and service providers.
Marthinuz Fabianus graduated from Namibian University of Science & Technology with a Diploma in Commerce and Bachelors in Business Management. He completed a senior management development programme at University of Stellenbosch and various short courses including a macro-economic policy course which he completed at the International Training Centre of the ILO in Turin, Italy. Marthinuz serves as trustee on the board of the Benchmark Retirement Fund and served two separate terms on the board of the Retirement Funds Institute of Namibia. Marthinuz also served as a Commissioner on the Social Security Commission from 2015-2017.
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 Tilman Friedrich's industry forum
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Monthly Review of Portfolio Performance
to 30 June 2023
In June 2023, the average prudential balanced portfolio returned 2.4% (May 2023: 0.7%). The top performer is Hangala Absolute Capital Balanced Fund with 3.8%, while Investment Solutions Balanced Growth Fund with 1.3% takes the bottom spot. For the three months, NAM Coronation Balanced Plus Fund takes the top spot, outperforming the 'average' by roughly 1.5%. NinetyOne Managed Fund underperformed the 'average' by 1.9% 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 30 June 2023 provides a full review of portfolio performances and other insightful analyses. Download it here...
Tread carefully, but the point of inflection is nearing!
It is improbable that the man on the street who dares to choose between the three main asset classes would have been as successful as the prudential balanced portfolio manager. However, prudential portfolio managers invest for the long term. Their decisions are based on experience heavily weighted by market behaviour over the past 70 years and assuming that markets will revert to normal following any prospective catastrophe. They might tweak their portfolios but will not make radical changes as it might become a self-fulfilling prophecy.
An individual investor should consider two factors that are not important to the prudential balanced portfolio manager. Firstly, what is long-term for a portfolio manager may not be long-term for an individual investor. The investment horizon of many investors can be substantially shorter, and they should consider any prospective catastrophe. Secondly, the individual investor must consider substantial irregular cash flows, where timing is crucial. Not investing when the market peaks or withdrawing investments when it troughs is common sense. But how does one know when it peaked or bottomed? Going by history provides pointers but no certainty on whereto the market will move. Spreading large cash flows over a period (Nam Dollar-cost averaging) will reduce the risk of getting the timing wrong.
The Ukraine conflict constitutes a prospective catastrophe for the world and investors… The Monthly Review of Portfolio Performance to 30 June 2023 also reflects the editor’s views on current developments and their impact on investment markets. Download it here...
Direct vs. indirect housing loans – which is better?
Direct housing loans
These are loans provided by the retirement fund, using its capital to fund the loans. As it is a fund investment, the trustees must apply due care and skill when considering a loan application and must take steps to recover a loan should the member default on his repayment commitment. The trustees must arrange for the valuation of the property and must ensure that the loan does not exceed the maximum under section 19(5) of the Pension Funds Act. They must ensure that the loan is only used for the purposes and complies with the requirements set out in this section 19(5). Unless the fund registers a mortgage over the member’s property, the fund must ascertain that it becomes aware immediately upon the member selling the property and recover any outstanding balance. The interest rate is prescribed by regulation to be the Bank of Namibia repo rate plus 4% (11.75% as of July 2023), and the loan must be repaid as required by the PFA.
Where the fund has outsourced its administration to an administrator, it must agree with the administrator and the employer to administer housing loans, and the agreement must set out who will be responsible for checking for compliance with the PFA, the fund rules and by-laws, checking affordability, and compliance of salary deductions with the Labour Act and approving the application, carrying out valuations, monitoring of construction work, verification of loan advances, making payment for loans and loan advances, recovering outstanding loan balances and tax thereon, and taking legal action in case of a member defaulting on his obligations.
As there is usually no mortgage over the property, it can be sold without the fund’s and the employer’s consent. Usually, the employer would become aware of the sale when the employee requests that the monthly salary deduction be terminated. The party responsible for ensuring that the member does not sell the property must contemplate how it will achieve this objective.
Such loans can take two forms.
- A loan is granted to the member by the fund. The fund records the loan as a long-term investment in its records, earns the interest which is charged to the loan, and records the repayment instalments as a reduction of the investment value. The borrower would often be required to pledge his fund credit to the fund (a simple one-pager acknowledgement), or the fund could register a mortgage bond over the member’s property or both.
- The member ‘borrows’ against his investment in the fund. His investment is reduced by the amount he borrowed. His repayment is calculated to repay the loan over the period required by the PFA and at the prescribed interest rate. His repayments are added back to his investment in the fund. As a result, the member pays himself the interest at the prescribed rate (repo plus 4%).
Indirect housing loans
These are loans provided by a commercial bank or other lender. The lender would enter into an agreement with the fund. This agreement would describe the duties and responsibilities of the fund and the bank and the procedures for applying and for repaying the loan regularly or recovering the loan should the member default on his payment commitments. Usually, the employer would also be a party to the loan agreements as its cooperation is essential in the processing of applications, the deduction of monthly repayments from the member’s salary, and the recovery of the outstanding balances when the member leaves his employment or defaults on his commitments. The bank would arrange for the valuation of the property.
The agreement between the parties would state which of the parties must ensure that the loan does not exceed the maximum under section 19(5) of the Pension Funds Act. The agreement would also state which of the parties must ensure that the loan is only used for the purposes and complies with the requirements set out in this section 19(5). The bank would normally not register a mortgage over the member’s property but require a guarantee from the fund. The fund would require the member to pledge his investment to it. As there is usually no mortgage over the property, it can be sold without the bank’s, the fund’s, and the employer’s consent. The party responsible for ensuring that the member does not sell the property must contemplate how it will achieve this objective.
When a member terminates his employment with the employer or fails to meet his repayment commitments, the bank would call up the fund’s guarantee, and the fund would use the member’s pledge of his investment in the fund to recover the guaranteed amount paid to the bank.
The interest rate is not prescribed but is agreed upon between the bank and the fund.
The differences between direct and indirect loans
The member’s perspective:
Historically, the repo rate is 1.4% higher than the inflation rate, and the bank mortgage rate is 5.6% higher than the repo rate and 7% above inflation. Banks usually charge 0.5% less on indirect pension fund-guaranteed loans than on their bank mortgages, i.e., 5.1% more than the repo rate. A member would thus pay the bank 6.5% above the inflation rate on his indirect loan.
On a direct loan, the interest the member pays himself (repo plus 4%) will thus usually be 1% lower than banks would charge for indirect fund-guaranteed loans and 6% above inflation. However, the member would have used his money in the fund and is sacrificing the investment returns he could have earned had he not used it for a loan. Pension fund investment returns are expected to be inflation plus 5% (after fees). Generally, the investment return a member pays himself is then 1% higher than the investment return he sacrifices for using some of his fund investment for a loan but 0.5% lower than what he would pay for a pension fund-guaranteed home loan. His loan repayment is effectively like taking it from the left pocket and putting it in the right pocket. A member can also leverage his total net investment returns. For example, if he used the direct loan from his fund (at repo plus 4%) to repay a loan to someone else at, say, repo plus 7%, he will in total, be better off by borrowing from the fund and repaying the other loan attracting a higher interest rate. If the opposite were true, the member could improve his total return by using the other loan at the lower interest rate to repay his direct loan and increase his fund investment, earning a higher investment return.
One has to bear in mind that investment returns are more volatile than inflation and interest rates. There will be times when the return on fund investments is much higher than interest rates and vice-versa. Taking up a housing loan may offer a short-term leveraging opportunity for someone brave who can call the relative differential between interest rates and investment returns, as explained.
In administering direct fund loans, fund administrators usually charge the fund a fee for processing a housing loan application, making loan payments, and processing loan repayments. Funds usually recover these fees from the member. In addition, the fund would incur property valuation costs it normally recovers from the member. When the bank grants a pension fund-guaranteed home loan, the member would be charged a loan processing fee and a valuation fee, an amount similar to what would apply to a direct fund home loan. The bank would not charge an administration fee for administering the loan, but the member pays a 0.5% higher interest rate
The fund’s perspective:
Where a fund grants direct loans, the trustees are responsible for governance and compliance of the loan facility. They have to decide on all loan parameters, provided it is within what section 19(5) of the PFA requires. They may delegate some of their obligations to another party but will still be held responsible. Consequently, the trustees must ensure that the delegated responsibilities are complied with by the delegated party. When the member’s fund membership ends, the fund can offset the outstanding amount against the member’s investment. It must determine and deduct the tax due on the outstanding loan amount and the benefit before deducting the outstanding loan. Any arrears tax, interest, and penalties can only be as much as the amount due to the member after deducting the outstanding loan balance. Should the member fail to make his repayments, the fund must take civil action in court to recover the outstanding loan.
Where a fund entered into an indirect pension fund-guaranteed home loan, it must only ensure that the bank will ensure that it complies with the PFA, section 19(5). The bank will process all payments to service providers and loan repayments received from the employer. When the member’s service with the employer ends or when the member fails to make repayments, the bank will initiate action to recover the outstanding amount. It will inform the fund, and the fund must pay the bank the outstanding loan amount. Only once the member’s fund membership ends can the fund recover the amount paid to the bank from the member. Until then, the fund must carry the amount it paid to the bank as the member’s debt. It can only deduct this debt once the member’s fund membership ends. Should the member’s tax at that time be higher than the member’s remaining investment, after deducting the outstanding loan balance (mostly because of arrears tax, interest, and penalties), the fund would have to institute a civil action against the member in court.
The employer’s perspective:
For direct fund home loans and indirect fund-guaranteed bank loans, the employer’s responsibility will depend on the agreement between the fund or the fund, the bank, and the employer. Usually, it covers the employer assisting the member in completing an application form, assessing the employee’s affordability, deducting the repayments from the member’s salary, and paying them to the fund. If the employment contract makes the misuse of the fund’s housing loan scheme a code of conduct breach, it should take disciplinary action in the case of misuse.
The Consumer Credit Bill (CCB) - does it apply to direct housing loans
Contributed by Carmen Diehl
Senior Manager: Fund Accounting and Compliance
RFS is experiencing that more and more retirement funds are introducing a direct housing loan facility to its members. Do the CCB’s onerous requirements apply to a fund granting direct housing loans (refer to the preceding article) and be in addition to the FIMA requirements?
Section 4 determines the scope of the Act (once enacted):
“(1) Subject to sections 5 and 6, this Act applies to every credit agreement between parties dealing at arm’s length and made, or having an effect, within Namibia, except—” (exceptions listed do not apply to housing loans provided by a retirement fund to a member).
“(2) For greater certainty in applying subsection (1)—
(a) in any of the following arrangements, the parties are not dealing at arm’s length:
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(v) any other arrangement—
(aa) in which each party is not independent of the other and consequently does not necessarily strive to obtain the utmost possible advantage out of the transaction;”
Sections 5 (Incidental credit agreements) and Section 6 (A ‘Consumer’ is a juristic person) do not apply.
In our view, housing loan agreements between the retirement fund and its members are not at arm’s length since the granting of housing loans is regulated by the Pension Funds Act. The Pension Funds Act places restrictions on the amount of credit that may be granted and prescribes the interest that may be charged as well as the repayment period. Further, the retirement fund and the member are not unrelated and not independent of each other.
Consequently, direct housing loans granted by a retirement fund to a member fall outside the scope of the CCB. The CCB, therefore, does not apply to these transactions.
Namibia should capitalise on the SA brain and capital drain
“Millionaires and their money kiss South Africa goodbye”, reads a headline in BusinessTech of 29 June 2023. And it is a prominent and regular feature in SA media.
Namibia needs skills and capital, while South Africa is losing skills and capital hand over fist. With a well-controlled and balanced political and social environment, Namibia offers something South Africans are dearly missing in their home country.
Namibia has recognised that it should become more innovative in promoting investment. As part of this innovation drive, it recently introduced the six-month Digital Nomad Visa that allows foreign travellers that “…are seeking priceless memories while also gaining international working experiences and establishing life-long contacts for only US$ 124…” (from the NIPBD website).
South Africans understand our conditions and do not have to try and adapt just to find that one couldn’t, as people from other continents would find in many instances. For South Africans, living in Namibia could also obviate the need to dispose of all their interests in SA and start a new life elsewhere. Should Namibia not go all out to capitalise on the opportunity?
Tilman Friedrich is a chartered accountant and a Namibian Certified Financial Planner® practitioner, specialising in pensions. He is a co-founder, shareholder, Chairman of the RFS Board, retired chairperson, and now a trustee of the Benchmark Retirement Fund.
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 Compliment
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Compliment from a pensions administration officer
Dated 5 June 2023
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“Dearest B
You have me in tears.
We have been struggling for more than 14 years now to close our VAT account, and every year has a new issue. This was the last one, and now I feel so blessed to be able to see this. I am now just praying that our bookkeeper is good with this.
Bless you dear B…” |
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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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Important circulars issued by the Fund
The Benchmark Retirement Fund issued the following circular in May and June:
- Circular 202305 – ‘Withdrawal benefits for members eligible for early retirement’.
- Circular 202306 – ‘Late payment interest and tax’.
Clients are welcome to contact us if they require a copy of any circular.
Günter Pfeifer was the Principal Officer and a trustee of the Benchmark Retirement Fund for many years. He holds a Bachelor of Commerce (Cum Laude). Günter completed his articles with Deloitte & Touche in Windhoek. 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 the Financial Manager of De Beers Marine.
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News from RFS
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RFS welcomes new staff members
We are delighted to announce that the following new staff members will be joining our permanent staff in August 2023:
- Wilbard Amunime – Internal Auditor
- Florencia Fleermuys – Client Manager, Benchmark
- Johannes Imene – Portfolio Manager, private funds
- Cherryl Katjimune -Fund Accountant, Benchmark
- Jasmin Mtembi – Fund Administration Trainee, private funds
- Hermine Podelwiltz – Portfolio Manager, Benchmark
- Rainha Theodore -Fund Administration Trainee, Benchmark
Wilbard joined us as Internal Auditor from the Environmental Investment Fund on 1 February 2023. He obtained a degree in Accounting and Finance from NUST. His other qualifications include a postgraduate certificate in Informatics (IT audit) and a certificate in compliance management from the University of Cape Town. He is currently busy studying through the Institute of Internal Auditors to qualify as a Chartered Internal Auditor. Wilbard is well experienced, having worked for the Anti-Corruption Commission, the Office of the Auditor General, PWC and NTA in the internal audit and finance fields.
Florencia joined us from Old Mutual, where she was employed in the short-term insurance department. She holds an Honours Accounting Degree from UNAM. She completed a Forensic and Investigative Auditing program through UNISA, and a New Managers Development Program through the University of Stellenbosch. She has extensive experience in the pension funds industry as an administrator and fund accountant.
Johannes joined us from Alexforbes as a Portfolio Manager. He holds a degree in Business Administration from NUST and worked in our industry since May 2016.
Cherryl joined the Benchmark accounting team as a Fund Accountant. She obtained a Bachelor of Accounting Degree from UNAM in 2018 and a Bachelor of Commerce Honours Degree from Northwest University in 2019.
Jasmin joined us from school with the benefit of having worked for RFS during the holidays. She is enrolled at NUST for a Bachelor of Computer Science degree. The Hage Geingob High School awarded her a Certificate of Merit for outstanding achievement in grade 11 history.
Hermine was appointed as a portfolio manager in the Benchmark division. She gained valuable experience in our industry during her 7 years of service with Alexforbes, where she started in January 2016 as a junior administrator and worked her way up to become an Administration Manager. She obtained a Bachelor of Business Administration degree from UNAM in 2016 and an Honours Degree in Strategic Human Resources Management from UNAM in 2017.
Rainha joined us from school with the benefit of having worked for RFS during the holidays. She is enrolled for a Bachelor of Political Science at UNAM.
We warmly welcome all new staff members to the team and look forward to their contribution to running smooth, effective, and efficient operations. We are confident that their dedication and commitment will be a valuable contribution to our team, and we wish everyone all the best in their new roles and success in their studies.
Long service awards complement our business philosophy
RFS’ business is primarily about people. Whenever a fund changes its administrator, it loses 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 the economies of scale, and sophistication global IT systems offer. We differentiate ourselves through excellent personal service and commitment to our clients, and IT systems that are more flexible, versatile and adaptable, and more appropriate for the Namibian environment. We are proud of our staff retention as we know that it is the key to our success!
The following staff member celebrated a work anniversary at RFS! 5 year anniversary
- Timothy Wallenstein (1 August)
We look forward to his continued dedication and commitment to the company, our clients, and our colleagues!
RFS sponsors the Namibia U16 rugby team
A Namibian under-16 boys rugby team, co-sponsored by RFS, departed for the Cape on 23 June to participate in the Grant Khomo Week hosted at Hoër Landbouskool Boland in the Western Cape. All South African provinces, Namibia and Zimbabwe participated in this tournament.
Namibia got off to a winning start against Zimbabwe (12-10) on day one, and the team also performed well on matchday two with a win against Border Country Districts (45-19).
The team suffered a 25-0 defeat against Griquas when they failed to adapt to the slippery, muddy surface of the deteriorating pitch following heavy overnight rains before matchday three.
Coach Jan Dames thanked RFS for being the first sponsor that came on board to make the dreams of these young boys come true. According to him, uncompromising lessons were learned by both the coaching team and the players and this experience serves to provide exposure to upcoming schoolboy talent on their path to eventual Under-18 Craven Week and U18 Academy Week contention.
We congratulate the team on these proud achievements.
Louis Theron (middle row on the left), RFS company secretary, presented the RFS sponsorship.
Important circulars issued by RFS
RFS issued the following circulars in July:
- Circular 2023.07-04 – ‘Late payment interest and tax’
- Circular 2023.07-05 – ‘Cash management arrangement’
Clients are welcome to contact us if they require a copy of any circular.
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 News from NAMFISA
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27 June 2023 Industry Meeting notes
Compiled by S Frank-Schultz, C.A.(Nam), Client Manager
RFS attended the industry meeting held at NIPAM on 27 June 2023 and compiled the following notes:
- Licensing & Registration Function
- Used for change in key persons and section 14 transfers
- Pension funds register on the NAMFISA website has been updated. It was noted that some of the information might be outdated since not all pension funds update their details (such as POs and trustees) on ERS.
- It was reiterated that submissions should be done as follows:
- Via ERS
- Hardcopy (accompanied by cover letter) / e-mail
- RFIN update
- Blocks for rule amendments
- It was noted that NAMFISA is willing to extend the blocks to accommodate the concerns of the industry. No submissions will be dealt with in April & May (except for rule amendments which are classified as urgent or which impact member benefits)
- Penalties in terms of FIMA
- Ms Indongo-Namandje explained that the administrative penalties (max amount = N$ 1 million) will be criminal fines issued by a judge in court, i.e. not by NAMFISA, and only if it has been established beyond a reasonable doubt that the accused is guilty of the offense.
- 7-day letter
- Mr Scholtz mentioned that 7 days are often not sufficient to work on a response and get all required signatures in order to re-submit a rule amendment. Ms Indongo-Namandje replied that NAMFISA is still waiting for a proposal from stakeholders on how to make this process more efficient. She also said that if reasons are provided, and a reasonable timeline is proposed, NAMFISA may accept a new proposed timeline.
- Furthermore, NAMFISA is currently compiling a checklist that should in the future be completed for each rule amendment which will hopefully reduce the number of 7-day letters having to be issued.
- Inspection findings
- NAMFISA will share the industry benchmarks that it uses to assess things like the solvency of a fund
- Complaints
- 25 complaints regarding pension funds were lodged with NAMFISA for the quarter ended 31 March 2023. 19 of those could be resolved, and 13 of the 19 were resolved in favour of the complainant.
- The possible root cause for most of the complaints seems to be a lack of communication with members
- Regulatory framework
- 601 comments received from industry on 3 draft Standards issued in February 2023. Feedback from NAMFISA is expected in the last quarter of the year. Sydwill Scholtz asked if NAMFISA would agree to face-to-face meetings to discuss comments, as it seems some of the comments could be communicated and explained more effectively face-to-face.
- Ms Indongo-Namandje mentioned that no request was made to hold a face-to-face meeting to discuss the rejected comments as reported in December 2022. However, she is open to face-to-face meetings as long as clarity is given in advance on which specific points a discussion should be held.
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 Legal snippets
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Benefits cannot be withheld based on a criminal complaint alone
In several decisions by the Financial Services Tribunal (“FST”), it has consistently held that the withholding of a benefit in favour of an employer by reason of alleged theft, fraud, dishonesty or misconduct on the part of the member cannot be sustained on the basis of a criminal complaint alone. There must be imminent or pending civil proceedings that allow a fund the discretion to withhold.
In a recent decision, the FST went on to clarify this point further when it stated in Tape Aids For the Blind vs AA Palhad and 3 Others (PFA3/2022 – Financial Services Tribunal – 16 May 2022) as follows:
30. There is no basis on which the Fund or the PFA could have been satisfied that TAB has instituted or will institute civil legal proceedings against the complainant within a reasonable period.
31. Section 300 of the Criminal Procedure Act 1977 provides that where a person is convicted of an offence which has caused damage to or loss of property (including money) belonging to some other person, the court in question may, upon the application of the injured person or of the prosecutor acting on the instructions of the injured person, forthwith award the injured person compensation for such damage or loss. Such an award has the effect of a civil judgment.
32. It would follow that such an award by a criminal court may entitle the Fund to withhold payment of pension benefits, but we do not have such an award, and it is unlikely that there will be one before the claim becomes prescribed.
33. The next question is whether fraud, as alleged by TAB, is covered by Section 300. That is doubtful if regard is had to the judgment of Didcott J in S v Liberty Shipping and Forwarding (Pty) Ltd and Others [1982] 4 All SA 141 (D) 1982 (4) SA 281 (D).
34. Assuming that it is, the final issue is whether laying a criminal complaint amounts to the institution of legal proceedings (“instituted or will institute legal proceedings”). Criminal proceedings are instituted by the State through the prosecuting authorities. Laying a charge has no legal consequences. It does not begin legal proceedings. Legal proceedings may or may not follow depending on the decision of the prosecutor. See Kader v Minister of Police 1989 (4) SA 11 (C).” In a complaint lodged with the Adjudicator, the Massmart Provident Fund (“fund”) withheld a withdrawal benefit due the complainant based on fraud allegations leveled against the complainant by Makro (Pty) Ltd (“employer”).
The fund submitted that it had been informed by the employer that the complainant was placed on precautionary suspension whilst the employer conducted its own internal investigation. Whilst still on suspension, the complainant resigned on 14 September 2021. The fund submitted that on 3 November 2021, it received a request to withhold the complainant’s benefit pending the submission of a formal request to withhold the benefit. The fund was also informed by the employer on 6 May 2022 that it had laid a criminal complaint against the complainant during April 2022. Further, the fund informed the Adjudicator that it was processing the difference between the amount requested to be withheld and the complainant’s withdrawal benefit.
The Adjudicator found that the employer had not instituted a civil action to obtain a judgment in value against the complainant and that the fund was, therefore, not entitled to withhold the complainant’s benefit. The Adjudicator stated that it appeared that the fund had been lackadaisical in its approach. The fund’s decision to withhold was supported solely by criminal proceedings against the complainant, which was insufficient to afford the fund the discretion to withhold the complainant’s benefit. As a result, the Adjudicator found that there was no legal justification to withhold the complainant’s benefit and ordered that the complainant’s benefit be paid forthwith together with the fund return calculated from the date on which the complainant elected to withdraw.
From the South African Adjudicators 2022 Annual Report
Interest on late payment of benefits
Most retirement funds pay interest from the date a benefit became due until it is paid. Under the FIMA, all retirement funds are obliged to pay interest at repo plus 4% when transferring a benefit later than the FIMA prescribes. It is referred to as late payment interest (LPI). How LPI must be treated for tax purposes, specifically also in respect of a provident fund death benefit, are interesting questions on which RFS had recently obtained an opinion from a tax expert and it reads as follows:
Late payment interest on a benefit is interest and not a fund benefit as it does not accrue to the member of the fund at the time of exiting the fund. Rather LPI accrues to the fund member or his beneficiary (in the event of a death claim) to compensate for the time value of money following the date of the fund member’s exit until the time the fund benefit is paid to the member or his beneficiary. There is no difference whether the fund rules include compulsory LPI in the benefit build-up or it is paid at the trustees’ discretion. From this, it follows that LPI is separate and distinct from the fund credit paid to the fund member.
Any amount received by or accrued to or in favour of any person from a provident fund by reason of the death of a member of such a fund shall be deemed to have accrued to the estate of the deceased member.
The section refers specifically to “any amount received . . . by reason of the death of a member . . .”
The LPI is calculated from the date the member exits the fund to the date the fund benefit is paid. The amount is in the nature of compensation paid to the member for the time lapsed between the two aforementioned dates. I submit, that the LPI is not received by the beneficiary ‘by reason of the death of a member’ as is the requirement in s 12(7), for it to apply.
The term ‘interest’ is not defined in the Act, but in its ordinary connotation it is consideration for the use of money.
It is difficult to think of a scenario where interest which accrues to a person for the use of money would be income of a capital nature. Thus, if the source of the LPI is from within or deemed to be within Namibia, it constitutes gross income in the hands of the taxpayer who receives it or to whom it accrues.
Based on the above, any amount received by or accrued to or in favour of the beneficiary which is in the nature of interest is not taxable in the hands of the estate of the deceased [unlike a death benefit from a provident fund].
The LPI is taxable in the hands of the person who is compensated by the benefit fund for the use of the money, which in this case would be the beneficiary.
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Snippets for the pension fund industry
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Do well-diversified portfolios translate to consistent returns?
“Multi-asset funds that aim to provide capital growth over the long term with low short-term risk, are classified as multi-asset low equity funds. They can have a maximum equity exposure of 40%, maximum property exposure of 25%, and a maximum allocation of 45% to offshore assets, which increased to 30% in February 2022.
But does easy access to a well-diversified portfolio through a multi-asset low equity fund translate to consistent performance?
To answer this question, we looked at the dispersion of net of fee returns for all the funds in the (ASISA) multi-asset low equity category over the last 10 years. The results show that the dispersion of returns was wide for each calendar year and that it ranged between 9.5% in 2017 and 31.1% in 2021. For example, in 2020, the dispersion was 21%, with the best-performing fund returning 11.6% and the worst performing -9.6%.
Source: Morningstar
Focussing on 2021, which had the widest dispersion of returns, risky assets shot the lights out. Equities in general, both local and offshore, and small capitalisation JSE shares significantly outperformed the more defensive asset classes such as bonds and cash, both locally and offshore. Funds that tended to be defensively positioned from an asset allocation perspective lagged their peers…
In conclusion, simply having access to a well-diversified portfolio is not enough to guarantee consistent performance. A manager’s investment style will influence how they allocate to the different asset classes and the type of equities they invest in, stock selection. A more consistent performance could be achieved by selecting best-in-class fund managers within a particular style and blending fund managers with different styles.…”
Read the article by Laurette Ndzanga in Cover of 29 June 2023, here…
The art of rebalancing your investment portfolio
“…Given the potential complexities within portfolios where equities, bonds, cash, property, hedge funds, gearing, quants and heaven knows what can be used, the turmoil can be increased by incorrect rebalancing strategies. For explanatory purposes, I am going to keep it simple and adopt the US principle of a 60/40 portfolio that is commonly used for US retirement funds, meaning 60% exposure to equities and 40% exposure to bonds. I am going to ignore cash and property and taxes. All that I am interested in is establishing what the impact will be of rebalancing a 60/40 portfolio too often or not often enough.
Considering all the benefits of diversification, we must realise that diversification is only effective if there is a coherent asset allocation and a coherent rebalancing process in place.
The rebalancing can be done systematically or strategically, but it must be done with purpose to keep the allocated target weights in balance. The allocated target weights of the underlying asset classes will be determined by the risk parameters you set for your investment and will be guided by the amount of risk/volatility that you are prepared to accept within a particular portfolio.
The graph below shows the results of what Vanguard found when they did a deep dive on various rebalancing intervals that range from 1928 to 2022 last year using a global 60/40 portfolio. They found that rebalancing too frequently or too infrequently are suboptimal strategies.
The optimal interval from a risk control perspective was an annual rebalance.
Daily or too regular rebalancing generated the worst results….
If your strategy is to invest in passive funds and you keep it really simple by adopting the 60/40 principle then bringing the asset allocation back to 60/40 once per year will more than likely keep on providing satisfactory results.
If you intend to use multi-asset actively managed funds it will be a good idea to get to know the managers well that you intend to use. Blending managers that are not correlated is a form of further diversification…”
Read the article by Marius Fenwick in Moneyweb of 22 June 2023, here…
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Snippets of general interest
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Stress and the physical effects on your body
“…Stress is a natural human response to challenges and threats in our lives.
It usually happens when we are in a situation that we don’t feel we can manage or control.
Medically, stress causes chemical changes in the body that can raise your blood pressure, heart rate and blood sugar levels.
So, what happens to your body?
Your Sympathetic Nervous System (SNS) is a network of nerves that helps your body activate its ‘fight-or-flight’ response.
This system’s activity increases when you’re stressed, in danger or physically active.
The body shifts its energy resources toward fighting off a perceived life threat or fleeing from an enemy. The SNS signals the adrenal glands to release hormones called adrenalin (epinephrine) and cortisol.
- The fight response is your body’s way of facing any perceived threat aggressively.
- Flight means your body urges you to run from danger.
- Freeze is your body’s inability to move or act against a threatResearch suggests that stress also can bring on or worsen certain symptoms or diseases.
What are the most common physical symptoms in reaction to stress?
The cortisol and adrenaline hormones released during a stressful situation can cause several changes in your body, including:
- Increased heart rate and blood pressure: The increased level of hormones can cause your heart to beat faster and your blood vessels to constrict, leading to higher blood pressure.
- Digestive problems: Stress can affect your digestive system and cause symptoms such as stomach pain, bloating, constipation or diarrhoea.
- Weakened immune system: Chronic stress can suppress your immune system and make you more susceptible to infections and illnesses.
- Muscle tension and pain: Stress can cause muscle tension and pain, especially in your neck, shoulders and back.
- Headaches: Stress can trigger tension headaches, migraines as well as muscular spasms in the neck and shoulders.
- Sleep problems: Stress can interfere with your sleep, causing difficulty falling asleep, staying asleep or waking up too early.
- Skin problems: Stress can exacerbate skin conditions such as eczema, psoriasis or acne.
- Endocrine disorders caused by stress include thyroid hormones leading to hyperthyroidism or hypothyroidism, ghrelin and leptin, the hormones that regulate appetite, increasing hunger, melatonin, resulting in restlessness and insomnia, insulin, contributing to Type 2 diabetes.
- Mental health issues: Chronic stress can also contribute to the development of mental health disorders such as anxiety, depression, and burn-out…”
Read the full article in Businesstech of 22 May 2023, here…
Is a BRICS currency a viable reserve currency option?
“…For investors, the credibility and trustworthiness of the reserve currency are crucial factors. Currently, the US possesses a stable democratic system, a mature economy, robust governance, transparent fiscal and monetary policies, and a globally open trade environment,” he said.
These attributes contribute to the trust placed in the US dollar. According to the chief investment officer, 84% of the world’s trade is done in the US dollar.
What has historically made BRICS distinct from the US as a basis for a currency is that it often lacks characteristics of financial stability, economic maturity and openness to international trade.
Pask said that there are two primary reasons behind the recent narrative of why emerging markets are thinking of replacing the US dollar:
Tensions between the US, China and Russia
The US and China tensions escalated significantly during the Trump administration, and obviously, recent developments in Ukraine have put tremendous strain on US and Russian relations, he said.
The war resulted in sanctions which cut off Russia from the global financial system, referred to as the so-called ‘weaponisation’ of the dollar.
China also knows it would not be exempt were the tensions there to escalate.
Broader emerging market impact
The relatively strong dollar over the last few years, in what’s been a risk-off environment, has put emerging economies under pressure. Importing goods becomes increasingly expensive if your currency is relatively weak, and the offset that you get from exports has less of an impact…”
Read the full article in Businesstech of 11 July 2023, here…
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 And finally...
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Funny anecdotes
*ATTORNEY: She had three children, right?
*WITNESS: Yes.
*ATTORNEY: How many were boys?
*WITNESS: None.
*ATTORNEY: Were there any girls?
*WITNESS: Your Honour, I think I need a different attorney. Can I get a new attorney?
From a book called 'Disorder in the American Courts' and are things people actually said in Court, word for word, taken down and now published by court reporters who had the torment of staying calm while these exchanges were actually taking place.
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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 Fund Administrators (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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