NFB Proficio Vol 52

NFB FINANCIAL UPDATE Volume52 Oct 2010

FROM THE CEO’s DESK

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olitically, I have not felt as uncertain as I do right now since Pa fell off the bus! Both domestically and globally the political arena seems extraordinarily troubled. We have been enduring one of the rougher wage negotiation periods in recent history and have not cleared the final hurdle just yet, as we wait for the three week standoff to pass and the game to resume. I noted the much ridiculed Julius Malema, thought to have cooked his own goose, sharing the centre stage with Gill Marcus in the Sunday Times last weekend. I recall saying a few months back that although this fellow gets poor grades at Woodwork it doesn't make him a fool. His recent public profile, aggressively attacking the ANC top structure, leads me to believe that he and the ANCYL wield more power than we should be comfortable with. They, together with Cosatu, are the linchpin of Zuma's electorate and he can ill afford to disregard them. The show of strength by organized labour is a clear sign that they are tired of the political elite playing games, promising and not delivering, and, very importantly, self enrichment at the direct cost of their political allies.

On the global stage, Barack Obama looks set to suffer defeats in the US's midterm electoral process. If anyone in history has ever been given a worse political, social and military set of hospital passes can someone let me know! In Europe, the stereotypically not-so-brave body politic must be carefully watching their own behinds. Not a great place to be right now if you intend making a name for yourself and lining up a career after politics on the boards of banks or companies who your political clout has supported whilst being active in the supposedly selfless game of politics.

Back to S.A. for a moment and we have seen interest rates drop to record lows (in my personal opinion, not for the last time in this cycle). This is indicative of a troubled economy where consumers, like their global cousins, are struggling with low employment, accelerating cutbacks in the construction/infrastructure sectors and continued high levels of personal debt which needs attention before credit extension will return to normal. This leaves the local economy in a rather vulnerable position, with company earnings not looking set to excite us on the upside.

To matters more personal - I have just been privileged to spend four days cycling in Malawi. For those of you who have not been there - put it on

your Bucket List. The lake is absolutely awesome; measuring 365 miles by 52 miles, it is home to exquisite tropical fish, other larger fish species, beautiful birdlife and perhaps one of the friendliest local populations in Africa. They also have brilliant Wildlife Reserves, however, being on a bicycle tour we never managed to get to see these. We cycled 500 kilometers in three days, raising funds for a wonderful South African charity called “Change a Life” which supports a few exceptional local initiatives. They have raised R10 million over the last three tours, and I am, after recovering from the anatomical sensitiveness resultant of cycling so far so quickly, a committed supporter of the tour and it's incredible charitable efforts.

A gentle reminder that diversification is always a good idea. We regard the current levels at which the rand is trading as an opportunity to add to your Foreign Allowance or Asset Swap investment portfolios. This does not presuppose an imminent meltdown in the local unit or market - it simply takes advantage of a currency anomaly where overseas portfolio managers, in search of some sort of yield, have gone overweight emerging market bonds, particularly S.A., and when this reverses, the Rand might quite quickly fall to levels in the mid eights, where fair value probably lies.

A brief note covering two themes: firstly, we are placing fairly large amounts of liquid money into a unit trust which captures a secure, liquid, tax efficient return, by investing in fixed price preference shares, guaranteed by the bigger five banks. I mention this because dividend income funds, which have proliferated in recent years, carry, in some cases, tax risk and we think that to run this risk is unwise. Please consult with your NFB advisor to seek advice on optimizing the return on cash you might have in your own name, that of a family trust or in your business.

Secondly, a reminder regarding the tax and forex amnesty which has formally been announced. This is a second bite at the cherry and it is advisable to take advantage of what is on offer. It covers local tax as well as undisclosed foreign assets and is similar to the previous amnesty of a few years back. We would recommend you consulting your tax advisors and would support this in any way possible.

Mike Estment, CFP® BA CEO, NFB Financial Services Group

IN THIS ISSUE From The CEO’s Desk Understanding the Payments of Death Benefits From Retirement Funds “Live Long and Prosper”

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financial services group

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Beware – some clients still believe that the death benefits from a Retirement Fund are paid out according to their Will, however, the benefits from these funds do not form part of the assets in the estate of the deceased member.

By Leona Trollip, Divisional Manager Employee Benefits, East London

UNDERSTANDING THE PAYMENTS OF

DEATH BENEFITS FROM

RETIREMENT FUNDS W ith recent amendments to the Income Tax Act, it is

maintenance, but includes the following:

no longer compulsory for a beneficiary to purchase

(b) a person in respect of whom the member is not legally liable

an annuity on death of a member of a retirement

for maintenance, if such person -

annuity, and the total benefit payable can now be

(I)was, in the opinion of the board, upon the death of the

paid as a lump sum, as in the case of pension funds and provident

member, in fact dependent on the member for

funds. This article will, therefore, review how the disposals of death

maintenance;

benefits from these retirement funds are administered. It is quite

(ii) is the spouse of the member;

often that we come across members of funds who still believe that

(iii) is a child of the member, including a posthumous child,

the death benefits are paid out according to their Will. However,

an adopted child and a child born out of wedlock.

the benefits from these funds do not form part of the assets in the

(c) a person in respect of whom the member would have

estate of the deceased member.

become legally liable for maintenance, had the member not died.

Section 37C of the Pension Fund's Act (PFA) dictates how the as follows:

So what is the point of completing a beneficiary form if it's not binding on the fund?

(a) Firstly, the Trustees have 12 months from date of death of the

The beneficiary nomination completed by the member makes the

member, to trace any dependants of the deceased member. The

Trustees task of identifying dependants and nominees a lot easier if

benefit will be paid to such dependant/s, and in proportion, as may

it is kept updated. It assists the Trustees in exercising their discretion

be deemed equitable by the board.

as it indicates to them the person/s the deceased would prefer to

Trustees of the pension fund must deal with the payment of benefits

receive his/her death benefits, and what portions thereof the (b) If, after the 12 month period, the fund has been unable to trace

member would like to be paid out.

any dependant/s of the member, and the member has designated in writing to the fund a nominee who is a non-dependant, the

What about minors?

benefit will be paid to the nominated beneficiary. However, in this

The Act creates three avenues for the payment of a benefit to a

case, the Trustees need to first establish whether the deceased's

minor:

estate is insolvent or not. If insolvent, the Trustees are obliged to

1. The minor's share may be paid directly to the minor's guardian

settle the outstanding debt, and only then will the balance (if any)

2. Payment from the fund in installments

be paid to the beneficiary as, and in the proportion, nominated by

3. Payment to a Beneficiary Trust

the member.

Before the Fund's Trustees consider alternatives 2 and 3, there must If a member has a dependant and the member has also

be a good reason for not paying the benefit directly to the

designated a nominee who is a non-dependant, the Trustees have

guardian. However, the member may nominate the minor's portion

the discretion to decide who receives the benefit, and in what

to be paid to a Beneficiary Trust. In order to provide an adequate

proportions, as they may deem equitable. The beneficiary

regulatory and supervisory framework, from 1 January 2009,

nomination form acts as a guideline as to the intended wishes of the

Beneficiary Funds were introduced, which are governed by the

deceased member and will be considered by the Trustees of the

Pension Funds Act and, therefore, investment decisions are

fund, but is not binding on them in their responsibility to determine

regulated by Section 28 of the PFA. Under the PFA, annual financial

who should receive the death benefits. Any, and all, dependants

statements must be audited and submitted to the Financial Services

will be considered first.

Board (FSB).

(c) If no dependant of the member has been traced within 12

In summary

months of the death of the member, and if the member has not

As the death benefits from a retirement fund do not form part of the

nominated a beneficiary, the benefit will be paid into the estate of

estate of the deceased, these benefits will not be distributed

the deceased or, if no inventory has been received by the Master of

according to the terms of a Will, but will be allocated subject to the

the Supreme Court, the benefit will be paid into the Guardian's

discretion of the Board of Trustees. Even though the Trustees are not

Fund.

obliged to follow the instructions on a beneficiary nomination form, it is vital that you complete this form, as this will give them an

The above then all revolves around the definition of a “dependant�

indication of whom, and in what proportions, you wish for the funds

which, as per the PFA, is not just a financial dependant ie.

to be distributed on your demise.

(a) a person in respect of whom the member is legally liable for

“Live Long and Prosper” In the investment world a lot has changed and yet it has also stayed the same. And although we may be moving on into the future, good old fashioned investment principles still need to apply. Written by Travis McClure, Private Wealth Manager, East London

“Live long and prosper” is the famous greeting from Spock to Captain James Kirk of the Starship Enterprise. Now I am no Trekkie that title belongs to our IT guys. But after watching the latest Star Trek movie recently with my wife, who in her logical accounting way commented, “That it was so far-fetched”, I thought…“Well is it?”

I am sure our great grandparents thought that space travel was farfetched. Who would have imagined a 3D TV or phones that can take videos. Gadgets like these were something only found in a 60's Bond movie. Yet these are with us today and evolving fast. Perhaps the Starship Enterprise is not so far-fetched after all.

As Warren Buffet commented “Each generation has lived better than the one before”. Some may argue that in the “old days” life was easier and there were less worries. This may be true, but the family member having their own phone. This human desire to make life better for oneself will ensure that the economies will still run and we will continue to innovate. This desire has unfortunately also created the credit generation and the flow of geared money around the world that led to a credit crisis and a world that has fallen into depression, but living in denial that it is not that bad.

In the investment world a lot has changed and yet it has also stayed the same. We now live in a global economy. Technology has improved, transparency and reporting is better and the investor has a wealth of information at his fingertips. This has also led to a more instantaneous gratification requirement. Short term performance has become the “want”, but long term investment remains the “need”. Investors are too quick to change course in the hunt for the latest and greatest fashionable returns, but good old fashioned investment principles still need to apply!

An investment strategy that includes active asset allocation and risk profiling around income and growth needs is required. In a world of uncertainty a balanced portfolio managed by a professional and reputable fund manager will ensure that you remain on course.

60 is the new 50 and people are living longer and are more in charge of their own destinies than ever before. Companies are no longer taking on the responsibility of ensuring that you have a retirement fund and a medical aid etc. Investors need to not only manage their pre-retirement portfolio, but their post–retirement portfolio too. Now more than ever they need to seek professional advice.

Interest rates are likely to remain lower for longer and growth over the next few years is likely to be subdued. Returns from the various asset classes will be tighter and investors in general will be more cautious as they try to rid themselves of debt. It may be a case of we are going where no person has dared to go before, but

We may be moving on into the future, but let's not forget that history tends to repeat itself. History has shown that equities offer the best protection against inflation and when bad news abounds it offers value to the long term investor (those with vision) who is

those that stick to their investment strategy and solid investment principles, such as diversification, will ensure that they will be able to navigate the investment universe.

“It's life Jim, but not as we know it!”

prepared to look past the near term uncertainties.

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current generation are used to 2 cars, 3 TV's in the house and each