Fiji National Provident Fund Is Sustainable: FNPF Board

admin's picture

Politicians accused of using Fund for political gains

SUVA, Fiji (Fiji Sun, Feb. 3, 2014) – The board of the Fiji National Provident Fund says it is concerned that the Fund is being used by politicians for petty political gains.

It was responding to an article by the Fiji Labour Party in the Fiji Sun last Saturday.

It said in a statement: "Perhaps, it would be proper to mention at the outset that since the 1980s, pension experts including International Labour Organisation, the World Bank and IMF had found that given the life expectancy at 55 years old, with interest yield on assets supporting the pension liability, FNPF’s pension conversion rate of 25 per cent was not sustainable and should be reduced to a sustainable rate.

Not doing the right thing

"Efforts were then made to address the unsustainable pension issue by establishing a pension buffer reserve where two cents in every dollar of member contributions was diverted and later on the gradual reduction in the pension conversion rates took place.

"However, these measures did not directly address the real issue; that is, the pension business and the savings accumulations business were operating under the same balance sheet. Not only was this against business best practices, it provided a situation where member’s money was used to support the unsustainable pension business. Had the appropriate actions been taken then, there would not have been a need for the Pension Reform in 2012.

Doing the right thing

"To right this problem, FNPF’s current Board has had to make tough but fair decisions to ensure responsible management. Our primary concern – as should be the same for all Fijians – is to ensure a sustainable pension system that provides for our children and for future generations to come. This is the major reason behind the pension reform.

"We do understand that the pension issue is an emotional one. After a life of hard work, Fijians expect their contributions to support them into old age.

"The board of FNPF took the bold step, to address the unsustainable rates based on principles of fairness, transparency and sustainability. This was widely communicated to all members and pensioners. Hence all reform options formulated were to ensure that the pensioners are, in a transparent manner, treated fairly with the business separated and operated using the sustainable aged-based pension conversion rates.

"Every decision FNPF makes is based on simple math: We cannot dispense more money than we take in. If we did, we would run out. Yet for decades, this is how the FNPF pension scheme operated, despite expert advice from renowned bodies such as the World Bank.

"The board understands this fact, and it is why appropriate steps using international best practice taken to address the unsustainable rate to secure every Fijians future.

"A vast majority of pensioners or 70 per cent who transited from the old scheme to the current scheme have understood and accepted the new sustainable, age-based pension conversion rates. The other 30 per cent opted for a full refund of their initial pension sum, and were paid, regardless of all previous payments up till 2012.

"It is a pity that the Fiji Labour Party has chosen the Pension Reform to garner political mileage by its ill-conceived facts based on erroneous data promising electorates that it would reverse the reform. To do this would mean putting into jeopardy the retirement savings of about 300,000 Fijians.

"While the board is confident of its members ability to make informed decisions, it however cautions them not to allow politicians, who seem to have no idea as to what the reality is, to use the fund any more as bait to garner political advantage.

"Despite the Labour Party’s claims, the reality is:

The FNPF is Self-Funded: To continue with the old pension arrangement would mean that current and future members would continue to fund future pensioners.

Current Members No Longer Pay for Pensions: The International Labour Organisation (ILO) has observed that a pension conversion rate of 25 per cent would require three times the amount put aside; similarly a rate of 15 per cent would require one times the amount put aside. In other words, every time a member retires at 55 years and converted $20,000 to a pension, at 25 per cent, members had to provide a further $60,000 to support the pension payment and a further $20,000 if it was 15 per cent.

"About 7000 under the old scheme were unaffected or benefitted under the pension reform: All pensioners were provide top-up pensions, determined by what could be afforded by the Fund and have been distributed as follows:

MOVING IN THE RIGHT DIRECTION

"The improvements to the pension scheme ensure the long-term sustainability of the Fund. In simple terms, the pension income is sufficient to meet the pension payments including the cost of running the pension business.

"The savings accumulation business would then focus solely on building member savings for a secure and meaningful retirement income.

"This is what the Fiji Labour Party wants to reverse. The results of the necessary pension changes undertaken in 2012 are reflected in our 2013 financial results. The audited result reaffirm that FNPF is in a strong and sound financial position.

"A net surplus of $293 million (reflecting an improved 21 per cent underlying performance) is evidence that the Fund is well positioned to continue to grow and secure our members’ and pensioner’s future.

"This is about being fair to everyone, not just today’s pensioner but also tomorrow’s. The pension reform was instituted in the best interest of all Fijians."

Rate this article: 
No votes yet

Add new comment