Understanding the fund’s role
COVID-19 has spared no one. We have all been affected somehow — the vulnerable, the working community, business owners and governments alike.
We need to move forward re-strategising for a post-pandemic world, and in particular business approach, taking into account lessons learnt from the last two years.
At FNPF, we continue to deal with employers who have genuinely struggled through the pandemic.
These employers have been appreciative of the boost to their cash flow because of the 5 per cent reduction in contribution rate, which has allowed them to keep their heads above water; and more importantly continue to employ workers.
Fiji is not the only country that reduced its contribution rate as part of its COVID-19 response efforts.
Other countries revised their mandatory contribution rates.
For example, Malaysia reduced its rates from 24 per cent to 11 per cent, India from 12 per cent to 10 per cent, Thailand from 10 per cent to 5 per cent and closer to home, Cook Islands granted employers who qualified for the business grant payment or wage subsidy payment a reduction from 10 per cent to 2 per cent.
Each country fared differently depending on their economies, existing practices, retirement scheme designs, and whether they had a safety net or other significant sources of guaranteed income in place.
As reported by the International Monetary Fund (IMF), some countries such as Finland, Colombia, Tonga and Samoa have gone as far as suspending pension payments and the payment of contributions from employers and employees over a certain period.
The objective now is to restore the contribution to pre-pandemic rates. We are grateful to Government for reinstating 2 per cent from January 1, 2022 and they have also committed to gradually restore the remaining contribution rates as the economy rebounds.
Scheme design
The FNPF is designed to cater for members’ pre-retirement needs with the allocation of 30 per cent of their total balance to their general account.
Although our preference is that members do not withdraw their retirement savings, the challenge is that most do not have any other savings apart from FNPF.
So, they look to their FNPF savings to purchase a home, gain tertiary education, life-saving medical procedures, as well as during different crises in their lives including unemployment, funerals and natural disaster.
These withdrawals deplete their savings in the absence of a social protection system.
The preservation rule dictates that a bulk of their savings are reserved for retirement with the allocation of 70 per cent of their balances to the preserved account.
Since the implementation of the 70/30 rule in November 2014, members have been able to amass $5.1 billion in their preserved accounts compared with $1.1b in their general account as at the end of the past financial year.
The preservation rule would benefit members who have a longer time to accumulate their savings as opposed to older members, and who were able to access to FNPF’s pre-reform 22 grounds of withdrawals. These grounds were reduced to five (housing, medical, education, unemployment, funeral) after the reforms.
There is also the opportunity for members to build their balances through additional contribution from their employers or by adding on to their compulsory contribution.
Board
Without doubt, the board has a fiduciary role to protect and grow members’ funds. The board has also embarked on a member-focused approach, determined to engage and empower members amid the challenges of addressing the needs of all its stakeholders, while maintaining and ensuring the financial health of the FNPF.
The appointment of the board directors is stipulated in Section 7 of the FNPF Act 2011.
Beofre the FNPF Reforms of 2011, the board composition reflected the tripartite arrangement of its key stakeholders, allowing representation from employees, employers and government.
However, it was clearly evident that this composition lacked the technical expertise and skills required to provide guidance and direction to Fiji’s largest financial institution. This is especially true in the areas of investment, finance, corporate governance, to name a few.
The FNPF Act requires the Minister for Economy to appoint members, recommended by the Reserve Bank of Fiji (RBF), who have between them appropriate skills and expertise in investment management, corporate governance, accounting and auditing, finance and banking, risk management, law, actuary, information technology or a similar engineering discipline.`
The board is duty-bound to act honestly in all matters related to its functions and to perform its duties and powers solely in the best interest of its members.
Of the board members, two do not receive any board allowance as per their preference.
Pension take up rate
It was clearly evident that the previous FNPF pension scheme would not be able to sustain itself.
The scheme was dispensing more money than it received given the generous rates offered since 1975, when the scheme was introduced.
For decades, as early as 1980, studies undertaken by various financial, investment, and actuarial experts from international organisations such as the World Bank, IMF, International Labour Organisation (ILO), Mercer Australia, Promontory & Singapore Cooperation Enterprise have highlighted aspects of the Fund’s pension design and administration that put at risk the long-term sustainability of the Fund.
Financial and actuarial experts had predicted that without the reform, FNPF will exhaust its assets by 2056.
The pension income was less than the pension payments. Thus, the shortfall in pension payments was being met by current members who have yet to retire.
Without the pension reform, the Fund would not be in a stable financial position that it enjoys today.
The pension take-up rate for 2021 was 4.07 per cent. The low take up rate continues to be a challenge for the Fund, as it is the world over.
In a perfect scenario, we would love to see more than 50 per cent of our members opting for our retirement products.
But the reality remains that member’s needs and wants vary and we cannot control their decision making.
Key reasons why members do not commit to a pension product are:
Low balances at decision making; Ill informed decision making; financial commitments – to pay off debts and other purchases; cultural and social influences; and inflexible scheme design.
The Fund fully understands its obligation to its members to ensure that workers accumulate savings throughout their working lives to provide income after they cease working; and to improve the operation and governance of the FNPF.
The board and management recently convened a strategic planning workshop to map out challenges and the way forward for the next five years.
Key strategies and action items have been identified all aimed at creating value for our members as we strive to ensure that members retire with meaningful savings.
RISIATE BIUDOLE is the manager public relations and marketing, FNPF. The views expressed are the author’s and do not reflects the views of this newspaper.